The Gas Professionals

Think Globally, Act Locally

Annual Report

2008

Year Ended March 31, 2008

Profile
Taiyo Nippon Sanso Corporation is the fruit of the merger of Nippon Sanso Corporation
and Taiyo Toyo Sanso Co., Ltd., on October 1, 2004. The Company is drawing on thecapabilities of its two predecessors in its drive to become a leading player in Asia andaround the world.
Management Philosophy“Market-driven collaborative innovation: improving the future through gases”
Financial Highlights

Taiyo Nippon Sanso Corporation and Consolidated Subsidiaries
Years ended March 31, 2008 and 2007

Millions of yen
2008
2007

Operating Results
Net sales
Net income¥507,718
21,930¥458,587
20,094Yen
2008

Per share data:
Net income2
Cash dividends¥0054.48
12.00

2007

¥0049.93
12.00

Millions of yen
2008
2007

Corporate Position
Total assets
Total shareholders’ equity¥547,237
203,696¥547,791
201,297

Thousands of
U.S. dollars1
2008$5,067,552
218,884
U.S. dollars1
2008$0,0000.54
0.12
Thousands of
U.S. dollars1
2008$5,461,992
2,033,197

Percentagechange10.7%)
9.1)%
Percentagechange9.1%)—)%
Percentagechange(0.1)%
1.2)%

Notes: 1. U.S. dollar amounts have been translated, solely for convenience, at the rate of ¥100.19=U.S.$1,
the approximate rate of exchange at March 31, 2008.
2. Net income per share is computed based on the weighted average number of shares ofcommon stock outstanding during each year, as adjusted retroactively for free share
distributions made during the period.

Contents
1
2
4
12
14
21
23
24
27
28
33
48
49

Operational Highlights
To Our Stakeholders / Becoming an Asian-Born Major Global Player
Special Feature
Segment Overview
Our Businesses
Corporate Social Responsibility
Board of Directors, Corporate Auditors and Corporate Officers
Analysis of Operating Results and Financial Position
Six-Year Summary
Consolidated Financial Statements
Notes to Consolidated Financial Statements
Report of Independent Auditors
Investor Information

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 in demands for the Company’s products and services.

Operational Highlights

New Medium-Term Business Plan and
Outlook for Fiscal 2009 and Beyond
Industrial gases are used widely today and producers use a variety of methods to provide
gas to their customers around the world, including via pipeline, tanker truck and cylinder. At present, there are five industrial gas producers with global operations—of which
the Taiyo Nippon Sanso Group is one—and these five companies account for approximately 80% of the global market. The Taiyo Nippon Sanso Group currently ranks fifth
in the world.
Having surpassed the targets set forth in our previous Global 5000: Stage I mediumterm business plan a full two years ahead of schedule, we have introduced a new plan,
Stage 10: The Challenge of Becoming a Global Player (II), designed to accelerate our­progression to the next stage of growth. Looking ahead, we will continue to implement
decisive measures aimed at accommodating customer needs in promising markets
worldwide and enabling us to maintain and eventually expand our customer base. We
will also work to address crucial issues as we step up the pace of growth.
For more information on our strategies and efforts, see the special feature section of this report,­beginning on page 4.

Specific Strategies Outlined in Our New
Medium-Term Business Plan

Strategy 1
We will decisively allocate management resources and strengthen our presence in­growing markets and regions. Tailoring efforts to accommodate the supply and demandbalance in different markets, we will promote selective, ongoing investment with theaim of optimizing facilities in our core businesses. Based on the outcome of these
efforts, we will seek to concentrate the allocation of management resources in key
growth markets and regions.

Strategy 2
We have positioned electronics as a key growth industry and a target for the continued,
decisive allocation of management resources. In particular, we will focus on specialty
gases, including helium and monosilane, and will work to enhance profitability andensure a stable supply by expanding production activities and reinforcing strategic
efforts to expand upstream businesses.

Strategies 3–7
We will promote an active merger and acquisition (M&A) strategy to avail ourselves offavorable opportunities that will reinforce our operating foundation in Japan and overseas. We will also strive to ensure an appropriate level of financial resources, building on
our basic and applied technologies to launch and expand activities in new businessareas. Additionally, we will implement initiatives aimed at raising operating efficiency
by reducing costs and strengthening Group management. Furthermore, we will endeavor to foster human resources capable of supporting globalization and realizing our
vision for the future.

1

To Our Stakeholders

consolidated net sales of ¥500,000 million in the
period under review, we mapped out a new mediumterm business plan that sets forth a new basic strategy
designed to accelerate our progression to the nextstage of growth.
* Changes in Japanese tax regulations in fiscal 2008 resulted in an
increase in depreciation expenses of ¥1,892 million on aconsolidated basis and ¥1,344 million on a nonconsolidated basis.

Achieving Performance Targets
In fiscal 2008, ended March 31, 2008, the second
year of our Global 5000: Stage I medium-term business plan, we continued to focus on further expanding our business and improving management
efficiency, with the aim of achieving our vision of
becoming an Asian-born major global player in theindustrial gas industry. We also undertook strategic
M&As, forward-looking capital investment and othermeasures aimed at cultivating new businesses. Owing
to such efforts, our mainstay gas business registeredfirm results both in Japan and overseas. Our plantand gas equipment business also reported an increasein sales. The inclusion of the results of Linweld Inc.,of the United States, and the helium gas business ofthe former BOC Group plc, both acquired in fiscal
2007, also contributed to our fiscal 2008 performance. As a consequence, consolidated net sales rose
10.7%, to ¥507,718 million. Operating income rose
6.3%, to ¥38,783 million, owing to improved capacity utilization rates at our gas production facilities andsuccessful efforts to revise product prices to counterrising raw materials prices. Net income advanced
9.1%, to ¥21,930 million.*
Having already surpassed the targets of Global
5000: Stage I (consolidated net sales of ¥450,000
million and net income of ¥20,000 million in fiscal
2009) in fiscal 2007—a full two years ahead ofschedule—and our long-range target of annual

Stage 10: The Challenge of Becoming a
Global Player (II)On the basis of our achievements under our previous
medium-term business plan, we formulated a newplan, Stage 10: The Challenge of Becoming a Global
Player (II), to run from fiscal 2009 through fiscal
2011. The new plan sets forth three key (“Triple 10”)indicators—a global market share of 10%, an­operating margin of 10% or higher and a return on
capital employed (ROCE) of at least 10%—and two
principal targets for fiscal 2011, namely, consolidated
net sales of at least ¥600,000 million-plus and operating income of at least ¥54,000 million. The plan also
outlines four strategic themes, which are to accelerate
growth and achieve commensurate increase in income,promote further globalization, implement cost-­cutting
measures and strengthen Group management.
Looking Ahead
While the escalating subprime loan crisis remains a
cause for concern, the impact on the industrial gases
business in Japan, China and elsewhere in Asia, andin North America, is expected to be relatively­insignificant. We also expect that key user industries,
including steel, chemicals and electronics, will­c ontinue to perform well. From the electronics­i ndustry, in particular, we expect to see a sharp
increase in demand for electronic materials gases,

Becoming an Asian-Born Major Global Player

Global 5000: Stage I (April 2006–March 2008)

The success of Taiyo Nippon Sanso’s previous medium-term business plan, Global 5000: Stage I, is attributable torobust demand in principal customer industries, together with an assertive M&A program in Japan and overseas;
strategic, forward-looking steps to strengthen and expand its business in growth regions, particularly North America
and China; and the horizontal integration of its carbon dioxide gas business, and reorganization of its cryogenic
equipment and semiconductor engineering subsidiaries. These efforts enabled Taiyo Nippon Sanso to achieve theoperating profit target it had set a full two years ahead of schedule. The Company also achieved its Global 5000:
Stage I net sales target of ¥500,000 million in fiscal 2008.

2

among others, spurred by major ongoing projects
aimed at developing liquid crystal displays (LCDs)
and solar cells. To ensure stable supplies of thesegases, we intend to further broaden our focus toinclude upstream businesses, a move that we believe
will enhance our overall supply capabilities.
While demand for gases in Japan is expected to
outpace gross national product by a slight margin in
fiscal 2009, the persistently high price of crude oil islikely to continue driving up electricity and gasoline
prices, thus increasing gas production andtransportation costs and the likelihood of further
product price revisions. As a consequence of theseand other factors, we currently forecast consolidated
net sales of ¥527,000 million, operating income of¥38,400 million and net income of ¥21,000
million. The operating income and net income
forecasts represent declines from fiscal 2008, owing
to an anticipated increase in operating expenses—
the result of an additional ¥1,300 million in
expenses related to the amortization of goodwill
generated by overseas subsidiaries due to theunification of accounting procedures for thesesubsidiaries—and a ¥2,500 million increase indepreciation expenses resulting from a change in theuseful life of equipment arising from amendments toJapanese tax regulations.
In June 2008, a proposal by the Board of Directors
to maintain annual cash dividends at ¥12.00 per share
was approved at the annual meeting of shareholders.
On behalf of the Board of Directors, we thank our
stakeholders for their ongoing understanding andconfidence. We hope that this annual report will
enhance your understanding of the shift in our­strategic focus—transforming Taiyo Nippon Sanso
from an Asian market leader into a major global­player—and our efforts to achieve renewed growth. In

ChairmanHiroshi Taguchi

President
Hirosuke Matsueda

all our efforts, we look forward to your further­guidance and support.
June 27, 2008
Hiroshi Taguchi
ChairmanHirosuke Matsueda
President

Operating Highlights in Fiscal 2008

Strategic Themes•• Record-high results across the board•• Consolidated net sales: ¥507,718 million; operating
income: ¥38,783 million; net income: ¥21,930 million•• Accelerate growth and achieve commensurateincrease in income•• Promote further globalization•• Implement cost-cutting measures•• Strengthen Group management

Key Acquisitions•• Fiscal 2007: Nippoku Sanso K.K. (Japan), Linweld Inc.
(U.S.), helium business of the former BOC Group plc(U.S.)•• Fiscal 2008: Kariya Sanso K.K. (Japan), Five Star Gas& Gear, Inc. (U.S.)

Topics•• U.S. joint venture with Air Products and Chemicals,Inc., plans to begin production of helium•• Agreement signed with SKC Co., Ltd., to establish
first industrial gas joint venture in South Korea•• Official approval secured to establish industrial gas
production and sales business in China’s Dalian
Changxing Island Harbor Industrial Zone

Principal Business Integrations•• N i p p o n E k i t a n C o r p o r a t i o n ( c a r b o n d i o x i d egas business)•• Shikoku Taiyo Nippon Sanso Co., Ltd. (gas business)•• Saan-Tech Corporation (welding equipment andgas business)3

Special Feature

New Medium-Term Business Plan

Stage 10:The Challenge of
Becoming a
Global Player (II)•• Building on our achievements under our previous­medium-term business plan, Global 5000: Stage I,
Taiyo Nippon Sanso continues to rise to the challenge
of becoming a major global player.

Sta
4

Duration•• Fiscal 2009–Fiscal 2011 (three years)“Triple 10”•• Achieve a global market share of 10%•• Secure an operating margin of 10% or higher•• Maintain an ROCE* of at least 10%* As a measure of efficiency

Performance Targets•• Consolidated net sales of at least ¥600,000 million•• Consolidated operating income of at least ¥54,000 million(¥56,000 million*)

ge10* Excluding goodwill resulting from a change in accounting procedures

Four Strategic Themes•• Accelerate growth and achievecommensurate increase in income•• Promote further globalization•• Implement cost-cutting measures•• Strengthen Group management
5Seven Specific Strategies(5) Implement cost-cutting initiatives(1) Allocate management resources andstrengthen our presence in growing
markets and regions

Improve efficiency and optimize logistics

The Company will reexamine logistics from theground up, with the aim of enhancing efficiency
and optimizing procedures.

Electronics

Taiyo Nippon Sanso will establish the Sakai Gas
Center as part of a “manufacturing complex for the
21st century” to be established in Sakai, Osaka.
The Sakai Gas Center will begin producing andsupplying industrial gases in fiscal 2010 and will
position Taiyo Nippon Sanso to step up its efforts
in the growing ­l iquid crystal display (LCD)-,­semiconductor- and solar cell-related markets.

Improve efficiency of plants

Recognizing the reduction of costs as crucial tofurther enhancing its global competitiveness,
Taiyo Nippon Sanso will implement initiatives
across all aspects of its operations, from planningand design through to manufacturing andmaintenance, and will endeavor to raise efficiency
and optimize practices by promoting production
and procurement overseas.

