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Power of Implementation
Annual Report 2003
For the Year Ended March 31, 2003

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ProfileS.T. Chemical Co., Ltd. was founded in 1948 as a producer of mothproofing
agents. Today, the Company principally manufactures household products,
including deodorizers and air fresheners as well as mothproofing agents. As afirm that contributes to improved lifestyles, S.T. Chemical seeks to become theworld’s leading company in this niche market. Based on principles established bypresident Takashi Suzuki, who assumed office in September 1998, S.T. Chemical
has sought to foster “power brands,” create better lifestyles through stronger
global alliances, and enhance corporate value. Management reform has allowed
the Company to convert itself to a leaner business structure.

Contents
Consolidated Financial Highlights

1

A Message from Management

2

S.T. Chemical at a Glance

6

Power of Implementation

8

Management's Discussion and Analysis

12

Financial Section

14

Corporate Information30

Investor Information

31

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1

Consolidated Financial Highlights
S.T. CHEMICAL CO., LTD. and Subsidiaries
Years ended March 31, 2001, 2002, 2003 and the nine months ended March 31, 2000

Thousands of
U.S. dollars

Millions of yen

Net Sales
Operating Income

2000

2001

2002

2003

2003

¥26,550¥37,896¥36,921¥38,066$316,685

2,048

2,399

1,983

3,798

31,597Net Income

275

750

509

1,431

11,908R&D Expenses

281

343

408

490

5,890

Capital Expenditures

1,160

1,600

1,137

733

6,101

Total Assets

34,53834,382

32,921

34,732288,955

Shareholders’ Equity

26,16525,78225,606

26,048

216,708

75.8

75.0

77.8

75.0

Equity Ratio (%)
ROE (Note 3)

1.00

2.90

1.99

5.50

ROA (%) (Note 4)

6.59

7.98

6.89

11.61

Yen

U.S. dollars

Per Share
Net Income¥ 8.45¥ 23.60¥ 16.37¥46.53

Shareholders’ Equity

816.29822.21

833.01

874.85

7.28

6.00

8.00

8.00

10.00

0.08

Cash Dividends$0.39

Notes: 1. During the period under review, S.T. Chemical changed its fiscal year from the 12-month period from July 1 though June 30 of the following year to
the 12-month period from April 1 through March 31 of the following year. To adjust to this change, the period under the review was a nine-month
period from July 1, 1999 through March 1, 2000.
2. All dollar figures herein refer to U.S. currency. Yen amounts have been translated, for convenience only, at ¥120.2= $1, the approximate exchange rate
as at March 31, 2003. Billion is used in the American sense of a thousand million.
3. ROE = Net Income / Shareholders’ Equity
4. ROA = (Operating Income + Interest and Dividends Received + Purchase Discount) / Total Assets.

Net Sales (Millions of yen)
40,00026,55037,89636,921

Total Assets/
Shareholders’ Equity (Millions of yen)

Net Income (Millions of yen)
38,066

1,600

275

750

509

1,431
40,00030,00034,53826,16534,38225,782

32,92125,606

34,732
26,048

’00

’01

’02

’03

1,200
30,00020,000800

10,000

400

’00

’01

’02

’03

20,00010,000

’00

’01

’02

’03

Total Assets
Shareholders' Equity

Projections
Future-oriented information in this annual report is provided only as a reference for investors. Our projections are based on the Company’s plans and expectations,and may differ from actual results owing to changes in the economic and business climate.

03-e 03.8.22 10:06 AM ページ 22

A Message from Management

Performance
The business environment is extremely adverse, forcing
manufacturers of consumer products the world over into
reorganization. Guided by a customer-oriented focus, theCompany is working to expand its market share and increase
net sales through measures including the slimming of its
product line and concentrating marketing resources in thevital Air Care Group (deodorizers and air fresheners).
To increase our cost competitiveness, four years
ago we began decreasing the number of products in our
lineup, reducing inventories, cutting back on new products,
and working to reduce costs Companywide. As a result of
these efforts, major sales growth in the Air Care Group andexpansion of the All Care Group fueled a 3.1% increase in
net sales, to ¥38,066 million. Operating income jumped
91.5% to ¥3,798 million, as cost-cutting measures brought
improvement in the gross profit ratio. Under other expenses,
the Company posted a write-down of securities of ¥239
million, and a special additional charge of early retirement
and plant reconfiguration of ¥171 million. Despite thesefactors, net income soared 181.2% to ¥1,431 million.
In the mothproofing and hygiene-related products
segment, which handles mothproofing agents and gloves,
net sales declined 3.5%, but operating income rose 44.8%.
In the household environment related products segment,
which handles deodorizers and air fresheners,
dehumidifiers, and other products, net sales rose 7.7%,

while operating income shot up 134.3%.

Management Reform
Manufacturers of consumer products worldwide arereorganizing their operations. Among the factors pushing
manufacturers toward reorganization are the emergence ofan oligopoly in the European retail industry, and the growing
trend in the United States toward large retailers dealing
directly with manufacturers.
In contrast to Europe and the U.S., in Japan it is thewholesale industry that is consolidating rather than the retailindustry. In addition, manufacturers are engaging in brandspecific, category centered M&A activities. Unlike in the past,
we no longer see a company that is indifferent to its productlineup.
Operating within the context of an extremely
adverse environment for consumer-product manufacturers,
immediately after assuming my duties as president, I set out
to implement management reforms, including acomprehensive rationalization, to develop S.T. Chemical into
a “powerful and compact company.” Below I will briefly
discuss our management-reform action plan. (See also themore detailed treatment elsewhere in this report.)(1) The health and transparency of the Company’s balance
sheet (Write-down of unrealized losses on marketable03-e 03.8.22 10:07 AM ページ 3

3

I set out to implement management
reforms, including a comprehensive
rationalization, to develop S.T. Chemical
into a “sinewy and compact company.”

securities, selling idle assets, etc.)(2) Reducing the number of products (from 862 to 282), andconcentrating management resources in designated brands.
(3) Executing organizational reforms (Abolishing the oldmanager-assistant manager system, adopting a performancebased compensation system, and introducing an operating
officer system.)(4) Reducing procurement expenses, reorganizing domestic
manufacturing facilities, and deploying human resources
more effectively.
(5) Promoting cooperation among all divisions.
The success achieved in these efforts over the past
year has been remarkable, particularly in terms of reductionsin operating expenses. Particularly during this fiscal year,
bold reforms were undertaken from a standpoint that placed
the rationalization of business above all else. As a result,costs were cut by a total of ¥1,600 million during fiscal 2003
the year ended March 31, 2003. To build a powerful and leancompany, I will first consolidate and secure our existing
foundation.
Next, emphasizing aggressive management, I
stressed innovation—the innovative development of new
products. The Company’s performance in the air care market,
in which we began to concentrate management resources
immediately after I took office, speaks to the success of thisapproach.

In the air care market, customer tastes andpreferences play a large role in a product’s sales, which is to
say that this is a market in which products can easily be
differentiated and cost competition avoided. In the case ofordinary cleaning products, however, development
possibilities are virtually exhausted, and innovation isdifficult. Therefore, differentiation is problematic andproducts in that market compete on the basis of cost.
The development of innovative new mothproofingand dehumidifier products is also difficult, and pricecompetition has put unit prices on a downward course,
causing market contraction. The Company’s primaryinnovative products are in the air care segment, and thegrowth in this area covered the falloff in traditional products,
allowing us to realize growth in net sales this fiscal year. The
weight of new products in net sales has already climbed to40%, supplementing the declining sales of existing products.
Truly innovative products are those which werepreviously unknown and which allow the creation of newmarkets. S.T. Chemical must develop such products but,given the frenetic pace of business today, the Company
cannot take the time for test marketing for fear of a rush ofcompeting imitations. This means that the development ofcreative new products is a type of gamble, and one thatcarries substantial risk.
To raise the rate of success in this sort of gamble, acertain type of olfactory sensibility and intuition are required.

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4
S.T.Chemical is energetically pursuing astrategy of forming alliances with firmsthat show strong growth trends. Our
core competencies include marketing
functions centered on product sales, andthe ability to understand customers.

For this reason, we ensure that product development
personnel have sales experience and training overseas, andparticipate in personnel exchanges with allied firms. Throughthese and other measures we have revitalized our R&D
Center, and have made it an organization capable ofcrystallizing product development from ideas originating
within and outside the Company.
To reduce development risks, new products arethoroughly scrutinized while still in the conceptual stage, anddecisions to terminate or suspend a project are made quickly
in the early stages of the development process. Further, wehave built a structure that boldly concentrates management
resources in a given area once a final decision is made tobring a product to market.
The president makes final decisions on productdevelopment personally, and bears responsibility for theattendant risks. Developers, on the other hand, must
disregard risks if they are to conceive innovative new ideas.
Everyone associated with development, myself included,
must engage in the vigorous exchange of ideas, and must beconcerned with the proper application of the Company’s
knowledge to product development.

