The Road to Growth
Annual Report
Year Ended March 31, 2014

Taiyo Nippon Sanso Corporation | Annual Report 2014

2014

1

Profile
Taiyo Nippon Sanso Corporation was created through the merger of
Nippon Sanso Corporation and Taiyo Toyo Sanso Co., Ltd., on October 1,
2004. Today, the Company continues to draw on the capabilities of its
two predecessors as it strives to become a truly global player.

Management Philosophy“Market-driven collaborative innovation:
improving the future through gases”

Disclaimer Regarding Forward-Looking Statements
This annual report contains forward-looking statements regarding the future plans, strategies, activities and performance of Taiyo Nippon Sanso Corporation. Forward-looking statements reﬂect
management’s assumptions and beliefs based on information available as of the date of this document’s publication and inherently involve risks and uncertainties. Actual results may thus differ substantiallyfrom these statements. Risks and uncertainties include, but are not limited to, changes in general economic and speciﬁc market conditions, currency exchange rate ﬂuctuations and evolving trends indemands for the Company’s products and services.

CONTENTS
Strategic Highlights

To Our Stakeholders
An Interview
with Yujiro Ichihara

P2
Business Portfolio

P6
Corporate
Governance

P16

P7
CSR

P22

P23

CSR

23

Board of Directors, Corporate Auditors and Corporate Officers

24

Six-Year Summary

25

Management’s Analysis of Operating Results and Financial Position

26

Consolidated Financial Statements

30

Notes to Consolidated Financial Statements

35

Report of Independent Auditors

54

Investor Information

55

Taiyo Nippon Sanso Corporation | Annual Report 20141

Strategic Highlights
Japan
Took steps to improve business efficiency

Total Sales and Operating Income in Japan
Years ended March 31 (Millions of yen)

• Establishment of Taiyo Nippon Sanso Gas & Welding (April 2013)
In response to a decline in the number of new vessels under construction

500,000

CAGR Total sales 6.3%
Operating income 8.3%

by Japanese shipbuilders, a key demand industry, and the steady shift to

400,000

28,000offshore production by automobile and equipment-related manufacturers,

300,000

21,000200,000

14,000100,000

7,000

we merged three Taiyo Nippon Sanso Group companies engaged
primarily in the provision of cylinder gases and welding materials to form
Taiyo Nippon Sanso Gas & Welding Corporation.

002004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
(Estimate)

Enhanced medical businessTotal sales• Acquisition of Pacific Medico (October 2013)
In a bid to enhance our capabilities in the area of respiratory devices,
reinforcing our foundation as a manufacturer of medical devices andOperating income

Note: Compound annual growth is calculated based on actual total sales and operating
income ﬁgures for the years ended March 31, 2004—2014 and estimates for the year
ending March 31, 2015.

extending our operations into overseas markets, we acquired a 100%
equity stake in Pacific Medico Co., Ltd., Japan’s leading name inventilators and respiratory care devices for home use.
Made progress in new business development initiatives• Launch of CryoLibrary CAPS–i3000 cryopreservation and auto pick-up system
for medical and pharmaceuticals research applications (May 2013)
In 2009, we launched CryoLibrary, an automated cryopreservation handling system forbioresources that prevents incorrect vial selection and accidental specimen loss.
CAPS-i3000 is a new fully automated system featuring technology that is optimal forthe cryopreservation of induced pluripotent stem (iPS) cells, enabling highly efficient
cryopreservation of large volumes of high-quality cultured cells. A backup freezing tankenables the device to freeze iPS cells in one-fifth the time required by conventional
systems, while boosting the survival rate for frozen cells by approximately eight times.
We will continue to promote the development of technologies that respond to diverse

CAPS–i3000 cryopreservation and auto
pick-up systemneeds in the healthcare field, including in such areas as regenerative medicine anddrug development, and support the evolution of cryopreservation and other systems.
• Start of sales of Hydro Shuttle package-type hydrogen station (August 2013)
With the aim of accelerating general acceptance of hydrogen stations in Japan, wedeveloped the Hydro Shuttle, a low-cost package-type hydrogen station. The Hydro
Shuttle integrates the four major components of a hydrogen station—dispenser, precooling device, hydrogen compressor and storage vessel—into a single unit, thereby
achieving a significant reduction in costs associated with fabrication and installation.
Designed for both stationary and mobile applications, the Hydro Shuttle offers thepotential for additional cost reductions thanks to standardization and mass production.

2

35,000

Taiyo Nippon Sanso Corporation | Annual Report 2014

Package-type hydrogen station

North America
Total Sales and Operating Income in North America

Augmented carbon dioxide business

Years ended March 31 (Millions of yen)

• Acquisition of Continental Carbonic Products (February 2014)
Through the acquisition of Continental Carbonic Products, Inc., of the

150,000

CAGR Total sales 13.1%
Operating income 10.1%

12,000

United States, a manufacturer of carbon dioxide and the number two

120,000

9,600

supplier of dry ice in the North American market, we sought to further

90,000

7,200

60,0004,800

30,0002,400

augment our presence as a comprehensive provider of industrial gases,
as well as to ensure sustainable growth in income.
Expanded liquid gases business0• Completion of the 17th North American air separation unit in02004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
(Estimate)

Total sales

Mesa, Arizona (2014)
The completion of our air separation unit in Mesa, Arizona, marked thefinal step in the construction of our liquid gas production and distribution

Operating income

Note: Compound annual growth is calculated based on actual total sales and operating
income ﬁgures for the years ended March 31, 2004—2014 and estimates for the year
ending March 31, 2015.

network in the United States, which spreads from California to Florida.
The Mesa plant has enabled us to expand our market coverage andprovide efficient distribution in the southern United States.

Taiyo Nippon Sanso Corporation | Annual Report 20143

Strategic Highlights

Asia
Total Sales and Operating Income in Asia

Cultivated new markets

Years ended March 31 (Millions of yen)

• Establishment of joint venture with Samator Group of Indonesia
60,000(February 2014)

CAGR Total sales 15.7%
Operating income 10.6%

4,000

Together with subsidiary National Oxygen Limited of Singapore, we

48,0003,200

established a 50:50 joint venture, capitalized at $6 million, in western

36,0002,400

24,0001,600

12,000800Java with PT. Samator Group of Indonesia. Over the short term, the newcompany will focus on cultivating midstream and downstream markets,
focusing on Japanese manufacturers, automakers, oiland gas development, while over the medium to long term it will also
accept on-site orders from steelmakers and chemical companies and sell002004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
(Estimate)

Total sales

plant equipment to the Samator Group.
• Acquisition of Sabah Oxygen of Malaysia (November 2013)

Operating income

Note: Compound annual growth is calculated based on actual total sales and operating
income ﬁgures for the years ended March 31, 2004—2014 and estimates for the year
ending March 31, 2015.

Acting through a Malaysian subsidiary of Group company Leeden
Limited, we acquired a 100% equity stake in Sabah Oxygen Sdn. Bhd.,
thereby securing market access in Sabah, in eastern Malaysia. In
addition to firm demand for industrial gases from shipyards and for
medical applications, Sabah boasts a rich supply of natural gas, which
has attracted major petroleum producers. Accordingly, demand forindustrial gases is expected to expand. Looking ahead, we will also seek
to strengthen the Taiyo Nippon Sanso Group’s share of the Malaysian

Sabah Oxygen production facility

market by expanding sales of Leeden’s industrial materials and safety
equipment.
• Underwriting portion of capital increase by third-party allotment
by Benson Industrial Gases Technology of Taiwan (November
2013)
We acquired a 30% equity stake in Benson Industrial Gases Technology
Corporation, a Taiwan-based manufacturer of pressure swing adsorption(PSA)-type gas generators. We will make use of the Benson Industrial

Benson Industrial Gas PSA-type gas
generator production facility Suzhou,
Jiangsu Province, China

Gases’ PSA-type gas generator manufacturing, sales and service
networks in Southeast Asia and China to accelerate the overseas
expansion of our PSA-type gas generator business.

PSA-type gas generator production line

4

Taiyo Nippon Sanso Corporation | Annual Report 2014

Subsequent Event
Enhanced alliance with Mitsubishi Chemical Holdings
In October 2013, we established a capital alliance with Mitsubishi Chemical Holdings
Corporation, issuing new shares by way of a third-party allotment with Mitsubishi
Chemical Holdings as the allottee, and disposed of treasury stock. We continue topromote a variety of initiatives aimed at strengthening our domestic operating
foundation and advancing our overseas operation and have arrived at a point where
we need to make sizeable capital expenditures. Cognizant of the need to reinforce ourcapital to maintain financial soundness and at the same time ensure long-term, stable

Press conference announcing enhanced
alliance with Mitsubishi Chemical Holdings(May 13, 2014)

access to the funds necessary to grow our businesses, we determined that raising
capital through equity financing was the best approach to take.
Following the establishment of the capital alliance, close collaboration between
the two companies made it clear that further reinforcement of our respective operating
foundations was the most rational strategy to ensure survival in an environment of
increasingly intense competition. Accordingly, in May 2014 we approved a proposal for
Mitsubishi Chemical Holdings to acquire a majority of voting rights in Taiyo Nippon
Sanso through a tender offer, with Mitsubishi Chemical Holding’s stake in Taiyo Nippon
Sanso after the tender offer to be no lower than 50% and no higher than 51%. In themonths ahead, we will complete the necessary procedures to ensure the tender offer
is in compliance with competition laws in Japan and overseas. We expect the tender
offer to commence in November 2014. As a result of this move, Taiyo Nippon Sanso
will become a consolidated subsidiary of Mitsubishi Chemical Holdings.
Despite the change in our relationship with Mitsubishi Chemical Holdings as aresult of the tender offer, we will continue to be listed on the Tokyo Stock Exchange
and will maintain full autonomy regarding corporate management.

Taiyo Nippon Sanso Corporation | Annual Report 2014

5

To Our Stakeholders

Having thus accomplished the principal objective of short-term
efforts, we then turned our attention to addressing longer-term
challenges. To this end, in June 2014 a new management
team took the reins.
In fiscal year 2015, we will embark on a new mediumterm business plan, dubbed Ortus Stage 1, which we havepositioned as the first step in our drive to attain the targetsof our long-term vision—net sales of ¥1 trillion, an operating
margin of 10%, a return on capital employed (ROCE) of at least
10%, and an overseas sales ratio of 50% or higher—by theend of fiscal year 2023. Guided by the new plan, we will work
to solidify our operating foundation, thereby preparing us forthe next step forward. In line with this plan, we will promote
structural reforms, particularly in Japan, as well as take steps
to accelerate the expansion of our operations overseas.
In the near future, our relationship with our principal
shareholder, Mitsubishi Chemical Holdings Corporation, will
Despite a modest recovery in the United States, the globalchange from that of equity-method affiliate to consolidated

economy remained generally lackluster in fiscal year 2014,

subsidiary. We look forward to the strengthening of our alliance

ended March 31, 2014, as European economies were slow

with Mitsubishi Chemical Holdings, which we are confident willto rally after appearing to have bottomed out and growth inyield broad synergies. Of particular note, we expect both

emerging markets China and India slowed. In Japan, corporatecompanies to benefit from the ability to collaborate more

results improved, particularly in export-oriented industries,

closely in a variety of areas, including the supply of industrial

as monetary easing continued to weaken the yen and pushgases to overseas sites belonging to the Mitsubishi Chemical

up stock prices, but a full-scale economic recovery failed

Holdings Group and R&D in cutting-edge fields.
In addition to advancing cooperation with Mitsubishi

to materialize.
Our operating environment was characterized by an

Chemical Holdings, the management and employees of Taiyo

increase in overall demand for industrial gases, bolstered by

Nippon Sanso pledge to work as one to implement the

the U.S. economic recovery and signs of a rebound in thestrategies of our new medium-term management plan, withelectronics sector in Taiwan. In Japan, the pace of recovery in

the ultimate aim of realizing our long-term management vision.

demand remained gentle, as trends varied from one sector to

In these and all of our efforts, we look forward to the ongoinganother.

support of our many stakeholders.

Our withdrawal from a monosilane gas production joint
venture in Japan resulted in a significant extraordinary loss inJune 2014

fiscal year 2013. To clarify management responsibility for thisoccurrence, and to provide the focus necessary to respond todramatic changes in key markets, including electronics, we
subsequently installed new management. Thanks to promptand diligent efforts by the new team to resolve urgent issues

6and swiftly improve profitability, in fiscal year 2014 weYujiro Ichihara

succeeded in boosting operating income approximately 27%.

President and CEO

Taiyo Nippon Sanso Corporation | Annual Report 2014

An Interview with Yujiro Ichihara
We have positioned our new medium-term business plan, Ortus Stage 1, as thefirst step in our drive to attain the targets of our long-term vision. Guided by theplan, we will focus on implementing structural reforms and solidifying ouroperating foundation.

In fiscal year 2014, the Japanese government’s economic stimulus policies—nicknamed“Abenomics” after the current prime minister, Shinzo Abe—continued to drive improvements
in corporate results in certain export-oriented industries such as automobiles and steel.
However, for companies in other industries, including the Taiyo Nippon Sanso Group, theoperating environment remains harsh.
Recognizing that the adversity we currently face is an obstacle that must be
overcome if we are to achieve sustainable growth, we choose to view the tumultuouschanges taking place in our core markets as an opportunity for us to create a stronger,
sounder operating foundation. Accordingly, we recently formulated a long-term management
vision with the aim of bringing to light urgent issues related to our domestic and overseas
operations—issues that tend to remain invisible when business conditions are favorable—
and creating a management foundation that enables us to respond flexibly to evolving
market conditions, thereby preparing us for robust future growth.
Our new long-term management vision targets consolidated net sales of ¥1 trillion,
an operating margin of 10%, a return on capital employed (ROCE) of at least 10%, and an
overseas sales ratio of 50% or higher—by the end of fiscal year 2023. In fiscal year 2015, we
will embark on a new medium-term management plan, which we have positioned as the firststep in our drive to attain the targets of our long-term vision, under which we will focus on
implementing structural reforms and solidifying our operating foundation. We have dubbed
the new plan Ortus Stage 1, a name derived from the Latin word ortus, meaning “birth” or“origin,” and evoking our desire to make a fresh start as a new and different company.

Taiyo Nippon Sanso Corporation | Annual Report 20147

An Interview with Yujiro Ichihara
Part I: Background to Our Long-Term Management Vision

Q1 What are your goals for the Taiyo Nippon Sanso Group going forward?
“We will achieve the targets of our long-term management vision, namely, consolidated net sales of¥1 trillion, an operating margin of 10%, an ROCE of at least 10%, and an overseas sales ratio of 50%
or higher—by the end of fiscal year 2023.”
Allow me to begin by explaining a bit about theterms of market share in the Philippines and Vietnam.

background to our long-term vision. A distinguishing

Although we currently have operations in 17 countries

feature of industrial gases, our principal business, is thatoutside of Japan, overseas sales have only just surpassed

they are secondary materials that are generally consumed

30% of our overall sales. In recent years, Japanese

where they are produced. We have consistently held the

manufacturers—our principal domestic customers—have

top market share in Japan, but having realized that there

accelerated efforts to shift production offshore to counter

was a limit to how long the soaring growth thatunfavorable foreign exchange rates and rising electricity

characterized the Japanese market at the time could be

rates in Japan and ensure global competitiveness. Given

expected to last, in 1980 we began to expand into

the current operating environment, it is unlikely thatoverseas markets. Today, we have a network of service

demand in the Japanese industrial gases market willbases in 42 U.S. states, while in Asia we have operations

increase significantly. Accordingly, for us to ensure

in Southeast Asia, China, Taiwan, Korea and India, among

sustainable growth, it is crucial that we expedite theothers, and are the top provider of industrial gases in

expansion of our overseas operations.
In fiscal year 2014, we reported
consolidated net sales of ¥522.7 billion andoperating income of ¥31.4 billion. We haveset stretch goals for both, which are double
and triple the fiscal year 2014 results,
respectively. Our commitment to attaining
these goals, and to rallying our collective
capabilities in this effort, is what underpins
our long-term vision.

8

Taiyo Nippon Sanso Corporation | Annual Report 2014

Part II: Positioning of Our New Medium-Term Business Plan

Q2 What quantitative targets have you set for fiscal year 2017, the final year of your new medium-termbusiness plan?

“The quantitative targets of the plan are summarized in the table.”
The operating results targets set forth in our new medium-The strategic priorities of our new medium-term

term business plan are consolidated net sales of ¥600

business plan are structural reforms and growthbillion, operating income of ¥45 billion, an ROCE of 8% or

strategies. By implementing measures in line with thesehigher and an overseas sales ratio of 40% or higher. The

priorities, we will work to solidify our operating foundation,plan also outlines targets for financial soundness, namely,

a process that will also necessitate advance investments.

net interest-bearing debt of ¥241 billion and a net debt-to-In fiscal year 2018, we will launch a new plan, the second

equity ratio of 0.74 times. These targets do not include thestep in our drive to achieve the goals of our long-term

impact of the adoption of International Financial Reporting

vision, which will center on further expanding ourStandards (IFRS) accounting rules.

businesses and optimizing our operating foundation.

Quantitative Targets of Ortus Stage 1(Billions of yen)2014 (Actual)

2015

2016

2017

Net sales¥522.7

¥550

¥570

¥600

Operating income¥ 31.4

¥ 35

¥ 38

¥ 45

Operating margin

6.0%

6.4%

6.7%

7.5%

Overseas sales as a percentage of net sales

31.0%

34.0%

36.0%

40.0%

Capital expenditures, investments and lending¥ 71.3¥ 47.3¥ 36.6¥116.1

Net interest-bearing debt

¥219.7¥209.0¥200.3¥241.0Net debt-to-equity ratio

0.80 times

0.72 times

0.66 times

0.74 times

6.2%

6.5%

7.0%

8.0%

Years ending March 31

ROCE

Taiyo Nippon Sanso Corporation | Annual Report 20149

An Interview with Yujiro Ichihara

Part III: The Four Core Strategic Policies of Ortus Stage 1

Q3 The first of the four core strategic policies of your new medium-term business plan is “structuralreforms.” What can you tell us about this?