North America

The acquisition of Southern California’s Five Star
Gas & Gear, Inc., will enable Taiyo Nippon Sanso
to reinforce its operations in that state. The
Company will also begin construction of two
major air separation plants in the United States,in Iowa and Texas, and commence production ofhelium in the state of Wyoming. Such efforts will
help strengthen the Company’s operations inNorth America.

(6) Reinforce Group management

Integrate and reorganize sales andproduction bases

Taiyo Nippon Sanso will promote the integration
and reorganization of subsidiaries with common
business portfolios. Example: Refilling stations in
Kawaguchi, Saitama, will be integrated.

China/Asia

Consolidate and integrate affiliatedcompanies

In China, Taiyo Nippon Sanso signed an agreement to manufacture industrial gases in the
Dalian Changxing Island Harbor Industrial Zone.
In South Korea, the Company has signed anagreement with local firm SKC Co., Ltd., toestablish its first joint venture for piping major
gases in that country. In July 2007, subsidiary
National Oxygen Pte. Ltd., in Singapore, commenced operations at its third air separation
plant, while in February 2008 subsidiary Ingasco
Inc. in the Philippines brought its second air separation plant on line. These and other efforts
underscore the importance of Asia—particularly
China—and the Company thus plans to continue
making strategic investments in this region.

The Company will continue to promote consolidation and integration in a bid to ­strengthen thefunctions and roles of its affiliated companies.
Example: In October 2007, the Company merged
its carbon dioxide gas business with those of
Nippon Tansan Co., Ltd., and Ekika Carbon
Dioxide Co., Ltd., in a horizontal integrationthat led to the establishment of Nippon Ekitan
Corporation, Japan’s largest carbon dioxide gas
manufacturer. This move was aimed at maximizing synergies between the two companies
and ensuring increased profitability for themerged entity.
(7) Cultivate human resources(2) Strengthen upstream strategies
In addition to helium production in the UnitedStates, the Company will attempt to position
itself as an upstream manufacturer of special andrare gases used in the electronics industry, thereby
enabling it to expand into new business areas.

Foster human resources capable ofsupporting globalization

Taiyo Nippon Sanso will initiate training programs
to improve management skills and build expertise,enabling it to cultivate human resources capableof functioning in a global business environment.

(3) Promote M&As
Taiyo Nippon Sanso will seek out favorable M&A
opportunities that align with its businessstrategies both in Japan and overseas.

Maximize human resources throughout
the Group

The Company will strive to maximize thecapabilities of its employees throughout the Taiyo
Nippon Sanso Group.

(4) Cultivate and expand new business areas
By building on its basic and applied technologies,
the Company will endeavor to stimulate new
demand for gases, as well as cultivate and expand
new businesses.

6

StageAn Interview with the President

Progress in Achievement of
Performance Targets• Net sales:¥600,000 million +• Operating income: ¥54,000 million +• ROCE:
10% +600

Net sales
Operating income
397

508

459

27

36

39

54

2006

2007

2008

2011

Global 5000

Stage 10(2007–2008)(2009–2011)(Fiscal Year)

Q. Your new medium-term business plan sets forth three key indicators, which
are referred to as the “Triple 10.” What are these and why were they chosen?

A. The “Triple 10” were chosen to gauge our success inmaintaining an optimum balance among growth,
profitability and efficiency. These indicators are a
global market share of 10%, selected as a measure of
growth; an operating margin of 10% or higher, as ameasure of profitability; and an ROCE of at least
10%, as a measure of efficiency. In fiscal 2008, theTaiyo Nippon Sanso Group was the world’s fifth-­
largest industrial gas producer, with a global market
share of approximately 7%. The top four companies
in the market all have shares in excess of 10%.
Accordingly, this is the minimum we must aspire to if
we are to be recognized as having joined the top ranks
globally. Our previous medium-term business plan
was designed as the first stage in the process of our­evolution into the first Asian-born major global player.
Under our new plan, which began in April 2008, we
aim to accelerate our progression to the next stage.

77

Q. Can you tell us a little about the new plan’s seven specific strategies?
in the area of electronic materials gases, we intend to
A. The seven specific strategies are designed to address thefurther broaden our focus to include upstream businesses, which we believe will help us expand operations and bolster our competitiveness. One example
of efforts to date is our helium gas refining and­liquefaction business in the United States.
Another key strategy will be to improve the efficiency of Group management, which we recognize as
crucial to reinforcing our operating foundation. In
Japan, we will continue to promote the integration
and reorganization of our subsidiaries and affiliates tomaximize their respective strengths, regional characteristics and business attributes with the aim of reinforcing their functions and roles and optimizing
efficiency.

challenges necessary for us to progress to the next stage.
To grow Taiyo Nippon Sanso into a company thatstacks up well alongside existing major global players,
we must step up efforts to grow and expand our corebusinesses. To this end, we will decisively allocate
management resources and strengthen our presence ingrowing markets and regions. Growth industries
include electronics, which encompasses semiconductors,
LCDs, solar cells and light-emitting diodes (LEDs),
while growth regions encompass both establishedmarkets, notably the United States, and such emerging markets as Asia, including China. We must also
aggressively leverage our basic and applied technologies to cultivate new demand for industrial gases, aswell as expand into new business fields. Additionally,Stage
Q. What are your strategies for upstream businesses?
A. A good example to illustrate our strategies iselectronic materials gases, which are used in the
manufacture of semiconductors and solar cells,
among others. Rather than simply sourcing gases for
distribution to end-users, we are exploring thepossibility of producing these gases ourselves. Ourcurrent business model positions us as a middleman,
and we are quite literally stuck in the middle, withvery little recourse in the event of an unexpected
problem with the manufacturer. Establishingourselves as a producer of electronic materials gases
will position us better to respond to fluctuations indemand, as well as make us more cost-competitive.
We are currently in negotiations with manufacturers
with the technology for producing monosilane gas,for instance, which is expected to see a huge increasein demand for use in the manufacture of solar cells.
We are looking to establish ourselves as a producer ofmonosilane gas—as we have already done for helium
gas—thereby securing us a position further up the
supply chain. To this end, we are expanding the
production capacity of pertinent facilities in Japanand overseas.

8

Q. Is it fair to say that the current strong performance of your helium gas

business is evidence that your strategy of expanding upstream businesses
through M&As has been a success?

A. Consumption of helium gas by major end-users,

demand. We are also currently in the process of­establishing a helium gas production facility in the U.S.
state of Wyoming in a joint venture with Air Products
and Chemicals, Inc., a major U.S. gas provider. The newfacility will process natural gas from a nearby gas field.

including manufacturers of optical fibers,­semiconductors and LCD panels, continues to expand
rapidly. Our acquisition last year of the helium gas
business of the former BOC Group plc has alreadyyielded considerable results, enabling us to capitalize on

Promote Ambitious M&A Strategy
PortlandGloucester

Longmont

Vacaville

Waverly

Twinsburg

JolietBasking Ridge

NewarkSan JoseMontgomeryville

VernonIrwindale

Phoenix

Albuquerque
New Johnsonville

Cucamonga
OdessaKyle

IrvingDallasWaxahachie
Westlake

San Antonio
StaffordSCP

La Porte

Morrow
DelisleGonzalesWest Palm Beach

Specialty Gas Locations
Packaged Gas Locations

Air Separation Plants

Acetylene Facility

Corporate Office

Five Star Gas & Gear

Advanced Technology
CenterTRI-TECH Locations

Linweld Locations

Q. Is the primary focus of your M&A strategy also growth industries andgrowth regions?

A. Yes, it is. In considering M&A opportunities, our basic

potential candidates based on scale and businessportfolio, but we do not pursue hostile takeovers. We
prefer to take the time necessary to negotiate in goodfaith. I believe firmly that the success of any M&A deal
is evidence of an honest, upfront approach.

concern is to ensure effective investments in growthindustries and growth regions. In the United States,
which is a massive market, our focus is on mid-tier,independent gas distributors. Asia, including China, isalso crucial. We continue to actively seek out M&A

9StageQ. What steps will you take to lower costs?
A. We are already implementing a number of cost-cutting

transport per unit of product delivered of 30% fromthe fiscal 1991 level. In addition to installing liquefied
gas LIs in all of our tanker trucks to shorten the distance trucks must travel and reduce fuel consumption,
we are also introducing energy-efficient driving, multidrop deliveries and other environment-friendly
approaches. We are also working to reinforce ourcompetitiveness in global markets by expanding local
production and procurement.

initiatives. By reducing the cost of transporting­l iquefied gas by tanker truck, we are working toenhance the efficiency of logistics. In the past, tanker
trucks would go to a weigh station after filling,­increasing the distance and time required for delivery.
With the aim of increasing the efficiency of tanker
truck transport, we have installed liquefied gas load
indicators (LIs) in 90% of our tanker trucks. We haveset a target for reducing consumption of fuel for

Q. Your new medium-term business plan calls for ongoing strategic
investments. What are your investment plans at present?

A. Under the new plan, we plan to make strategic

growth regions. We plan to invest ¥85,000 million inelectronics-related businesses and ¥68,000 million
in overseas businesses, including ¥13,000 million inelectronics-related businesses.

i­nvestments of ¥200,000 million over three years. Of
this total, 70%, or ¥140,000 million, has been­earmarked for investments in growth industries andFocus Allocation of Management Resourcesin Growing Markets and Regions
Others

30%

Electronics
North America,
China, Asia

70%

Maintain Strategic Investments
Concentrated investmentof ¥140,000 million to growing
markets and regions

10

Q. Can you tell us a bit about your plans to invest in the construction of a majorindustrial gas distribution facility at Sharp Corporation’s new manufacturing
complex for the 21st century in Sakai, Osaka?

A. We secured an order to build a facility at the complex
in a joint venture with a local manufacturer, taking amajority ownership. The joint venture will build bulk
gas production and distribution facilities to supply
bulk gases, while Taiyo Nippon Sanso alone will be
responsible for the construction of electronic materials gas production-related peripheral facilities to supply such specialty gases on our own. Sharp, a leading
manufacturer of LCDs and solar cells, and Taiyo
Nippon Sanso have enjoyed a long relationship built
on mutual trust, and we look forward to an increasein Sharp-related demand in the years ahead.

Q. In closing, can you tell us about your efforts to ensure appropriate returns
to shareholders on their investment and to promote corporate social
responsibility (CSR) management?

A. On the first question, we will strive to sustain a highimplementing initiatives, including developing new
gas production technologies to lower electricity usage
and installing liquefied gas LIs in tanker trucks to
reduce CO2 emissions during transport. We have also
developed a number of products designed to reduce
the environmental impact of our operations,
including SaanBurner, a combustion-type emissions
processing unit, and MG Shield, a cover gas for
fireproofing smelted magnesium alloy, which havefacilitated an annual reduction in CO2 emissions of
385,000 tons.
We remain committed to earning the trust of ourcustomers and society by ensuring the sustainabilityof our business activities. At the same time, we will
promote strategic investments in Japan and overseas
to ensure ongoing growth. Through these efforts, wewill endeavor to increase corporate value and achieve
our goal of becoming a major global player, thereby
allowing us to respond to the expectations of our­customers, partners, employees and shareholders.

level of growth through decisive, ongoing strategic
investments, while endeavoring to maintain returns toshareholders in line with a target consolidated payout
ratio of at least 25% of net income. We will determine actual returns based on a comprehensive assessment of various factors, including our consolidated
operating results and future investment plans.
To promote CSR management, we have outlined
three key themes. The first theme is thoroughgoing
efforts to ensure product safety, security and quality.
The second is total compliance, which we will strive
to address by establishing a system of effective­internal controls. The third theme is efforts to help
prevent global warming, which includes efforts to
reduce the environmental impact of our operations.
In fiscal 2006, annnual greenhouse gas (CO 2 )­emissions by the Taiyo Nippon Sanso Group totaled
2,153 thousand tons, of which 98% was accounted
for by gas production facilities. These facilities are11
11

Segment Overview

Gas BusinessIn fiscal 2008, shipments and sales of mainstay oxygen were up from fiscal 2007,­supported by increased demand from the steel, chemicals and shipbuilding industries,
among others. Shipments and sales of nitrogen also rose, reflecting continued, brisk
capital investment in a variety of industries, including electronics, chemicals, steel andfood processing. Shipments and sales of argon were bolstered by expanded production of silicon crystals, as well as by increased demand for use in steel smelters andwelding applications.
Shipments and sales of other industrial gases rose sharply. Shipments and sales ofcarbon dioxide to the shipbuilding and automobile industries remained firm. Shipmentsof helium to semiconductor and optical fiber manufacturers were robust. An acquisition in the United States in the previous fiscal period succeeded in expanding theGroup’s business there. Shipments of electronic materials gases rose sharply as extensive investment by semiconductor and LCD manufacturers to increase capacity utilization boosted demand in the domestic electronics industry, while demand remained
brisk in Taiwan, China and elsewhere in east Asia.
Owing to these and other factors, sales to outside customers in the Gas Business rose
10.8%, to ¥338,347 million, and operating income advanced 14.6%, to ¥30,945 million.