Strategy for Alliances with Strong Firms
S.T. Chemical is energetically pursuing a strategy of forming
alliances with firms that show strong growth trends. Our corecompetencies include marketing functions centered on
product sales, and the ability to understand customers.
Where an allied company has technological and productdevelopment capabilities but is weak in marketing, S.T.
Chemical can employ its core competencies to assist in thedevelopment of product plans, and can move the ally’s
products along its own sales routes.
In Japan, we will begin handling disposable
warmers made by Mycoal in July 2003. In the future, Mycoal
will specialize in manufacturing, and S.T. Chemical, without
taking a capital position in Mycoal, will handle all sales andmarketing activities for their products. This is not an M&A
relationship or an ordinary sales agency situation, but a new
type of alliance based on a new business model created by
S.T. Chemical.
Under the terms of an overseas alliance with Reckitt
Benckiser of the United Kingdom, which commands morethan a 40% share of the world market for dishwashingpowder for automatic dishwashers, since 2000 we have beenmarketing their products in Japan under the “Finish” brand
name. Since 2001 we have been marketing Ambi-Pur
LiquiFresh two-in-one liquid air freshener and bowl cleaner
through an alliance with Sara Lee of the U.S.
To move forward with this alliance strategy, it isnecessary that the Company be trusted by allied firms as atruly public, transparent, and ethical enterprise. This will also
have a positive effect on the Company in both qualitative

03-e 03.8.22 10:10 AM ページ 55and quantitative terms.
S.T. Chemical is not a family-managed firm, and at
the next general meeting of shareholders we plan to electoutside directors. This chaotic period, in which so many inmanagement are troubled by a loss of self confidence,
represents a great opportunity for the Company to advanceits alliance strategy.
Our overseas strategy focuses mainly on Europe, aregion in which we believe there is broad scope forinnovation. We are the only firm in our industry pursuing an
alliance strategy, and we plan to energetically implement thisand other strategies in the European markets. Unlike
America, where price-consciousness is extremely strong, in
Europe there is an attitude of considering price within thecontext of quality. Test marketing shows consumer
preferences similar to those in Japan. S.T. Chemical isconfident of its ability to succeed in this market.

Outlook
S.T. Chemical plans to strengthen its position in the nonmanufacturing businesses. While strengthening our corecompetencies, we plan to gradually shift manufacturing toallied firms, reducing our need for manufacturing facilities.
The Company aims to build a reputation based on its deep
understanding of consumers, and for its ability to create newmarkets. We want to evolve into a company that elicits thefull expression of the capabilities of our allied firms, anddevelops the function of linking their products with
consumers into an existence value.
In the future as in the past, we request yourunderstanding of our management strategies and continued
support.
July 2003

Takashi Suzuki
President and Chief Executive Officer,
Representative Director

03-e 03.8.22 10:12 AM ページ 6

6

S.T. Chemical at a Glance
Pie graphs show the change in each segment’s share of the Company’s net sales between the years ended March 31, 2000 and March 31,2003.

Air Care (deodorizers and air fresheners)
The Air Care Group is the Company’s core business. When the latent market isconsidered, high expectations for future growth are justified. This business is a
primary focus of the Company’s technological and R&D capabilities, and the chiefmarketing priority.
Market-leading products such as Shoshu Pot, Shoshu Riki, and Dasshutan
have achieved a high level of consumer acceptance, and Shoshu Plug, a plug-type
electric room deodorizer, has created a new market. In recent years, we have
expanded and energized the market through the launch of major new products,
including Toilet no Shoshu Riki Spray and Shaldan Crystal Air.
During the period of this report, power brands Shoshu Riki and Dasshutan(which uses binchoutan, a special charcoal made from the quercus phyllyraeoidesoak), showed steadily expanding market share. This contributed to 9.5% growth in
the Air Care Group’s net sales, to ¥17,360 million (US$144 million).

Net Sales (Millions of yen)
20,0008,288

13,916

15,861

17,360

’00*

’01

’02

’03

46%
15,00010,00031%
5,000*For the nine-month period ended March 31 2000

Cloth Care (mothproofing agents)
The Cloth Care Group is second only to the Air Care Group as a marketing priority.
Changing residential architecture in Japan has given rise to new types of storage
space and diverse needs in relation to living environments. We have responded tothis with a varied lineup of Mushuda brand odorless mothproofing agents. The
Mushuda line is accepted as the most reliable brand on the market. The Neopara
line, in its trusted orange packaging of traditional Japanese paper, has for many
years been a familiar sight to consumers.
Price competition and the shift to products with a one-year lifespan invitedcontraction in the scope of the market, and made inevitable a decline in net sales.
For the period of this report, the Cloth Care Group recorded a 5.6% decline in net
sales to ¥11,491 million (US$96 million).

Net Sales (Millions of yen)30%

16,00011,423

14,168

12,167

11,491

’00*

’01

’02

’03

12,000

8,000

43%
4,000

*For the nine-month period ended March 31 2000

03-e 03.8.22 10:14 AM ページ 7

7
Hand Care (gloves)
The Family series of household gloves responds to consumer aspirations for pretty
hands and a pleasant lifestyle with variations in thickness, size, and material basedon market trend and consumer preference data. Our distinctive Family Sponge
Chuatu gloves offer unprecedented fit and ease of donning and removing.
During this fiscal year, new household glove products designed to answer
changes in consumer demand showed sales growth, and we steadily increased sales
outlets for work gloves. As a result, net sales in the Hand Care Group rose 4.7% to¥3,166 million (US$26 million).

Net Sales (Millions of yen)

8%
4,000

2,469

3,152

3,024

3,166

’00*

’01

’02

’03

3,000

9%

2,000

1,000

*For the nine-month period ended March 31 2000

Humidity Care (dehumidifiers)
DryPet dehumidifiers have been a market leader continuously since their launch. The
series includes an optimal lineup of dehumidifiers for closets, drawers, and for
clothes, all of which remove excess humidity from storage areas. In addition, ournew, environmentally conscious Compact line is energizing the market.
As in the previous fiscal year, both tank-type and sheet-type DryPet
products were affected by intensifying price competition. Net sales in this group, asa result, fell 13.6% to ¥2,766 million (US$23 million).

Net Sales (Millions of yen)

7%
4,000

2,572

3,776

3,200

2,766

’00*

’01

’02

’03

3,000

10%

2,000

1,000

*For the nine-month period ended March 31 2000

All Care (other products)
The All Care Group handles various products that have special characteristics.
Hit products include Finish, a dishwashing powder for automatic dishwashers that
we market through an alliance with Reckitt Benckiser of the United Kingdom, theZippers line of food-storage bags, and Gekipika, a line of cleaning sponges with
attached scraper.
Sales of Finish dishwashing liquid rose steadily this fiscal year, as a result
both of the expansion of the market and a growing market share. Supported also by
the healthy performance of Gekipika cleaning sponges, which were launched last
spring, net sales in this group jumped 22.9% to ¥3,279 million (US$27 million).

Net Sales (Millions of yen)

9%
4,000

1,796

2,884

2,667

3,279

’00*

’01

’02

’03

3,000

7%

2,000

1,000

*For the nine-month period ended March 31 2000

03-e 03.8.22 10:14 AM ページ 8

8

FeaturePower of Implementation
Under the leadership of President Suzuki, S.T. Chemical is engaged in dynamic management reform, improving
its organization and strengthening its financial structure in the belief that the Company must change in order tosurvive. The goals of this reform are to alter the business structure and create manufacturing operations thatare able to withstand price competition. We seek to become the top company in our category through valuechain management that puts the customer first. The first step in this effort is “becoming a lean and agile
company.”
As a first step in consolidating our foothold in preparation for the advances to come, we are improving
the health of our balance sheet and enhancing the transparency of our management. In addition to writing off
the Company’s latent losses on securities investments, we will be selling idle assets and accelerating therevaluation of real-estate holdings.
Our shift to a “selection and concentration” strategy, under which we are scaling back our productlineup and concentrating management resources in core brands, is proceeding steadily. Through elimination of
unprofitable products and restraint in launching new products, our lineup has been reduced from 862 items
when President Suzuki took office to 282 items at March 31, 2003. The old S.T. Chemical, guided by thephilosophy that “development is life,” used to introduce around 60 new products every year. However,through a take-no-prisoners, top-down effort, we cut our lineup a hundred products at a time to its current
level. At present, the conventional wisdom in this industry is to increase product lineups, on the assumptionthat a company should maintain many unprofitable but familiar products to boost sales of hot sellers. S.T.
Chemical, however, does not accept that approach, and had the confidence to revolutionize its managementby changing its approach.
The organizational reforms we executed in 2001 eliminated several layers of management and gave
the Company a flat organization. We also recruited women executives. The Company was quick to recognize
the importance of corporate governance, in 1999 introducing an operating officer system, as well as reducing
the size of the board of directors and reducing their term of office to one year. We also implemented a stockoption system and strove to decrease the delay between the end of the fiscal year and the announcement of
the year’s results.
As one measure in the structural reforms we have undertaken, we began a review of procurement
expenses in fiscal 2002. An in-house opportunity announcement was published, and a shakeup of the staff in
the Procurement Division was conducted. A cost-reduction project reporting directly to the president wasestablished. All existing procedures were completely reviewed, and all segments that could be integrated were
integrated, as we took another look at vendors. We shook off all the restrictions of the past. As a result of these
efforts, we succeeded in reducing costs by ¥1.0 billion in six months. We reduced our domestic manufacturing
facilities from five to three and adjusted human resource postings, which strengthened our competitiveness byincreasing our production efficiency.
Until recently, the various divisions—marketing, development, manufacturing—have had their own
vertical hierarchies. The introduction of horizontal checks and balances on the management side brought
striking improvements in the use and application of operating funds in the Marketing Department, which in turnallowed significant improvement in selling, general, and administrative expenses.