“The main focus of this policy is our operations in Japan. Our overriding intent is to increase
management efficiency.”
For the purpose of our new medium-term business plan,

stable earnings base and capitalize fully on growth

we define “structural reforms” as the process ofopportunities, challenges we will address through thereassessing management resources and reconfiguring

implementation of structural reforms in Japan and theorganizations to generate value. To rephrase, by

targeted investment of management overseas.

revamping our management systems and our operating

Our structural reform program in Japan has threefoundation, we will seek to bolster our organizational

principal components. The first is personnel management,

capabilities. As part of the menu of structural reforms

which will involve reducing headcount and more effectively

envisioned in the plan, we have established a new

deploying human resources as necessary across the entire

Corporate Planning and Global Operations Division, whichdomestic Taiyo Nippon Sanso Group—including theis charged with overseeing strategic planning for theparent company and more than 300 Group companies—

Group as a whole. Through these and other measures, weto better reflect changes in the scale of our various

also aim to reduce fixed costs by a total of ¥6 to ¥7 billion

businesses. The second is facility management, thefrom the fiscal year 2014 level by the final year of the plan.

purpose of which is to reduce costs by optimizing

I spoke briefly about our current perception of theoperating rates at production facilities nationwide tobusiness climate for our industrial business in Japan andreflect demand levels. The third component of theoverseas in response to your question about the

program is logistics management, the point of whichbackground to our long-term management vision. Our

is to improve the efficiency of our logistics practices.

ultimate objectives under Ortus Stage 1 are to create aConcrete measures planned are to review our

Structural Reforms
We will take prompt steps to reduce fixed costs by ¥6–¥7 billion from the fiscal year 2014 level.

Current perception

Objective• Japan: Business growth remains low• Create a stable earnings foundation• Overseas: Businesses are growing• Capitalize fully on growth opportunities

Measures• Japan: Improve efficiency andoptimize operations• Overseas: Focus allocation ofmanagement resources

10

Taiyo Nippon Sanso Corporation | Annual Report 2014

corporate organization; improve the efficiency of back-Group companies; and realign affiliated companies. Other

office operations by advancing the use of shared services;

efforts will include the focused redeployment of personnel

strengthen our supply chains; integrate gas engineering

to promising overseas businesses.

functions, which are currently scattered among various

Q4 The second strategic policy is “innovation.” Can you tell us what this will entail?
“We will continue to actively foster innovation in industrial gases and in other related businesses.”
By “innovation” we mean the creation of truly

innovation, we are also developing and expanding sales ofgroundbreaking value based on, for example, pioneeringhigh-value-added products and merchandise. Additionally,

technologies and ideas.

we are hastening the launch of strategic new products

Having recognized the opportunities arising fromand merchandise in promising markets. These include

environmental changes associated with energy-relatedhydrogen filling stations; superconducting coolingissues, including the expanded development ofsystems; PSA-type gas generators; Water-18O, an oxygen

conventional natural gas and the increasing importance ofstable isotope; helium containers; and groundbreaking

shale gas, we will work to cultivate next-generation core

new materials.

businesses. For example, we will take steps to expand our

We have also strengthened our alliance withliquid natural gas production and on-site hydrogen plant

Mitsubishi Chemical Holdings and are exploring strategies

businesses in the United States in response to rising

for maximizing synergies in our overseas on-site plant anddemand, driven by the shale gas revolution. Through open

medical businesses, among others.

Innovation
Mindful of the impact of a shift in the global energy landscape driven by, among others, the expanded development of natural gas and increasing
importance of shale gas, we see the development of groundbreaking new businesses, spearheaded by a dedicated interdisciplinary team, as thecornerstone of our growth strategies.

• Strengthen alliance with Mitsubishi Chemical Holdings and explore strategies for maximizing synergies(Overseas on-site plant business, artificial carbonated springs, new materials)• Promote open innovation(Pursue venture capital investments and M&A opportunities with the aim of developing and expanding sales of high-value-added products and merchandise)• Foster new energy businesses(Liquid natural gas, on-site hydrogen plants, shale gas development)• Launch strategic new products and merchandise in promising markets(Hydrogen stations, superconductive refrigeration systems, PSA-type gas generators, oxygen stable isotopes (Water-18O), helium containers, new materials, others)

Taiyo Nippon Sanso Corporation | Annual Report 201411

An Interview with Yujiro Ichihara

Q5 Your third strategic policy is “globalization.” Can you elaborate on what this will involve?
“To date, we have directed overseas operations from Japan, with the head office acting as a sort ofcontrol tower and Japanese management calling the shots. Given the scale and nature of our overseas
operations, we recognize the need to rethink this approach.”“Globalization” means recognizing the entire world asof key advantages, including the ability of local employees

a market and determining allocation of management

to spot business opportunities—obviously superior to that

resources accordingly. We currently have operations in 18

of a Japanese national on temporary assignment—andcountries and territories. At present, senior management

taxation-related benefits. Putting management in local

positions at overseas Group companies, with thehands will also expedite decision making. We will thus

exception of those in the United States, are filled byrethink our approach to managing our subsidiaries inpeople dispatched from the head office in Japan. From

Southeast Asia, China and elsewhere.

an operational perspective, we recognize that localizing

We will also make infrastructure changes necessary

overseas management is essential to our future success.

to facilitate globalization. During the three years of our

The localization of management will give us access to

new medium-term business plan, we will adopt IFRS

know-how and networks only accessible by local

accounting rules, as well as reinforce global-scale

individuals, enabling us to capitalize fully on a number

management of technology risk.
North America

Western Europe
East Asia
Eastern Europe

Middle East
Japan
South America

AfricaSouth Asia

Southeast Asia

Oceania
Existing Air Separation Units of Taiyo Nippon Sanso Group
Market for industrial gases in 2010 (actual)Market for industrial gases in 2022 (forecast)

Sources: 2010 Gas Georama in Japan, K.K. Gas Review, 2009; Taiyo Nippon Sanso estimates for geographic markets in 2022.
Notes:
1. Acting through regional headquarters, the locations of which are indicated here, we are working to localize management and expedite decision making.
2. Graphs indicate the Taiyo Nippon Sanso Group’s actual regional industrial gas production capacity in 2010 and forecast for regional industrial gas production capacity in 2022.

12

Taiyo Nippon Sanso Corporation | Annual Report 2014

Q6 Will you change your approach to employee training and human resources development to facilitate
effective globalization?

“We will introduce a global trainee system with the aim of equipping employees with skills that haveworldwide currency.”
We have been active in overseas markets for more than

we intend to introduce a global trainee system, which will

three decades, but training for “global” human resources

involve sending employees to train at Group companies

still centers on study-based programs conducted inoverseas to gain the experience and skills they will needJapan. To ensure the success of our globalization strategy,

to become successful international businesspeople.

Q7 The fourth strategic policy set forth in Ortus Stage 1 is “M&A.” What are your intentions on this front?
“We have created a combined team of Japanese and U.S. staff that is taking decisive steps to seek out
promising M&A opportunities.”
We view M&A as a means to accelerate business growthgeographic portfolio; improving profitability by enhancing

by facilitating, among others, our expansion into overseas

the scale or substance of a business or businesses; andmarkets where we do not currently have a presence. We

facilitating the acquisition and effective utilization of humanwill continue to evaluate M&A opportunities from several

resources, technologies and know-how.

key perspectives, including prospects for expanding oursales channels; broadening or optimizing our product orOver the medium to long term, the growth potentialof the Japanese industrial gases market is limited, but

Taiyo Nippon Sanso Corporation | Annual Report 201413

An Interview with Yujiro Ichihara

many overseas markets offer significant promise. Under

presence, including Oceania, the Middle East, South

Ortus Stage 1, we will accelerate efforts to expand ourAmerica and Europe. To this end, we have created a team

operations by broadening our focus beyond Northconsisting of specialists from Japan and the United States

America and Asia to cultivate and secure access tothat is charged with seeking out and evaluating favorable

markets in areas where we do not currently have a

M&A opportunities around the world.

Part IV: Investment Plans

Q8 Ortus Stage 1 calls for the investment of ¥200 billion over a period of three years. Can you give us abreakdown of this figure?

“We have earmarked ¥80 billion for ordinary investments and ¥120 billion for M&A in Japan andoverseas, major capital expenditures, investments in rationalization and venture capital investments.”
We have allocated ¥80 billion to ordinary investments,

presence, focusing on those expected to see substantial

which are regularly occurring investments—in, for example,

economic growth in the years ahead.

facility maintenance—necessary to operations in Japanand overseas, over three years.

Ortus Stage 1 envisions two categories of major
capital expenditures. The first is investments in the

M&A investment could exceed expectations if aconstruction of air separation units to accommodate

particularly attractive opportunity was to arise. Because

increases in demand for industrial gases attributable to thethe industrial gases business is in many ways aconstruction of new large-scale production facilities bycompetition to establish operations in as many areas

customers, a result of, for example, a major domestic

as possible, we will continue to aggressively expand ourcustomer shifting production offshore or building a major

operations in our two main existing overseas markets,

new chemicals plant in response to the expansion ofnamely, North America and Asia. To accelerate theshale gas extraction in North America. The second is

expansion of our operations, we will also invest to secure

investments in air separation units in areas where

access to markets in which we do not currently have a

distributors have used M&A to capture a certain market

Investment Plan Under Ortus Stage 1
Investment by country/region

Investment by typeJapan
United States
Asia, others

Ordinary investments
M&A investments
Major capital expenditures/investments in rationalization
Venture investments¥ 58 billion
77 billion
65 billion¥200 billion¥ 80 billion
120 billion¥200 billion

14

Taiyo Nippon Sanso Corporation | Annual Report 2014

share, thereby enabling us to forge a maker’s position in

We have previously made venture capitalthat market. Over the next three years, we plan to makeinvestments in certain areas of our industrial gases

10 such investments, including in air separation units inbusiness in the United States. Under our new medium-the United States and Asia and stable isotope Water-18O,

term business plan, we will promote venture capitala starting material for diagnostic agents. We will also

investment to access new high-value-added technolo-

invest in rationalization, replacing superannuated air

gies, products and merchandise, and business models,separation units with up-to-date alternatives to improvewith the aim of exploiting synergies with existingproduction efficiency.

businesses to bolster profitability and cultivatingnext-generation core businesses.

Q9

What will you do to ensure your financial position is sufficiently sound to support your investment
plan? What is your forecast for cash flows from operating activities over the next three years?
We incorporated consideration for our profit levels and financial position into our investment plan.
Accordingly, we are confident in its feasibility.
We plan to invest a total of ¥200 billion over the three

set for our net debt-to-equity ratio in fiscal year 2017

years of our new medium-term business plan. We expectof 0.74 times, down from 0.80 times in fiscal year 2014,

to fund ¥180 billion of this from cash generated by

we are confident in our ability to ensure a soundoperating activities. As evidenced by the target we havefinancial position.

Part V: Returns to Shareholders

Q10 In closing, is there anything that you would like to say directly to shareholders?
“We have always placed a high priority on ensuring stable dividends. I see creating a strong earnings
base that supports improved returns to shareholders as being one of management’s key
responsibilities.”
As president, I recognize the need to be unyielding in

The entire Taiyo Nippon Sanso Group family is

my determination to increase corporate value. I also

committed to attaining the targets of our long-term

have a responsibility to ensure that profits are sharedvision and advancing to a new stage in our ongoing

equitably with our shareholders. Accordingly, in addition

evolution. In all of our efforts, we look forward to theto guiding our efforts to achieve the quantitative targets

support of our shareholders.

of Ortus Stage 1, I will continue working to improve
returns to shareholders.

Taiyo Nippon Sanso Corporation | Annual Report 201415

Business Portfolio

Industrial Gas Business

Outline
In line with our commitment to provide industrial gases to our customers when and where needed, we
have gas production and supply capabilities in Japan, the United States and across Asia, including in
China and India. This enables us to ensure safe, stable supplies of gases to customers in the manner thatbest suits their particular needs, thereby contributing to enhanced quality and productivity, as well as tothe safety and security of their operations. Our distinctive gas technologies continue to earn us highmarks from customers in a wide range of industries, including manufacturing and processing, materials,
energy, chemicals, agriculture, food, bioscience and aerospace.

Competitive advantages• Top share of Japan’s market for industrial gases
Number 1 in oxygen, nitrogen and argon, number 1 in helium and carbon dioxide and number 2 in acetylene, we enjoy a 40% share of Japan’s market for industrial gases.
In addition to approximately 30 liquid gas production bases and 200 filling stations nationwide, we have an extensive network of shipping bases and a fleet of tanker trucks.
At our liquid gas production bases, we are steadily replacing equipment with state-of-the-art, energy-efficient air separation units.

• One of only six companies in the world with rights to conduct transactions directly with major helium producers
We have established an extensive customer base in North America. In the United States, subsidiary Matheson Tri-Gas, Inc., began shipments of helium through its joint
venture with Air Products and Chemicals, Inc., which will enable it to double its output in the near future. In China, India and elsewhere in Asia, we are pressing forwardwith the construction of helium filling stations with the aim of expanding our supply capabilities.

• Growing network of air separation units in the United States and Asia
In the United States, we completed new air separation units in Dickinson, North Dakota and Mesa, Arizona. The former commenced operations in May 2013, while thesecond will do so before the end of 2014. In Asia, we proceeded with construction of air separation units in northern Vietnam and on the island of Luzon, in the Philippines,
which are scheduled to begin operating in January 2015 and July 2014, respectively, and in India, which we plan to complete in the second half of 2014.

• Expanded market coverage in the United States thanks to U.S. distributor acquisitions
In fiscal year 2013, we acquired the businesses and assets of four industrial gas distributors in the United States: US Airweld, Inc. (Arizona and New Mexico), Evergreen
Supply, Inc. (South Dakota), A&F Welding Supply, Inc. (Texas) and Whitmer Welding Supplies, Inc. (Nebraska)

16

Taiyo Nippon Sanso Corporation | Annual Report 2014

Business Portfolio

In line with our commitment to provide industrial gases to ourcustomers when and where needed, we have gas production and supply
capabilities in Japan, the United States and across Asia, including in
China and India. This enables us to ensure safe, stable supplies of gases
to customers in the manner that best suits their particular needs,
thereby contributing to enhanced quality and productivity, as well as
to the safety and security of their operations. Our distinctive gas
technologies continue to earn us high marks from customers in a wide
range of industries, including manufacturing and processing, materials,
energy, chemicals, agriculture, food, bioscience and aerospace.

Plants and Engineering Business

OutlineWe have built an extensive lineup of plants, which underpin our industrial gas business, ranging fromultrahigh-purity manufacturing equipment for customers in the electronics industry to large-scale plants
for steelmakers and specialized containers for the cryogenic transport of helium, and enjoy a favorable
reputation for all products both in Japan and overseas. We also provide space-simulation chambers,
large-scale helium refrigeration systems and other cutting-edge offerings, which we market primarily
for use in space development and in R&D in the area of superconductive technologies.

Competitive advantages• Top share of Japan’s market for air separation units• A wealth of accumulated cryogenic and adsorption technologies, which we are leveraging to reduce consumption of electricity and cost perunit of production, as well as to increase the quality and size of plants• Cutting-edge simulation technologies that ensure the optimal operation of air separation units in response to different requirements• One of only three helium container manufacturers worldwide and the only one in JapanWe are expanding our production capacity to accommodate rising demand for containers that facilitate the cryogenic transport of helium over long distances.

Taiyo Nippon Sanso Corporation | Annual Report 201417

Business Portfolio

Electronics-related Business

OutlineOperating in an industry that is increasingly characterized by global-scale competition and cooperation,
electronics manufacturers face growing pressure to ensure the efficiency and stability of production.
Such firms look to us for reliable supplies of high-grade materials gases, as well for technologies thatfacilitate the safe and efficient use of such gases.
To provide electronics manufacturers with a wide range of materials gases, as well as with ahuge volume of high-purity nitrogen gases, we install Total Gas Centers (TGCs), which facilitate stable,around-the-clock supplies. We also manufacture and sell refining and exhaust gas abatement equipment
and metal organic chemical vapor deposition (MOCVD) systems, used in the production of compound
semiconductors, as well as construct piping to deliver high-purity gases.

Competitive advantages• World-class total gas and equipment solutions made possible by stringent quality control and clean technologies
Solutions include high-purity gas piping systems• Supply structure encompassing key global markets
Our supply structure covers Japan, East Asia (South Korea, China and Taiwan), Southeast Asia and the United States. Our global network enables us to optimize production,
procurement and transport.

• Increasing sales of UR-26K MOCVD system
This system realizes world-class surface processing performance and can grow on 10 six-inch or six eight-inch wafers in the same growth run. With the aim of hastening
the practical development and commercialization of gallium nitride (GaN) semiconductor devices, in 2013 we provided MOCVD systems for a research project at the Nagoya
Institute of Technology’s Innovation Center for Multi-Business of Nitride Semiconductors.

18

Taiyo Nippon Sanso Corporation | Annual Report 2014

Business Portfolio

LP Gas BusinessIn line with our commitment to provide industrial gases to ourcustomers when and where needed, we have gas production and supply
capabilities in Japan, the United States and across Asia, including in
China and India. This enables us to ensure safe, stable supplies of gases
to customers in the manner that best suits their particular needs,
thereby contributing to enhanced quality and productivity, as well as
to the safety and security of their operations. Our distinctive gas
technologies continue to earn us high marks from customers in a wide
range of industries, including manufacturing and processing, materials,
energy, chemicals, agriculture, food, bioscience and aerospace.

Outline
We wholesale LP gas to production facilities and for other industrial applications, and supply it to fuelingstations for taxis and other vehicles, as well as to a wide range of other customers, from restaurants andother commercial users to residential users. Since the Great East Japan Earthquake of March 2011, we haveseen renewed interest in LP gas as a decentralized energy suited to the needs of Japan, a country prone tonatural disasters, particularly earthquakes. We also sell related equipment and devices, including gas heatpumps, air conditioners, fuel cells for homes and hot water heaters, as well as design, build and provide
maintenance services for LP gas dispensers and other supply facilities.