Plant and Gas Equipment Business
Sales of electronics-related equipment were brisk in fiscal 2008, benefiting from­significant investment as semiconductor and LCD manufacturers built new production
facilities and expanded existing capacity. In contrast, sales of chemical compound­semiconductor fabrication equipment were down, retreating after the fulfillment of amajor order at the end of fiscal 2007. Sales of cutting and welding equipment wererobust, led by strong sales of laser cutting equipment and numerically controlled (NC)cutters in Japan and overseas, a consequence of rising capacity utilization rates in thesteel, shipbuilding and construction equipment industries, and the addition of the salesof Linweld Inc., acquired in the previous period. Persistently healthy capital investmentin the domestic electronics and steel industries and firm demand in South Korea andTaiwan supported solid sales of air separation plants.
As a consequence, sales to outside customers in the Plant and Gas Equipment
Business rose 10.8%, to ¥151,717 million, and operating income declined 10.5%, to¥10,400 million.

Housewares Business and Others
Thermos K.K. spearheads the manufacture and sale of housewares products. In fiscal
2008, sales of these products rose substantially as favorable weather supported anincrease in shipments of vacuum insulated sports bottles, and sales of personal-sized
insulated mugs and thermal cookers were strong.
As a result, the segment reported an 8.6% increase in sales, to ¥17,653 million, anda 6.0% increase in operating income, to ¥1,932 million.

Sales Share
Sales Share
Sales ShareYears ended March 31
Years
ended March 31¥338,347
Years
endedmillion
March 31
¥338,347
million(66.6%of netsales)¥338,347
million(66.6% of net sales)(66.6% of net sales)

Net Sales per
Net Sales per
Employee
Net
Sales perEmployeeYears
ended March 31
Employee
Years
ended
March 31
(Millionsof yen)Years
ended
March 31
(Millions of yen)
(Millions of yen)
90
90
90
60
60
60
30
30
30
0
0
0

Sales Share
Sales Share
Sales ShareYears ended March 31
Years ended March 31¥151,717
Years endedmillion
March 31
¥151,717
million(29.9%of netsales)¥151,717
million(29.9% of net sales)(29.9% of net sales)

2007
2007
2007

2008
2008
2008

Net Sales per
Net Sales per
Employee
Net
Sales perEmployeeYears
ended March 31
EmployeeYears ended
March 31
(Millionsof yen)Years ended
March 31
(Millions of yen)
(Millions of yen)
60
60
60
40
40
40
20
20
20
0
0
0

Sales Share
Sales Share
Sales ShareYears ended March 31
Years
ended
March 31
¥17,653
millionYears
ended
March 31
¥17,653
million
(3.5%
of
net
sales)¥17,653 million(3.5% of net sales)(3.5% of net sales)

2007
2007
2007

2008
2008
2008

Net Sales per
Net
Sales perEmployee
Net
Sales perEmployeeYears ended March 31
Employee
Years
ended
March 31
(Millionsof yen)Years
ended
March 31
(Millions of yen)
(Millions of yen)
12
12
12
8
8
8
4
4
4
0
0
0

12

2007
2007
2007

2008
2008
2008

Note: Taiyo Nippon Sanso had a total of 8,471 employees. Of these, 528 employees in administrative and technical departments thatare not assigned to a specific segment are not included in the calculations for sales per employee in each segment.

Main Products• Oxygen• Nitrogen• Argon• Medical-related gases• Specialty gases• Electronic materials gases• Stable isotopes
Topics• Expanded industrial gases business• Focused on marketing high-grade welding gas
mixtures• Increased investments in Asia
• Commercialized cleaning gas that reduces
emissions of CO2 by 2/3 compared with standard
cleaning gases

Main Products• Large-scale air separation plants• Compact nitrogen generators• High-purity gas production equipment• Exhaust gas processing equipment• MOCVD equipment• Cutting and welding equipment
Topics• Built new air separation facility in California• Established Yahata Kyodo Ekisan K.K., with Nippon
Steel Corporation• Commenced operation of the Japan Hydrogen &Fuel Cell Demonstration Project’s Funabashi
Hydrogen Station• Developed exhaust gas abatement system with a
60% higher combustion efficiency than previously
offered systems

Main Products• Stainless steel vacuum bottles• Cooking implements• Professional-use kitchen implements

R&D Highlights• Launched project to unify strategies fordeveloping new products and expanding
sales of gases and related equipment,
focusing on gases used in low-temperatureapplications, welding, incineration and heat
treatment, as well as new applications andoverseas operations• Launched sales of newly developed MG
Shield, a cover gas for fireproofing
smelted magnesium alloy with a global
warming potential (GWP) of 1; MG Shield
was awarded the Ozone Layer Protection
and Global Warming Prevention Award
from the Ministry of Economy, Trade andIndustry (METI)• Commenced joint development of nextgeneration semiconductor process
technologies with International Business
Machines Corporation (IBM)R&D Highlights• Conducted R&D aimed at developing
products especially for newly installed
production lines for 300-mm diameter
wafers, and at providing solutions tailoredto the requirements of eighth-generationand later thin-film transistor (TFT) LCD
and solar battery panel production lines• Promoted plans for the construction of apilot plant and testing program aimed atcommercializing and increasing the scaleof energy-conserving air separation plant
incorporating a heat-integrated distillation
column• Focused on developing technology forcollecting and reusing hydrogen gas
given off by a petroleum refinery andpetrochemical production facility in Chiba• Developed world’s first high-capacity–200°C refrigeration unit

R&D Highlight• Continued to capitalize on proprietary
thermal insulation and metal processing
technologies to develop innovative
products

Topics• Introduced four new designs to its lineup of highly
popular insulated sports bottles• Introduced three new dishwasher-safe insulated
lunchboxes for Japanese-style boxed lunches• Introduced two new insulated mugs for office use
and two coffee makers with insulated pots

13

Our Businesses

Electronics-Related Businessalarm systems as part of our broad range of solutions
for semiconductor device and LCD manufacturing
processes.
We operate in Japan and around the world as a­partner to electronics manufacturers. We produce andsell high-purity industrial gases, electronic materials
gases and electronics-related
equipment to customers in
the United States, Taiwan,
China, Singapore and thePhilippines.

Advances in semiconductor device integration and theuse of thin films in semiconductors, together with theincreasing size of liquid crystal display (LCD) panels
and the expanding markets for semiconductors indigital appliance and automotive markets, arehighlighting the need for electronics-related firms toachieve higher quality and production efficiency. Taiyo
Nippon Sanso helps such firms by supplying via
pipeline high-purity nitrogen, an inert gas that isessential to semiconductor device, LCD and otherfabrication processes. We also deliver stable supplies ofelectronic materials gases used in film deposition andother processes and are well positioned to respond toincreases in demand.
In constructing special piping, we draw on our
industrial gas supply technologies to facilitate theinstallment of environment-friendly gas purification
and abatement systems in optimal locations. We also
provide remote monitoring of safety levels and design

Fiscal 2008 sales

Approximately ¥140,800 million

Principal products andoperations

High-purity nitrogen and argon
Electronic materials gases, including Safe Delivery Source (SDS)
MOCVD equipment
Gas purification, abatement and other systems
High-purity gas supply facility installation and construction

Market needs

Comprehensive gas supplies
Total gas and equipment solutions

Competitive advantages

Strong ties with domestic electronics manufacturers•• Close relationships with users who employ advanced technologies•• Superior marketing strength through the provision of total solutions forgas and equipment•• Comprehensive, world-class technologies•• Engineering operations and gas center network•• Supply structure covering key world markets—Japan, east Asia (South
Korea, China and Taiwan), Southeast Asia, the United States and Europe

14

Sales ofElectronics-Related
Business

Sales ofGas BusinessBillions of yen

Billions of yen

Years ended March 31
180

Years ended March 31
280

180
231

141
120

60

2008

2011
(Target)0Fiscal 2008 highlights•• Transformed affiliate NS Engineering Corporation into a wholly owned
subsidiary•• Announced plans to build helium production joint venture with Air
Products and Chemicals, Inc., in the U.S. state of Wyoming•• Commenced construction of Japan Helium Center Corporation’s Kyushu
Plant•• Developed exhaust gas abatement system for transforming harmful
semiconductor process gases into harmless gases with a 60% higher
combustion efficiency than previously offered systems

TargetSales of ¥180,000 million in fiscal 2011

Principal activities

Taiyo Nippon Sanso’s principal advantage is that it builds ”total gas
centers,” encompassing high-purity nitrogen manufacturing facilities andelectronic materials gas supply facilities on sites adjacent to semiconductor
fabrication facilities, thereby enabling it to deliver a stable supply of highquality nitrogen and materials gases.
In the period under review, we launched joint venture Sakai Gas Center
Co., Ltd., with a local manufacturer to supply a range of industrial gases toan LCD panel plant complex operated by Sharp Corporation.
Another mainstay of this business is metal organic vapor deposition(MOCVD) equipment, used in the manufacture of gallium nitride
compound semiconductors. Sales of MOCVD equipment are expanding intandem with growth in the LED market. In the period under review, wereleased SR-23K, a MOCVD system that achieves a balance between
volume and quality/uniformity, an optimal process window and high-speed
wafer growth. The Company also offers dedicated peripheral equipment
for all other processes, enabling it to provide total solutions.
Looking ahead, our principal R&D strategy will be to reinforce our sales
and technological capabilities as the leading provider of electronics-relatedgases and to concentrate efforts in growth areas, including flat-panel
displays (FPDs) and compound semiconductors. At the same time, we will
invest in development and sales activities to accommodate the different
priorities of individual customers.

15

2008

2011
(Target)Gas Businessgas control technologies. Drawing on thesecapabilities, we provide a diverse range of equipment
for the manufacture, supply, transport and storage ofvarious types of gases. In these ways, we help
industrial customers enhance their productivity andquality while supporting efforts to improve theenvironment. In addition to maintaining the largest
industrial gas supply network in Japan, we are
expanding our manufacturing and supply bases in the
United States as well as China and other parts of Asia.

Taiyo Nippon Sanso supplies oxygen, nitrogen, argon
and a host of other industrial gases that are
indispensable to advanced production activities ofmodern industry, including cutting, welding,combusting, melting, chilling and freezing. We
supply these gases in safe forms, including via
pipeline, tanker truck and cylinder.
We have built a strong technological base overmany years, gaining particular expertise in lowtemperature, high-pressure, separation, vacuum andFiscal 2008 sales

Approximately ¥231,400 million

Principal products andoperations

Oxygen, nitrogen, argon, carbon dioxide, hydrogen, helium and otherindustrial gases
Gas supply (filling, transport, storage) equipment, facilities installation andconstruction
Gas equipment (including for cutting, welding, combustion and freezing)

Market needs

Use of gases to raise productivity, enhance quality, save energy andenhance the environment
Optimal, stable, economic supply of gases

Competitive advantages

Japan’s largest and strongest industrial gas producer, offering
increased cost advantages and price competitiveness•• Production and supply capabilities•• Balanced, nationwide network of production bases•• Logistics capabilities
Approximately 500 filling stations capable of serving approximately 40%of the domestic market
Tanker truck fleet and extensive network of shipping bases
Growing marketing network, including around 250 sales agents
Further strengthening of operations in China and other parts of Asia,
as well as in the United States•• Signed agreement to manufacture industrial gases in China’s Dalian
Changxing Island Harbor Industrial Zone•• Established unassailable market positions in Vietnam, the Philippines andSingapore•• Launched U.S. business on an independent growth trajectory, led by
Matheson Tri-Gas
High market shares for other industrial gases•• In Japan, No. 1 in carbon dioxide and helium and No. 2 in acetylene

16Sales ofElectronics-Related
Business

Sales ofGas Business

Years ended March 31

Years ended March 31

Billions of yen

Billions of yen
180Years ended March 31
Billions of yen

280

180

Sales of
Onsite and Plan
Businesses

280

64

65

2008

2011
(Target)

231

141

210
120
140
60
70

2008

2011
(Target)

0

2008

2011
(Target)0Fiscal 2008 highlights•• Signed agreement to establish gas supply business in China’s Dalian
Changxing Island Harbor Industrial Zone•• Commenced operation of new air separation plants in Singapore and thePhilippines•• Acquired Five Star Gas & Gear, Inc., of southern California, via Matheson
Tri-Gas•• Launched Shikoku Taiyo Nippon Sanso Co., Ltd.
•• Reinforced stable supply structure for liquid argon

TargetSales of ¥280,000 million in fiscal 2011

Principal activities

As Taiyo Nippon Sanso’s main profit source, this business continues toexpand rapidly, supported by the efforts of other businesses.
Our basic marketing policy focuses on five tasks: establish an earnings
foundation worthy of the top name in the industry; cultivate gas use­t echnologies in growth areas; reinforce our network of sales and­distribution agencies throughout Japan; promote the optimization of filling
stations; and globalize our operations. At the same time, we will continue
to pay close attention to the opinions of our partners and customers. Inline with this policy, we have developed a business strategy and development approach that focus on maintaining and eventually expanding
demand for bulk gas. The growth engine behind this will be our ability tomaintain existing customers and demand while cultivating new customers
and demand, as well as to continue supplying gases to Japanese firms
establishing operations overseas, wherever these operations may be.
The biggest challenge to growing our gas business is the difficult market
environment in Japan, which reflects a tight supply-and-demand situation
for argon, helium and rare gases in the domestic market and rising prices
for helium imports. Accordingly, we recognize the urgent need to reinforce
our stable supply structure as a market leader. We will also endeavor toadjust gas prices as necessary to reflect increased facility investments andrising logistics costs and energy costs.