03-e 03.8.22 10:15 AM ページ 99

Performance
1999

2000

2001

2002

2003

Achievements·September 1998 current president takes office and proposes“A sinewy and compact company”·Balance-sheet improvement proposal & Focus strategy adopted
Shift of primary emphasis from cloth care to air care
March Shoshu Pot launched·Investment securities reduced by ¥1,300 million·Medium-term management plan adopted (2000—2005)
Annual sales of Shoshu Pot reach 10 million units, making it a
Alliance strategy adopted
power brandFebruary Shoshu Riki and May Dasshutan launched
September Alliance product Finish launched (Over 40%
share of the world market)
Advertising budget increased by ¥1,000 million
Amortization of retirement benefit obligations completed
Automotive Dept., Gift Dept., and Commercial Goods Dept.
spun off into separate company (S.T. Trading Co.)
·Personnel systems reformed/Performance-based compensation Annual sales of Shoshu Riki reach 20 million units
system introduced
Streamlining of organization commenced (into 4 Groups/4
Levels)Announcement of financial statements prepared within 30 days ofMarch Shoshu Plug launched
the fiscal year-end
June R&D Center established
Cost Reduction Team reinforced
September Ambi-pur (jointly developed with business ally) Stock repurchase conductedlaunched
Share of automatic dishwasher powder market exceeds 20%·Idle assets sold
Sales of Ultra Powers washing-machine cleaner double year on year
Stock option program introduced
October Maximum number of directors reduced to 6 from 10 Dasshutan market share surges to 45%
Over the 36 months ending in September, deodorizer and air
Five manufacturing facilities consolidated into 3
cleaner market share rises from 25.4% to 35.7%.
·Emphasis placed on cloth care product strategy
Five years of reductions in our product lineup brings it to 282 Annual sales of Shoshu Riki approach 30 million units
Consolidated net income rises 181.2% year on year
products from a high of 862.
January Mushuda Fan Closet and Mushuda Matomete Consolidated cost reduction effect totals ¥1,600 million
Covers launched
February Kometouban as repellents of rice insect launched
April S.T. Trading Co. spun off into separate company (S.T.
Auto Co.) dealing with auto care product
July S.T. Mycoal Co. as marketing and sales support ofdisposal warmer establishedNew vigor in the warmer market!
With the alliance of S.T. Chemical and Mycoal, a new wind is blowing in the warmer
market.
On July 1, 2003, S.T. Chemical became the sole domestic sales agent for Mycoal
Co., Ltd., and commenced the marketing of Mycoal’s warmers and other products.

Mycoal’s disposable warmer products

03-e 03.8.22 10:15 AM ページ 10

10 Product Development Capabilities
Products that are Both Exciting and Beneficial
S.T. Chemical’s “Exciting and Beneficial” product development

contraction. In addition, a product’s attractiveness is not linked

concept emphasizes products that can be easily identified “byto repeat purchases: the products that enjoy a long run of

the name, by the package design, and by the performance.”

popularity are those that are useful. For these reasons, theTo the present, the development of products has
begun at the initiative of manufacturers. However, lower selling

central concept of the Company’s product development is“Exciting and Beneficial.”

prices caused by price competition and longer product lifespanThe process of attracting a consumer to make a

in response to consumer needs have produced contraction inpurchase through eye-catching product names and package

the markets for such products.

designs begins with television commercials. However, when a

The corresponding approach to product lineups, that

consumer tries a product and recognizes its true value, a cycle ofcompanies should increase their lineups, maintaining many

repeat purchases is created. It is this that has enabled S.T.

unprofitable but familiar products to boost sales of hot sellers, isChemical to greatly raise the percentage of hits in its productthe conventional wisdom in the industry. However, thisdevelopment output. For its new products, the Company has

approach is a substantial bar to management efficiency, as it

striven to choose names that are interesting and yet easily

decentralizes development, manufacturing, and management

understood and expressive of the product’s nature. In thecosts, as well as organizational and advertising expenses.

deodorizers and air fresheners segment, for instance, ourS.T. Chemical has rejected this traditional, manufacturer-

Shoshu Riki (which could be translated as “deodorizing force”)

centered product development, which proceeds from a decisionbrings to mind the image of the famous Japanese professional

to manufacture a utilitarian product under what one might call the

wrestler Choshu Riki. More than just playing on the image of thePtolemaic approach. Instead, the Company has switched to an

wrestler, though, the name expresses the strength of theapproach that centers around consumer needs and preferences,product. While remaining absolutely faithful to the nature of thewhat one might call a Copernican approach.

product, the name reflects our serious stance as a development-

The first premise, of course, is that the Company mustoriented firm dedicated to creating products never before seen

get consumers to use its products. The attractiveness of aanywhere in the world. The name Shoshu Riki was awarded

product sets it apart and is linked to purchasing behavior, but

second place in the Nikkan Kogyo Shimbun’s top ten productthis is a different realm from price competition and market

names of 2000.

Creating Exciting and Beneficial Products
Until now, “function only” productsExciting products

Risks associated with ”function only” products

Risks associated with “exciting only” products

Any “function only” product will encounter price competition.
In addition, the search for greater convenience through longer
product lifespan is causing that market to shrink.

These products do not generate repeat purchases

or loyal customers.
Function+ high added value
A strategy to avoid the price competition
that existing products encounter

Declining profits resulting
from price competition

Products that are exciting and functional
Development of products withrevolutionary new properties, design
impact of product nameCore competence(Ability tounderstand customers)
Market share of the Air
Care Group has risen for
36 consecutive months.

Dasshutan

Shoshu Pot, Shoshu Riki, Dasshutan, Shoshu Plug,
Food-storage bags, Araitaku bath cleaner, Gekipika

Climbing to become
the No. 1 brand in
the world (Winner2000 Nikkei Superior
Product and Service
Award)

Shoshu Riki

Annual sales: 30
million units
Market share: 15.7%

Shoshu Pot
Annual sales: 10
million units
Becoming a major
brand(Technological anddevelopment capabilities)

Shoshu Plug

Rising contribution of
new products to net sales

Contributing to net
sales growth

The world’s leading company in this niche market

03-e 03.8.22 10:15 AM ページ 11

11
Understanding Consumers
Manufacturers have to the present made technology and quality
the central focus of their operations, but it is self-evident that theability to understand consumers also is important. At S.T.
Chemical, we uncover revolutionary concepts on the basis ofmarket-trend studies that reveal the thinking and needs ofconsumers, integrate these concepts with the Company’s uniquecompetencies, and draft new product outlines on this basis.
We then build a “Value Chain” based on concepts
originating at retail outlets, and not at factory production lines,
which allows development of an efficient and strong business.
“Customer Orientation” can be thought of as the heart of theengine that drives this process, while around the periphery aregrouped “Selective Focus,” “Power Products,” “Effective
Advertising,” and “Efficient Sales.”“Selective Focus” refers to a strategy under which weadhere to the same stance with regard to all new products. To
create “Power Products,” we strengthen the brand power of
products that can be easily identified “by the name, by the
package design, and by the performance.” “Effective
Advertising” is strategically important both to persuading the

Selective Focus
Efficient Sales

Customer
Orientation
Power Products

Effective
Advertisingconsumer to take our products from store shelves, and to
motivating retailers to stock our products. “Efficient Sales”
derives from the ability to secure prominent locations for the
display of products in retail stores.
Value Chain
Selective Focus
Power Products
Effective Advertising
Efficient Sales
Customer Orientation
S.T. Chemical considers a technician in a white lab coat who has
never seen a customer as unqualified to serve on its
development staff. Every spring and fall, therefore, we send 60
developers to retail stores, where they explain and sell new
products face-to-face with customers. The president of theCompany himself visits these stores, where he sets an example
of salesmanship using body language and a confident voice. In
giving developers sales experience, we seek to instill concepts
arising from the market, and to encourage researchers to reflect
on the past tendency to wander too far from the consumer
needs that should have been at the center of their efforts, forinstance, by incorporating more functions than consumers
wanted in simple products such as deodorizers, air fresheners,
and mothproofing agents. As a result of this program,
researchers are able to get inside the consumers’ heads andidentify with them, which means our researchers are able to lookat trends, at competitors, costs, and design from a different
perspective.
Every year we send about 10 employees, including
researchers, around the world on a two-week study and training
mission. They make the rounds of European stores listening to
the comments of shoppers and learning which products are
selling. They are not required to write a report of their findings,
but President Suzuki notes that if developers’ ideas are notgrounded in reality, there’s no need for them to be in that lineof work. Everyone is given a chance, but if results are notforthcoming, the Company is strict in deciding thatdevelopment is not a suitable occupation. Reflecting President
Suzuki’s policies, the attitudes of developers have changed.