Competitive advantages• Ranked ninth in Japan in terms of market share, with an annual LP gas supply capacity of 410,000 tons
• Ability to provide stable LP gas supplies to approximately 100,000 households that lack access to town gas services; increasingly strong andefficient network in Japan for supplying commercial users thanks to the integration and/or expansion of sales and delivery sites

Taiyo Nippon Sanso Corporation | Annual Report 201419

Business Portfolio

Medical Business

OutlineIn addition to providing stable supplies of high-quality medical gases, we develop, manufacture, selland provide maintenance services for gas supply systems for hospitals, as well as home oxygen therapy(HOT) and other home healthcare equipment. We also extend comprehensive support in the formof around-the-clock services, including remote monitoring of gas levels and follow-up services forequipment, which are extended in cooperation with retailers. Applying our advanced gas technologies,
we provide products for the biotechnology field, including cryopreservation containers for bioresources
used in research, as well as stable isotopes and specialty gases for use in advanced diagnostics andmedical treatment.

Competitive advantages• A world-class 300 kg annual production capacity for Water-18O, a starting material for diagnostic agents used in positron emission tomography(PET) diagnostics in the fourth quarter of fiscal year 2014. We have also begun construction of a third plant (annual capacity: 300 kg) in Japan,
which will double our capacity.
The reliability and quality of Water-18O is highly valued by customers in more than 20 countries, including in the United States. We are working to contribute to the growing
market for PET diagnostics by ensuring stable supplies of high-grade Water-18O, demand for which is expected to grow for use in diagnosing Alzheimer’s disease and heart
ailments.

• Leading market position in Japan for liquid nitrogen dewars for cryopreservation, which are crucial to the biotechnology field, as well as for cellbanking systems and auto-pick-up cryopreservation systems (trade name: CryoLibrary), used in cutting-edge areas such as the development of
iPS cell therapies.
• Japan’s largest network of production bases, filling facilities and distribution bases for medical gases, facilitating stable supplies nationwide• A well-organized distribution and maintenance network that includes the Medical Technical Service Center, which helps ensure stable supplies
to patients’ homes and maintain superior product quality• Rising sales of OXYMED-brand medical gas supply equipment and systems for hospitals, developed through an integrated process thatencompasses design, manufacturing, testing and maintenance services

20

Taiyo Nippon Sanso Corporation | Annual Report 2014

Business Portfolio

Thermos BusinessIn line with our commitment to provide industrial gases to ourcustomers when and where needed, we have gas production and supply
capabilities in Japan, the United States and across Asia, including in
China and India. This enables us to ensure safe, stable supplies of gases
to customers in the manner that best suits their particular needs,
thereby contributing to enhanced quality and productivity, as well as
to the safety and security of their operations. Our distinctive gas
technologies continue to earn us high marks from customers in a wide
range of industries, including manufacturing and processing, materials,
energy, chemicals, agriculture, food, bioscience and aerospace.

OutlineThermos K.K., a subsidiary in Japan, is recognized as a pioneer in the stainless steel vacuum bottle
industry. Leveraging its outstanding vacuum insulation and metal processing technologies, Thermos
manufactures a wide range of stainless steel vacuum bottles, vacuum insulated cooking pots and otheritems for home and commercial use. Trusted by customers the world over, Thermos has established its
own stringent quality standards and created an integrated production system that encompasses planning,development, manufacturing and sales.

Competitive advantages• Products that are developed in Japan, manufactured in Malaysia and China and sold in approximately 120 countries and territories worldwide,a reputation for unconditional commitment to quality and a solid top global market share• An expanded manufacturing base in China, facilitating responsiveness to growth in the market for stainless steel vacuum bottles worldwide• Ultralight insulated mug (released in the fall of 2012) that swept markets worldwide thanks to its lightness, compact size and superb design,and new food containers for soup and other hot liquids that are credited with creating and driving the expansion of a new market by offering abrand-new way to enjoy lunch• Stainless steel baby bottles, baby food refrigeration containers, sippy cups and other products for babies and toddlers that make use of our
superior thermal insulation technologies
Despite falling birth rates in Japan, we continue to see annual growth in shipments in excess of 130%, underscoring confidence that our customer base willcontinue to expand

Taiyo Nippon Sanso Corporation | Annual Report 201421

Corporate Governance

Basic Policy

Auditing Structure and Internal Control System

To earn the trust and respond to the expectations of our many

To ensure adequate monitoring capabilities, our Board of

stakeholders, including our shareholders, customers, local

Auditors consists of four auditors, three of whom satisfy thecommunities and employees of Taiyo Nippon Sanso Grouprequirements for outside auditors, including two who arecompanies, we have established a compliance framework

independent. Auditors communicate with the independent

and work continuously to maintain a management system that

accountants, with whom they hold regular meetings five or

ensures fairness, transparency, efficiency and appropriateness,more times annually and exchange opinions on key aspects ofall of which are essential to sustainable growth.

the auditing process and the assessment of risks associatedwith auditing from the perspective of internal controls. They
are briefed on audit plans and audit results by the internalManagement Structure

auditing body, as well as by the Technical Audit Office on

We have adopted a system of internal auditors. Our Board

annual safety plans and their implementation, and overseeof Directors is composed of 15 directors. To guarantee

management appropriateness and efficiency.

transparency, one of the directors satisfies the requirements
for an outside director. To clarify accountability on a fiscal year
basis, the term of office for directors is set at one year. In fiscal

Remuneration for Directors

year 2014, the Board of Directors met 12 times. The outside

In fiscal year 2014, remuneration for 17 directors totaled

director, Shotaro Yoshimura, attended nine of these meetings¥635 million, while that for five auditors totaled ¥104 million.

(75.0%).

Remuneration for directors consists of monthly remuneration,
performance-linked bonuses and dividend-linked bonuses.
Performance-linked bonuses are tied to consolidated
operating results.

Auditing and Risk Management Structure
General Meeting of Shareholders
Appointment/dismissal

Appointment/dismissal

Appointment/dismissal
Coordination

Board of Directors
Appointment/
dismissal

Coordination

Independent auditors

Board of Auditors

Monitoring of auditors’ performance of their auditing duties (operational/accounts)
Independent audit of accounts

Representative Director
Management Committee

Internal Control Committee
Compliance Taskforce
Risk Assessment Taskforce
Technological Risk Management Taskforce
Corporate Audit Ofﬁce
Internal audit

Divisions and Group companies

22

Taiyo Nippon Sanso Corporation | Annual Report 2014

Coordination

Corporate Social Responsibility

To fulfill the responsibilities implied in our corporate slogan,

In fiscal year 2014, METI’s initiative advanced from

“The Gas Professionals,” we are committed to operating in a

the technological verification stage to actual commercial

manner that ensures stringent compliance with pertinent laws

development. With the aim of expanding the number ofand regulations, enhances safety management, guaranteeshydrogen stations in operation and reducing installation costs,

superior product quality as well as enables us to contribute

we developed the innovative Hydro Shuttle, which integrates

to a healthy environment and manage the technology risk

the four major components of a hydrogen station—dispenser,

associated with use of intellectual property. We recognize

pre-cooling device, hydrogen compressor and storage

effective corporate social responsibility (CSR) as a crucial

vessel—into a compact (7 m × 2 m × 2.6 m), portableaspect of management. Through the practical application

package-type unit, thereby realizing a significant improvementof our corporate philosophy, “Market-driven collaborativein cost performance compared with conventional hydrogeninnovation: improving the future through gases,” we will

stations. Recognizing the potential of the Hydro Shuttle

continue working to help address key social imperatives

to serve as a model for hydrogen stations worldwide, we

in such areas as the environment, energy and healthcare

will continue to promote the utility of these units, as wellthrough the advancement of gas technologies.

as their prospective role in the realization of a low-carbon
global economy.

Reducing the Carbon Footprint:
Promoting the Use of Hydrogen PowerAs a leading supplier of industrial gases noted for outstanding
gas control technologies used in the compression and supply
of hydrogen, we have participated since 1993 in Japan’snational World Energy Network (WE-NET) project, assistingin the development of hydrogen stations for fuel cell vehicles(FCVs). At present, Japan has only 17 hydrogen stations in
total. In March 2013, Japan’s Ministry of Economy, Tradeand Industry (METI) launched a grant initiative aimed at
establishing a viable network of 100 hydrogen stations
nationwide within three years. This echoes the Japanese
government’s stated goal of achieving an 80% reduction ingreenhouse gas emissions associated with logistics, theachievement of which will depend on getting two million FCVs
on the road and approximately 1,000 hydrogen stations inoperation by 2025, after which further expansion will be left
to market forces.

Taiyo Nippon Sanso Corporation | Annual Report 201423

Board of Directors, Corporate Auditors and Corporate Officers

Board of Directors

Corporate Auditors

Corporate Officers

ChairmanKiyoshi Fujita

Masami Takaine

Shotaro Yoshimura

Yasufumi Miyazaki*

Kazunori Takeda

Ichiro Yumoto*

Shigeyuki Osawa

Kazuo Yoshida*

Hirohisa Yanagida

Masayuki Taniguchi

Vice Chairmen
Shinji Tanabe

Masahisa Kanzaki

Kunishi Hazama

Haruhiko Yasuga

Corporate Officers
President andChief Executive Officer
Yujiro Ichihara

Masahiro Uehara
Kenji Nagata

Executive Corporate
Officers
Masami Sakaguchi

Vice President

Shigenobu Somaya

Tadashige Maruyama

Mikio Yamaguchi
Kazushige Arai

Executive Director /Advisor

Masahiro Sakamoto

Hiroshi Taguchi

Hiroyuki Tanizawa

Kunihiro Kobayashi

Junzo Tai
Nobuaki Kobayashi
Masami Myobatake
Hideaki Hirose
Hiroshi Matsuda
Yasuhiko Kawano
Yuki Endo

Norikazu Ishikawa

Senior Managing Directors

Kou Matsumoto

Yoshikazu Yamano
Shigeru Amada
William J. Kroll
Hiroshi Katsumata

Managing Directors
Kinji Mizunoe
Akihiko Umekawa
Shin-ichiro Hiramine
Keiki Ariga
Yuki Hajikano
Jun Ishikawa
Yoshihide Kenmochi

Note: *Outside Corporate Auditor

24

Taiyo Nippon Sanso Corporation | Annual Report 2014

(As of June 27, 2014)

Six-Year Summary
Taiyo Nippon Sanso Corporation and Consolidated Subsidiaries

Millions of yen
Years ended March 31

Net sales

2014

2013

2012

2011

2010

2009

¥522,746¥468,387¥477,451¥483,620¥433,390¥495,746

Operating income

31,48924,88431,06735,46827,55629,164

Net income (loss)

20,194(2,071)

21,20012,736

15,748

16,533

Selling, general and administrative expenses/
Net sales (%)

26.4%

26.8%

26.3%

26.1%

27.5%

24.7%

Return on equity (%)8.4%(1.0)%

10.8%

6.5%

8.3%

8.6%

Return on assets (%)2.8%(0.3)%

3.5%

2.1%

2.4%

3.1%

Capital expenditures

32,532

31,71531,452

31,99138,366

66,010Depreciation and amortization

33,507

29,40030,471

32,16730,14328,339Research and development expenses

3,170

3,177

3,458

3,924

4,137

3,936

Interest-bearing debt

278,063

253,424

241,121

256,358

259,111

195,678

Total net assets

298,475

224,253

219,611

207,416

212,396

194,250

Total assets

731,677

615,820

607,024

617,676

617,215534,350Yen

Per share data:
Net income (loss)1¥49.42¥ (5.25)¥53.33¥31.86¥39.39¥41.21

Cash dividends

12.00

12.00

12.00

12.00

12.00

12.00

21.75

23.20

15.55

Times

Price earnings ratio
1

16.33

—

10.95

Net income per share is computed based on the weighted average number of shares of common stock outstanding during each year, as adjusted retroactively forfree share distributions made during the period.

Taiyo Nippon Sanso Corporation | Annual Report 201425

Management’s Discussion and Analysis

Scope of Consolidation and Application of the Equity Method
As of March 31, 2014, Taiyo Nippon Sanso Corporation had
160 consolidated subsidiaries (71 based in Japan and 89
based overseas), including a newly consolidated joint venture
Vietnam Japan Gas Joint Stock Company, and 27 equitymethod affiliates (eight based in Japan and 19 based overseas).

A total of 104 consolidated subsidiaries and 12 equitymethod affiliates are accounted for in the Industrial Gas
segment. The Electronics segment and the Energy segment
comprise 14 and five consolidated subsidiaries, respectively.
The Other segment encompasses 21 consolidated
subsidiaries and 10 equity-method affiliates.

Operating Results
In fiscal year 2014, ended March 31, 2014, consolidated net
sales rose 11.6%, to ¥522,746 million. Cost of sales was up
11.0%, to ¥353,204 million, while selling, general and administrative expenses increased 10.0%, to ¥138,052 million.
Owing to these and other factors, operating income advanced
26.5%, to ¥31,489 million. The operating margin improved 0.7
percentage point, to 6.0%.
Bolstered by other income of ¥7,488 million, owing to
gains on sales of investment securities and of noncurrent
assets, net income amounted to ¥20,194 million, comparedwith a net loss of ¥2,071 million in fiscal year 2013. Net
income per share was ¥49.42, while return on equity (ROE)Net Sales

Operating Income

Net Income (Loss)(Billions of yen)(%)(Billions of yen)(%)(Billions of yen)

600

35

40

40

24

60

480

28

30

30

18

45

360

21

20

20

12

30

240

14

10

10

6

15

120

7

0

0

0

0

0

–10

0

2010

2011

2012

2013

2014

Industrial gas
Electronics
EnergyOther
Overseas sales as a percentage of
total (right scale)26

was 8.4%, up from -1.0% in the previous fiscal year. At ageneral meeting of the Company’s shareholders on June 27,
2014, shareholders approved a proposal to pay a year-end
dividend of ¥6.00 per share, bringing cash dividends for theterm, comprising interim and year-end dividends, to ¥12.00
per share, representing a payout ratio was 24.3%.
Capital expenditures, including the cost of construction,
totaled ¥32,532 million, an increase of ¥817 million.
Depreciation and amortization rose ¥4,107 million, to¥33,507 million. Research and development costs declined¥700 million, to ¥3,170 million, equivalent to approximately
0.6% of net sales.

2010

2011

2012

2013

2014

Industrial gas
Electronics
EnergyOther
Overseas operating income as apercentage of total (right scale)Taiyo Nippon Sanso Corporation | Annual Report 2014

–6

2010

2011

(Yen)

2012

2013

2014

Net income per share (right scale)–15

Results by Segment
Industrial Gases
Sales of oxygen and nitrogen supplied on-site to steelmakers
in Japan, key users of industrial gases, were up sharply fromfiscal year 2013. In contrast, sales of liquid oxygen, liquid
nitrogen and liquid argon edged down. Sales of air separation
units decreased, as did sales of cutting and welding equipment, as orders continued to fall. Sales in North America
advanced, reflecting the positive impact of yen depreciation—
which pushed up the value of sales denominated in othercurrencies after translation into yen—and economic recovery.
In Asia, sales climbed substantially, bolstered by an increasein the scope of consolidation. Owing to these and otherfactors, sales in the Industrial Gases segment rose 13.6%, to¥338,616 million. Nonetheless, operating income was held toa 2.9% increase, to ¥21,933 million, owing to a decline in thevolume of industrial gases shipped in Japan, an increase incosts attributable to rising electricity rates, and deteriorating
profitability for machinery and equipment.
Electronics
Overall demand for semiconductors, liquid crystal
displays (LCDs) and solar panels remained weak, althoughsigns of an upturn were seen in certain areas, notably
Taiwan. Accordingly, sales of electronics materials gases,

electronics-related equipment and installations, and MOCVD
systems edged up. As a consequence, the Electronics segment reported a 1.9% increase in sales, to ¥98,399 million,
and operating income of ¥5,282 million, compared with anoperating loss of ¥536 million in fiscal year 2013.
EnergyDespite sales price hikes implemented in response to higher
costs, attributable to yen depreciation, shipments for LP gas
remained steady, although fierce summer heat pushed down
consumer demand. While these and other factors boosted
Energy segment sales 11.2%, to ¥44,511 million, operating
income decreased 7.4%, to ¥1,674 million.
Other
In the medical business, sales of medical devices and equipment rose substantially, owing primarily to the addition of
the sales of Pacific Medico Co., Ltd., which was acquired in
October 2013, although sales of medical-use oxygen slipped.
Sales in the Thermos business were also up, owing to strong
sales of sports-use vacuum bottles and insulated mugs,
as well as to contributions from the sales of new products.
Segment sales increased 22.2%, to ¥41,219 million.
Operating income advanced 14.9%, to ¥3,782 million.

Financial Position
Total assets as of March 31, 2014, amounted to ¥731,677
million, an increase of 18.8%. Approximately ¥52,800 millionof this was attributable to the depreciation of the yen, whichwas ¥18.81 lower against the U.S. dollar on March 31, 2014,
than on the same day a year earlier. The current ratio was
134%, up 19.0 percentage points from the end of fiscal year

2013. Property, plant and equipment, less accumulated
depreciation, rose 12.8%, to ¥307,057 million, bolsteredprimarily by increases in gas supply facilities and transport
equipment. Total investments and other assets increased
24.9%, to ¥175,297 million, owing to increases ininvestment securities.

Taiyo Nippon Sanso Corporation | Annual Report 201427

of which authorized common stock rose ¥10,305 million, to¥37,344 million and capital surplus was up ¥11,568 million, to¥56,478 million, while treasury stock, at cost, declined ¥9,052
million, to ¥108 million. Retained earnings rose ¥17,270
million, to ¥177,269 million, owing to changes in net income
and dividends paid. Foreign currency translation adjustments
shrank ¥22,984 million, to ¥2,035 million. As a consequence,the equity ratio improved 4.4 percentage points, to 37.5%,
while net assets per share increased ¥108.31, to ¥633.69.