17

Sales ofElectronics-Related
Business

Sales ofGas Business

Years ended March 31

Years ended March 31

Billions of yen

Billions of yen
180Years ended March 31

280

Years ended March 31

64

Billions of yen
65

231

141

Sales of
Medical-Related
Business

Billions of yen
280

180

Sales of
Onsite and Plant
Businesses

20

70
60

210
120

Onsite and Plant Business

50

15

14

40

140

60

70

In the onsite business, we construct large cryogenic air
separation plants on the premises of major2008
industrial
2011 gas(Target)users, notably steel mills and chemical complexes. The
largest of our plants can produce up to 65,000 Nm3 ofgas per hour. We also provide stable supplies of oxygenand nitrogen through our pipelines. Our onsite business
operates around the clock every day of the year, ensuringconsistent supplies of large volumes of industrial gases
and earning us the trust of steelmakers and chemical
manufacturers.
In our plant business, we build a wide range of air
separation plants, which form the foundation of theindustrial gases business. We draw on our expertise inindustrial gas production and supply not only to serve
industrial gas producers but also to build a strong track

20

10
30
20

5

10

0

record in manufacturing00
air separation
2008
2011
2008
2011 plants,(Target)(Target)many of which we export
around the globe. In
addition, we supply many different types ofexperimental equipment, including space simulationchambers, which replicate the conditions of outer space.
We also supply equipment for exploringbasic physics and discovering new
functional materials.

Fiscal 2008 sales

Approximately ¥64,300 million

Principal operations

Onsite: Supplies of oxygen, nitrogen, argon and other gases via pipeline
Plant: Cryogenic air separation plants, pressure swing adsorption (PSA)
air separation plants/cryogenic vacuum equipment and otherchemical equipment

Market needs

Onsite: Large, stable supply systems
Plant: Production and installation of high-performance facilities

Competitive advantages

With onsite and plant businesses, Taiyo Nippon Sanso can provide
support for both plants and engineering on a global scale, drawing on
its capabilities as a manufacturer of industrial gases•• Ability to optimize facilities and operating efficiency

Fiscal 2008 highlights•• Received healthy orders from steelmakers, electronics manufacturers
and overseas customers•• Commenced operation of sixth state-of-the-art air separation plant at
Oita Sanso Center Co., Ltd.
•• Established SKC Airgas Inc., a joint venture with SKC Co., Ltd., of South
Korea•• 27-month order backlog for plants as of March 31, 2008

Targets•• Sales of ¥65,000 million in fiscal 2011•• Secure new demand for gases and expand sales in overseas markets;
endeavor to expand scale by reducing plant costs per unit of production

18

2008

2011
(Target)0

Sales ofElectronics-Related
Business

Sales ofGas Business

Years ended March 31

Years ended March 31

Billions of yen

Billions of yen
180

280

180

Sales of
Onsite and Plant
Businesses

Sales of
Medical-Related
Business

Billions of yen

Billions of yen

Years ended March 31

280

64

231

141

65

Sales of
LP Gas Busines

Years ended March 31

Billions of yen
20

70

Years ended March 31

20
50

60
210

50

120

Medical-Related Business

14

53

15

40

140

10

30

60

20

70

We build special filling facilities for medical gases0
within our industrial
gas productionand 2008
sales networks
2008
2011
2011
(Target)(Target)to ensure stable supplies of medical oxygen and otherhigh-quality gases used by medical institutions. We
help improve the safety and reliability of medical
treatment by developing pure air supply systems andother medical support equipment, as well as devices forhome oxygen therapy (HOT). In addition, we help
improve safety and reliability in the medical treatment
sector through such services as regular testing of

5

10

0

equipment and operation0
0of remotemonitoring
2008
2011
2008
2011
(Target)(Target)systems.
Applying our advanced
gas-related technologies, we also make and sell stable
isotopes for advanced diagnostics and treatment, as
well as specialty gases.

Fiscal 2008 sales

Approximately ¥13,800 million

Principal products

Medical-related oxygen and other gases
Synthesized (pure) air supply facilities, portable oxygen cylinders andmedical-use oxygen compressors
Stable isotopes

Market needs

Quality control and assurance for medical-use gases
Mass production and ongoing supply of stable isotopes used in cancer
diagnostic agents

Competitive advantages

Production and sales of pharmaceutical ingredients for positronemission tomography (PET) diagnostics•• Strong position as manufacturer of Water–18O, a pharmaceuticalingredient for reagents used in PET diagnostics, with an 80% domestic
market share•• Have commenced shipments of world-class pharmaceutical ingredientsto leading manufacturers of fluorodeoxyglucose (FDG) PET reagents in
Europe and the United States
Reliable systems for manufacture and sales of pharmaceutical products•• Continue to gather safety information and data

Fiscal 2008 highlights•• Positive market evaluation of maintenance and inventory management
services for HOT equipment, based at the Total Medical Support Center•• Increase in sales and rentals of HOT equipment and system software•• Steady gains in sales of biotechnology-related equipment to research
institutions and increase in share of market for cryopreservation equipment•• Commenced sales of DOMIWS infectious medical waste disposal
systems to hospitals through a business alliance with Koike Medical
Co., Ltd.

Targets•• Sales of ¥20,000 million in fiscal 2011•• Expand sales of stable isotopes and seek out M&A opportunities thatwill strengthen medical gas and equipment businesses

19

2008

2011
(Target)Sales ofElectronics-Related
Business

Sales ofGas Business

Years ended March 31

Years ended March 31

Billions of yen

Billions of yen
180

280

180

Sales of
Onsite and Plant
Businesses

Sales of
Medical-Related
Business

Billions of yen

Billions of yen

Years ended March 31

280

64

65

231

141

Years ended March 31

50

120

LP Gas Business

20

60

70

LP gas is highly valued as a clean energy source. Its00expandingrange
applications
includescommercial
2008
2011
2008 of 2011
(Target)(Target)air conditioning and heating equipment, home power
generation and hot water systems using generators andwaste heat, as well as fuel for taxi fleets. An environmentfriendly alternative to chlorofluorocarbons, LP gas isalso used as an aerosol gas. We satisfy a broad range ofindustrial needs through an integrated structure,
which encompasses everything from tanker truck
deliveries of bulk LP gas to the design and installationof air conditioning and cogeneration systems.

60
50

14

53
50

15
40

40

140

2011
(Target)Billions of yen
20

70

Years ended March 31

60
210

2008

Sales of
LP Gas Business

10

30

30
20

20
10
0

5
10

The Taiyo Nippon
00Sanso2008
Group2011sells LP gas
2008
2011
(Target)(Target)for household heating,
hot water and air conditioning use through 94,000 direct sales outlets locatedthroughout Japan. Our energy business will likely
become a focus of attention in the years ahead as fuelcells proliferate the residential market.

Fiscal 2008 sales

Approximately ¥50,000 million

Principal products andoperations

Supply of LP gas for residential and industrial customers
Annual unit sales of around 450,000 metric tons

Market needs

Stable supply of household fuel to 25 million households in areas notadequately served by electric power and town gas services

Competitive advantages

450,000 tons (ranked 6th in Japan)

Fiscal 2008 highlights•• Merged LP gas affiliates to form Taiyo Nippon Sanso Energy Kanto Co., Ltd.
•• Strengthened procurement capabilities by exploiting Groupwide
economies of scale

Targets•• Sales of ¥53,000 million in fiscal 2011•• Expand cogeneration business; increase network to 100,000 direct sales
outlets through M&As and other initiatives

20

Corporate Social Responsibility
Integrate systems

Corporate GovernanceTaiyo Nippon Sanso strives continuously to enhance
its corporate governance system with the aim of
improving transparency and ensuring governancepractices to suit its business model.
The Company’s management structure centers on
the Board of Directors, which consists of 16 directors,
and four standing corporate auditors, including one
outside director and two outside standing auditors.
During fiscal 2008, the Board of Directors met 13
times, and the attendance rate of the outside director,
who is a director of Mitsubishi Chemical Holdings
Corporation, was approximately 69%.
To determine compensation for directors, Taiyo
Nippon Sanso has introduced a scheme that­c omprises regular monthly stipends, as well as
performance- and dividend-linked compensation.
This system is designed to ensure directors act in
the interest of shareholders. In the period underreview, ­c ompensation for directors amounted to¥840 million.
To accelerate decision making, the Company has
also established a Management Committee as a key
decision-making body under the Board of Directors.
Taiyo Nippon Sanso has engaged Ernst & Young
ShinNihon as its independent auditors. The­independent auditors are responsible for expressing its
opinion on the accuracy of the financial statements
prepared by the Company based on its own audit.

Ensureeffectivenessof internal
controls system

Objectives ofProject to Rebuild
Backbone Information
SystemEnhancetransparency of
performance
information

Improve traceability ofmaterials / products

product quality and the environment. To manage
technology-related risks, primarily in these categories,
the Company has formulated Technology Risk
Management Guidelines and established aTechnology Risk Management Committee to oversee
related risk management efforts Companywide.
To ensure it remains a solid corporate citizen
respected by society, Taiyo Nippon Sanso has­published the Taiyo Nippon Sanso Group Code of
Conduct, which outlines standards of conduct to beobserved by all employees pertaining to compliancewith laws and ordinances, corporate ethics and­i nternal regulations. To enforce this code, theCompany has established a Compliance Committee
within its Internal Controls Committee.
To ensure the propriety of its financial reports,
Taiyo Nippon Sanso established a system of internal
controls that is designed to monitor the effectivefunctioning of current business processes. The
Corporate Administration Department is responsible
for overseeing the operation of this system, whichcame into effect on April 1, 2008.
In response to the need to ensure the consistencyof data and the compliance of its systems, including
its internal controls system, Taiyo Nippon Sansol a u n c h e d a p r o j e c t t o re b u i l d i t s b a c k b o n e­i nformation system. This project will see theCompany introduce SAP ERP, an enterprise resource
planning system developed by SAP AG of Germany
that will integrate its sales, procurement, production,accounting and personnel systems databases, thereby
facilitating the coordinated management of core business resources (personnel, products, capital and information). The new system is scheduled to come online in August 2008.