Becoming the World’s Top Company in our Category
S.T. Chemical’s business domain is primarily the sale ofhousehold products. In the future, we want to develop thestrength of our brands in this domain. Our policy for businessexpansion is based on growth in peripheral businesses, and is in
no way a conglomerate-oriented concept.
The household products industry is said to be a mature
market, but it is comparatively immune to the effects ofchanging business conditions. As it is directly linked to theconsuming public, the market can be expected to grow if wise
policies are followed. S.T. Chemical strives to be an attractive,
useful, and vigorous company. To this end, making maximum
use of its ability to understand consumers, the Company will
endeavor to offer unique new products in a timely manner.
Under the slogan, “Doing things no one else has ever done,”while striving to become the world’s top company in ourcategory, we will endeavor to create brands suitable for world
markets. S.T. Chemical has transformed itself from amanufacturing-oriented company to a marketing-oriented
company, and in the future will seek through the creation oftrusted brands to become a branding company that enjoys theconfidence of consumers the world over.
S.T. Chemical will further strengthen its corebusinesses, mothproofing products (Cloth Care) and deodorizers
and air fresheners (Air Care), while at the same time working tocreate new markets and increase the Company’s corporate value
as a springboard to further profitable expansion.

S.T. Chemical R&D Center03-e 03.8.22 10:15 AM ページ 1212 Management’s Discussion and Analysis
Operating Results

Company is focusing its technological and R&D resources here.

Guided by its corporate slogan, “A sinewy and compact

Net sales in the Humidity Care Group dropped 13.6%

company,” S.T. Chemical continued to reduce the number ofto ¥2,766 million. Cost competition in the markets for both tank-

new products in its lineup. Primary marketing emphasis

type and sheet-type disposable DryPet dehumidifiers continued

remained on the Air Care line of deodorizers and air fresheners,

to affect performance in that business.

and on the Cloth Care line of mothproofing products.

In the All Care Group, net sales jumped 23.0% toManagement resources were concentrated in these areas for¥3,279 million. However, an expanding market and growing

the purpose of increasing our share of these markets and ourmarket share resulted in steady increases in sales of Finish, asales. Four years ago we set out to increase our cost

dishwashing powder for automatic dishwashers that we market

competitiveness by decreasing the number of products in our

through an alliance with Reckitt Benckiser of the United

lineup, reducing inventories, and cutting back on new products.

Kingdom. In addition, Zippers, a food-storage bag launched lastThose efforts continued companywide during the period of thisspring, and Gekipika, a line of cleaning sponges with attached

report.

scraper, both turned in strong sales results.
Sales in the Air Care Group rose substantially, chiefly

Operating revenues in the household environmenton the popularity of the Shoshu Riki line and the Dasshutan

related products segment increased 7.7% to ¥23,407 million.

line. In the All Care Group, sales of new products introduced

Although operating expenses in this segment were slightly

since last spring grew steadily. The Cloth Care group, however,higher this fiscal year, growth in sales brought a 234.3% jump in

was affected by falling prices in Japan’s deflationary economy

operating income, to ¥1,635 million.

and contracting markets resulting from the growing preference

Total operating revenues grew 3.1% to ¥38,066 million.

for products that last an entire year, and the Humidity Care

A loss on write-down of securities of ¥239 million was posted, asGroup faced intense cost-competition. Although these two

was a special additional charge of early retirement and plantgroups suffered declines in sales, the growth in the Air Carereconfiguration of ¥154 million. However, total operatingand All Care groups was sufficient to offset this.

expenses were cut 1.9% to ¥34,268 million, principally due to a
reduction in cost of sales of 3.7%, to ¥19,707 million. Income
before income taxes and minority interests rose 157.3% to

Net Sales by Segment
Mothproofing and Hygiene-Related Products Segment¥2,619 million, and net income shot up 181.1% to ¥1,431 million.
Net income per share was ¥46.53. The cash dividend

The mothproofing and hygiene-related products segment

per share was ¥10, including both interim and year-end

includes the Cloth Care and Hand Care Groups.

dividends, for a payout ratio of 26.4%.

Net sales in the Cloth Care Group dropped 5.6% to¥11,491 million, as a result of cost competition, the shift toproducts that last an entire year, and market contraction.

Financial Position

In the Hand Care Group, introduction of new products

Total current assets increased 7.4% to ¥22,036 million, primarily

responsive to changes in customer preferences brought growth

as a result of a 52.5% increase in cash and time deposits, toin sales of household gloves, and the expansion of sales outlets¥9,431 million. Marketable securities were reduced a further

allowed sales of industrial gloves to rise steadily. Net sales in this

16.6% to ¥3,863 million. Inventories edged up 2.7% to ¥3,661

group, accordingly, increased 4.7% to ¥3,166 million.

million. Investments and other assets rose 16.1% to ¥3,799

As a result of the foregoing, operating revenues in thismillion. This was mainly due to a 31.1% increase in investment

segment slipped 3.5% to ¥14,658 million, but the success of

securities, which rose to ¥2,654 million. Property, plant, andcost-cutting efforts allowed operating income to rise 44.8% toequipment declined 2.8% to ¥8,684 million. The chief factor in¥2,163 million.

this was a 5.0% increase in accumulated depreciation, toHousehold Environment Related Products segment The¥11,421 million. Total assets at the end of the year, therefore,household environment related products segment includes thewere ¥34,732 million, up 5.5% from a year earlier.

Air Care, Humidity Care, and All Care Groups.

Current liabilities grew 34.6% to ¥6,928 million,

Net sales in the Air Care Group increased 9.5% toprincipally due to a 20.6% increase in trade payables, to ¥3,142¥17,360, largely as a result of the strong performance of themillion, and a 653.4% jump in income taxes payable, to ¥1,002

Shoshu Riki and Dasshutan lines. This group has been identified

million. Long-term liabilities declined 24.1% to ¥1,250 million,

as the one with the highest potential for growth, and theas long-term debt (less current portion) dropped 58.9% to ¥101

03-e 03.8.22 10:15 AM ページ 13

13
million, and directors’ retirement and severance benefits fell

relying instead on human resources to the maximum degree

63.8% to ¥88 million. The Company’s total liabilities thus

possible. Only after it is clear that a product has potential does

climbed 20.4% to ¥8,178 million.

the Company invest substantial sums in systematizing andTotal shareholders’ equity was ¥26,048 million, an

automating production lines.

increase of 1.7% from the end of the previous fiscal year, after

As a result, the profit margins of most of thean unrealized revaluation loss on land of ¥107 million, foreign

Company’s products are low at the outset, but rise significantly

currency translation adjustments of ¥314 million, and theas the volume of production rises.
Using the Company’s high cash levels for the benefit

repurchase of treasury stock at an investment of ¥442 million.
The shareholders’ equity ratio was 75.0%, downof shareholders is a top priority for management. To take oneslightly from 77.8% at the end of the previous fiscal year. Return

example, the repurchase of treasury stock has already reducedon assets (ROA) improved from 6.9% to 11.6%, and return on

the number of shares issued and outstanding by 9.5% from theequity (ROE) rose from 2.0% to 5.5%. Shareholders’ equity perlevel as of June 30, 1998. Management is committed to theshare rose from ¥833.01 to ¥874.85.

continued reduction of this number through the repurchase of
its stock.

Cash FlowsNet cash provided by operating activities totaled ¥5,189
million, up from ¥1,522 million in the previous fiscal year. This
reflected primarily the increase in net income, in addition towhich trade notes and accounts receivable were reduced by
cutting the number of products handled by the Company,
which improved capital efficiency.
Net cash provided by investing activities was ¥265
million, in contrast to net cash used in investing activities of ¥38
million for the last fiscal year. Principal factors in this were
deposit of time deposits of ¥1,000 million, refund of time
deposits of ¥2,000 million, purchase of marketable securities of¥1,013 million, proceeds from the sale of marketable securitiesof ¥2,217 million, and purchases of investment securities of¥1,130 million.
Net cash used in financing activities was ¥1,196
million, compared with net cash used in financing activities of¥603 million last fiscal year. The main components of this wererepayments of long-term debt of ¥164 million, repurchase oftreasury stock of ¥811 million, and payment of dividends of¥246 million.
The Company continued to maintain cash flows at ahigh level this fiscal year, and has no major capital-investment
plans at present. Capital expenditures are projected at
approximately ¥1,000 million for the fiscal year ending March
31, 2004.
Earnings before interest, taxes, depreciation, andamortization (EBITDA) totaled ¥3,586 million.
The Company requires no extensive investments in
production lines, because it produces many products ofcomparatively small size. Management pursues a “low-risk,
medium-return” strategy, refraining from large capital
investments in the early stages of introducing new products,

14 Consolidated Balance Sheets
S.T. CHEMICAL CO., LTD and Subsidiaries
March 31, 2003 and 2002ASSETS

Thousands of
U.S.dollars (Note2)

Millions of yen

Current assets:
Cash and time deposits (note 11)
Marketable securities (note 4)
Trade notes and accounts receivables
Less-allowance for doubtful receivables
Inventories
Deferred tax assets (note 7)
Other current assets
Total current assets

Investments and other assets:
Investments in non-consolidated subsidiaries and affiliates
Investment securities (note 4)Long-term loans
Deferred tax assets other than on unrealized revaluation loss onland (note 7)
Deferred tax assets on unrealized revaluation loss on land (note 5)
Other assets
Less allowance for doubtful accounts
Total investments and other assets

Property, plant and equipment, at cost (notes 5 and 6):
Land
Buildings and structures
Machinery, equipment and vehicles
Tools, furniture and fixtures
Construction in progress
Less accumulated depreciation
Property, plant and equipment, net
Intangible assets, net of accumulated amortization

2002

2003

2003

¥ 6,186
4,633
5,695
(54)
3,566
248
246

¥ 9,431
3,863
4,520
(37)
3,661
355
242

$ 78,464
32,14037,608(312)
30,4602,954
2,014

20,51922,036

183,328

137
2,025
226

132
2,654
194

1,096
22,076
1,615

531
75
353
(73)

449
71
378
(79)

3,738
593
3,147
(661)

3,273

3,799

31,604

3,541
6,046
7,838
2,372
18
(10,879)

3,507
6,161
7,856
2,551
30
(11,421)

29,17451,26065,35921,221
248(95,019)

8,937

8,684

72,243

192

214

1,780

¥32,921¥34,732$288,955

See notes to consolidated financial statements.