Total current liabilities, at ¥185,975 million, were up 5.5%,
owing largely to an increase in short-term loans payable. Total
noncurrent liabilities rose 14.8%, to ¥247,226 million. Total
interest-bearing debt thus amounted to ¥278,063 million, an
increase of ¥24,639 million.
Total net assets advanced 33.1%, to ¥298,475 million,
reflecting the issue of new shares by way of third-party
allotment with Mitsubishi Chemical Holdings Corporation as
the allottee and the disposal of treasury stock, as a result

Cash FlowsNet cash provided by financing activities came to¥27,884 million, compared with net cash used in suchactivities of ¥8,181 million in fiscal year 2013. This result was
primarily attributable to proceeds from the issue of shares by
third-party allotment, sales of treasury stock and the issuanceof bonds.
After factoring in the effect of exchange rate fluctuations
on cash and cash equivalents, which totaled ¥485 million,
and changes in cash and cash equivalents resulting fromchanges in the scope of consolidation, operating, investing
and financing activities in fiscal year 2014 yielded cash andcash equivalents at end of period of ¥56,088 million,¥33,367 million higher than at the end of fiscal year 2013.

Net cash provided by operating activities in fiscal year 2014
amounted to ¥56,716 million, an increase of ¥22,752 million.
Principal factors behind this result included income before
income taxes and minority interests and changes in depreciation and amortization, notes and accounts receivable—tradeand notes and accounts payable—trade. The interest coverage ratio improved 6.1 points, to 14.3 times.
Net cash used in investing activities, at ¥55,295 million,
was up ¥18,070 million. Principal applications of cash
included purchases of property, plant and equipment andpurchases of investments in subsidiaries resulting in a change
in the scope of consolidation.

Total Assets

Equity(Billions of yen)(Billions of yen)

(%)

(%)

750

300

40

12

600

240

32

9

450

180

24

6

300

120

16

3

150

60

8

0

0

–3

0

2010

2011

2012

2013

2014

0

2010

Return on Equity (ROE) and
Return on Assets (ROA)

2011

2012

2013

2014

Equity ratio (right scale)28

Taiyo Nippon Sanso Corporation | Annual Report 2014

2010
ROE
ROA

2011

2012

2013

2014

Business Risks
Management Policies, Business-Related Risks
Purchase of Property, Plant and Equipment
The Company maintains large-scale gas supply facilities for
major customers and needs to spend heavily to maintainand upgrade these facilities. Accordingly, interest rate trends
could have a material impact on the Company’s businessperformance.
Reliance on Specific Industries
The Company supplies gases to a wide range of industries
and its exposure to risks from reliance on specific industries isthus low. Nevertheless, changes in the crucial semiconductor
market could have a significant impact on the Company’sbusiness performance.
Manufacturing Costs
Electricity is the major component of the cost of manufacturing such core products as oxygen, nitrogen and argon.
Accordingly, a sharp increase in the price of crude oil could
result in a substantial increase in electricity charges, which
the Company may be unable to reflect in the pricing of its
products.
Overseas Factors
The Company maintains operations overseas, particularly in
the United States and in other parts of Asia, including China,
where the Company has substantial gas operations. Politicaland economic changes in countries where the Company
has operations may have an adverse impact on its businessperformance.
Technological and Safety Factors
Technological Development
The creation of new products and technologies entails various
uncertainties, owing to the Company’s reliance on technological development in such areas as compound semiconductors,
the environment and energy.
Intellectual Property
The Company’s business depends on proprietary technological development. The Company endeavors to obtain
intellectual property rights as necessary for its proprietary
technologies. However, there are no guarantees that its
technologies are completely protected.
Product Defects
The Company sells high-pressure gas-related products andhandles toxic and flammable gases used in electronics manufacturing (semiconductors, LCD panels, solar cells). While

the Company strives to ensure the effective management ofrelated risks, it cannot guarantee that all of its products arefree of defects.
Financial Risks and Other Factors
Foreign Exchange Risk
The Company exports products for sale outside of Japan. The
Company strives to hedge foreign exchange risks by entering
into forward exchange contracts and other derivative transactions. However, the Company may not be able to respond tosudden fluctuations in currency rates, which therefore may
have an adverse impact on its business performance.
Retirement Benefit Liabilities
A sudden deterioration in retirement plan returns resulting in
an increase in retirement benefit costs may have an adverse
impact on the Company’s business performance.
Natural Disasters
The occurrence of earthquakes or other natural disasters inareas where the Company has manufacturing facilities may
damage facilities. In particular, damage to the Company’s
large-scale manufacturing facilities may lead to a significant
decline in production capacity and incur major recovery costs.
Such factors may adversely affect the Company’s businessperformance.
Legal Issues
Unanticipated changes to existing laws and the introductionof new laws—particularly in countries overseas where theCompany maintains operations—may adversely affect theCompany’s business performance. Revisions to environmental
laws that result in a tightening of restrictions may result in
an increase in costs to ensure compliance, which may also
adversely affect the Company’s business performance.
Because the Company does business both in Japan andoverseas, there is a risk that it may become involved in legal
disputes or be the subject of investigations and/or legal action
by relevant authorities in the markets in which it operates.
Such legal and regulatory action may adversely affect theCompany’s operations, business performance, financial
condition, reputation and reliability.
Medium-Term Business Plan
The Company’s ability to meet the targets of its medium-termbusiness plan may be adversely affected by a number offactors, including changes in the operating environment.

Taiyo Nippon Sanso Corporation | Annual Report 201429

Consolidated Balance Sheets
Taiyo Nippon Sanso Corporation and Consolidated Subsidiaries

Millions of yen
March 31

2014

2013

AssetsCurrent assets:
Cash and deposits (Notes 16 and 24)
Notes and accounts receivable –trade (Notes 7 and 16)
Merchandise and finished goods
Work in process
Raw materials and supplies
Deferred tax assets (Note 11)
Other
Allowance for doubtful accounts
Total current assets¥ 58,336
134,959
25,954
6,640
9,186
6,698
8,761
(1,216)249,322¥ 24,743
123,282
22,716
7,100
8,092
7,285
11,007(850)
203,376$

Property, plant and equipment (Notes 9, 10, 13 and 23)
Accumulated depreciation
Property, plant and equipment, net

780,134(473,077)
307,057

698,083(425,941)
272,1427,580,004(4,596,551)
2,983,453

Investments and other assets:
Investment securities (Notes 6 and 16)
Long-term loans receivable
Goodwill (Notes 23 and 26)
Other intangible assets
Prepaid pension cost (Note 14)
Net defined benefit asset (Note 14)
Deferred tax assets (Note 11)
Other
Valuation allowance for investments
Allowance for doubtful accounts
Total investments and other assets
Total assets

67,321
390
65,327
21,327
—
9,376
1,976
10,070(20)(472)
175,297¥ 731,677

60,110642
43,561
17,213
9,804
—
2,057
8,532
(1,000)(618)
140,301¥ 615,820

654,110
3,789
634,736
207,219—
91,10019,19997,843(194)(4,586)
1,703,236$ 7,109,182

See notes to consolidated financial statements.

30

Thousands of
U.S. dollars(Note 5)

Taiyo Nippon Sanso Corporation | Annual Report 2014

2014

566,809
1,311,300
252,176
64,51689,25465,08085,124(11,815)
2,422,483

Millions of yen
March 31

Thousands of
U.S. dollars(Note 5)

2014

2013

2014

Liabilities and net assets
Current liabilities:
Notes and accounts payable–trade (Notes 9 and 16)
Short-term loans payable (Notes 8, 9 and 16)
Income taxes payable (Note 11)
Other
Total current liabilities¥ 70,002
81,508
4,492
29,972
185,975¥ 70,785
75,062
2,716
27,676
176,242$ 680,159
791,955
43,646291,216
1,806,986

Noncurrent liabilities:
Long-term loans payable (Notes 8, 9 and 16)
Pension and severance indemnities (Note 14)
Net defined benefit liability (Note 14)
Deferred tax liabilities (Note 11)
Negative goodwill (Note 23)
Lease obligations (Note 8)
Other
Total noncurrent liabilities

189,897
1,296
6,235
35,764
22
4,896
9,112
247,226

170,806
4,641—
27,229
106
5,061
7,478
215,324

1,845,093
12,59260,581
347,493
214
47,571
88,5352,402,118

Contingent liabilities (Note 15)
Total liabilities

433,201

391,566

4,209,104

37,34456,478177,269(108)
270,983

27,03944,909159,999(9,161)
222,787

362,845548,756
1,722,396(1,049)2,632,948

7,257
(7)
(2,035)—(1,891)
3,323
24,168298,475¥731,677

6,322
(120)
(25,020)(197)—(19,016)
20,481
224,253¥615,820

70,511(68)(19,773)—(18,373)
32,287
234,8232,900,068$7,109,182

Net assets (Notes 12 and 27):
Shareholders’ equity:
Common stock:
Authorized—1,600,000,000 shares
Issued—433,092,837 shares in 2014 and 403,092,837 shares in 2013
Capital surplus
Retained earnings
Treasury stock
Total shareholders’ equity
Accumulated other comprehensive income:
Valuation difference on available-for-sale securities
Deferred gains or losses on hedges
Foreign currency translation adjustments
Pension liability adjustment of foreign subsidiaries
Remeasurements of defined benefit plans (Note 14)
Total accumulated other comprehensive income (loss)
Minority interests
Total net assets
Total liabilities and net assets

Taiyo Nippon Sanso Corporation | Annual Report 201431

Consolidated Statements of Operations
Taiyo Nippon Sanso Corporation and Consolidated Subsidiaries
Thousands of
U.S. dollars(Note 5)

Millions of yen
Years ended March 31

Net sales (Note 23)
Cost of sales (Note 18)
Gross profit
Selling, general and administrative expenses (Note 18)
Operating income
Other income (expenses):
Interest and dividend income
Interest expenses
Amortization of negative goodwill
Gain on sales of noncurrent assets (Note 19)
Loss on sales and retirement of noncurrent assets
Loss on valuation of investment securities
Gain on sales of investment securities
Loss on valuation of golf club memberships
Equity in earnings of affiliates
Impairment loss (Notes 20 and 23)
Provision of valuation allowance for investments
Loss on step acquisitions
Loss on liquidation of subsidiaries and affiliates
Loss on liquidation of business (Note 21)
Early extra retirement payments
Other
Income (loss) before income taxes and minority interests
Income taxes (Note 11):
Current
DeferredIncome (loss) before minority interests
Minority interests in income
Net income (loss)

2014

2013

2014

¥522,746
353,204
169,542
138,052
31,489¥468,387
317,999
150,388
125,503
24,884$5,079,149
3,431,831
1,647,318
1,341,353
305,956

1,372(3,912)
199
3,846
(656)
(199)
3,641
(10)
1,999
(1,183)
—
(151)
(451)
—
(1,667)54
2,881
34,370970(4,110)273
31(1,497)
(89)
78
(68)
1,284
(50)
(135)
—
—
(23,276)—
1,256(25,334)(450)

13,331(38,010)1,934
37,369(6,374)(1,934)35,377(97)
19,423(11,494)—(1,467)(4,382)—(16,197)
525
27,993
333,949

9,303
3,505
12,80821,562
1,367¥ 20,194

4,588(4,306)
281
(731)
1,339
¥ (2,071)

90,391
34,056
124,446
209,503
13,282$ 196,211
U.S. dollars(Note 5)

Yen

Amounts per share:
Net assets
Net income (loss)
Cash dividends¥633.69
49.42
12.00

¥525.38(5.25)
12.00

$6.16
0.48
0.12

See notes to consolidated financial statements.

Consolidated Statements of Comprehensive Income
Taiyo Nippon Sanso Corporation and Consolidated Subsidiaries
Thousands of
U.S. dollars(Note 5)

Millions of yen
Year ended March 31

2014

Income (loss) before minority interests
Other comprehensive income (Note 22):
Valuation difference on available-for-sale securities
Deferred gains or losses on hedges
Foreign currency translation adjustments
Pension liability adjustment of foreign subsidiaries
Remeasurements of defined benefit plans
Share of other comprehensive income of associates accounted for using the equity method
Total other comprehensive income
Comprehensive income
Total comprehensive income attributable to:
Owners of the Company
Minority interests
See notes to consolidated financial statements.

32

Taiyo Nippon Sanso Corporation | Annual Report 2014

2013

2014

¥21,562¥(731)$209,503

927
113
21,761—154
1,992
24,950¥46,512

1,853(93)
11,075(3)—
1,134
13,966¥13,234

9,007
1,098
211,436—
1,496
19,355
242,421$451,924¥44,383
2,129¥12,735
498$431,238
20,686

Consolidated Statements of Changes in Net Assets
Taiyo Nippon Sanso Corporation and Consolidated Subsidiaries

Millions of yen
Shareholders’ equity

Balance at April 1, 2012
Issuance of common stock
Disposal of treasury stock
Dividends from surplus
Net loss
Purchase of treasury stock
Net changes of items other than shareholders’ equity
Balance at March 31, 2013
Issuance of common stock
Disposal of treasury stock
Dividends from surplus
Net income
Change of scope of consolidation
Purchase of treasury stock
Net changes of items other than shareholders’ equity
Balance at March 31, 2014

Number of sharesof common stock

Common stock

Capital surplus

Retained earnings

403,092,837
—
—
—
—
—
—
403,092,837
30,000,000
—
—
—
—
—
—
433,092,837¥27,039——————¥27,039
10,305——————¥37,344¥44,909
—
(0)
—
—
—
—
¥44,90910,305
1,263
—
—
—
—
—
¥56,478¥166,835——(4,764)(2,071)——¥159,999——(4,655)20,194
1,731——¥177,269

Treasury stock

Total
shareholders’equity¥(4,125)—
1——(5,036)—¥(9,161)
—
9,109
—
—
—
(57)
—
¥ (108)¥234,659—
1(4,764)(2,071)(5,036)—¥222,787
20,61010,373(4,655)20,194
1,731(57)—¥270,983

Total
Foreign currency
Pension liability Remeasurements accumulated othertranslation
adjustment ofof defined benefit
comprehensive
adjustments
foreign subsidiaries
plans
income (loss)
Minority interests

Total net assets

Millions of yen
Accumulated other comprehensive income
Valuation difference
on available-for- Deferred gains orsale securities
losses on hedges

Balance at April 1, 2012
Issuance of common stock
Disposal of treasury stock
Dividends from surplus
Net loss
Purchase of treasury stock
Net changes of items other thanshareholders’ equity
Balance at March 31, 2013
Issuance of common stock
Disposal of treasury stock
Dividends from surplus
Net income
Change of scope of consolidation
Purchase of treasury stock
Net changes of items other thanshareholders’ equity
Balance at March 31, 2014

¥4,432—————¥ (26)—————¥(38,035)
—
—
—
—
—

¥(193)
—
—
—
—
—

1,889
¥6,322
—
—
—
—
—
—

(93)
¥(120)——————

13,015¥(25,020)
—
—
—
—
—
—

(3)
¥(197)
—
—
—
—
—
—

934
¥7,257¥113(7)22,984¥ (2,035)

197
¥ —

¥

—
—
—
—
—
—

¥(33,823)
—
—
—
—
—

¥18,775—————¥219,611—
1(4,764)(2,071)(5,036)

—
—
—
—
—
—
—
—

14,807¥(19,016)
—
—
—
—
—
—

1,706
¥20,481
—
—
—
—
—
—

16,513¥224,253
20,61010,373(4,655)20,194
1,731(57)(1,891)¥(1,891)

22,339¥ 3,323

3,686¥24,168

26,026¥298,475

Treasury stock

Total
shareholders’equity¥Thousands of U.S. dollars (Note 5)
Shareholders’ equity

Balance at April 1, 2013
Issuance of common stock
Disposal of treasury stock
Dividends from surplus
Net income
Change of scope of consolidation
Purchase of treasury stock
Net changes of items other than shareholders’ equity
Balance at March 31, 2014

Common stock

Capital surplus

Retained earnings$262,719
100,126——————$362,845$436,349
100,126
12,272—————$548,756$1,554,596——(45,229)
196,211
16,819——$1,722,396$(89,011)—
88,506
—
—
—
(554)
—
$ (1,049)$2,164,662
200,253
100,787(45,229)
196,211
16,819(554)—$2,632,948

Total
Foreign currency
Pension liability Remeasurements accumulated othertranslation
adjustment ofof defined benefit
comprehensive
adjustments
foreign subsidiaries
plans
income (loss)
Minority interests

Total net assets

Thousands of U.S. dollars (Note 5)
Accumulated other comprehensive income
Valuation difference
on available-for- Deferred gains orsale securities
losses on hedges

Balance at April 1, 2013
Issuance of common stock
Disposal of treasury stock
Dividends from surplus
Net income
Change of scope of consolidation
Purchase of treasury stock
Net changes of items other thanshareholders’ equity
Balance at March 31, 2014

$61,426
—
—
—
—
—
—

$(1,166)
—
—
—
—
—
—

$(243,101)
—
—
—
—
—
—

$(1,914)
—
—
—
—
—
—

9,075
$70,511

$

1,098
(68)

223,319$ (19,773)

$

1,914
—

$

—
—
—
—
—
—
—

$(184,765)
—
—
—
—
—
—

$198,999
—
—
—
—
—
—

$2,178,906
200,253
100,787(45,229)
196,211
16,819(554)(18,373)$(18,373)

217,052$ 32,287

35,814$234,823

252,876$2,900,068

See notes to consolidated financial statements.