Internal Controls System
As a framework for Companywide, cross-business risk
management, Taiyo Nippon Sanso has established the
Risk Assessment and Technology Risk Management
committees within its Internal Controls Committee.
These committees are tasked with periodically­r eviewing the rationality of the Company’s risk
­m anagement system and carefully monitoring the­system’s effectiveness.
Taiyo Nippon Sanso recognizes the need to­manage risks in four main categories: security, safety,

21

Contributing to the Prevention of Global
WarmingTaiyo Nippon Sanso’s corporate philosophy­encapsulates its commitment to contributing to thecreation of a more affluent society through its gas
technologies. As this implies, the Company recognizes
consideration for the environment as an inherent
aspect of its operations.
In one example of this commitment in practice,Taiyo Nippon Sanso—having recognized that its
tanker trucks traveled a total of 46 million kilometersin fiscal 2007—implemented measures to improvethe efficiency of its logistics practices, including
improving fuel efficiency and amending driving patterns. The Company also promoted the installation ofload indicators (LIs) in its tanker trucks to change theway liquefied gas is measured, thereby eliminating theneed for tanker trucks to stop at weigh stations. In
addition to shortening the distance tanker trucks
must travel and reducing the impact of logistics on
the environment, this move was also important inrealizing a reduction in transport costs. LIs have been
installed in approximately 90% of Taiyo Nippon
Sanso’s tanker trucks. As a consequence, theCompany aims to achieve a reduction in its consumption of fuel for transport per unit of product deliveredof 30% from the fiscal 1991 level by ­fiscal 2011. To
this end, the Company will strive to secure the cooperation of customers in accepting its new approach tomeasuring volume, reinforcing inventory management, agreeing to an increase in size of daily deliveries
and accommodating less-specific delivery schedules.
Having done so, Taiyo Nippon Sanso will then also
introduce energy-efficient ­driving, multidrop deliveries and other environment-friendly approaches. In
addition to reducing fuel consumption, such steps
will also facilitate a reduction in CO2 emissions.
Taiyo Nippon Sanso is also striving to reduce its
impact on the environment by becoming as close to acarbon neutral organization as possible. To this end,
the Company is focusing efforts on developing

environment-friendly products and reducing­emissions resulting from its business activities.
Impact of Environment-Friendly Products on
Greenhouse Gas Emissions in Fiscal 2006
Greenhouse gas emissions(CO2 equivalent)*
Reduction of greenhousegas emissions attributable toenvironment-friendly products**

2.153 million tons

380,000 tons

* Emissions due to consumption of electricity by gas production facilities,
offices and others; consumption of fuel; emissions of chlorofluorocarbons** Environment-friendly products: SaanBurner, MG Shield, SCOPE-JET

Fuel Cells
A participant in the Japan Hydrogen & Fuel Cell
(JHFC) Demonstration Project, Taiyo Nippon Sanso
is working to develop hydrogen stations to service fuelcell vehicles (FCVs). The Company has secured­c ontracts to build three of four pilot hydrogen­stations—two stationary and one mobile—to test a
proprietary dispenser that can charge hydrogen at
70 MPa. This dispenser will make it possible for
FCVs to travel approximately 830 kilometers on one
charge. Looking ahead, the Company will continue toleverage its hydrogen transport and cryogenic technologies to develop lower-cost, smaller dispensers,with the eventual aim of developing packaged offsitehydrogen stations.

22
22

Board of Directors, Corporate Auditors and Corporate Officers

Board of Directors

Corporate Auditors

ChairmanHiroshi Taguchi

Toshiro Hatagami
Kiyoshi Fujita
Keiichi Kiyota *2
Shigeru Koyama *2

President
Hirosuke Matsueda

Corporate Officers
Executive Vice Presidents
Yasunobu Kawaguchi
Kazuya Ito
Keiji Futamatsu
Executive Director/Advisor
Konosuke Ose
Senior Managing Directors
Yutaka Kurosawa
Kenichiro Ebisawa
Fumio Hara
Toyoo Go
Masashi Yamashita
Kenichi Kasuya

Corporate Executive
Officers
Shinji Tanabe
Yoshihisa Shibata
Kunishi Hazama
Tadashige Maruyama
Shigeto Umatani
Yoshikazu Yamano
Masayuki Tanino
Yujiro Ichihara
Shigeru Amada

Managing Directors
Toshio Sato
Akira Ito

Corporate Officers
Shuichi Yoshida
Masakazu Naruo
Hiroshi Katsumata
Kinji Mizunoe
Masanori Zaima
Shinichiro Hiramine
Akihiko Umekawa
Akira Nishimoto
Keiki Ariga
Masahiro Imagawa
Tetsuya Nakayama
Yoshihiro Koyama
Masami Sakaguchi
Yoichi Washizu
Susumu Naka
Yoshihide Kenmochi
Yuki Hajikano
Shigenobu Somaya
Jun Ishikawa
Takashi Tatsumi
Masahiro Sakamoto(As of June 27, 2008)

Executive Directors
Ryuichi Tomizawa *1
William J. Kroll

Notes: *1 Outside Director
Notes: *2 Outside Corporate Auditor

23

Analysis of Operating Results and Financial Position

Scope of Consolidation and Application of the Equity Method
As of March 31, 2008, the Taiyo Nippon
Sanso Group consisted of Taiyo Nippon
Sanso Corporation (the parent company); 69
consolidated subsidiaries (41 based in Japanand 28 based overseas), up from the previous
period due to the acquisition of Five Star Gas& Gear; and 29 equity-method affiliates(nine based in Japan and 20 based overseas).

A total of 57 consolidated subsidiaries and21 equity-method affiliates are accounted forin the Gas Business segment. The Plant andGas Equipment Business segment comprises
six consolidated subsidiaries, while theHousewares Business and Others segment
encompasses six consolidated subsidiaries
and eight equity-method affiliates.

Operating Results
In fiscal 2008, consolidated net sales amounted
to ¥507,718 million, up 10.7% from fiscal
2007. Cost of sales rose 11.4%, to ¥351,789
million, and selling, general and administrative
expenses increased 10.3%, to ¥117,145 million. As a consequence, operating income

Net Sales

increased 6.3%, to ¥38,783 million, although
the operating margin slipped 0.3 percentage
point. Net income advanced 9.1%, to ¥21,930
million. Net income per share was ¥54.48,
while return on capital employed (ROCE) was
10.8%, down 0.4 percentage point.

Operating Income

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

(Yen)

550

30

50

45

25

55

440

24

40

36

20

44

330

18

30

27

15

33

220

12

20

18

10

22

110

6

10

9

5

11

0

0

0

0

0

2004 2005 2006 2007 2008
Gas business
Plant and gas equipment businessHousewares business and others
Overseas sales ratio (right scale)2004 2005 2006 2007 2008
Gas business
Plant and gas equipment businessHousewares business and others
Overseas sales ratio (right scale)2004 2005 2006 2007 20080

Net income per share (right scale)Note: Since the merger of Nippon Sanso and Taiyo Toyo Sanso took place October 1, 2004, consolidated figures for fiscal 2005,
ended March 31, 2005, exclude the figures for the former Taiyo Toyo Sanso for the six months ended September 30, 2004.
Taiyo Nippon Sanso’s results for fiscal 2005 are compared to the fiscal 2004 totals of the former Nippon Sanso.

24

Financial Position
As of March 31, 2008, total assets amounted to¥547,237 million, edging down 0.1% from thefiscal 2007 year-end. This result was largely
attributable to a decline in short-term investments, a consequence of falling market prices.
The current ratio rose 0.03 percentage point, to1.25 times.
Property, plant and equipment, net,increased 3.4%, to ¥213,504 million, owing
primarily to an increase in construction inprogress. Total investments and other assets fell
13.1%, to ¥122,099 million, reflecting sluggish
stock market conditions.

An increase of ¥9,025 million in short-termloans payable pushed total current liabilities up
2.3%, to ¥168,727 million. Total noncurrent
liabilities declined 3.7%, to ¥160,695 million,
primarily reflecting a decline of ¥7,295 million
in deferred tax ­liabilities. As a consequence of
these factors, interest-bearing debt rose ¥7,268
million, to ¥159,500 million.
Total net assets increased ¥1,745 million, to¥217,813 million. As a consequence, the net
assets ratio increased 0.5 percentage point, to37.2%, and net assets per share rose ¥5.74,
to ¥506.02.

Cash Flow Analysis
level with the previous period, and a sharp
decline in purchases of investments in subsidiaries resulting from change in the scope of
consolidation.
Net cash provided by financing activities
amounted to ¥3,597 million, down ¥18,854
million from the previous period. This waslargely a consequence of a decline in proceedsfrom long-term loans payable.
Owing to the Company’s operating,investing and financing activities in fiscal
2008, cash and cash equivalents at end of theyear totaled ¥12,709 million, ¥1,695 million
lower than at the fiscal 2007 year-end.

In fiscal 2008, net cash provided by operating
activities amounted to ¥34,674 million, down
¥5,387 million. This result was attributable tosuch factors as an increase of ¥4,296 million
in depreciation and amortization and a¥9,272 million decrease in notes and accounts
payable—trade. The interest coverage ratio
was 10.3 times, compared with 16.1 times ayear earlier.
Net cash used in investing activities cameto ¥40,330 million, down ¥25,956 million.
Principal factors influencing this change were¥33,991 million in payments for purchases ofproperty, plant and equipment, essentially

Total Assets

Equity(Billions of yen)(Billions of yen)

(%)

(%)

550

250

40

15

440

200

32

12

330

150

24

9

220

100

16

6

110

50

8

3

0

0

0

2004 2005 2006 2007 2008

0

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

2004 2005 2006 2007 2008
Equity ratio (right scale)25

2004 2005 2006 2007 2008
ROE
ROA

Business Risks
External Factors
Foreign Exchange and Interest Rates

Technical and Safety Factors
Technological Development

The Company uses various means to minimize
the effect of currency fluctuations on its importand export transactions, including the purchaseof foreign exchange forward contracts. Nonetheless, sudden fluctuations in exchange rates
could negatively affect the Company’s businessperformance.
In addition, interest-rate trends could havea material impact on performance, the Company
maintains large-scale supply facilities for large
customers and needs to spend heavily to maintainand upgrade these facilities.

The creation of new products and technologies
entails various uncertainties, owing to theCompany’s reliance on technological development activities in such areas as compound
semiconductors, the environment and energy.

Reliance on Specific Industries

Product Defects

Changes in the semiconductor market, a core
sector, could have a significant impact on the
Company’s business performance.

The Company sells high-pressure gas-related
products and handles toxic and flammable gases
used in semiconductor fabrication. While theCompany strives to ensure the effective management of related risks, it cannot guaranteethat all of its products are free of defects.

Intellectual Property

The Company obtains intellectual property
rights required for its proprietary technologicaldevelopment activities. However, there are no
guarantees that its technologies are completely
protected.

Changes in Oil Prices

Electricity is the major component of the costof manufacturing such core products as oxygen,nitrogen and argon. Surging oil prices could
lead to a substantial increase in electricity
charges, and it may be impossible for theCompany to reflect such charges in thepricing of its products.

Other Factors
Retirement Benefit Liabilities

Further decreases in the discount rate and asudden deterioration in retirement plan returns
may materially affect the Company’s businessperformance.

Competition
Gas Prices

Natural Disasters

The Company’s business performance may beaffected if it is unable to curb declines in theprices of its products due to intense competition.

The occurrence of natural disasters in areas
where the Company has large-scale manufacturing facilities may lead to a significant decline
in production capacity and incur major recovery costs. Such factors may adversely affect theCompany’s business performance.

Overseas Factors

The Company maintains gas operations overseas, primarily in the United States and inother parts of Asia, including China. Politicaland economic changes in countries where theCompany has operations may have an adverse
impact on its business performance.
A number of other factors could also affect
the Company’s business performance. These
include unforeseen revisions to existing laws
and the enactment of new ones.

Legal Issues

Unanticipated changes to existing laws, theintroduction of new laws and the tightening ofenvironmental laws, particularly in countries
overseas where the Company maintains operations, may negatively affect the Company’sbusiness performance.
Basic Policies for Maintaining Control Over
the Company

Taiyo Nippon Sanso’s basic policy regarding
maintaining control over the Company wasrealized with the approval of a proposal tointroduce countermeasures against large-scaleacquisitions at the general meeting of theCompany’s shareholders on June 27, 2008.

26

Six-Year Summary
Taiyo Nippon Sanso Corporation and Consolidated Subsidiaries

Years ended March 31

2008

2007

Millions of yen
2006
2005

2004

2003

¥507,718¥458,587¥397,308¥300,055¥230,272¥238,445

Operating income

38,78336,48826,78820,727

14,317

10,313

Net income

21,93020,094

14,444

11,568

4,541

4,263

Net sales

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

23.1%

23.2%

24.0%

24.5%

24.1%

24.8%

Return on equity (%)

10.8%

10.6%

8.7%

8.7%2

4.9%

4.7%

Return on assets (%)

4.0%

3.6%

3.1%

3.3%

2

1.8%

1.6%

Capital expenditure

36,26035,891

22,17638,092

7,413

17,693

Depreciation and amortization

25,506

21,21018,982

14,592

11,627

13,709Research and development
expenses
Interest-bearing debt

2,903

2,713

2,223

2,056

2,296

2,508

159,500

152,232

122,196

122,089

86,32590,489Total net assets

217,813

216,068

178,055

154,207

94,802

89,182

Total assets

547,237

547,791

471,602404,668

263,595

253,698

Yen

Per share data:
Net income1¥54.48¥49.93¥35.45¥32.76¥15.38¥14.36

Cash dividends

12.00

12.00

10.00

9.00

6.00

6.00

19.17

31.21

22.98

Times

Price earnings ratio

14.65

21.31

24.54

Notes: 1. Net income per share is computed based on the weighted average number of shares of common stock outstanding during
each year, as adjusted retroactively for free share distributions made during the period.
2. ROE and ROA for fiscal 2005 are computed based on the combined net incomes of Taiyo Nippon Sanso for fiscal 2005 and theformer Taiyo Toyo Sanso for the six months ended September 30, 2004.
3. Since the merger of Nippon Sanso and Taiyo Toyo Sanso took place October 1, 2004, consolidated figures for fiscal 2005
exclude the figures for the former Taiyo Toyo Sanso for the six months ended September 30, 2004. Taiyo Nippon Sanso’s results
for fiscal 2005 are compared to the fiscal 2003 and 2004 totals of the former Nippon Sanso.
4. Figures given for total net assets prior to fiscal 2007 are for total shareholders’equity.