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15
LIABILITIES AND SHAREHOLDERS’ EQUITY

Thousands of
U.S.dollars (Note2)

Millions of yen

2002
Current liabilities:
Short-term bank loans (note 6)
Current portion of long-term debt (note 6)
Trade payables
Other payables
Income taxes payable (note 7)
Consumption taxes payable
Accrued expenses
Allowance for sales returns
Other current liabilities
Total current liabilities
Long-term liabilities:
Long-term debt, less current portion (note 6)
Employees’ retirement and severance benefits (note 8)
Directors’ retirement and severance benefits
Total long-term liabilities
Minority interests in consolidated subsidiaries

¥

116
74
2,605
1,562
133
5
486
121
44

2003
¥

103
30
3,142
1,825
1,002
174
482
128
41

2003
$

861
252
26,13615,187
8,334
1,445
4,012
1,068
340

5,147

6,928

57,635

246
1,157
243

101
1,061
88

841
8,829
733

1,646

1,250

10,403

521

506

4,208

7,066
7,068
(103)
12,400
(21)
(245)
(558)

7,066
7,068
(107)
12,694
84
(314)
(442)

58,78158,800(890)
105,605697(2,609)(3,677)25,606

26,048

216,708¥32,921¥34,732$288,955

Contingent liabilities (note 13)
Shareholders’ equity (note 9):
Common stock
Authorized-97,635,000 shares in 2003 and98,075,000 shares in 2002
Issued and outstanding-30,346,851 shares in2003 and 31,604,851 shares in 2002
Capital surplus
Unrealized revaluation loss on land, net of tax (note 5)
Retained earnings
Unrealized holding profit (loss) on securities, net of tax
Foreign currency translation adjustments
Treasury stock, at cost (note3)
Total shareholders’ equity
See notes to consolidated financial statements.

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16 Consolidated Statements of Income and Retained Earnings
S.T. CHEMICAL CO., LTD and Subsidiaries
For the year ended March 31,2003 and 2002

Thousands of
U.S.dollars (Note)

Millions of yen

2002

2003

2003

¥36,921
20,469¥38,066
19,707$316,685
163,953

16,45327

18,358(7)

152,732(58)

16,47914,497

18,351
14,553

152,673
121,076

1,983

3,798

31,597

76
(17)
225
(922)
16
7
(243)
—
(107)

56
(11)
198
(881)
8
10
(239)
(154)
(165)

466
88
1,645
7,332
69
80
(1,989)(1,283)(1,376)(965)(1,179)(9,808)

1,018

2,619

21,790

504
(29)

1,248
(98)

10,379(816)

Minority interests

475
34

1,149
38

9,562
320

Net income

509

1,431

11,908

12,227

12,400103,159

251
0
85

246
1
891

2,044
4
7,413

¥12,400¥12,694$105,605

Net sales
Cost of sales
Gross profit before reversal of allowance for sales return
Reversal of allowance for sales returns
Gross profit
Selling, general and administrative expenses (note 10)
Operating income
Other income (expenses):
Interest and dividends received
Interest expenses
Cash purchase discountCash sales discount
Profit on sale of securities, net
Equity in income of affiliates
Write-down of securities
Special additional payment of early retirement
Other, net
Income before income taxes and minority interests
Income taxes (note 7)
Current
Deferred

Retained earning at beginning of year
Decreases:
Cash dividends paid
Bonuses to directors
Redemption of treasury stock
Retained earnings at end of year (note 9)
See notes to consolidated financial statements.

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17

Consolidated Statement of Cash Flows
S.T. CHEMICAL CO., LTD. and Subsidiaries
For the years ended March 31, 2003 and 2002

Thousands of
U.S.dollars (Note2)

Millions of yen

Cash flows from operating activities:
Income before income taxes and minority interests
Adjustments to reconcile to net cash
provided by operating activities:
Depreciation and amortization
Loss (profit) on sale of property, plant and equipment
Loss on sale and write-down of marketable securities
Loss on sale and write-down of investment securities
Allowance for doubtful receivables
Provision for employees’ retirement and severance benefits
Provision for directors’ retirement and severance benefits
Provision for employees’ bonuses
Provision for sales returns
Interest and dividends received
Interest expenses
Foreign exchange loss (gain)
Equity in income of affiliates
Change in operating assets and liabilities:
Receivables
Inventories
Payables and accurued expenses
Others, net
Sub totalInterest and dividend received by cash
Interest paid by cash
Income taxes paid by cash
Net cash provided by operating activities
Cash flows from investing activities:
Deposit of time deposits (more than 3 months)
Refund of time deposits (more than 3 months)
Purchase of marketable securities
Proceeds from sale of marketable securities
Purchase of property, plant and equipment
Proceeds from sale of property, plant and equipment
Purchases of investment securities
Proceeds from sale of investment securities
Other investments, net

2002

2003

2003

¥ 1,018¥ 2,619$21,790

1,020
23
10
217
70
(116)
(20)
(361)
(27)
(76)
17
(14)
(7)

956
27
(10)
241
(9)
(93)
(155)
—
7
(56)
11
31
(10)

316
357
(289)
(79)

1,146
(137)
571
383

7,956
223
(81)
2,001
(76)
(775)
(1,290)
—
58
(466)
88
256
(80)
0
9,533
(1,136)
4,748
3,187

2,060
78
(18)
(599)

5,521
55
(10)
(378)

45,936461(84)(3,145)

1,522

5,189

43,168(3,500)5,000(3,936)
3,853(1,450)
257
(440)
163
15

(1,000)2,000(1,013)
2,217
(792)
1
(1,130)0(18)(8,320)
16,639(8,426)
18,441(6,588)12(9,403)0(146)

Net cash provided (used in) investing activities
Cash flows from financing activities:
Increase in bank loans and current portion of long-term debt
Repayments of bank loans and current portion of long-term debt
Increase in long-term debt
Repayments of long-term debt
Repurchase of tresury common stock
Proceeds from sale of treasury common stock
Payments of dividend
Payments of dividend to minority shareholders

(38)

265

2,208

12
(117)
213
—
(451)
51
(254)
(56)

33
(37)
—
(164)
(811)
36
(246)
(8)

277
(306)
—
(1,365)(6,744)296(2,044)(65)

Net cash used by financing activities
Effect of exchange rate change on cash and cash equivalents

(603)
3

(1,196)(12)(9,951)(103)

Net increase (decrease) in cash and cash equvalents
Cash and cash equivalents at beginning of year

883
4,302

4,246
5,185

35,322
43,137

Cash and cash equivalents at end of year (note 11)¥ 5,185¥ 9,431$78,459

See notes to consolidated financial statements.

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18 Notes to Consolidated Financial Statements
S.T. CHEMICAL CO., LTD and Subsidiaries
March 31,2003

1. Summary of Significant Accounting Policies(a) Basis of presentation
S.T.Chemical Co., Ltd. (the "Company") and its domestic
subsidiaries maintain their accounting records and prepare
their financial statements in accordance with accounting principles and practices generally accepted in Japan, and its foreign subsidiaries maintain their books of account in conformity with those of the countries of their domicile.
The accompanying consolidated financial statements
have been prepared from the consolidated financial statements filed with the Ministry of Finance as required by the
Securities and Exchange Law of Japan. Accordingly, accounting principles and practices adopted by the Company may
differ, in some material respects, from accounting principles
and practices generally accepted in countries and jurisdictions other than Japan.
In preparing the accompanying consolidated financial
statements, certain reclassifications have been made to theconsolidated financial statements issued domestically forreaders outside Japan. Furthermore, the notes to the consolidated financial statements include information, which is
not required under accounting principles generally acceptedin Japan but is presented herein as additional information.
(b) Principles of consolidation and accounting for investments
in unconsolidated subsidiaries and affiliates
The consolidated financial statements include the accountsof the Company and its three significant subsidiaries for theyears ended March 31, 2003 and 2002. All significant intercompany balances and transactions have been eliminatedin consolidation.
The equity method is applied to investments in significant affiliates in accordance with the provisions of the Regulations.