Taiyo Nippon Sanso Corporation | Annual Report 201433

Consolidated Statements of Cash Flows
Taiyo Nippon Sanso Corporation and Consolidated Subsidiaries

Millions of yen
Years ended March 31
Operating activities
Income (loss) before income taxes and minority interests
Depreciation and amortization
Impairment loss
Amortization of goodwill
Interest and dividends income
Interest expense
Equity in earnings of affiliates(Gain) loss on sales and retirement of noncurrent assets
Gain on sales of investment securities
Loss on step acquisitions
Loss on liquidation of business
Loss on liquidation of subsidiaries and affiliates
Early extra retirement payments(Increase) decrease in notes and accounts receivable—trade
Decrease (increase) in accounts receivable—other
Increase in advance payments
Decrease in inventories
Decrease in notes and accounts payable—trade
Increase (decrease) in accrued expenses
Decrease in advances received
Decrease in provision for retirement benefits
Decrease in net defined benefit liability
Decrease in prepaid pension costs
Decrease in net defined benefit asset
Other, net

2014Interest and dividends income received
Interest expenses paid
Payments for loss on liquidation of business
Income taxes paid
Net cash provided by operating activities¥ 34,370
33,507
1,183
3,668(1,372)
3,912(1,999)(3,410)(3,670)
151
—
451
1,667
(3,713)
1,051
(537)
1,351
(5,995)
573
(757)
—
(76)
—
428
4,253
65,036
1,753(3,954)—(6,121)
56,716

Investing activities
Decrease (increase) in short-term investments
Purchases of property, plant and equipment
Proceeds from sales of property, plant and equipment
Purchases of intangible assets
Purchases of investment securities
Proceeds from sales of investment securities
Purchases of investments in subsidiaries resulting in change in scope of consolidation (Note 24)
Payments of loans receivable
Payments for assets purchase (Note 24)
Other, net
Net cash used in investing activities

2,195(29,821)
5,559
(447)
(5,276)
4,754(30,162)(310)—(1,785)(55,295)

Financing activities
Net (decrease) increase in short-term loans payable
Proceeds from long-term loans payable
Repayment of long-term loans payable
Proceeds from issuance of bonds
Redemption of bonds
Repayments of lease obligations
Proceeds from issuance of common stock
Purchase of treasury stock
Proceeds from sales of treasury stock
Proceeds from disposal of treasury stock
Cash dividends paid
Cash dividends paid to minority shareholders
Net cash provided by (used in) financing activities
Effect of exchange rate change on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Increase in cash and cash equivalents resulting from change of scope of consolidation
Increase in cash and cash equivalents resulting from merger with unconsolidated subsidiaries
Cash and cash equivalents at end of period (Note 24)¥ (7,921)
31,808(43,371)
24,857—(2,880)20,452(55)
210,370(4,656)(722)
27,884
485
29,791
22,7213,568
7¥ 56,088

See notes to consolidated financial statements.

34

Taiyo Nippon Sanso Corporation | Annual Report 2014

Thousands of
U.S. dollars(Note 5)

2013

2014

(450)
29,400
50
2,719
(970)
4,110
(1,284)
1,262
(68)
—
23,276——
12,403
(921)
(14)
2,376
(6,930)(1,124)
(266)
(255)
—
985
—
(2,330)61,965
1,151(4,122)(17,059)(7,970)33,964$ 333,949
325,564
11,49435,639(13,331)38,010(19,423)(33,133)(35,659)
1,467
—
4,382
16,197(36,077)
10,212(5,218)13,127(58,249)
5,567(7,355)
—
(738)
—
4,159
41,323631,908
17,033(38,418)—(59,473)
551,069(477)(31,096)
1,408
(445)
(2,139)
152
(513)
(601)
(2,417)(1,094)(37,225)

21,327(289,749)
54,013(4,343)(51,263)
46,191(293,063)(3,012)—(17,344)(537,262)

349
34,108(30,104)
10,000(10,000)(2,339)—(5,011)
1—(4,764)(421)(8,181)
888(10,554)
33,275——¥ 22,721$ (76,963)
309,056(421,405)
241,518—(27,983)
198,717(534)
19100,758(45,239)(7,015)
270,9294,712
289,458
220,764
34,66868$ 544,967¥¥

Notes to Consolidated Financial Statements
Taiyo Nippon Sanso Corporation and Consolidated Subsidiaries

1. Basis of Consolidated Financial Statements
The accompanying consolidated financial statements of TAIYONIPPON SANSO CORPORATION (the “Company”) and consolidated
subsidiaries are prepared on the basis of accounting principles
generally accepted in Japan (“Japanese GAAP”), which are different
in certain respects as to application and disclosure requirements ofInternational Financial Reporting Standards, and are compiled fromthe consolidated financial statements prepared by the Company as
required by the Financial Instruments and Exchange Act of Japan(the “FIEA”).

As permitted by the FIEA, amounts of less than one million yen
have been omitted. As a result, the totals shown in the accompanying
consolidated financial statements (both in yen and U.S. dollars) do notnecessarily agree with the sums of the individual amounts.
Certain amounts previously reported have been reclassified toconform to the current year presentation.

2. Summary of Significant Accounting Policies(a) Consolidation
The accompanying consolidated financial statements include theaccounts of the Company and its 160 significant subsidiaries. All
significant intercompany accounts and transactions have been
eliminated in consolidation.
In accordance with the regulations for the preparation of consolidated financial statements under the FIEA, investments in certain
unconsolidated subsidiaries and significant affiliates are accounted forby the equity method of accounting.
The differences at the dates of acquisition between the cost andthe underlying net equity in investments in consolidated subsidiaries
and the companies accounted for by the equity method are amortized
equally over the years for which their effect are reasonably estimated.
Investments in unconsolidated subsidiaries and affiliates otherthan those which are accounted for by the equity method are
principally stated at cost.
(b) Cash equivalents
For purposes of the statements of cash flows, the Company considers all highly liquid instruments with maturity of three months or lesswhen purchased to be cash equivalents.
(c) Investment securities
Investments in securities are classified into three categories: trading
securities, held-to-maturity securities and available-for-sale securities.
The Company and certain consolidated subsidiaries have marketablesecurities classified as available-for-sale securities, which are carriedat fair value with any changes in valuation difference on availablefor-sale securities, net of the applicable income taxes, reported asa separate component of net assets. Cost of marketable securities
sold is determined by the moving-average method. Non-marketablesecurities classified as available-for-sale securities are carried at cost
determined by the moving-average method. Under the Companies
Act of Japan (the “Act”), unrealized gain or loss on available-for-salesecurities, net of the applicable income taxes, is not available for
distribution as dividends.
(d) Inventories
Inventories of the Company and its consolidated domestic subsidiaries are stated at cost, determined by the average method, specificidentification method or the moving-average method (lower than bookvalue due to decline in profitability).
As for overseas consolidated subsidiaries, inventories are statedat the lower of cost or market, cost being determined by the first-in
first-out method.

(e) Property, plant and equipment (except for the leased assets)
Property, plant and equipment is stated at cost, and for the Company
and its consolidated domestic subsidiaries, depreciation is principally
computed by the straight-line method.
The useful lives are as follows:
Buildings
3 to 50 years
Machinery
4 to 20 years
As for consolidated overseas subsidiaries, depreciation is also
principally computed by the straight-line method based on theestimated useful lives of the respective assets.
(f) Intangible assets
Intangible assets are stated at cost. As for the Company and its consolidated domestic subsidiaries, software is amortized by the straightline method over its estimated useful life of 5 years. Consolidated
subsidiaries in the United States apply the Accounting Standards
Codification 350, issued by the Financial Accounting Standards Board(“Intangibles-Goodwill and Other”).
(g) Leases
Leased assets are initially accounted for at their acquisition costs anddepreciated over the leased term by the straight-line method with noresidual value.
Finance leases contracted on or before March 31, 2008 that do
not deem to transfer ownership of the leased property to the lessee
are accounted for as operating lease transactions.
(h) Translation of foreign currency transactions
All monetary assets and liabilities denominated in foreign currencies
other than receivables and payables hedged by qualified foreignexchange forward contracts, are translated into yen at the exchange
rates prevailing as of the fiscal year-end, and resulting gains andlosses are included in income.
The accounts of the overseas consolidated subsidiaries aretranslated into yen at the year-end exchange rates, except for net
assets, which are translated at historical rates, and income statement items are translated into yen at average exchange rates during
the year. Differences arising from the translations are stated under“Foreign currency translation adjustments” and “Minority interests” inthe accompanying consolidated balance sheet.
(i) Pension and severance indemnities
The straight-line method is used as the method of attributing
expected benefits to periods through the end of the fiscal year ended
March 31, 2014 in calculating projected benefit obligation.

Taiyo Nippon Sanso Corporation | Annual Report 201435

For transition benefit liability, the Company established a pension and severance indemnity trust by contribution of shares ownedby the Company, and the remaining transition benefit liability is being
amortized over a period of 15 years. Actuarial gains or losses andprior service cost are recognized for each defined benefit plan over a
period not exceeding the expected average remaining service years of
the employees participating in the plan. The Company and its consolidated domestic subsidiaries amortize actuarial gains or losses using
the straight-line method over 12 to 16 years following the respective
fiscal years when such gains or losses are recognized. Prior service
cost is amortized using the straight-line method over 13 to 16 years.
Certain consolidated domestic subsidiaries apply the simplified
method, which assumes projected benefit obligations to be equal tothe benefit payable assuming the voluntary retirement of all employees at fiscal year-end, in computing net defined benefit liability andretirement benefit expenses.
(j) Allowance for directors’ and corporate auditors’ retirement
benefits
The allowance for directors’ and corporate auditors’ retirement benefits of the Company and certain consolidated domestic subsidiaries
is provided at the amount which would have been required to be
paid if all directors and corporate auditors had voluntarily terminatedtheir services as of the balance sheet date. This amount has been
determined in accordance with the internal rules of the respective
companies.
The allowance included ¥799 million ($7,763 thousand) and¥764 million for directors and corporate auditors at March 31, 2014
and 2013, respectively, and included ¥497 million ($4,829 thousand)and ¥550 million for corporate officers at March 31, 2014 and 2013,
respectively.
(k) Research and development expenses
Research and development expenses are charged to operations as
incurred.
(l) Income taxes
Deferred tax assets and liabilities are determined based on the differences between financial reporting and the tax bases of assets and liabilities and are measured using the enacted tax rates and laws which
will be in effect when the differences are expected to reverse.
(m) Amounts per share
Presentation of diluted net income (loss) per share is not applicable as
there were no potentially dilutive securities for the years ended March
31, 2014 and 2013.

(n) Allowance for doubtful accounts
To cover possible losses on collection of receivables, the Company
and its consolidated domestic subsidiaries provided for an allowancewith respect to specific debts of which recovery is doubtful, basedon estimated write-off amounts, after considering the likelihood ofrecovery on an individual basis.
(o) Valuation allowance for investments
To state the investment amount fairly, the allowance is provided byconsidering the related parties’ assets and other factors.
(p) Derivative and hedging transactions
The Company and certain consolidated subsidiaries have used foreign exchange forward contracts solely in order to hedge against
risks of fluctuations in foreign currency exchange rates relating to its
receivables and payables denominated in foreign currencies, and haveused interest-rate swap agreements solely to hedge against risks offluctuations in interest rates relating to its long-term loans payable.
Also, currency exchange swap agreements have been used solely tohedge against risks of fluctuations in foreign exchange of long-termloans payable denominated in foreign currencies, in compliance with
the internal rules of respective companies.
Under the “Accounting Standard for Financial Instruments”(Statement No. 10, issued by the Accounting Standards Board ofJapan (“ASBJ”) on March 10, 2008) derivative transactions are valued at market prices, except for hedging transactions whose gains
or losses are deferred and recorded in the balance sheet until thehedged transactions are settled. Moreover, if interest-rate swaps inJapan are specifically tied to the hedged loan transactions, unrealized
gains or losses on those swaps are not recognized in the consolidated financial statements as such gains or losses are to be offset
with those on the hedged transactions. Deferred hedge accounting isapplied to currency swaps.
Receivables and payables hedged by qualified foreign exchange
forward contracts are translated at the corresponding foreignexchange forward contract rates.
(q) Recognition of revenues and costs of construction contracts
Revenues and costs of construction contracts of which the percentage of completion can be reliably estimated, are recognized by thepercentage-of-completion method. The percentage of completion is
calculated at the cost incurred as a percentage of the estimated total
cost. The completed-contract method continues to be applied forcontracts for which the percentage of completion cannot be reliably
estimated.

3. Changes in Accounting Policies
Effective from the end of the fiscal year ended March 31, 2014, theCompany has adopted the “Accounting Standard for Retirement
Benefits” (Statement No. 26, issued by the ASBJ on May 17, 2012
(hereinafter, the “Standard No. 26”)) and “Guidance on AccountingStandard for Retirement Benefits” (Guidance No. 25, issued by the
ASBJ on May 17, 2012 (hereinafter “Guidance No. 25”)) (excluding
the provisions indicated in the body text of Paragraph 35 of theStandard No. 26 and Paragraph 67 of the Guidance No. 25). Under
the standard and the guidance, the Company revised its method of
accounting for projected benefit obligation, and the amount deducting
the plan assets from these obligations is recorded as net defined benefit asset or net defined benefit liability, and unrecognized actuarial
gains or losses and prior service cost are also recorded as net defined
benefit liability.
With regard to the adoption of the standard and the guidance, in
accordance with the provisions on transitional treatment indicated in
Paragraph 37 of the Standard No. 26, the impact of these changes is
included in remeasurements of defined benefit plans in accumulated
other comprehensive income as of March 31, 2014.

36

As a result of this change, net defined benefit liability as of March
31, 2014 increased by ¥2,806 million ($27,264 thousand) and accumulated other comprehensive income and minority interests as ofMarch 31, 2014 decreased by ¥1,849 million ($17,965 thousand) and¥88 million ($855 thousand), respectively. Net defined benefit asset of¥9,376 million ($91,100 thousand), net defined benefit liability of¥6,235 million ($60,581 thousand), accumulated other comprehensive
income of ¥3,323 million ($32,287 thousand) and minority interests of¥24,168 million ($234,823 thousand) are recorded as of March 31,
2014. Net assets per share as of March 31, 2014 decreased by ¥4.07($0.04) compared with the previous method.
Also, “Pension liability adjustment of foreign subsidiaries” on the
consolidated balance sheet as of March 31, 2013 and on the consolidated statement of comprehensive income and the statement ofchanges in net assets for the year ended March 31, 2013 is presented as “Remeasurements of defined benefit plans” on the consolidated balance sheet as of March 31, 2014 and on the consolidated
statement of comprehensive income and the statement of changes in
net assets for the year ended March 31, 2014.

Taiyo Nippon Sanso Corporation | Annual Report 2014

4. Accounting Standards Issued but Not Yet Effective(a) Accounting standard for retirement benefits
On May 17, 2012, the ASBJ issued “Accounting Standard for
Retirement Benefits” (ASBJ Statement No. 26) and “Guidance on
Accounting Standard for Retirement Benefits” (ASBJ Guidance No.
25), which replaced the Accounting Standard for Retirement Benefits
that had been issued by the Business Accounting Council in 1998
with an effective date of April 1, 2000 and the other related practicalguidance, being followed by partial amendments from time to timethrough 2009. The major changes are as follows:(1) Overview
This accounting standard and related guidance were revised mainly
focusing on the treatment of actuarial gains or losses and prior service
costs, the calculation method of projected benefit obligations and service costs, and enhancement of disclosures.
(2) Expected application date
Amendments relating to the calculation method of projected benefit
obligations and current service costs are expected to be applied fromthe beginning of the year ending March 31, 2015. Retrospective application is not made to the prior periods’ consolidated financial statements based on transitional treatment.
(3) Effects of the adoption of the standard and the guidance
The Company is currently evaluating the effects of the change in thecalculation method of projected benefit obligations and current service
costs on its consolidated results of operations and financial position.

(b) Accounting standards for business combinations
On September 13, 2013, the ASBJ issued “Revised AccountingStandard for Business Combinations” (ASBJ Statement No. 21),
“Revised Accounting Standard for Consolidated Financial Statements”(ASBJ Statement No. 22), “Revised Accounting Standard for Business
Divestitures” (ASBJ Statement No. 7), “Revised Accounting Standard
for Earnings Per Share” (ASBJ Statement No. 2), “Revised Guidanceon Accounting Standard for Business Combinations and AccountingStandard for Business Divestitures” (ASBJ Guidance No. 10) and“Revised Guidance on Accounting Standard for Earnings Per Share”(ASBJ Guidance No. 4).
(1) Overview
These accounting standards and related guidance were revised
mainly focusing on treatments of changes in the parent’s ownershipinterest in a subsidiary while the parent retains its controlling interest in
its subsidiary when additional interest is acquired, the corresponding
acquisition-related costs, the presentation of net income and thechange from “minority interests” to “noncontrolling interests” andprovisional accounting procedures.
(2) Expected application date
These standards and related guidance are expected to be applied
from the beginning of the year ending March 31, 2016. The treatment
under the provisional accounting procedures is expected to be
applied effective for business combinations occur on or after the
beginning of the year ending March 31, 2016.
(3) Effects of the adoption of the standard and the guidance
The Company is currently evaluating the effects of applying theserevised standards on its consolidated financial statements.

5. U.S. Dollar Amounts
The translation of Japanese yen amounts into U.S. dollar amounts is
included solely for convenience, as a matter of arithmetical computation only, at the rate of ¥102.92=U.S.$1, the approximate rate ofexchange at March 31, 2014. The translation should not be construed

as a representation that Japanese yen have been, could have been,or could in the future be converted into U.S. dollars at the above or
any other rate.

6. Investment Securities
At March 31, 2014 and 2013, information with respect to available-for-sale securities for which market prices were available was summarized
as follows:

Carrying
amountUnrecognized gain items: Stock
Unrecognized loss items: Stock
Total¥27,120
10,045¥37,166

Carrying
amountUnrecognized gain items: Stock
Unrecognized loss items: Stock
Total¥23,869
9,492¥33,361

Proceeds from sales of securities classified as available-for-salesecurities amounted to ¥4,655 million ($45,229 thousand) and ¥142
million with an aggregate gain on sales of ¥3,653 million ($35,494

Millions of yen
2014
Acquisition
Unrecognized
costgain (loss)¥15,524
10,515¥26,040¥11,596(469)¥11,126

Thousands of U.S. dollars
2014
Carrying
UnrecognizedamountAcquisition cost gain (loss)$263,506
97,600$361,115$150,836
102,167$253,012$112,670(4,557)$108,103

Millions of yen
2013
Acquisition
Unrecognized
costgain (loss)¥12,746
10,932¥23,679¥11,122(1,440)¥ 9,681

thousand) and ¥78 million for the years ended March 31, 2014 and2013, respectively, and an aggregate loss on sales of nil and ¥9
million for the years ended March 31, 2014 and 2013, respectively.