27

Consolidated Balance Sheets
Taiyo Nippon Sanso Corporation and Consolidated Subsidiaries

				
				
		Millions of yen		March 312008		
2007

Thousands of
U.S. dollars(Note 3)
2008

AssetsCurrent assets:¥ 12,971

Cash and deposits (Note 4)¥ 15,046 $ 129,464

—

291

—

Notes and accounts receivable—trade (Note 6)

139,331

132,759

1,390,668

Short-term investments (Notes 4 and 5)
Inventories (Note 7)

41,472

39,342413,934

Deferred tax assets (Note 11)

7,213

6,186

71,993

Other		

11,624

8,039

116,020

(979)

(772)

(9,771)

Total current assets

211,633

200,892

2,112,317

Property, plant and equipment (Notes 9, 10, 18 and 19)

542,900

519,6435,418,705

Accumulated depreciation(329,396)(313,257) (3,287,713)

Property, plant and equipment, net

213,504

206,386

2,130,991

58,764

79,205586,526

Allowance for doubtful accounts

Investments and other assets:
Investment securities (Note 5)Long-term loans receivable

1,685

1,048

16,818Intangible assets, net

42,242

41,691

421,619

Prepaid pension costs (Note 14)

13,18912,984

131,640

Deferred tax assets (Note 11)

2,149

1,900

21,449

Other

6,083

5,941

60,715

Valuation allowance for investments(980)(1,282)(9,781)

Allowance for doubtful accounts(1,033)(977)(10,310)

Total investments and other assets

122,099

140,510

1,218,675

Total assets¥547,237¥547,791 $5,461,992

See notes to consolidated financial statements.

28

				
				
		Millions of yen		March 312008		
2007

Thousands of
U.S. dollars(Note 3)2008

Liabilities and Net assets
Current liabilities:¥ 39,105

Short-term loans payable (Notes 8 and 9)¥ 30,080 $ 390,308

Notes and accounts payable—trade87,167

95,344870,017

Income taxes payable (Note 11)

8,139

8,317

81,236

Other			Total current liabilities

34,314

31,165

342,489

168,727

164,907

1,684,070

Noncurrent liabilities:
107,707

106,595

1,075,027

Pension and severance indemnities (Note 14)

4,719

5,077

47,101Long-term loans payable (Notes 8 and 9)
Deferred tax liabilities (Note 11)32,78540,080327,228

Negative goodwill

2,256

1,452

22,517Long-term lease obligations

8,231

9,433

82,154

Other 			

4,994

4,175

49,845

160,695

166,814

1,603,903

Total noncurrent liabilities

Contingent liabilities (Note 15)			
Net assets (Notes 12 and 21):			
Shareholders’ equity:					Common stock:						Authorized—800,000,000 shares 						Issued—403,092,837 shares

27,03927,039269,877

Capital surplus

44,91144,746448,258		Retained earnings

124,392

107,495

1,241,561

		Treasury stock, at cost—
(362)

(376)

(3,613)

				

550,612 shares in 2008 and 719,203 shares in 2007

		

Valuation and translation adjustments:						Valuation difference on available-for-sale securities			

Deferred gains or losses on hedges

12,83924,982

128,147(194)

56(1,936)			Foreign currency translation adjustments(4,769)(2,535)(47,600)			Accumulated other comprehensive loss

(161)

(111)

(1,607)

14,117

14,770140,902

Total net assets

217,813

216,068

2,173,999

Total liabilities and net assets¥547,237¥547,791 $5,461,992

		Minority interests

29Consolidated Statements of Income
Taiyo Nippon Sanso Corporation and Consolidated Subsidiaries

				
				
		Millions of yen		Years ended March 31
2008		
2007

Net sales			
Cost of sales (Note 17)
		 Gross profit
Selling, general and administrative expenses (Note 17)
		 Operating income
Other income (expenses):
Interest and dividend income
Interest expense
Amortization of negative goodwill
Gain on sale of noncurrent assets (Note 18)
Loss on sale and retirement of noncurrent assets (Note 18)
Gain on sale of investment securities
Loss on sale of investment securities
Loss on valuation of investment securities
Loss on valuation of golf club memberships
Loss on sale of golf club memberships
Equity in earnings of affiliates
Impairment loss (Note 19)
Loss on liquidation of subsidiaries and affiliates
Loss on revaluation of investments
Merger expense
Expenses for improvement of environment
Gain on revaluation of investments
Compensation for transfer
Expenses for integration
Other						Income before income taxes and minority interests¥507,718
351,789
155,928
117,145
38,783

1,391(3,453)
571
1,334
(785)
277
(29)
(105)
(88)
(14)
1,305
(49)
(1,001)
(50)
(295)
—
352
35
(42)
365
(281)
38,502Thousands of
U.S. dollars(Note 3)
2008

¥458,587 $5,067,552
315,863
3,511,219
142,724
1,556,323
106,235
1,169,228
36,488387,095

1,235(2,512)403
6,628(5,826)
174
—
—
(67)
(13)
1,300
(813)
—
(540)
—
(500)
—
—
—
547
16
36,505

13,884(34,465)
5,699
13,315(7,835)2,765(289)(1,048)(878)(140)
13,025(489)(9,991)(499)(2,944)
—
3,513
349
(419)
3,643
(2,805)384,290

Income taxes (Note 11):			
Current		
16,205
14,080161,743
Deferred(1,047)833(10,450)
					
15,157
14,913
151,283
Minority interests consolidated subsidiaries
1,413
1,498
14,103
Net income¥ 21,930 ¥ 20,094 $ 218,884
				
		
Yen		

Amounts per share:			
Net assets¥506.02¥500.28
Net income
54.48
49.93
Cash dividends
12.00
12.00
See notes to consolidated financial statements.

30

U.S. dollars(Note 3)

$5.05
0.54
0.12

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

Millions of yen
		
		
		
		

Number of					shares of					commonCommonCapitalRetained
Treasury
stock
stock
surplusearnings
stock

Balance at March 31, 2006
405,892,837 ¥27,039
Reclassified balance
as of March 31, 2006——
Disposal of treasury stock——
Retirement of treasury stock(2,800,000)—
Increase by merger——
Directors’ bonuses——
Dividends from surplus
—
—
Other
—
—
Net income for the year
ended March 31, 2007——
Purchase of treasury stock——
Net changes of items otherthan shareholders’ equity——
Balance at March 31, 2007
403,092,837 ¥27,039
Disposal of treasury stock——
Change of scope of
consolidation——
Change of scope of equity
method——Dividends from surplus
—
—
Other
—
—
Net income for the year
ended March 31, 2008——
Purchase of treasury stock——
Net changes of items otherthan shareholders’ equity——
Balance at March 31, 2008
403,092,837 ¥27,039¥44,833¥ 93,425 ¥(1,657)

Valuationdifference on
available-forsale securities

DeferredForeign
Accumulated
gains orcurrency
otherlosses on translation comprehensive
hedges adjustments
loss¥ 19,452¥—¥(5,038) ¥—Minority
interests¥

Total
net assets—¥178,055

—
10
(96)
—
—
—
—

—
—
(1,425)29(167)(4,429)
(30)

—
18
1,522
—
—
—
—

—
—
—
—
—
—
—

—
—
—
—
—
—
—

—
—
—
—
—
—
—

—
—
—
—
—
—
—

(16,910)
—
—
—
—
—
—

(16,910)
28
—
29
(167)
(4,429)(30)——

20,094
—

—
(259)

—
—

—
—

—
—

—
—

—
—

20,094(259)——¥107,495 ¥ (376)
—
211

5,530
¥ 24,982
—

56
¥ 56
—

2,502
¥(2,535)—(111)¥(111)—(2,139)¥ 14,770—

5,837¥216,068
375—¥44,746
164
—

81

—

—

—

—

—

—

81

—
—
—

136
(5,233)
(18)

—
—
—

—
—
—

—
—
—

—
—
—

—
—
—

—
—
—

136
(5,233)(18)——

21,930
—

—
(196)

—
—

—
—

—
—

—
—

—
—

21,930(196)——¥124,392 ¥ (362)(12,143)¥ 12,839(251) (2,233)(49)¥(194) ¥(4,769) ¥(161)(653)¥ 14,117(15,329)¥217,813

Minority
interests

Total
net assets—¥44,911

Thousands of U.S. dollars (Note 3)																	CommonCapitalRetained
Treasury			
stock
surplusearnings
stock

Valuationdifference on
available-forsale securities

Deferred
gains orlosses onhedgesForeign
Accumulated
currency
othertranslation comprehensive
adjustments
loss

Balance at March 31, 2007		 $269,877 $446,611 $1,072,911 $(3,753) $ 249,346 $ 559 $(25,302) $(1,108)
Disposal of treasury stock		
—
1,637
—
2,106
—
—
—
—
Change of scope of
consolidation		
—
—
808
—
—
—
—
—
Change of scope of equity
method		
—
—
1,357
—
—
—
—
—
Dividends from surplus		——(52,231)—————
Other		
—
—
(180)
—
—
—
—
—
Net income for the year
ended March 31, 2008		
——218,884—————
Purchase of treasury stock		——— (1,956)————
Net changes of items otherthan shareholders’ equity		————(121,200) (2,505) (22,288)(489)
Balance at March 31, 2008		 $269,877 $448,258 $1,241,561 $(3,613) $ 128,147 $(1,936) $(47,600) $(1,607)

See notes to consolidated financial statements.

31$147,420 $2,156,582
—
3,743
—

808

—
—
—

1,357
(52,231)
(180)

—
—

218,884(1,956)(6,518) (153,000)$140,902 $2,173,999

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

				
				
		Millions of yen		Years ended March 31
2008		
2007

Operating activities
Income before income taxes and minority interests
Depreciation and amortization
Impairment loss
Amortization of goodwill
Interest and dividend income
Interest expense
Equity in earnings of affiliates
Loss on sale and retirement of noncurrent assets
Gain on sale of investment securities
Decrease (increase) in accounts receivable—other
Increase in notes and accounts receivable—trade
Increase in advance payments
Increase in inventories(Decrease) increase in notes and accounts payable—trade
Increase in accrued expenses
Increase (decrease) in advances received
Increase in prepaid pension costs
Increase (decrease) in reserve for retirement benefits
Other, net
		Interest and dividends income received
Interest expenses paid
Income taxes paid
Net cash provided by operating activities¥38,50225,50649
283(1,392)
3,453(1,305)
(619)
(248)
293
(5,618)(1,513)(1,567)(9,272)
3,547
830
(204)
76
(630)
50,1702,895(3,368)(15,023)
34,674¥36,505
21,210813
498(1,236)2,512(1,300)(1,008)(174)(742)(10,803)(1,087)(6,084)
15,531
383
(505)
(163)
(309)
(980)
53,0581,583(2,488)(12,092)
40,061

Investing activities			
Increase in short-term investments
671
746
Purchases of property, plant and equipment(33,991)(30,290)
Proceeds from sale of property, plant and equipment
1,892
9,407
Purchases of intangible assets(2,340)(4,835)Purchases of investment securities(2,710)(7,997)
Proceeds from sale of investment securities
1,720
436
Purchases of investments in subsidiaries resulting from change in the scopeof consolidation(3,261)(33,445)
Payments for long-term loans receivable(2,287)(114)
Other, net
(23)
(192)
Net cash used in investment activities(40,330)(66,286)
Financing activities			
Net increase (decrease) in short-term loans payable
8,159(5,843)
Decrease in commercial paper(1,000)(2,000)
Proceeds from long-term loans payable
18,98027,182
Repayment of long-term loans payable(16,560)(11,234)
Proceeds from issuance of common stock
241
277
Proceeds from issuance of bonds
10,00015,000
Redemption of bonds(10,000)—
Repayment of lease obligations
(602)
(411)
Increase in lease obligations—
4,364
Cash dividends paid
(5,233)(4,429)Cash dividends paid to minority interests
(208)
(238)
Purchase redemption
(194)
(257)
Proceeds from sale of treasury stock
16
42
Net cash provided by financing activities
3,597
22,451
Effect of exchange rate changes on cash and cash equivalents(33)367
Net decrease in cash and cash equivalents(2,091)(3,405)
Cash and cash equivalents at beginning of the year
14,404
17,416
Increase in cash and cash equivalents resulting from change in the scopeof consolidation
396
243
Increase in cash and cash equivalents resulting from merger of subsidiaries—
150
Cash and cash equivalents at end of the year (Note 4)¥12,709¥14,404
See notes to consolidated financial statements.