(d) Translation of foreign currency transactions and financial
statements
Monetary assets and liabilities denominated in foreign currencies are translated into yen at the rates in effect at thebalance sheet date and the accounts of foreign consolidated
subsidiaries etc., except for the components of shareholders equity, are translated into yen at the rate of exchange in
effect at the balance sheet date. Foreign exchange gains
and losses are credited or charged to operations and foreign currency translation adjustments are included in shareholders’ equity and minority interests.
(e) Marketable securities and investment securities
Trading securities are carried at market value and held-tomaturity securities are carried at amortized cost.
Other securities with a market value are carried at market value with changes in unrealized holding gain or loss,
net of related deferred income tax assets, in shareholders’equity. Other securities without a market value are stated atcost determined principally by the moving average method
and the cost of other securities sold is principally computed
based on the moving average method. During the year
ended March 31, 2003 and 2002, the Company and consolidated subsidiaries did not have any trading securities.
(f) Inventories
Inventories of the Company and domestic subsidiaries arestated at cost determined by the average cost method andthose of overseas subsidiaries are stated at the lower of costor market, cost being determined by the average cost
method.

(c) Accounting period
The accounting period of the Company begins on April 1
and ends March 31 of the following year. The accounts of
two overseas subsidiaries have fiscal years ending on December 31. The necessary adjustments for significant transactions, if any, are made on consolidation.

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19(g) Property, plant and equipment and depreciation
Property, plant and equipment are stated at cost. Depreciation of property plant and equipment of the Company anddomestic subsidiaries except for buildings, excluding structures, acquired on and after April 1, 1998, is computed by
the declining-balance method in conformity with the Corporation Tax Law of Japan. Depreciation of property andequipment of overseas subsidiaries and buildings, excluding structures, acquired on and after April 1, 1998 of theCompany and domestic subsidiaries is computed by thestraight-line method.
The estimated useful lives of major depreciable assets
are as follows:
Buildings and structures
3 to 50 years
Machinery, equipment and vehicles 2 to 17 years
Tools, furniture and fixtures
2 to 20 years(h) Intangible assets and long-term prepaid expenses
Intangible assets and long-term prepaid expenses are amortized by the straight-line method. Cost of software purchased for internal use is amortized by the straight-line
method over 5 years, the useful life of purchased software.
(i) Allowance for doubtful receivables
The Company and domestic subsidiaries provide allowancesfor estimated bad debt losses at the amounts calculated
based on past experience for receivables other than doubtful receivables and amounts estimated specifically for each
doubtful receivable. Overseas subsidiaries provide allowances for doubtful receivables principally based on estimateduncollectable amounts.
(j) Allowance for sales returns
Allowance for sales returns are provided for losses on sales
returns subsequent to the balance sheet date at the amountequivalent to that calculated based on sales in conformity
with the Corporation Tax Law of Japan.

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Page 19(k) Employees’ retirement and severance benefits
Accrued retirement and severance benefits are provided
based on the estimated retirement and severance benefit
obligations and available pension assets.
Actuarial gains and losses, and past service obligations
are amortized using the straight-line method over 5 years,
which is within the estimated average remaining service yearsof employees.
In addition, one overseas subsidiary provides an allowance for payment of employees’ retirement and severance
benefits at 100% of the voluntary termination payment.
(l) Directors’ retirement and severance benefits
The Company has accrued directors’ retirement and severance benefits at the amount which would be required to be
paid in accordance with internal regulations if all directors
left the Company as of the balance sheet date.
(m) Leases
Finance leases, except for those which transfer ownership of
the property to the lessee, are accounted for as operatingleases.
(n) Consumption taxes
Consumption tax is calculated by the tax-segregated method.
(o) Valuation of assets and liabilities of consolidated subsidiaries
Assets and liabilities of consolidated subsidiaries acquired
before April 1, 1999 were valued at cost. It is the Company’s
policy to value assets and liabilities of subsidiaries acquired
on and after April 1, 1999 at their fair values when the Company obtains control of such subsidiaries. The Company has
not acquired any subsidiaries since April 1, 1999.
(p) Cash and cash equivalents
Cash and cash equivalents in the cash flow statements consist of cash on hand, demand deposits and liquid short-term
investments with maturity of three months or less from acquisition date.

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20
2. Basis of Translating Financial Statements
The consolidated financial statements presented herein are
expressed in yen and, solely for the convenience of thereader, have been translated into U.S. dollar amounts at therate of ¥120.20 =U.S.$1, the approximate exchange rate on
the Tokyo Foreign Exchange Market on March 31, 2003. Thistranslation should not be construed as a representation thatthe amounts shown could be converted into U.S. dollars at
such date.

3. New Accounting Standards
The Company and its subsidiaries adopted the following new
accounting standards from the year ended March 31, 2003:- Treasury stock and reduction of legal reserve
Effective from April 1, 2002, the Company adopted the new
accounting standard for treasury stock and reduction of legal reserve. The effect of the adoption of this new standard
was immaterial.
- Net Income per ShareIn accordance with a new accounting standard for earnings
per share which became effective April 1, 2002, basic net
income per share is computed based on the net income available for distribution to shareholders of common stock andthe weighted average number of shares of common stock
outstanding during each year. Diluted net income per shareis computed based on the net income available for distribution to the shareholders and the weighted average numberof shares of common stock outstanding during each year
considering common stock equivalents.
The effect of the adoption of this new standard was immaterial.

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Page 20

4. Marketable Securities
The cost and related aggregate market values of other securities with a market value as of March 31, 2003 and 2002 aresummarized as follows:
Millions of
Yen

Cost
Market value
Gross unrealized gain
Gross unrealized loss

Thousand of
U.S. dollars

2002

2003

2003

¥2,064
2,028
109
145

¥2,863
3,002
176
36

$23,816
24,977
1,461
300

The Company recognized impairment loss on securities
of difference between market value and book value whenthose market values declined by 30% and more of book value.
Impairment losses on securities for the years ended March
31, 2003 and 2002 were ¥200 million (U.S.$1,665 thousand)and ¥243 million, respectively.
Securities as of March 31, 2003 and 2002 which are excluded from the above table are summarized at their bookvalues as follows:
Millions of
Yen

Current assets:
Unlisted investment trust
certificates within theclosed period
MMF
Commercial paper
Foreign securities
Unlisted stocks otherthan those on theover-the-countermarket03.8.22, 10:25 AM

Thousands of
U.S. dollars

2002

2003

2003

¥2,305
1,595
500
90

¥1,475
1,370
500
93

$12,267
11,398
4,159
775

140

77

640

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During the year ended March 31,2003, the Company
recognized impairment losses on non-marketable securitiesof ¥39 million (U.S.$324 thousand) when those net book values had declined by 50% and more of book value or whencompanies issuing non-marketable securities went bankrupt
or substantially bankrupt.
Other securities which were sold during the years ended
March 31, 2003 and 2002 are summarized as follows:
Millions of
Yen

Proceeds received
Total profit
Total loss

Thousands of
U.S. dollars

2002

2003

2003

¥4,01616
3¥2,20810
2$18,372
82
13

The aggregate maturity of other securities with maturity
dates as of March 31, 2003 and 2002 are summarized asfollows:
Millions ofYen

One year and lessMore than 1 year andwithin 5 years
More than 5 years andwithin 10 years
More than 10 years

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5. Land Revaluation
In accordance with the Land Revaluation Laws (Proclamation
No. 34 dated March 31, 1998), land used for business activities was revalued at March 31, 2002. The book value before
revaluation was ¥3,332 million and the book value after revaluation was ¥3,153 million and the difference, net of tax, isstated as unrealized valuation loss on land in shareholders’equity. The deferred tax assets arising from this revaluation
is presented separately from deferred tax assets for otherreasons in the accompanying balance sheets. The difference
between the market value and the book value after revaluation was ¥62 million (U.S.$518 thousand) at March 31, 2003.