Taiyo Nippon Sanso Corporation | Annual Report 201437

7. Notes and Accounts Receivable(a) Notes and accounts receivable liquidated at March 31, 2014 and 2013 were as follows:
Thousands of
U.S. dollars
2014

Millions of yen
2014
2013

Accounts receivable transferred by liquidation
Notes receivable transferred by liquidation¥4,742
1,839¥4,376
5,665$46,075
17,868(b) Notes receivable discounted at March 31, 2014 and 2013 were as follows:
Thousands of
U.S. dollars
2014

Millions of yen
2014
2013

Notes receivable discounted

¥2

¥9

$19

8. Short-Term Loans Payable, Long-Term Loans Payable and Lease Obligations
As of March 31, 2014 and 2013, short-term loans payable and the current portion of long-term loans payable consisted of the following:
Millions of yen
2014
2013

Bank loans
Current portion of long-term loans payable
1.13% unsecured bonds, payable in yen, due 2014
Total

¥19,677
46,831
15,000¥81,508¥23,575
51,487—¥75,062

Thousands of
U.S. dollars
2014$191,187
455,023
145,744$791,955

The average interest rates applicable to bank loans outstanding at March 31, 2014 and 2013 are 1.32% and 1.25%, respectively.
Long-term loans payable at March 31, 2014 and 2013 consisted of the following:
Millions of yen
2014
2013

Loans from banks due through 2030 at average interest rates of 1.53% in 2014 and 1.56% in 2013
1.13% unsecured bonds, payable in yen, due 2014
0.55% unsecured bonds, payable in yen, due 20170.44% unsecured bonds, payable in yen, due 20170.32% unsecured bonds, payable in yen, due 2019
0.56% unsecured bonds, payable in yen, due 2021

¥144,897—
10,00010,00015,00010,000¥189,897¥135,806
15,00010,00010,000——¥170,806

Thousands of
U.S. dollars
2014$1,407,860—
97,163
97,163
145,744
97,163$1,845,093

Short-term lease obligations at March 31, 2014 and 2013 included in other current liabilities were ¥1,760 million ($17,101 thousand) and ¥2,493
million, respectively.
The annual maturities of long-term loans payable subsequent
to March 31, 2014 are summarized as follows:

Years ending March 31

Millions of yen

Thousands of
U.S. dollars

2015
2016
2017
2018
2019
2020 and thereafter¥ 46,831
32,13144,87634,915
19,726
13,248¥191,728$ 455,023
312,194
436,028
339,244
191,663
128,721$1,862,884

The annual maturities of lease obligations subsequent to March
31, 2014 are summarized as follows:

Years ending March 31

Millions of yen

Thousands of
U.S. dollars

2015
2016
2017
2018
2019
2020 and thereafter¥1,760
1,341
1,016
1,149
208
1,182
¥6,656$17,101
13,030
9,872
11,164
2,021
11,485$64,672

9. Pledged Assets
Assets pledged as collateral for short-term loans payable of ¥120
million ($1,166 thousand) and ¥96 million, long-term loans payable of¥197 million ($1,914 thousand) and ¥308 million, accounts

payable–trade of ¥5 million ($49 thousand) and ¥132 million and otherof ¥47 million ($457 thousand) and ¥91 million at March 31, 2014 and2013, respectively, were as follows:
Millions of yen
2014
2013

Property, plant and equipment, at net book value

38

¥701

Taiyo Nippon Sanso Corporation | Annual Report 2014

¥799

Thousands of
U.S. dollars
2014$6,811

10. Assets Replaced by National Subsidy
Assets replaced by national subsidy at March 31, 2014 and 2013 were as follows:

Thousands of
U.S. dollars
2014

Millions of yen
2014
2013

Property, plant and equipment

¥411

¥411

$3,993

11. Income Taxes
Income taxes applicable to the Company comprise corporation,enterprise and inhabitants’ taxes, which, in the aggregate, resulted ina statutory tax rate of 38.01% for the years ended March 31, 2014
and 2013.

Significant components of the Company’s deferred tax assets andliabilities at March 31, 2014 and 2013 were as follows:

Current deferred tax assets and liabilities
Deferred tax assets:
Accrued bonus
Loss from valuation of inventory
Accrued expenses
Net operating loss carryforward for tax purposes
Other
Deferred tax assets—subtotal
Valuation allowance
Deferred tax assets—net
Deferred tax liabilities
Net deferred tax assets
Deferred tax liabilities:
Adjustment of allowance for doubtful accounts
Deferred tax liabilities—subtotal
Offset by deferred tax assets
Net deferred tax liabilities

Millions of yen
2014
2013

Thousands of
U.S. dollars
2014¥ 2,144
11
2,504
199
2,096
6,956
(238)
6,718
(19)
¥ 6,698¥ 1,998
587
1,618
2,454
1,020
7,678
(389)
7,289
(4)
¥ 7,285$ 20,832
107
24,3301,934
20,36567,586(2,312)
65,274(185)$ 65,080

¥

¥

$

¥

Noncurrent deferred tax assets and liabilities
Deferred tax assets:
Depreciation
Reserve for retirement benefits
Net defined benefit liability
Net operating loss carryforward for tax purposes
Other
Deferred tax assets—subtotal
Valuation allowance
Deferred tax assets—net
Deferred tax liabilities
Net deferred tax assets
Deferred tax liabilities:
Valuation difference on available-for-sale securities
Reserve for replacement of fixed assets
Reserve for special depreciation
Reserve for replacement of fixed assets—special
Depreciation
Other
Deferred tax liabilities—subtotal
Offset by deferred tax assets
Net deferred tax liabilities
The reconciliation of the difference between the statutory tax rate
and the effective tax rate for the year ended March 31, 2014 was notpresented since the difference was less than 5% of the statutory tax

(87)
(87)
19
(67)

¥

(71)
(71)
4
(66)

$

(845)
(845)
185
(651)

¥ 2,385
—
1,248
—
7,030
10,664(3,961)
6,702(4,726)¥ 1,976¥ 1,711
1,215
—
2,860
7,675
13,463(4,444)
9,018(6,960)¥ 2,057$ 23,173—
12,126—68,305
103,614(38,486)
65,119(45,919)$ 19,199¥ (3,980)(4,260)—(572)(20,166)(11,510)(40,490)
4,726¥(35,764)¥ (3,471)(4,460)(34)(389)(13,307)(12,528)(34,190)
6,960¥(27,229)$ (38,671)(41,391)—(5,558)(195,939)(111,834)(393,412)
45,919$(347,493)

rate. The reconciliation for the year ended March 31, 2013 was notpresented since the Company recorded loss before income taxes andminority interests.

Taiyo Nippon Sanso Corporation | Annual Report 2014

39

The “Act on Partial Revision of the Income Tax Act” (Act No. 10
of 2014) and the “Cabinet Order on Partial Revision of the Order forSpecial Reconstruction Corporation Tax” (Cabinet Order No. 151 of2014) were promulgated on March 31, 2014. Accordingly, the normal
effective statutory tax rate used to measure the Company’s deferred
tax assets and deferred tax liabilities was changed from 38.01% to35.64% for temporary differences expected to be realized or settled
from April 1, 2014 through March 31, 2015.
As a result, deferred tax assets, net of deferred tax liabilities, asof March 31, 2014 decreased by ¥181 million ($1,759 thousand) andincome taxes—deferred for the year ended March 31, 2014 increasedby the same amount.

12. Shareholders’ Equity(a) Dividends
Under the Act, companies can pay dividends at any time during the
fiscal year in addition to the year-end dividend upon resolution at theshareholders’ meeting. For companies that meet certain criteria, suchas: (1) having a Board of Directors, (2) having independent auditors,(3) having a Board of Corporate Auditors, and (4) the term of serviceof the directors is prescribed as one year rather than two years of normal term by its articles of incorporation, the Board of Directors may
declare dividends (except for dividends in kind) if the Company hasprescribed so in its articles of incorporation.
The Act permits companies to distribute dividends-in-kind(non-cash assets) to shareholders subject to a certain limitation andadditional requirements.
Semiannual interim dividends may also be paid once a year upon
resolution by the Board of Directors if the articles of incorporation of
the Company so stipulate.
(b) Increases /decreases and transfer of common stock, reserveand surplus
The Act requires that an amount equal to 10% of dividends must be
appropriated as a legal reserve (a component of retained earnings) or
as additional paid-in capital (a component of capital surplus) depending on the equity account charged upon the payment of such
dividends until the total of aggregate amount of legal reserve andadditional paid-in capital equals 25% of the common stock. Under theAct, the total amount of additional paid-in capital and legal reserve
may be reversed without limitation.
The Act also provides that common stock, legal reserve, additional paid-in capital, other capital surplus and retained earnings canbe transferred among the accounts under certain conditions upon
resolution of the shareholders.

(c) Treasury stock and treasury stock acquisition rights
The Act also provides for companies to purchase treasury stock anddispose of such treasury stock by resolution of the Board of Directors.
The amount of treasury stock purchased cannot exceed the amountavailable for distribution to the shareholders, which is determined by
specific formula. Under the Act, stock acquisition rights, which werepreviously presented as a liability, are now presented as a separate
component of shareholders’ equity.
The Act also provides that companies can purchase both treasury
stock acquisition rights and treasury stock. Such treasury stockacquisition rights are presented as a separate component of shareholders’ equity or deducted directly from stock acquisition rights.
At the Board of Directors’ meeting held on September 26, 2013,
the Company resolved to issue new shares (30,000,000 shares ofcommon stock) and dispose of treasury stock (15,096,000 shares ofcommon stock) by way of a third-party allotment to Mitsubishi
Chemical Holdings Corporation. The transaction was completed on
October 15, 2013.
As a result, common stock and capital surplus as of March 31,
2014 increased by ¥10,305 million ($100,126 thousand) and ¥11,568
million ($112,398 thousand), respectively, and treasury stock as ofMarch 31, 2014 decreased by ¥9,107 million ($88,486 thousand).
Common stock, capital surplus and treasury stock as of March 31,
2014 amounted to ¥37,344 million ($362,845 thousand), ¥56,478
million ($548,756 thousand) and ¥(108) million ($(1,049) thousand),
respectively.

13. Leases(a) The following pro forma amounts represent the acquisition costs,
accumulated depreciation and net book value of leased property
at March 31, 2014 and 2013, which would have been reflected in
the consolidated balance sheets if finance lease accounting had
been applied to the finance lease transactions currently
accounted for as operating leases:
Millions of yen
2014
2013

Acquisition costs:
Property, plant and equipment
Other assets
Accumulated depreciation:
Property, plant and equipment
Other assets
Net book value:
Property, plant and equipment
Other assets

40

Thousands of
U.S. dollars
2014¥1,274—¥1,274¥1,95162¥2,014$12,379—$12,379¥1,087—¥1,087¥1,63362¥1,697$10,562—$10,562

¥ 187
—
¥ 187

¥ 317
—
¥ 317

$ 1,817—$ 1,817

Lease payments relating to finance lease transactions accounted
for as operating leases amounted to ¥94 million ($913 thousand) and¥211 million, which were equal to the depreciation expense of theleased assets computed by the straight-line method over the respective lease terms for the years ended March 31, 2014 and 2013,
respectively.
Future minimum lease payments (including the interest portion
thereon) subsequent to March 31, 2014 and 2013 for finance leasetransactions accounted for as operating leases are summarized asfollows:
Years ending March 31

2014
2015
2016 and thereafter
Total
2013
2014
2015 and thereafter
Total

Taiyo Nippon Sanso Corporation | Annual Report 2014

Millions of yen

Thousands of
U.S. dollars

¥ 56
131
¥187

$ 544
1,273
$1,817

¥132
185
¥317

(b) Future minimum lease payments subsequent to March 31, 2014
and 2013 for non-cancelable operating leases are summarized
as follows:

Years ending March 31

2014
2015
2016 and thereafter
Total
2013
2014
2015 and thereafter
Total

Millions of yen

Thousands of
U.S. dollars¥ 1,688
8,590¥10,278$16,401
83,463$99,864¥ 1,551
8,639¥10,191

14. Pension and Severance Indemnities
Year ended March 31, 2014
The Company and certain consolidated subsidiaries have funded andunfunded cash balance plans (market-linked pension plans) anddefined contribution benefit plans for future retirement benefits. The
other consolidated domestic subsidiaries have a lump-sum retirement
benefit plan as a defined benefit plan. Certain consolidated overseas
subsidiaries have a defined contribution benefit plan.
A lump-sum amount or pension are paid based on salary andservice period of employees under the defined benefit corporate
pension plans.
Certain defined benefit corporate pension plans establish
retirement benefit trusts.
A lump-sum amount is paid based on salary and service period of
employees as retirement benefits under the lump-sum retirement
benefit plan.
Certain consolidated domestic subsidiaries apply the simplified
method in computing net defined benefit liability and retirement benefit
expenses for their defined benefit corporate pension plans andlump-sum payment plans.
The tables below include plans to which the simplified method
is applied.
Defined benefit plans(a) The changes in projected benefit obligation for the year ended
March 31, 2014 were as follows:
Balance at beginning of year
Service cost
Interest cost
Actuarial loss
Retirement benefits paid
Other
Balance at end of year

Millions of yen

Thousands of
U.S. dollars¥32,019
1,282
539
66
(2,424)
185¥31,669$ 311,106
12,456
5,237
641(23,552)
1,798$(307,705)(b) The changes in plan assets for the year ended March 31, 2014
were as follows:
Balance at beginning of year
Expected return on plan assets
Actuarial gainContributions from the employer
Retirement benefits paid
Other
Balance at end of year

Millions of yen

Thousands of
U.S. dollars¥32,616
808
1,832
1,603
(2,102)
49¥34,810$316,906
7,851
17,80015,575(20,424)476$338,224(c) The reconciliation between the balances of projected benefit
obligation and plan assets and net defined benefit liability and thefunded net defined benefit asset recorded on the consolidatedbalance sheet as of March 31, 2014 was as follows:

Funded projected benefit obligation
Plan assets at fair market value
Unfunded retirement benefit liabilities
Net liability and asset recorded on
the consolidated balance sheet
Net defined benefit liability
Net defined benefit asset
Net liability and asset recorded on
the consolidated balance sheet

Millions of yen

Thousands of
U.S. dollars¥ 28,558(34,810)$ 277,478(338,224)(6,251)
3,110(60,736)
30,218¥ (3,140)¥ 6,235(9,376)$ (30,509)$ 60,581(91,100)¥ (3,140)$ (30,509)(d) The components of retirement benefit expenses for the year
ended March 31, 2014 were as follows:
Service cost
Interest cost
Expected return on plan assets
Amortization of actual loss
Amortization of prior service cost
Net loss on change in accounting
standard for employees’
retirement benefits
Additional early retirement expenses
Total

Millions of yen

Thousands of
U.S. dollars¥ 1,282
539
(808)
1,043
(226)

$ 12,456
5,237(7,851)
10,134(2,196)458(1,667)¥ 3,956

4,450(16,197)$ 38,438

Note: The above table includes retirement benefit expenses of certain consolidated subsidiaries which apply the simplified method.

(e) The components of remeasurements of defined benefit plans(before applicable tax effects) as of March 31, 2014 wereas follows:
Net unrecognized actuarial losses
Unrecognized prior service cost
Unsettled effect of change inaccounting standard
Total

Taiyo Nippon Sanso Corporation | Annual Report 2014

Millions of yen

Thousands of
U.S. dollars¥ 3,395(1,011)$ 32,987(9,823)423¥ 2,806

4,110$ 27,264

41

(f)Information on plan assets for the year ended March 31, 2014
was as follows:(1) Components of plan assets as of March 31, 2014 were as follows:
Debt securities
Equity securities
Life insurance general accounts
Cash and cash equivalents
Others
Total

16%
40
38
0
6
100%

The retirement benefit trusts established for defined benefit
corporate pension plans hold 15% of plan assets.
(2) Expected long-term rate of return
The expected long-term rate of return on plan assets is determinedconsidering current and expected distribution of plan assets and thelong-term rate of return derived from various components of theplan assets.
(g) The principal assumptions used for the actuarial calculation forthe year ended March 31, 2014 were as follows:
Discount rate
Expected long-term rate of return on plan assets

Mainly 2.0%
Mainly 3.0%

Defined contribution benefit plan
The required contribution amount to the defined contribution benefit
plan was ¥1,087 million ($10,562 thousand) for the year ended
March 31, 2014.
Year ended March 31, 2013
The Company had the cash balance plan (market-linked pension plan)and the defined contribution benefit plan.
The Company’s consolidated domestic subsidiaries had, jointly orseverally, defined benefit plans, including funded non-contributory taxqualified retirement pension plans and a lump-sum retirement benefits
plan, which together covered substantially all full-time employees who
met certain eligibility requirements.
Certain consolidated overseas subsidiaries had a defined
contribution benefit plan.

The funded status and amounts recognized in the accompanying
consolidated balance sheet at March 31, 2013 and the components
of net retirement benefit expenses recognized in the accompanying
consolidated statement of operations for the year ended March 31,
2013 were summarized as follows:(a) Retirement benefit liabilities
Millions of yen

Projected benefit obligation
Plan assets at fair market value
Unfunded retirement benefit liabilities
Net unrecognized actuarial losses
Difference at change of accounting standard
Unrecognized prior service cost
Prepaid pension cost
Allowance for employees’ retirement benefits¥ 32,019(32,616)(597)(6,200)
(916)
1,238
9,804
¥ (3,327)(b) Net retirement benefit expenses
Millions of yen

Current service cost
Interest cost
Expected return on plan assets
Expense of actuarial loss
Net loss on change in accounting standard for
employees’ retirement benefits
Adjustment for prior service cost
Total of retirement benefit expenses
Other
Total

¥1,368
590
(729)
1,406
461
(226)
2,871
951
¥3,822(c) The principal assumptions used in determining retirement benefit
obligations and other components for the Company and certain
consolidated domestic subsidiaries plans are shown below:
Discount rate
Rate of return on assets
Period of recognition of actuarial gains or losses
Period of recognition of transition gains or losses
Period of recognition of prior service cost
Allocation method of estimated retirement benefits

Mainly 2.0%
Mainly 3.0%
12 to 16 years
Mainly 15 years
13 to 16 years
Evenly for period

15. Contingent Liabilities
At March 31, 2014 and 2013, the Company and certain consolidated
subsidiaries had contingent liabilities as guarantor of indebtedness,amounting to ¥2,682 million ($26,059 thousand) and ¥6,173 million,
which included reguarantees by joint investors amounting to ¥229
million ($2,225 thousand) and ¥747 million and commitments to42

guarantees amounting to ¥57 million ($554 thousand) and ¥93 million,
and guarantees for employees’ bank loans based on employees’
house ownership discount policy amounting to ¥890 million ($8,647
thousand) and ¥793 million, respectively.