32

Thousands of
U.S. dollars(Note 3)
2008

$384,290
254,576489
2,825(13,894)
34,465(13,025)(6,178)(2,475)2,924(56,073)(15,101)(15,640)(92,544)
35,4038,284(2,036)759(6,288)500,749
28,895(33,616)(149,945)
346,082
6,697(339,265)
18,884(23,356)(27,049)
17,167(32,548)(22,827)(230)(402,535)
81,435(9,981)
189,440(165,286)
2,405
99,810(99,810)(6,009)—(52,231)(2,076)(1,936)160
35,902(329)(20,870)
143,767
3,952—$126,849

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

1. Basis of Consolidated Financial Statements
The accompanying consolidated financial­s tatements of TAIYO NIPPON SANSOCORPORATION (the “Company”) and consolidated subsidiaries are prepared on the basis ofaccounting principles generally accepted in Japan,
which are different in certain respects as to application and disclosure requirements of International
Financial Reporting Standards, and are compiled
from the consolidated financial statements prepared by the Company as required by the Financial
Instruments and Exchange Law of Japan.

As permitted by the Financial Instruments andExchange Law of Japan, amounts of less than one
million yen have been omitted. As a result, thetotals shown in the accompanying consolidated
financial statements (both in yen and U.S. dollars)
do not necessarily agree with the sums of theindividual amounts.
Certain amounts previously reported have been
reclassified to conform to the current year
presentation.

2. Summary of Significant Accounting Policies
securities. The Company and certain of its subsidiaries have marketable securities classified as othersecurities, which are carried at fair value with any
changes in valuation difference on available-forsale securities, net of the applicable income taxes,
reported as a separate component of net assets.
Non-marketable securities classified as other securities are carried at cost. Under the Corporate Law
of Japan, unrealized gain or loss on other securities, net of the applicable income taxes, is notavailable for distribution as dividends.

(a) Consolidation

The accompanying consolidated financial statements include the accounts of the Company andits 69 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 Financial Instruments and Exchange Law ofJapan, 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 and the underlying net equity ininvestments in consolidated subsidiaries and thecompanies accounted for by the equity method areamortized by the straight-line method over a periodof five years.
Investments in unconsolidated subsidiaries andaffiliates other than those which are accounted forby the equity method are principally stated at cost.

(d) Inventories

Inventories of the Company and its domestic subsidiaries are stated at cost determined by the average method, the specific identification method or
the moving-average method.
As for overseas consolidated subsidiaries, inventories are stated at the lower of cost or market, cost
being determined by the first-in first-out method.
(e) Property, plant and equipment

Property, plant and equipment is stated at cost, andfor the Company and its domestic subsidiaries,
depreciation is computed by the straight-line
method for buildings and leased equipment and by
the declining balance method for other equipment
based on the estimated useful lives of the respective
assets. As for overseas consolidated subsidiaries,
depreciation is principally computed by thestraight-line method based on the estimated useful
lives of the respective assets.

(b) Cash equivalents

For purposes of the statements of cash flows, theCompany considers all highly liquid instrumentswith maturity of three months or less when­purchased to be cash equivalents.
(c) Marketable and investment securities

Marketable securities and investments in securities are classified into three categories: trading
securities, held-to-maturity securities and other33

(g) Pension and severance indemnities

The useful lives are as follows:		
Buildings
3 to 50 years
		
Machinery
4 to 15 years

Allowance for employees’ retirement benefits is
recognized at the net total of the present value ofthe defined benefit obligation at the balance sheet
date, plus any actuarial gains (less any actuarial
losses) not yet recognized, minus the fair value ofplan assets (if any) at the balance sheet date out of
which the obligations are to be settled directly. If
the amount determined above is negative (anasset), such asset should be recorded as prepaid
pension costs.
Net retirement benefit expense or income isrecognized at the net total of current service costand interest cost, minus the expected return on any
plan assets, minus any actuarial gains (less any
actuarial losses) and past service cost recognized
during the year, plus any retirement benefits paid
at a lump sum.
To determine the present value of a defined
benefit obligation and the related current service
cost and, where applicable, the past service cost,
the project unit credit method is used.
Actuarial gains or losses and past 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 domestic subsidiaries recognize actuarial gains or losses evenly over 12
to 16 years following the respective fiscal years
when such gains or losses are identified. Past service
cost is amortized using the straight-line method
over 13 to 16 years.
The Company recognized the amount of unrecognized past service cost due to the revision of theretirement rule at April 1, 2003.
For transition benefit liability, the Company
established the pension and severance indemnity
trust by contribution of shares owned by theCompany, and the remaining transition benefit liability is being recognized over a period of 15 years.

Effective from the fiscal year beginning April 1,
2007, pursuant to an amendment to the Corporate
Tax Law, the Company and its domestic subsidiaries have depreciated property, plant and equipment
acquired on and after April 1, 2007 in accordancewith the methods stipulated in the amended
Corporate Tax Law. As a result, operating income
and income before income taxes and minority
interests for the year ended March 31, 2008 weredecreased by ¥348 million ($3,473 thousand)­compared to the previous methods.
Pursuant to an amendment to the Corporate
Tax Law, after having fully depreciated property,
plant and equipment acquired on and before
March 31, 2007, up to 5% of acquisition cost,based on the prior Corporate Tax Law, theCompany and its domestic subsidiaries have depreciated the difference between 5% of the acquisition
cost and the memorandum price, using thestraight-line method over five years and expensed
as “depreciation and amortization.” The straightline depreciation starts from the next year, when
the book value of tangible assets acquired on andbefore March 31, 2007 reaches 5% of the acquisition cost. As a result, operating income and income
before income taxes and minority interests for theyear ended March 31, 2008 were decreased by¥1,544 million ($15,411 thousand) compared tothe previous methods.
(f) Translation of foreign currencytransactions

All monetary assets and liabilities, regardless of
short-term or long-term, denominated in foreign
currencies other than receivables and payables
hedged by qualified foreign exchange forward contracts, are translated into yen at the exchange rates
prevailing as of the fiscal year-end, and resulting
gains and losses are included in income.
The accounts of the overseas subsidiaries aretranslated into yen at the year-end exchange
rates, except for net assets, which are translated
at historical rates. Differences arising from thetranslations are stated under “Foreign currencytranslation adjustments” and minority interests inconsolidated subsidiaries in the accompanying
consolidated balance sheets.

(h) Allowance for directors’ and corporate
auditors’ retirement benefits

At March 31, 2007, the allowance for directors’
and corporate auditors’ retirement benefits of theCompany and certain of its domestic subsidiaries isprovided at the amount which would have beenrequired to be paid if all directors and corporate
auditors had voluntarily terminated their services asof the balance sheet date. This amount has been
determined in accordance with the internal rules of
the respective companies.

34

(m) Valuation allowance for investments

The Company has abolished retirement benefits plan for directors and corporate auditors by the
resolution at its general shareholders’ meeting heldon June 28, 2007, and has decided to provide eligible directors and corporate auditors with severance
benefits for special services corresponding to the term
in office of them. As a result of this revision, such
benefits are included in “Noncurrent liabilities—
other liabilities” at March 31, 2008.
The allowance included ¥323 million ($3,224
thousand) and ¥242 million for corporate officers
at March 31, 2008 and 2007, respectively.

To state the investment amount fairly, the allowance is provided by considering the related parties’
assets and other factors.
(n) Derivative and hedging transactions

The Company and certain of its subsidiaries haveused foreign exchange forward contracts in order tosolely hedge against risks of fluctuations in foreign
currency exchange rates relating to its receivables
and payables denominated in foreign currencies,
and have used interest-rate swap agreements tosolely hedge against risks of fluctuations in interest
rates relating to its long-term loans payable. Also,
currency exchange swap agreements have been used
to solely hedge against risks of fluctuations in foreign exchange of long-term loans payable denominated in foreign currencies, in compliance with theinternal rules of respective companies.
Under the “Accounting Standard for Financial
Instruments,” derivative transactions are valued atmarket prices, except for hedging transactions
whose gains or losses are deferred and recorded in
the balance sheet until the hedged transactions aresettled. Moreover, if interest-rate swaps in Japan are
specifically tied to the hedged loan transactions,
unrealized gains or losses on those swaps are notrecognized in the consolidated financial statements
as such gains or losses are to be offset with those on
the hedged transactions. Deferred hedge accounting
is applied to currency swaps.
Receivables and payables hedged by qualified
foreign exchange forward contracts are translated
at the corresponding foreign exchange forward
contract rates.

(i) Research and development expenses

Research and development expenses are charged tooperations as incurred.
(j) Income taxes

Deferred tax assets and liabilities are determinedbased on the differences between financial reporting and the tax bases of assets and liabilities and aremeasured using the enacted tax rates and laws
which will be in effect when the differences are
expected to reverse.
(k) Amounts per share

Presentation of diluted net income per share is
not applicable as there were no potentially dilutive securities for the years ended March 31, 2008
and 2007.
(l) Allowance for doubtful accounts

To cover possible losses on collection of receivables,
the Company and its domestic subsidiaries provided for an allowance with respect to specificdebts of which recovery is doubtful, based on estimated write-off amounts, after considering the
likelihood of recovery on an individual basis.
3. 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 therate of ¥100.19=U.S.$1, the approximate rate ofexchange at March 31, 2008. The translation

should not be construed as a representation thatJapanese yen have been, could have been or couldin the future be converted into U.S. dollars at theabove or any other rate.

35

4. Cash and Cash Equivalents
The components of cash and cash equivalents at March 31, 2008 and 2007 were as follows:						Millions of yen		
2008		
2007

¥12,971(261)—¥12,709

Cash and deposits
Time deposits with maturities of more than three months
Cash equivalents included in short-term investments				

Thousands of
U.S. dollars
2008$129,464(2,605)—$126,849¥15,046(932)
291¥14,404

5. Marketable and Investment Securities
were available was summarized as follows:

At March 31, 2008 and 2007, information withrespect to other securities for which market prices

				
			
Millions of yen			 Thousands of U.S. dollars
			2008			2008			Balance sheet Unrecognized		Balance sheet Unrecognized		
Costamountgain (loss)
Cost
amountgain (loss)

Unrecognized gain items:
Stock
Unrecognized loss items:
Stock
Total

¥15,185¥37,076¥21,890$151,562$370,057$218,485

803¥15,988645¥37,721(158)¥21,732

8,015$159,577

6,438$376,495(1,577)$216,908

			
			
			
		
Cost

Millions of yen
2007
Balance sheet Unrecognizedamountgain (loss)

Unrecognized gain items:			
Stock¥15,668 ¥58,149
Unrecognized loss items:			
Stock
373
313
Total
¥16,042 ¥58,462¥42,481(60)¥42,420($289 thousand) and nil for the years ended March
31, 2008 and 2007, respectively.
Balance sheet amounts of non-marketable securities classified as other securities at March 31,
2008 and 2007 were as follows:

Proceeds from sales of securities classified asother securities amount to ¥782 million ($7,805
thousand) and ¥420 million with an aggregate gainon sales of ¥277 million ($2,765 thousand) and¥174 million and loss on sales of ¥29 million
Other securities:						Millions of yen		
2008		
2007

¥2,358—1,000—

Unlisted securities (except for OTC securities)
Preferred securities
Preferred stock
Money market fund

¥2,131
1,000
1,000
291

There are no securities with maturity dates classified as other securities at March 31, 2008.