6. Short-term Bank Loans and Long-term Debt
Short-term loans from banks at an average interest rate of
2.6% amounted to ¥103 million (U.S.$861 thousand) at March
31, 2003.
Long-term debt at March 31, 2003 and 2002 consistedof the following:Thousands of
U.S. dollars

2002

2003

2003

¥643

¥ 926

$ 7,700

794

1,537

12,788

57
—

54
—

448
—

Millions of
Yen

Loans, principally frombanks, maturing ininstallments through2006: bearing interest
from 4.9% to 5.6%
Less current portion

03.8.22, 10:25 AM

Thousands of
U.S. dollars

2002

2003

2003

¥320
(74)

¥131
(30)

$1,092
(252)

¥246

¥101

$ 841

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The aggregate annual maturity of long-term debt subsequent to March 31, 2003 is summarized as follows:
Millions ofYen

Thousands of
U.S. dollars

Year ending March 31, 2004
2005
2006
2007
2008

¥ 30
29
47
25
—

$ 252
240
393
207
—

Total

¥131

$1,092A summary of assets pledged as collateral for long-term
debt at March 31, 2003 is presented below:
Millions ofYen

Thousands of
U.S. dollars

Buildings and structures
Machinery and equipment
and vehicles
Tools, furniture and fixtures
Land

¥111

$ 921

53
1
315

441
5
2,619

Total

¥479

$3,985

7. Income Taxes
The tax effect of temporary differences that give rise to asignificant portion of the deferred tax assets (excluding deferred tax on the unrealized revaluation loss on land) at March
31, 2003 and 2002 were as follows:
Millions of
Yen

Current assets:
Accrued employees’
bonuses
Allowance for sales
returns
Write-down of securities
Accrued business taxes
Other
Total current deferred
tax assets
Current liabilities

Thousands of
U.S. dollars

2002

2003

2003

¥ 90

¥144

$1,194

48
31
20
59

51
4
97
60

423
34
805
501

249

356

2,958

(1)

(0)

(4)

248

355

2,954

406

370

3,077

102

35

293

15

86

712

35

36

296

559

526

4,379

(23)
(5)

(21)
(56)

(177)
(465)

(28)

(77)

(641)

¥531

¥449

$3,738Net current deferred
tax assets
Non-current assets:
Allowance for
employees’ retirement
and severance benefits
Allowance for directors’
retirement andseverance benefits
Unrealized holding loss
on securities
Other
Total non-current
deferred tax assets
Non-current liabilities:
Deferred gain on saleof property
Other
Total non-current
deferred tax liabilities
Net non-current
deferred tax assets

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23
A reconciliation from the Japanese statutory tax rate to
the Company’s actual tax rate for the year ended March 31,
2003 was abbreviated because the difference was less than
5% and 2002 were as follows:
2002

Japanese statutory tax rate
42.00%
Rate difference for foreign taxes(2.10)
Permanent differences such as entertainment etc. 4.01
Permanent difference such as dividend income(0.57)
Inhabitant per capita taxes etc.
2.12
Adjustment of taxes for prior years
—
Other
1.22
Actual tax rate

46.68%A new local business tax system will be introduced after
a fiscal year beginning at April 1, 2004. As a result of thisintroduction, the statutory income tax rate would be changed
from 42% to 40%.
As a result, net deferred tax assets decreased by ¥25
million (U.S.$181 thousand) , deferred income taxes increasedby ¥25 million (U.S.$204 thousand) and unrealized holding
profit on securities, net of tax increased ¥3 million (U.S.$21
thousand).

8. Employees’ Retirement and Severance Benefits
The Company and its domestic subsidiaries have defined
benefits plans covering substantially all of its employees,
partially funded through a qualified funded pension plan as
described in Note 1 (k). Under the plan, employees are entitled to lump sum or pension retirement or severance benefits, determined by points accumulated monthly based on
employees’ contributions, length of service and the conditions under which the termination occurs. In addition, theCompany and its domestic subsidiaries pay meritorious service awards to employees in excess of the prescribed formula which are charged to income as paid as it is not practicable to compute the liability for future payments sinceamounts vary with circumstances.
The following table summarizes the funding status andamounts recognized in the consolidated balance sheet as ofMarch 31, 2003 and 2002.
Millions of
Yen

2002

Retirement and severance
benefit obligation¥(2,659)
Plan assets
1,180
Unfunded benefit
obligation(1,479)Unrecognized actuarial
loss
415
Unrecognized past
service obligations(94)

Thousands of
U.S. dollars

2003

2003

¥(2,558)
1,115$(21,283)
9,274(1,444)(12,009)

452

3,762

(70)

(582)

¥(1,061)$ (8,829)

Accrued benefit
obligation

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24
The following table summarizes the components of net
benefit expense for the years ended March 31, 2003 and 2002.
Millions ofYen

Thousands of
U.S. dollars

2002

2003

2003

Service cost
Interest cost on benefit
obligation
Expected return on plan
assetsAmortization of actuarial
loss
Amortization of past
service obligations
Extraordinary additional
retirement pay

¥144

¥165

$1,369

70

51

425

(32)

(35)

(295)

22

87

728

(25)

(24)

(198)

29

9

73

Net benefit expense

¥207

¥253

$2,102

The assumptions used in determining the pension benefit
obligation are shown below:
2002

Method of period allocationof estimated benefits
Straight-line
Discount rate
2.0%
Expected rate of returnon assets
3.0%

2003

9. Shareholders’ Equity
Under the Commercial Code, the Company sets aside as alegal reserve at least 10 percent of appropriations paid in
cash until the aggregate amount of capital surplus and such
regal reserve equal 25% of stated capital.
Capital surplus and legal reserve are not available for dividends but may be used to reduce a deficit or may be transferred to stated capital. As of March 31, 2003, the legal reserve of the Company included in retained earnings
amounted to ¥550 million (U.S.$4,574 thousand).
The accompanying consolidated financial statements do
not include any provision for cash dividends of ¥4.00(U.S.$0.03) per share aggregating ¥179 million (U.S.$1,485
thousand) declared in June 2003 by the Company.
The maximum amount that the Company can distributeas dividends is calculated based on the non-consolidated
financial statements of the Company and in accordance with
the Commercial Code of Japan.
As of March 31, 2003, the Company has stock option
plans, which were approved at the general shareholders
meetings and the board of directors, as follows:
Date of approval

June 27, 2000

Straight-line
2.0%
3.0%

June 15, 2001

June 14,2002

Number of shares
grantedFor

Exercisable period

350,000
shares

6 directors and July 1, 2002 4 employees June 30, 2007
(all executive
officers)
140,000 1 director and July 1, 2003 shares
23 employees June 30, 2008
(including 1
executive officer)
225,000 1 director and July 1,2004 shares
43 employees June 30,2009

The option price per share was determined at the dateof grant based on the established formula for determining
option prices. The options are exercisable for the above
periods provided that recipients are still directors, statutory
auditors or employees of the Company or its subsidiaries.
Net assets per share as of March 31, 2003 and 2002
were ¥874.85 (U.S.$7.28) and ¥833.01, respectively. Net income per share for the years ended March 31, 2003 and2002 were ¥46.53 (U.S.$0.39) and ¥16.37, respectively.
Diluted net income per share for the potential stocks forthe year ended March 31, 2003 was ¥46.50 (U.S.$0.39).

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25
Basis for calculation of basic net income per share anddiluted net income per share for the year ended March 31,
2003 is as follows:
Millions ofYen(Basic net income per share)
Net income
Amounts not attributable
to shareholders of common
stock:
Directors’ bonuses byappropriation of retained
earnings
Amounts attributable toshareholders of common
stock
Weighted average number ofshares outstanding(millions of shares)(Diluted net income per share)
Adjustments arising from
dilution
Increase in number ofshares outstanding
Diluted shares resulting
in an anti-dilutive effectThousands of
U.S. dollars

10. Major Expenses
Major expenses included in selling, general and administrative expenses for the years ended March 31, 2003 and 2002
were as follows:
Millions ofYen¥1,431$11,908

(16)

(133)

1,415

11,77530——

Sales promotion
expenses
Advertising cost
Salaries
Shipment and storage
expenses
Provision for employees’
retirement andseverance benefits
Provision for directors’
retirement andseverance benefits
Provision for doubtful
accounts

Thousands of
U.S. dollars

2002

2003

2003

¥2,891
3,076
1,857¥3,343
2,853
1,774$27,808
23,731
14,763

1,498

1,428

11,883

160

191

1,588

15

11

99

102

—

—

—

—

—

—

—

Research and development expenses included in general and administrative expenses and cost of sales for theyears ended March 31, 2003 and 2002 amounted to ¥490
million (U.S.$ 4,076 thousand) and ¥408 million.

11. Cash and Cash Equivalents
A reconciliation of cash and cash equivalents as of March
31, 2003 and 2002 to accounts and amounts in the accompanying balance sheet is as follows:
Millions of
Yen

Cash and time deposits
Time deposits withmaturity in excess of
three months
Cash and cash
equivalents

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03.8.22, 10:25 AM

Thousands of
U.S. dollars

2002

2003

2003

¥6,186¥9,431$78,464(1,001)

(1)

(5)

5,185

9,431

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12. Leases

13. Commitments and Contingent Liabilities

Finance leases, except for those which transfer ownership of
the property to the lessee, are accounted for as operatingleases, under which the asset and related liability are notincluded in the balance sheets.
(1) A summary of pro-forma amounts (inclusive of interest) of
acquisition cost, accumulated depreciation and net bookvalue at March 31, 2003 and 2002 of mainly tools, furnitureand fixtures used under finance lease was as follows:
Millions ofYen

Thousands of
U.S. dollars

2002

2003

2003

Acquisition cost¥404
Accumulated depreciation 173

¥392
200

$3,264
1,663

Net book value¥192$1,601¥231(2) Future minimum lease payments, inclusive of interest, at
March 31, 2003 and 2002 were analyzed as follows:
Millions ofYen

Thousands of
U.S. dollars

2002

2003

2003

Payable in one year
or less
Payable after one year

¥ 82
149

¥ 76
116

$ 635
965

Total

¥231

¥192

$1,601(3) Lease payments and pro-forma depreciation charges forthe years ended March 31, 2003 and 2002 were ¥89 million(U.S.$743 thousand) and ¥75 million, respectively.