Taiyo Nippon Sanso Corporation | Annual Report 2014

16. Financial Instruments(a) Policy for financial instruments
In consideration of plans for capital investment, the Company andconsolidated subsidiaries (collectively, the “Group”) raise funds
through bank loans or bond issues. The Group manages temporary
cash surpluses through short-term deposits and obtains necessary
borrowings through short-term loans. The Group uses derivatives only
for the purpose of reducing risk and does not enter into derivatives for
speculative or trading purposes.
(b) Types of financial instruments and related risk and risk
management
Notes and accounts receivable–trade are exposed to credit risk inrelation to customers. In accordance with the internal policies of theGroup for managing credit risk arising from receivables, each related
division monitors credit worthiness of their main customers periodically, and monitors due dates and outstanding balances by individual
customer.
Investment securities are exposed to market risk. Those securities
are composed of mainly the shares of common stock of other companies with which the Group has business relationships. The Groupalso reviews their fair value quarterly.
Notes and accounts payable–trade have payment due dates
within one year. Although the Group is exposed to liquidity risk arisingfrom those payables the Group manages the risk by preparing cash
management plans monthly.
Short-term loans payable are raised mainly for short-term capitaland long-term loans are mostly taken out principally for the purposeof making capital investments and long-term capital. Some ofthose loans with variable interest rates are exposed to interest rate
fluctuation risk. However, to reduce such risk and fix interest expense
for those loans bearing interest at variable rates, the Group utilizes
interest-rate swap transactions for each loan contract to hedge suchrisks and to fix interest expenses.
Regarding derivatives, the Group enters into forward foreignexchange contracts to reduce the foreign currency exchange risk
arising from the trade receivables and payables denominated inforeign currencies. The Group also enters into interest-rate and foreign
currency swap transactions to reduce fluctuation risk deriving frominterest payable for loans and bonds bearing interest at variable rates.
Information regarding the method of hedge accounting, hedging
instruments and hedged items, hedging policy, and the assessment of
the effectiveness of hedging activities is found in Note 2. (p). Derivativeand hedging transactions.
In conducting derivative transactions, the division in charge ofeach derivative transaction follows the internal policies and the Group
enters into derivative transactions only with financial institutions whichhave a sound credit profile.
(c) Fair value of financial instruments
The fair value of financial instruments is based on their market price,
if available. When there is no market price available, fair value isreasonably estimated. In addition, the notional amounts of derivatives
in Note 17. “Derivative and Hedging Activities” are not necessarily
indicative of the actual market risk involved in derivative transactions.

(1) Fair value of financial instruments
Carrying amount on the consolidated balance sheets as of March 31, 2014 and 2013 and estimated fair value and differences of financial
instruments were as follows:

Cash and deposits
Notes and accounts receivable–trade
Investment securities:
Available-for-sale securities
Total assets
Notes and accounts payable–trade
Short-term loans payable
Long-term loans payable
Total liabilities

Cash and deposits
Notes and accounts receivable—trade
Investment securities:
Available-for-sale securities
Total assets
Notes and accounts payable—trade
Short-term loans payable
Long-term loans payable
Total liabilities

Carrying
amountMillions of yen
2014
Fair
value

¥ 58,336
134,959¥ 58,336
134,959¥——$ 566,809
1,311,300$ 566,809
1,311,300$

37,166¥230,462¥ 70,002
19,677
251,728¥341,407

37,166¥230,462¥ 70,002
19,677
254,301¥343,980

—
—
—
—
2,572
¥2,572

361,115$2,239,234$ 680,159
191,187
2,445,861$3,317,208

361,115$2,239,234$ 680,159
191,187
2,470,861$3,342,208————
24,990$24,990

Carrying
amountMillions of yen
2013
Fair
value

¥ 24,743
123,282¥ 24,743
123,282

33,361¥181,386¥ 70,785
23,575222,293¥316,654

33,361¥181,386¥ 70,785
23,575
225,607¥319,968

Difference¥¥

Thousands of U.S. dollars
2014
Carrying
Fair
amountvalue
Difference

—
—

$
$

Difference

¥

—
—

—
—
—
—
3,313
¥3,313¥¥

The table above does not include financial instruments for which it is extremely difficult to determine the fair value. For information on those
items, please refer to note (2) below. The current portion of long-term loans payable shown as “Short-term loans payable” in consolidated balance
sheets are included in “Long-term loans payable” in the table above.

Taiyo Nippon Sanso Corporation | Annual Report 201443

Valuation method of fair value of financial instruments andinformation on investment securities and derivative transactions
were as follows:
Cash and deposits and notes and accounts receivable –trade
Since these items are settled in a short period of time, their carrying
amount approximates fair value.
Investment securities
The fair value of stocks is based on quoted market prices of the stock
exchange. For information on securities classified by holding purpose,
please refer to Note 6 “Investment securities.”
Notes and accounts payable–trade and short-term loans payable
Since these items are settled in a short period of time, their carrying
amount approximates fair value.
Long-term loans payable
The fair value of bonds is measured at the quoted market price. The
fair value of long-term loans payable other than bonds is based on thepresent value of the total of principal and interest discounted by theinterest rate combined of the risk free rate and credit spread. Interestrate swap transactions are utilized for most variable rate loans to fix
interest expense. All interest-rate swap transactions meet the criteria
for the short-cut method of interest-rate swap transactions and are
integrally processed with those loans. Therefore, the fair value of
those loans is based on the present value of the total of principal
and interest processed with interest-rate swap discounted by therate above.

(2) Financial instruments as of March 31, 2014 and 2013 for which it
is extremely difficult to determine the fair value
Thousands of
U.S. dollars
2014

Millions of yen
2014
2013

Unlisted stocks¥30,154¥26,749$292,985(3) Redemption schedule for financial assets with maturities
subsequent to March 31, 2014 and 2013
Thousands ofMillions of yen
U.S. dollars
2014
2013
2014
Due in one year or less

Cash and deposits
Notes and accounts
receivable—trade¥ 58,336¥ 24,743$ 566,809

134,959

123,282

1,311,300(4) Redemption schedule for long-term loans payable is disclosed in
Note 8. “Short- Term Loans Payable, Long-Term Loans Payable
and Lease Obligations.”(5) Unused overdraft agreements and loan commitment lines were¥51,282 million ($498,271 thousand) and ¥47,295 million as ofMarch 31, 2014 and 2013, respectively.

17. Derivative and Hedging Activities
Derivative transactions for which hedge accounting is applied for the years ended March 31, 2014 and 2013 were as follows:(a) Currency-related

Hedged item

Deferral hedge accounting
Foreign exchange forward contracts:
Sell:
USD
TWD
MYD
Buy:
USD
EUR
CHF
SGD
TWD
MYD
Foreign currency swaps:
Sell:
USD
Buy:
SGD
Total

Contract
amountMillions of yen
2014
Due after
one year

Fair
value

¥

*

Accounts receivable—trade
¥ 568
4
668

—
—
—

Accounts payable—trade
4,002
111
510
21
1,607
297

—
—
—
—
—
—

1,576

1,501

169
¥9,53730¥1,532Long-term loans payable* The estimated fair value of the foreign exchange forward contracts and foreign currency swaps is included in the fair value of the receivables/payables as the hedged
items.

44

Taiyo Nippon Sanso Corporation | Annual Report 2014

Hedged item

Deferral hedge accounting
Foreign exchange forward contracts:
Sell:
USD
TWD
MYD
Buy:
USD
EUR
CHF
SGD
TWD
Foreign currency swaps:
Sell:
USD
Buy:
SGD
Total

Contract
amountMillions of yen
2013
Due after
one year

Fair
value

Accounts receivable—trade¥1,166
3
478

¥ —
—
—

975
269
169
1
1,418

—
—
—
—
—

1,002

85

395
¥5,879

169
¥255

*

Accounts payable—tradeLong-term loans payable* The estimated fair value of the foreign exchange forward contracts and foreign currency swaps is included in the fair value of the receivables/payables as the hedged
items.

Hedged item

Deferral hedge accounting
Foreign exchange forward contracts:
Sell:
USD
TWD
MYD
Buy:
USD
EUR
CHF
SGD
TWD
MYD
Foreign currency swaps:
Sell:
USD
Buy:
SGD
Total

Thousands of U.S. dollars
2014
Contract
Due after
Fair
amountone yearvalue

Accounts receivable—trade$ 5,519
39
6,490

$

—
—
—

*

Accounts payable—trade
38,885
1,079
4,955
204
15,614
2,886

—
—
—
—
—
—

15,313

14,584

1,642$92,664291$14,885

Long-term loans payable* The estimated fair value of the foreign exchange forward contracts and foreign currency swaps is included in the fair value of the receivables/payables as the hedged
items.

Taiyo Nippon Sanso Corporation | Annual Report 201445

(b) Interest-related
Millions of yen

Thousands of U.S. dollars

2014

Short-cut method
Interest-rate swap agreements:
Receive floating/Pay fix

Hedged item

Contract
amountDue after
one yearLong-term loans payable¥41,619 ¥29,297

2014
Fair
value

*

Contract
amountDue after
one year$404,382 $284,658

Fair
value

*

Millions of yen
2013

Short-cut method
Interest-rate swap agreements:
Receive floating/Pay fix

Hedged item

Contract
amountDue after
one yearLong-term loans payable¥53,646 ¥38,028

Fair
value

*

* The estimated fair value of the interest-rate swap agreements is included in the fair value of long-term loans payable as the hedged item.

18. Research and Development Costs
Research and development costs included in cost of sales and selling, general and administrative expenses for the years ended March 31, 2014 and2013 totaled ¥3,170 million ($30,801 thousand) and ¥3,177 million, respectively.

19. Gain and Loss on Sales and Retirement of Noncurrent Assets
Significant components of the gain on sales of noncurrent assets of ¥3,846 million ($37,369 thousand) and ¥31 million for the years ended March
31, 2014 and 2013, respectively, were as follows:
Millions of yen
2014
2013

Land and buildings¥3,846¥31

Thousands of
U.S. dollars
2014$37,369

20. Impairment Loss
The Company and its consolidated subsidiaries categorize businessassets by business segmentation and idle assets without a specificfuture use are categorized separately.
For specialty gas production facilities whose future cash flows
were below their book values due to a decline in profitability due tochanges in the business environment, the book values are written
down to the recoverable amounts and such write-downs wererecorded as impairment loss of ¥1,055 million ($10,251 thousand) for
the year ended March 31, 2014. The recoverable amounts for the relevant assets are measured by value in use, calculated by discounting
the future cash flows at 6 to 12%.

For business assets affected by a decrease in the fair market
value of land, the book values are written down to the recoverable
amounts and such write-downs were recorded as impairment loss of¥127 million ($1,234 thousand) for the year ended March 31, 2014,
due to the probability of a recovery in the market value in the near
future. The recoverable amounts for the relevant assets are the estimated net selling price (publicly notified land price based on property
tax valuation).
For idle assets affected by a decrease in the fair market value ofland, the book values are written down to the recoverable amount andsuch write-downs were recorded as impairment loss of ¥50 million forthe year ended March 31, 2013, due to the probability of a recovery inthe market value in the near future. The recoverable amounts for the
relevant assets are the estimated net selling price (publicly notified
land price based on property tax valuation).

21. Loss on Liquidation of Business
The amount recorded in loss on liquidation of business in theaccompanying consolidated statement of operations corresponds toexpenses to terminate the joint activities with Evonik Degussa Japan
Co., Ltd. for the manufacturing of monosilane gas, which consisted of46

early termination costs of ¥19,800 million and losses from theliquidation of the joint venture and others of ¥3,476 million for the year
ended March 31, 2013.

Taiyo Nippon Sanso Corporation | Annual Report 201422. Other Comprehensive Income
Reclassification adjustments and tax effects allocated to each component of other comprehensive income for the years ended March 31, 2014 and2013 were as follows:
Thousands of
U.S. dollars
2014

Millions of yen
2014
2013

Valuation difference on available-for-sale securities:
Amount arising during the year
Reclassification adjustments for gains and losses included in net income (loss)
Amount before tax effects
Tax effects
Valuation difference on available-for-sale securities
Deferred gains or losses on hedges:
Amount arising during the year
Reclassification adjustments for gains and losses included in net income (loss)
Amount before tax effects
Tax effects
Deferred gains or losses on hedges
Foreign currency translation adjustments:
Amount arising during the year
Reclassification adjustments for gains and losses included in net income (loss)
Amount before tax effects
Tax effects
Foreign currency translation adjustments
Pension liability adjustment of foreign subsidiaries:
Amount arising during the year
Reclassification adjustments for gains and losses included in net income (loss)
Amount before tax effects
Tax effects
Pension liability adjustment of foreign subsidiaries
Remeasurements of defined benefit plans:
Amount arising during the year
Reclassification adjustments for gains and losses included in net income (loss)
Amount before tax effects
Tax effects
Remeasurements of defined benefit plans
Share of other comprehensive income of associates accounted for using the equity method:Amount arising during the year
Reclassification adjustments for gains and losses included in net income (loss)
Share of other comprehensive income of associates accounted for using the equity method
Total other comprehensive income (loss)¥ 5,090(3,652)
1,438
(511)
927

¥ 2,86925
2,894(1,041)
1,853$ 49,456(35,484)
13,972(4,965)
9,007

297
(119)
178
(65)
113

58
(199)
(140)
47
(93)

2,886
(1,156)
1,729
(632)
1,098

21,761—
21,761—
21,761

11,075—
11,075—
11,075

211,436—
211,436—
211,436

—
—
—
—
—

(34)
42
8
(11)
(3)

—
—
—
—
—

261
14
275
(121)
154

—
—
—
—
—

2,536
136
2,672
(1,176)
1,496

1,581
411
1,992
¥24,950

1,134
—
1,134
¥13,966

15,361
3,993
19,355$242,421

23. Segment Information(a) Overview of reportable segments
The reportable segments of the Company are components for which
discrete financial information is available and whose operating results
are regularly reviewed by the Board of Directors to make decisions
about resource allocation and to assess performance.
The Company is made up of segments based on individual business headquarters classified by products, services and sales markets.
Therefore, the reportable segments of the Company consist of“Industrial gas,” “Electronics,” “Energy” and “Other.”The “Industrial gas” segment produces and sells gases andrelated equipment used in the domestic and overseas steel andchemical industry. The plant engineering business is included in thissegment considering the similarities of major customers.

The “Electronics” segment produces and sells gases and related
equipment used in the domestic and overseas electronics industry.
The “Energy” segment sells liquefied petroleum gas in Japan.
The “Other” segment mainly consists of the medical-related
business which sells medial gas, and the thermos business which
produces and sells housewares.
(b) Method of calculating net sales, income (loss), assets,
liabilities and other items by reportable segment
Accounting policies of the reportable segments are consistent tothose described in Note 2. “Summary of Significant Accounting
Policies.” Segment income is based on operating income.
Intersegment sales or transfers are based on prevailing market price.

Taiyo Nippon Sanso Corporation | Annual Report 201447

(c) Net sales, income (loss), assets, liabilities and other items by reportable segment

Industrial gas

Net sales:
Sales to third parties
Intersegment sales or transfers
Total
Segment income (operating income)
Other item:
Depreciation expenses

Net sales:
Sales to third parties
Intersegment sales or transfers
Total
Segment income (operating income)
Other item:
Depreciation expenses

Total

Adjustments Consolidated¥338,616
2,000
340,616¥ 21,933¥98,399
136
98,535¥ 5,282¥44,5112,352
46,863¥ 1,674¥41,2193,385
44,605¥ 3,782¥522,746
7,875
530,621¥ 32,673¥—(7,875)(7,875)¥(1,183)¥522,746—
522,746¥ 31,489¥ 22,207¥ 9,200¥¥ 1,868¥ 33,722¥ (214)¥ 33,507

Industrial gas

Net sales:
Sales to third parties
Intersegment sales or transfers
Total
Segment income (operating income)
Other item:
Depreciation expenses

Millions of yen
2014
Reportable segments
Electronics
EnergyOther

446

Millions of yen
2013
Reportable segments
Electronics
Energy
Other

Total

Adjustments Consolidated¥298,073
1,742
299,816¥ 21,322¥96,546
157
96,703¥ (536)¥40,031
1,985
42,016¥ 1,808¥33,7362,552
36,289¥ 3,291¥468,387
6,437
474,825¥ 25,885¥—(6,437)(6,437)¥(1,000)¥468,387—
468,387¥ 24,884¥ 17,977¥ 9,806¥¥ 1,493¥ 29,724¥ (323)¥ 29,400

446

Industrial gas

Thousands of U.S. dollars
2014
Reportable segments
Electronics
EnergyOther
Total$3,290,089
19,4333,309,522$ 213,107$956,073
1,321
957,394$ 51,321$432,482
22,853455,334$ 16,265$400,496 $5,079,149
32,89076,516433,395 5,155,665$ 36,747 $ 317,460$$ 215,770$ 89,390$ 4,333$ 18,150 $ 327,653$ (2,079) $ 325,564

Adjustments Consolidated— $5,079,149(76,516)—(76,516) 5,079,149$(11,494) $ 305,956

Notes: 1. Adjustments for segment income of ¥(1,183) million ($(11,494) thousand) and ¥(1,000) million for the years ended March 31, 2014 and 2013 include intersegment eliminations of ¥371 million ($3,605 thousand) and ¥383 million, and corporate general administration expenses which mainly consisted of basic researchand development expenses and are not allocable to each reportable segment of ¥(1,554) million ($(15,099) thousand) and ¥(1,384) million, respectively.
2. The Company does not allocate assets to reportable segments.

(d) Information by geographical area
(1) Net salesJapan¥352,069

Japan¥329,771

Japan$3,420,803(2) Property, plant and equipment
Millions of yen
2014
The United States
Others¥102,772¥67,905

Millions of yen
2013
The United States
Others¥81,024¥57,592

Thousands of U.S. dollars
2014
The United States
Others$998,562$659,784

Total

Japan

¥522,746¥161,440

Total

Japan

¥468,387¥159,074

Total

Japan

$5,079,149$1,568,597

Millions of yen
2014
The United States
Others¥111,813¥33,802

Millions of yen
2013
The United States
Others¥82,994¥30,073

Thousands of U.S. dollars
2014
The United States
Others$1,086,407$328,430

Total¥307,057

Total¥272,142

Total$2,983,453(e) Information about major customers
Information about major customers is not disclosed since there are no outside customers that make up more than 10% of net sales on the
consolidated statement of income.

48

Taiyo Nippon Sanso Corporation | Annual Report 2014

(f) Information on impairment loss by reportable segments

Impairment loss

Impairment loss

Impairment loss

Industrial gas

Electronics

Millions of yen
2014
EnergyOther¥127¥1,055¥—

Industrial gas

Electronics

Millions of yen
2013
Energy
Other

¥45

¥—

¥—

¥—

¥4

Corporate/Eliminations

Total

¥—

¥1,183

Corporate/Eliminations

Total

¥—

¥50

Industrial gas

Electronics

Thousands of U.S. dollars
2014
EnergyOther
Corporate/Eliminations$1,234$10,251

$—

$—

$—

Total

$11,494(g) Information on amortization and unamortized balance of goodwill by reportable segments

Amortization
Unamortized balance

Amortization
Unamortized balance

Amortization
Unamortized balance

Industrial gas

Electronics¥ 3,471
62,837¥——

Industrial gas

Electronics¥ 2,769
43,329¥——Industrial gas

Electronics$ 33,725
610,542$——Millions of yen
2014
Energy
Other

¥159
361

¥ 236
2,129

Millions of yen
2013
Energy
Other

¥223
231

¥—
—

Corporate/Eliminations

Total

¥—
—

¥ 3,868
65,327

Corporate/Eliminations

Total

¥—
—

¥ 2,992
43,561Thousands of U.S. dollars
2014
EnergyOther
Corporate/Eliminations$1,545
3,508$ 2,293
20,686

$—
—

Total

$ 37,583
634,736(h) Information on amortization and unamortized balance of negative goodwill which resulted from business combinations prior to April 1,2010 by reportable segments

Amortization
Unamortized balance

Amortization
Unamortized balance

Amortization
Unamortized balance

Industrial gas

Electronics

¥84
11

¥11
11

Industrial gas

Electronics

¥215
54

¥11
22

Industrial gas

Electronics

$816
107

$107
107

Millions of yen
2014
Energy
Other

¥10
—

¥93
—

Millions of yen
2013
Energy
Other

¥25
10

¥20
19

Corporate/Eliminations

Total

¥—
—

¥199
22

Corporate/Eliminations

Total

¥—
—

¥273
106

Thousands of U.S. dollars
2014
EnergyOther
Corporate/Eliminations$97—

Taiyo Nippon Sanso Corporation | Annual Report 2014

$904
—

$—
—

Total

$1,93421449

24. Supplementary Cash Flow Information
Cash and cash equivalents in the consolidated statements of cash
flows for the years ended March 31, 2014 and 2013 were reconciled to cash and deposits reported in the consolidated balance
sheets as of March 31, 2014 and 2013 as follows:
Millions of yen
2014
2013

Cash and deposits
Time deposits withmaturities of more than
three months
Cash and cash equivalents

Thousands of
U.S. dollars
2014¥58,336¥24,743$566,809(2,248)¥56,088(2,022)¥22,721(21,842)$544,967

The acquisition cost and net payments for assets and liabilities ofPacific Medico Co., Ltd., Continental Carbonic Products, Inc., and 11
other companies acquired through a stock purchase, for the year
ended March 31, 2014 were as follows:
Millions of yen

Thousands of
U.S. dollars¥ 7,181
11,307
15,665(1,968)(312)(31,873)
1,711$ 69,773
109,862
152,206(19,122)(3,031)(309,687)
16,625¥(30,162)$(293,063)

Current assets
Noncurrent assets
Goodwill
Current liabilities
Noncurrent liabilities
Acquisition cost of stock
Cash and cash equivalents
Purchase of investments in subsidiaries
resulting in change in scope of
consolidation

The acquisition cost and net payments for assets and liabilities of
RASIRC, Inc., acquired through a stock purchase, for the year ended
March 31, 2013 were as follows:
Millions of yen

Current assets
Noncurrent assets
Goodwill
Current liabilities
Noncurrent liabilities
Acquisition cost of assets
Cash and cash equivalents
Purchase of investments in subsidiaries resulting inchange in scope of consolidation

¥ 141
616
713
(220)
(698)
(549)
36
¥(513)

The acquisition cost and net payments for assets and liabilities of
US Airweld, Inc., A&F Welding Supply, Inc., Whitmer Welding
Supplies, Inc. and Evergreen Supply, Inc., acquired through an assets
purchase by Matheson Tri-Gas, Inc., a consolidated subsidiary of theCompany, for the year ended March 31, 2013 were as follows:
Millions of yen

Current assets
Noncurrent assets
Goodwill
Current liabilities
Acquisition cost of assets
Cash and cash equivalents
Payments for assets purchase

¥

341
1,153
974
(51)
(2,417)—¥(2,417)

25. Related Party Transactions
Related party transactions for the year ended March 31, 2014 are summarized as follows:
Related party

Transactions

Mitsubishi Chemical Holdings Corporation *1

Third-party allotment *2
Disposal of treasury stock *2

Millions of yen

Thousands of
U.S. dollars¥20,610$200,253

10,370100,758*1 The Company executed a capital and business alliance agreement with Mitsubishi Chemical Holdings Corporation on September 26, 2013.
*2 Mitsubishi Chemical Holdings Corporation entered into an agreement on the third-party allotment and disposal of treasury stock of the Company based on theclosing price of the Company’s common stock at the Tokyo Stock Exchange, Inc. on the business day immediately before the date of the resolution at the Boardof Directors’ meeting.

There were no related party transactions for the year ended March 31, 2013.

50

Taiyo Nippon Sanso Corporation | Annual Report 2014

26. Business Combinations
Stock acquisition of Pacific Medico Co., Ltd.
On October 1, 2013, the Company acquired all the outstanding
shares of Pacific Medico Co., Ltd. (hereinafter “Pacific Medico”) andmade Pacific Medico a consolidated subsidiary based on resolution of
the board of directors’ meeting held on September 11, 2013.

(d) Amount of goodwill, reason for goodwill, method and periodof amortization(1) Amount of goodwill¥2,365 million ($22,979 thousand)(2) Reason for goodwill
Any excess of the acquisition cost, which was calculated bytaking into account projections of the future revenue as of thevaluation date, over the net amount of assets acquired andliabilities assumed was recognized as goodwill.

(a) Overview of the business combination(1) Name and description of the business
Name:

Pacific Medico Co., Ltd.

Description of
the business:

Manufacture and sale of respiratory care
medical equipment, such as ventilator,
suction machine, pulse oximeter, etc.

(2) Principal reasons for the business combination
The Company’s medical business mainly manufactures andsells medical gas and related equipment, and sells medical
equipment used in home oxygen therapy. The Company promotes its business strategies, including targeted M&As andproduct development, etc., in line with “strengthening thebusiness foundation as a manufacturer” as one of its mid tolong-term plans in the medical business.
Pacific Medico has expertise in product development fora wide range of needs in the respiratory care field and isaggressively expanding its business. In particular, Pacific
Medico has the top share in Japan providing home respirators for tracheotomy patients and has a product lineup centered on the imported products and is strengthening its
position as a manufacturer by acquiring manufacturing facilities. Pacific Medico has extensive experience and achievements in the respiratory care business.
By acquiring Pacific Medico, the Company is making
efforts for a full-scale entry into highly advanced medical
equipment business, such as respiratory, etc., and aims to
expand in the respiratory care business area. Pacific Medicoalso focuses on the development of diagnostic devices forsleep apnea and the improvement of the diagnostic and careenvironment and is strengthening its sleep care business.
(3) Date of the business combination
October 1, 2013(4) Legal form of the business combination
Stock acquisition in exchange for cash consideration(5) Company name after the business combination
Unchanged(3) Method and period of amortization
Straight-line method over 5 years(e) Assets acquired and liabilities assumed at the date of thebusiness combination
Millions of yen

Thousands of
U.S. dollars

Current assets
Noncurrent assets
Total assets¥4,146387¥4,533$40,2843,760$44,044

Current liabilities
Noncurrent liabilities
Total liabilities

¥ 358
40
¥ 398

$ 3,478389$ 3,867(f) Estimated impact on the consolidated statement of income
for the year ended March 31, 2014 as if the businesscombination had been completed at the beginning of the
fiscal year ended March 31, 2014 and the calculation method

Net sales
Operating income

Millions of yen

Thousands of
U.S. dollars¥1,324
69$12,864670(Calculation method of the estimated impact)
The estimated impact amounts were calculated as the difference
between sales and other profits or losses assuming that the businesscombination was completed at the beginning of the year ended
March 31, 2014 and the Company’s sales and other profits or losseson the consolidated financial statement of income. The amortization of
goodwill was calculated assuming that the goodwill, which was recognized at the date of the business combination, had arisen at the
beginning of the year ended March 31, 2014.
These amounts are not audited by the Company’s independent
auditor.

(6) Percentage of voting rights acquired
100.0%(7) Main reason to determine the acquiring company
The Company acquired all of the outstanding shares ofPacific Medico in exchange for a cash consideration.
(b) Period of results of operations of the acquired company
included in the consolidated statement of income
From October 1, 2013 to March 31, 2014(c) Acquisition cost of the acquired company¥6,500 million ($63,156 thousand)Taiyo Nippon Sanso Corporation | Annual Report 201451

Stock acquisition of Continental Carbonic Products, Inc.
On February 12, 2014 (U.S. time), through Matheson Tri-Gas, Inc.
(hereinafter “MTG”), its wholly-owned subsidiary, the Company
acquired all the outstanding shares of Continental Carbonic Products,
Inc. (hereinafter “CCPI”) based on a resolution of the Board of
Directors’ meeting held on December 3, 2013.

(c) Acquisition cost of the acquired company$234 million(d) Amount of goodwill, reason that goodwill arose, method andperiod of amortization(1) Amount of goodwill$128 million(a) Overview of the business combination(1) Name and description of the business
Name:Continental Carbonic Products, Inc.

Description of
the business:

Manufacture and sale of liquefied carbon
dioxide and dry ice(2) Principal reasons for the business combination
The Company is strengthening the business foundation in
North America to expand the business and to improve earnings, and promoting aggressive business strategy including
M&As in growth fields as well as the efficient management
through rationalization. By MTG’s acquisition of CCPI, which
is a major carbon dioxide manufacturer in the United States
and the second largest supplier in the dry ice business in the
United States, carbon dioxide is added to the Company’s
major products in this market in addition to oxygen, nitrogen,argon, acetylene, hydrogen, and the Company is strengthening its position as a comprehensive gas manufacturer and further expanding its business and to improve sustainableprofitability in the United States.
Specifically, the Company is entering into the carbon
dioxide and dry ice market in the United States for full-scale inwhich the demand, mainly for commodities and beverages, isincreasing.
The Company aims to expand its business in the UnitedStates by achieving cross sales of dry ice, specialty gas,liquefied carbon dioxide and refrigeration equipment, etc. insales channels of both companies and utilizing theCompany’s gas application technology.
(3) Date of the business combination
February 12, 2014 (U.S. time)(2) Reason that goodwill arose
Any excess of the acquisition cost, which was calculated bytaking into account projections of the future revenue as of thevaluation date, over the net amount of assets acquired andliabilities assumed was recognized as goodwill.
(3) Method and period of amortization
Straight-line method over 20 years
As the allocation of the acquisition cost has not been completed,
the Company has used a provisional accounting treatment based onreasonable information currently available.
(e) Assets acquired and liabilities assumed at the date of thebusiness combination
Millions of U.S. dollars

Current assets
Noncurrent assets
Total assets

$ 16
96
$113

Current liabilities
Total liabilities

$
$

7
7

The above are provisional amounts which are reflected in the
consolidated financial statements as of March 31, 2014.
(f) Estimated impact on the consolidated statement of income
for the year ended March 31, 2014 as if the businesscombination had been completed at the beginning of the
fiscal year ended March 31, 2014 and the calculation method
Millions of U.S. dollars(4) Legal form of the business combination
Stock acquisition in exchange for a cash consideration(5) Company name after the business combination
Unchanged(6) Percentage of voting rights acquired
100.0%(7) Main reason to determine acquiring company
MTG, a wholly-owned subsidiary of the Company, acquired allof the outstanding shares of CCPI in exchange for a cash
consideration.
(b) Period of results of operations of the acquired company
included in the consolidated statement of income.
The results of operations of the acquired company were notincluded in the consolidated statement of income for the year
ended March 31, 2014.

52

Net sales
Operating income$115
6(Calculation method of the estimated impact)
The estimated impact amounts were calculated as the difference
between sales and other profits or losses assuming that the businesscombination was completed at the beginning of the year ended
March 31, 2014 and the Company’s sales and other profits or losseson the consolidated financial statement of income. The amortization of
goodwill was calculated assuming that the goodwill, which was recognized at the date of the business combination, had arisen at the
beginning of the year ended March 31, 2014.
These amounts are not audited by the Company’s independent
auditor.

Taiyo Nippon Sanso Corporation | Annual Report 201427. Subsequent Events(a) Appropriation of retained earnings
The following appropriations of retained earnings, which have not been reflected in the accompanying consolidated financial statements for the year
ended March 31, 2014, were approved at the shareholders’ meeting held on June 27, 2014.

Millions of yen

Thousands of
U.S. dollars¥2,598$25,243

Cash dividends—¥6.00 ($0.058) per share(b) Change in reportable segments
The reportable segments of the Company consist of “Industrial gas,”“Electronics,” “Energy” and “Other” for the year ended March 31,
2014. The Company decided to change its reportable segments to“Japan gas,” “United States gas,” “Asia gas” and “Other” from theyear ending March 31, 2015.

This change is in accordance with the decision to reorganize forthe purpose of “improvement of earnings in domestic business underlower growth” and “focusing its management resources on opportunity
for overseas growth” to carry out the management strategy policies
set out under the medium-term business plan, “Ortus Stage 1.”
Net sales and income (loss) by reportable segment based on the
new reportable segment classification for the year ended March 31,
2014 is as follows:
Millions of yen
2014Japan gas

Net sales:
Sales to third parties
Intersegment sales or transfers
Total
Segment income (operating income)¥341,883
5,673
347,556¥ 22,483

Japan gas

Net sales:
Sales to third parties
Intersegment sales or transfers
Total
Segment income (operating income)$3,321,832
55,1203,376,953$ 218,451

Reportable segments
United States gas
Asia gas¥107,504
4,610
112,114¥ 4,842¥54,349897
55,246¥ 2,668

Other

Total

¥19,010746
19,756¥ 3,064¥522,746
11,926534,672¥ 33,058$528,070
8,716
536,786$ 25,923$184,707
7,248
191,955$ 29,771¥

Consolidated—(11,926)(11,926)¥ (1,569)¥522,746—
522,746¥ 31,489

Total

Adjustments

Consolidated$5,079,149
115,876
5,195,025$ 321,201$—(115,876)(115,876)$ (15,245)$5,079,149—
5,079,149$ 305,956

Thousands of U.S. dollars
2014
Reportable segments
United States gas
Asia gas
Other$1,044,539
44,792
1,089,332$ 47,046

Adjustments

Note: Adjustments for segment income of ¥(1,569) million ($(15,245) thousand) for the year ended March 31, 2014 include intersegment eliminations of ¥(14) million($(136) thousand) and corporate general administration expenses, which mainly consisted of basic research and development expenses and are not allocable to
the reportable segments of ¥(1,554) million ($(15,099) thousand).

Taiyo Nippon Sanso Corporation | Annual Report 2014

53

Report of Independent Auditors

54

Taiyo Nippon Sanso Corporation | Annual Report 2014

Investor Information(At March 31, 2014)

Head Office:Toyo Building, 1-3-26, Koyama, Shinagawa-ku, Tokyo 142-8558, Japan
Number of Employees:
12,955
Date of Incorporation:
October 1910
Number of Shares:
Authorized—1,600,000,000

Issued—433,092,837

Minimum Trading Unit:
1,000 shares
Number of Stockholders:
14,123
Transfer Agent for Shares:
Mizuho Trust & Banking Co., Ltd.
Major Stockholders:Thousands ofShares Owned

Major Stockholders

Mitsubishi Chemical Corporation
Mitsubishi Chemical Holdings Corporation
JFE Steel Corporation
Taiyo Nippon Sanso Client Shareholding Society
Mizuho Corporate Bank, Ltd.
Meiji Yasuda Life Insurance Company
The Master Trust Bank of Japan, Ltd. (Trust Account)
The Norinchukin BankJapan Trustee Services Bank, Ltd. (Trust Account)
National Mutual Insurance Federation ofAgricultural Cooperatives

60,94755,85025,25420,876
16,36516,007
10,621
10,0009,317

Percentage of
Total

14.07%
12.90
5.83
4.82
3.78
3.70
2.45
2.31
2.15

8,675

2.00

233,91254.01%

Common Stock Price Range and Trading Volume:(Yen)(Thousand shares)

1,000

100,000
Common Stock Price Range

800

80,000600

60,000400

40,00020,000200
Trading Volume00
1st Quarter 2nd Quarter 3rd Quarter

4th Quarter

Fiscal year 2013

Taiyo Nippon Sanso Corporation | Annual Report 2014

1st Quarter 2nd Quarter 3rd Quarter

4th Quarter

Fiscal year 201455

Toyo Building, 1-3-26, Koyama,
Shinagawa-ku, Tokyo 142-8558, Japan
Tel: 81-3-5788-8000
www.tn-sanso.co.jp

Printed in Japan