As of March 31, 2003, trade notes discounted with banks, inthe ordinary course of business, amounted to ¥83 million(U.S.$691 thousand). There were no trade notes discountedwith banks as of March 31, 2002.
Notes which matured on March 31, 2002 (Sunday) of¥111 million was accounted for as collected on the maturitydate.

14. Derivatives
The Company has entered into forward exchange contracts
to reduce its exposure to future adverse fluctuations in foreign exchange rates related to its trade receivables andpayables and loans denominated in foreign currencies. It is
the Company’s policy not to enter into speculative derivative transactions and subsidiaries and associated companies
do not enter into any forward exchange contracts.
Unrealized gain or loss on a hedge instrument is deferred until the Company recognizes gain or loss on thehedged item. An asset or liability hedged by a forward exchange contract is translated at the forward exchange contract rate.
As the Company enters into contracts with domestic
banks with high credit ratings, the Company does not anticipate any risk of non-performance by these counter-parties.
In addition, the execution and control of derivative transactions are carried out by the administrative division in accordance with internal control regulations which limit thenature of transactions and staff in charge of such transactions.
As of March 31, 2003 and 2002, the Company had nooutstanding derivative instruments.

(4) Depreciation charges are computed using the straightline method over lease terms assuming no residual value.

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27
15. Segment Information
The Company and its subsidiaries have two business segments and business segment information for the years ended March
31, 2003 and 2002 is analyzed as follows:Year ended March 31, 2003

Millions of Yen
Mothproofing
andhygiene-related
products

Householdenvironment
relatedproducts

Total

1.Revenues(1) Operating revenues(2) Intra-group sales and transfers¥14,658—¥23,407—

Total revenues

14,658

2.Operating expenses
Operating income

Eliminationor corporate
assetsConsolidated¥38,066———¥38,066—

23,40738,066—38,066

12,495

21,77334,268—34,268

2,163

1,635

3,798

—

3,798

(1) Total assets

8,111

10,963

19,075

15,65834,732(2) Depreciation

351

605

956

—

956

(3) Capital expenditure

120

613

733

—

733

Eliminationor corporate
assetsConsolidated

3.Assets, depreciation and capital expenditure;

Year ended March 31, 2002

Millions of Yen
Mothproofing
andhygiene-related
products

Householdenvironment
relatedproducts

Total

1.Revenues(1) Operating revenues(2) Intra-group sales and transfers¥15,192—¥21,729—¥36,921———¥36,921—

Total revenues

15,192

21,72936,921—

36,921

2.Operating expenses

13,69821,24034,939—34,939Operating income

1,494

489

1,983

—

1,983

(1) Total assets

9,314

11,071

20,385

12,53632,921(2) Depreciation

294

726

1,020

—

1,020

(3) Capital expenditure

645

492

1,137

—

1,137

3.Assets, depreciation and capital expenditure;

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28
Year ended March 31, 2003

Thousands of U.S. dollars
Mothproofing
andhygiene-related
products

Householdenvironment
relatedproducts

Total

1.Revenues(1) Operating revenues(2) Intra-group sales and transfers$121,950—$194,735—

Total revenues

121,950

2.Operating expenses

103,952

Operating income

Eliminationor corporate
assetsConsolidated$316,685———$316,685—

194,735

316,685—

316,685

181,136

285,087—

285,087

17,99913,599285,087—

31,597(1) Total assets

67,482

91,208

158,691

130,264

288,955(2) Depreciation

2,924

5,032

7,955

—

7,955

999

5,101

6,101

—

6,101

3.Assets, depreciation and capital expenditure;(3) Capital expenditure

The business segments are classified according to the nature of products and their markets.
Major products of the mothproofing and hygiene related business are Cloth Care and Hand Care and those of the household environment related business are Air Care, Humidity Care, and All Care.
Geographical segment information and overseas sales are not presented as revenues and total assets in Japan exceeds
90% of all segment total and overseas sales were less than 10% of consolidated sales for the years ended March 31, 2003 and2002.

16. Other
On April 16, 2003, the Company entered into an alliance agreement of sales operation with Mycoal Co., Ltd. and Mycoal
Products Co., Ltd. in order to expand market share of heat tools such as disposable warmers which are main products of
Mycoal Co., Ltd.

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29

S.T. CHEMICAL CO., LTD and subsidiaries

Report of Independent Auditors
March 31, 2003 and 2002

The Board of Directors
S.T. Chemical Co., Ltd.

We have audited the accompanying consolidated balance sheets of S.T. Chemical Co., Ltd. Corporation and consolidated
subsidiaries as of March 31, 2003 and 2002, and the related consolidated statements of income, shareholders’ equity, and cash
flows for the years then ended, all expressed in yen. These financial statements are the responsibility of the Company’s
management. Our responsibility is to independently express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards, procedures and practices generally accepted and applied inJapan. Those standards, procedures and practices require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial
position of S.T. Chemical Co., Ltd. and consolidated subsidiaries at March 31, 2003 and 2002, and the consolidated results of
their operations and their cash flows for the years then ended in conformity with accounting principles and practices generally
accepted in Japan.
The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the year ended March 31, 2003
are presented solely for convenience. Our audit also included the translation of yen amounts into U.S. dollar amounts and, in
our opinion, such translation has been made on the basis described in Note 2 to the consolidated financial statements.

Shin Nihon & Co.
June 13, 2003

See Note 1(a) to the consolidated financial statements which explains the basis of preparation of the consolidated financial
statements of S.T. Chemical Co., Ltd. and consolidated subsidiaries under Japanese accounting principles and practices.

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03-e 03.8.22 10:15 AM ページ 14

30 Corporate Information(August 1, 2003)

Board of Directors and Auditors (August 1, 2003)
Takashi Suzuki

Mitsuo Tsuchihashi

President and Chief Executive Officer, Representative Director

Director & Executive Officer,
Corporate staff Div. & Manufacturing Div.

Akira Iwai
Director & Senior Executive Officer For Corporate Strategy& New Business Development

Hideaki Okuda

Nobuhiro Mine

Tsunehachi Tagaya

Director & Senior Executive Officer,
Sales Division General Manager

AuditorToshiharu Nagasawa

AuditorSenior Auditor

Motohiko Kogo

Director & Executive Officer,
R&D DivisionCorporate Data
Company name:

S.T.Chemical Co., Ltd.

Headquarters:

4-10, Shimo-Ochiai, 1-Chome, Shinjuku-ku, Tokyo 161-8540, Japan

Establishment:

August 31, 1948

Paid-in capital:¥7,065,500,000

Employees:

685 (Consolidated)
425 (Non-consolidated)

Contact:

Kanzo Kobayashi, Accounting & Corporate Planning GroupE-mail:ir@st-c.co.jp

Tel:+81-3-5906-0734

Fax:+81-3-5906-0741

Group Companies
S.T. Trading Co., Ltd.
Sales of hand glove, industrial paper wipe, lubricant spray and gift products
S.T. Auto Co., Ltd.
Sales of car Chemical care products
S.T. Mycoal Co., Ltd.
Sales support and marketing of Mycoal disposable warmers
Family Glove (Thailand) Co., Ltd.
Manufacturer and sales of hand gloves
Family Glove (Taiwan) Co., Ltd.
Manufacturer and sales of hand glovesドキュメント1 03.8.22 10:28 AM ページ 431

Investor Information(August 1, 2003)

Fiscal year-end:

March 31

Shares issued and outstanding:

30,346,851

Listed exchange:

Tokyo Stock Exchange, First Section

Shareholders:

4,755

Primary shareholders:

Shaldan Co., Ltd.
The Master Trust Bank of Japan, Ltd.
(Trust Account)
Seiichi Suzuki
Nippon Life Insurance Company
Akio Suzuki
Trust & Custody Services Bank, Ltd.
(Securities Investment Trust Account)
The Mizuho Bank, Limited
Hiromu Fujii
The Bank of Tokyo-Mitsubishi, Ltd.
Takashi Suzuki

Shares held(Thousands)(% of total)

4,937

16.3

1,778
1,737
1,689
1,547

5.9
5.7
5.6
5.1

Treasury Stock

1.95%

942
885
760
681
498

Non-Japanese institutions

3.96%

Financial institutions

3.1
2.9
2.5
2.2
1.6

Registered transfer agent:

Japan Securities Agents, Ltd.

Auditor:Shin Nihon & Co.

Annual shareholders’ meeting:

Middle June of each year (June 14, 2003)

Individuals

28.82%

40.54%

Other Japanese institutions

24.41%

Stock chart:
Stock Price (Yen)
1,000

Nikkei 225 (Yen)
15,000800

12,000

600

9,000
1,000

400

500

200

0

0
01/6

7

8

9

10

11

12

02/1

2

3

4

5

6

7

8

9

10

11

12

03/1

2

3

4

5

6,000

3,000

0

ドキュメント1 03.8.22 10:28 AM ページ 1

Japan’s Leading Home Products Manufacturer
4-10, Shimo-Ochiai 1-chome, Shinjuku-ku, Tokyo 161-8540 Japan

This report was printed
on recycled paper withsoy ink.
Recycled paper incorporating 70%
waste paper

Printed in Japan