36

Thousands of
U.S. dollars
2008$23,535—
9,981—

6. Notes and Accounts Receivable(a) Notes and accounts receivable liquidated at March 31, 2008 and 2007 were as follows:						Millions of yen		
2008		
2007

¥11,771
9,087

Accounts receivable transferred by liquidation
Notes receivable transferred by liquidation

Thousands of
U.S. dollars
2008¥12,501
11,639$117,487
90,698(b) Notes receivable discounted at March 31, 2008 and 2007 were as follows:						Millions of yen		
2008		
2007

¥166

Notes receivable discounted

Thousands of
U.S. dollars
2008

¥3

$1,657

7. Inventories
Inventories at March 31, 2008 and 2007 consisted of the following:						Millions of yen		
2008		
2007

¥18,3372,372
15,073
5,689¥41,472

Merchandise
Finished products
Semifinished products and work in process
Raw materials and supplies				¥14,828
1,907
17,545
5,062¥39,342

Thousands of
U.S. dollars
2008$183,022
23,675150,444
56,782$413,934

8. Short-Term Borrowings and Long-Term Loans Payable
At March 31, 2008 and 2007, short-term borrowings and the current portion of long-term loans

payable consisted of the following:						Millions of yen		
2008		
2007

¥16,593
22,512¥39,105

Bank loans
Current portion of long-term loans payable
Total			

¥ 8,146
21,933¥30,080

Thousands of
U.S. dollars
2008$165,615
224,693$390,308

The average interest rates applicable to short-term loans payable outstanding at March 31, 2008 and 2007
were 3.75% and 2.92%, respectively.

37

Long-term loans payable at March 31, 2008 and 2007 comprised the following:						Millions of yen		
2008		
2007

Loans from banks due through 2017 at averageinterest rate of 2.29% in 2008 and 2.14% in 2007
0.95% unsecured bonds, payable in yen, due 2009
1.81% unsecured bonds, payable in yen, due 2011
1.58% unsecured bonds, payable in yen, due 2012				

¥ 67,707
15,00015,00010,000¥107,707

0.68% commercial paper (¥5,000 million($49,905 thousand)) at March 31, 2008 and
0.56% commercial paper (¥6,000 million) at

Thousands of
U.S. dollars
2008¥ 76,595 $ 675,786
15,000149,716
15,000149,716—
99,810¥106,595 $1,075,027

March 31, 2007 were included in other current
liabilities.

The annual maturities of long-term loans payable are summarized as follows:		Years ending March 31
Millions of yen

Thousands of
U.S. dollars

2009
2010
2011
2012
2013
2014 and thereafter		$224,693
87,174
252,480
141,122
89,230105,779$900,479¥22,512
8,734
25,296
14,1398,940
10,598¥90,219

9. Pledged Assets
Assets pledged as collateral for short-term loans
payable of ¥235 million ($2,346 thousand) and¥377 million, long-term loans payable of ¥780
million ($7,785 thousand) and ¥1,501 million andother liabilities of ¥308 million ($3,074 thousand)and ¥350 million at March 31, 2008 and 2007,
respectively, were as follows:						Millions of yen		
2008		
2007

¥4,578Property, plant and equipment, at net book value¥17,475

Thousands of
U.S. dollars
2008$45,693

10. Assets Replaced by National Subsidy
Assets replaced by national subsidy at March 31, 2008 and 2007 were as follows:		Millions of yen
2008		
2007

¥411

Property, plant and equipment

38

¥411

Thousands of
U.S. dollars
2008$4,102

11. Income Taxes
Income taxes applicable to the Company comprise
corporation, enterprise and inhabitants’ taxes,
which, in the aggregate, resulted in a statutory tax
rate of 40.69% for 2008 and 2007.
The reconciliation was omitted for the years
ended March 31, 2008 and 2007 because the differences were less than 5% of the statutory tax rate.

Significant components of the Company’sdeferred tax assets and liabilities at March 31, 2008
and 2007 were as follows:						Millions of yen		
2008		
2007

Current deferred tax assets and liabilities
Deferred tax assets:
Accrued bonus¥2,415
Loss from valuation of inventory272
Accrued expenses
1,708
Tax losses carried forward—
Other		3,030Deferred tax assets—subtotal
7,427
Valuation allowance(212)
Deferred tax assets—net
7,215
Deferred tax liabilities(1)
Net deferred tax assets¥7,213
Deferred tax liabilities:		
Adjustment of allowance for doubtful accounts¥(1)
Deferred tax liabilities—subtotal(1)
Offset by deferred tax assets
1
Net deferred tax liabilities¥—¥2,240
246
1,384
256
2,335
6,464
(227)
6,236
(49)
¥6,186$24,104
2,715
17,048—30,24374,129(2,116)72,013(10)$71,993

¥

$

¥

(81)
(81)
49
(31)

				
		Millions of yen		
2008		
2007

Noncurrent deferred tax assets and liabilities
Deferred tax assets:
Depreciation¥ 1,059
Reserve for retirement benefits
1,312
Net operating loss carryforward for tax purposes
100
Other		7,368Deferred tax assets—subtotal
9,841
Valuation allowance(4,095)
Deferred tax assets—net
5,745
Deferred tax liabilities(3,596)
Net deferred tax assets¥ 2,149
Deferred tax liabilities:		
Valuation difference on other securities¥ (8,959)
Reserve for replacement of fixed assets(7,852)
Reserve for replacement of fixed assets—special(415)
Depreciation(7,546)
Other		
(11,608)
Deferred tax liabilities—subtotal(36,381)
Offset by deferred tax assets
3,596
Net deferred tax liabilities¥(32,785)

39

Thousands of
U.S. dollars
2008

$

(10)
(10)
10
—

Thousands of
U.S. dollars
2008

¥

757
1,129
125
7,455
9,467
(4,268)
5,198(3,298)¥ 1,900$ 10,570
13,095998
73,54098,223(40,872)
57,341(35,892)$ 21,449¥(17,465)(6,868)(1,683)(7,100)(10,260)(43,378)
3,298¥(40,080)$ (89,420)(78,371)(4,142)(75,317)(115,860)(363,120)
35,892$(327,228)

12. Shareholders’ Equity(a) Dividends

until the total aggregate amount of legal reserve
and additional paid-in capital equals 25% of thecommon stock. Under the Commercial Code ofJapan, the aggregate amount of additional paid-in
capital and legal reserve that exceeds 25% of thecommon stock may be made available for dividends by resolution of the shareholders. Under
the Corporate Law, the total amount of additional
paid-in capital and legal reserve may be reversed
without limitation of such threshold.
The Corporate Law 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.

Under the Corporate Law of Japan, companies canpay dividends at any time during the fiscal year
in addition to the year-end dividend upon resolution at the shareholders’ meeting. For companies
that meet certain criteria, such as; (1) having a
Board of Directors, (2) having independent auditors, (3) having a Board of Corporate Auditors,and (4) the term of service of 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 has prescribed so in
its articles of incorporation.
The Corporate Law permits companies to distribute dividends-in-kind (non-cash assets) toshareholders 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 theCompany so stipulate. Under the Commercial
Code of Japan, certain limitations were imposed on
the amount of capital surplus and retained earnings
available for dividends.

(c) Treasury stock and treasury stockacquisition rights

The Corporate Law also provides for companies topurchase treasury stock and dispose of such treasury stock by resolution of the Board of Directors.
The amount of treasury stock purchased cannot
exceed the amount available for distribution to theshareholders, which is determined by specific formula. Under the Corporate Law, stock acquisitionrights, which were previously presented as a liability, are now presented as a separate component ofshareholders’ equity.
The Corporate Law also provides that companies can purchase both treasury stock acquisitionrights and treasury stock. Such treasury stockacquisition rights are presented as a separate component of shareholders’ equity or deducted directlyfrom stock acquisition rights.

(b) Increases / decreases and transfer ofcommon stock, reserve and surplus

The Corporate Law requires that an amount equal
to 10% of dividends must be appropriated as alegal reserve (a component of retained earnings)
or as additional paid-in capital (a component of
capital surplus) depending on the equity accountcharged upon the payment of such dividends

4013. Leases(a) The following pro forma amounts represent theacquisition costs, accumulated depreciation andnet book value of leased property at March 31,
2008 and 2007, which would have beenreflected in the consolidated balance sheets if
finance lease accounting had been applied to thefinance lease transactions currently accounted for
as operating leases:						Millions of yen		
2008		
2007

Acquisition costs:		
Property, plant and equipment¥10,055
Other assets549
				
¥10,604
Accumulated depreciation:		
Property, plant and equipment¥ 5,410
Other assets285
				
¥ 5,696
Net book value:		
Property, plant and equipment¥ 4,644
Other assets263
				
¥ 4,908

Lease payments relating to finance lease transactions accounted for as operating leases amounted
to ¥1,788 million ($17,846 thousand) and ¥1,610
million, which were equal to the depreciation
expense of the leased assets computed by thestraight-line method over the respective lease terms
for the years ended March 31, 2008 and 2007,
respectively.

Thousands of
U.S. dollars
2008¥ 9,161422¥ 9,584$100,359
5,480$105,839¥ 4,571224¥ 4,796$ 53,997
2,845$ 56,852¥ 4,589197¥ 4,787$ 46,352
2,625$ 48,987

Future minimum lease payments (including theinterest portion thereon) subsequent to March 31,
2008 and 2007 for finance lease transactions
accounted for as operating leases are summarized
as follows:			Year ending March 31
Millions of yen

2008
2009
2010 and thereafter
Total
2007
2008
2009 and thereafter
Total¥1,585
3,322¥4,908

Thousands of
U.S. dollars$15,820
33,157$48,987¥1,401
3,386¥4,787(b) Future minimum lease payments subsequent to March 31, 2008 and 2007 or non-cancelable operatingleases are summarized as follows:			Year ending March 31
Millions of yen

2008
2009
2010 and thereafter
Total
2007
2008
2009 and thereafter
Total¥ 1,991
8,540¥10,532¥ 1,992
7,258¥ 9,250

41

Thousands of
U.S. dollars$ 19,872
85,238$105,120

14. Pension and Severance Indemnities
The Company has the cash balance plan (market
rate-linked pension plan) and the defined contribution benefit plan.
The Company’s domestic subsidiaries have,jointly or severally, defined benefit plans, including
funded non-contributory tax-qualified retirement
pension plans and a lump-sum retirement benefits
plan, which together cover substantially all fulltime employees who meet certain eligibility
requirements.

Certain overseas subsidiaries have a defined
contribution benefit plan.
The funded status and amounts recognized in
the accompanying consolidated balance sheets at
March 31, 2008 and 2007 and the components of
net retirement benefit expenses recognized in theaccompanying consolidated statements of income
for the years ended March 31, 2008 and 2007 aresummarized as follows:(a) Retirement benefit liabilities
						Millions of yen		
2008		
2007

¥ 34,008(35,115)(1,107)(7,896)(3,302)
2,614
13,189(3,497)

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 costs
Allowance for employees’ retirement benefits¥ 34,842(43,516)(8,674)23(3,769)2,856
12,984(3,420)Thousands of
U.S. dollars
2008$ 339,435(350,484)(11,049)(78,810)(32,957)
26,090131,640(34,904)(b) Net retirement benefit expenses						Millions of yen		
2008		
2007

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		

42

Thousands of
U.S. dollars
2008¥1,531
581
(858)
292

¥1,124
591
(709)
48

$15,281
5,799(8,564)
2,914

466
(241)
¥1,772785¥2,557466(241)¥1,280338¥1,6184,651(2,405)$17,686
7,835$25,522(c) The principal assumption used in determining
retirement benefit obligations and othercomponents for the Company and certain of its
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

2008

2007

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

Mainly 2.0%
Mainly 2.5%
Mainly 12 to 16 years
Mainly 15 years
13 to 16 years
Evenly for period

15. Contingent Liabilities
At March 31, 2008 and 2007, the Company andcertain of its subsidiaries had contingent liabilities
as guarantor of indebtedness, amounting to ¥8,701
million ($86,845 thousand) and ¥8,245 million,
which included reguarantees by joint investors

amounting to ¥743 million ($7,416 thousand) and¥792 million and commitments to guarantees
amounting to ¥1,244 million ($12,416 thousand)and ¥1,685 million, respectively.

16. Derivative and Hedging Activities(a) Outline of transactions and conditions

derivative transactions and related risk management
rules which stipulate the limits on derivative transactions for each contract amount. All derivativetransactions have been entered into in compliancewith these rules.
Risk management for derivative transactions has
been under the control of the Finance Department of
the Company which reports regularly or as necessary
to the responsible officer.

The Company and certain of its subsidiaries haveused foreign exchange forward contract andinterest-­rate swap agreements and currency swap
agreements to hedge against the risk of fluctuationsin interest rates and currency exchange relating totheir short-term receivables and payables and longterm loans payable.
No market risk is anticipated as such derivatives
have been entered into to offset or mitigate gains orlosses resulting from the hedged loan and othertransactions.
The Company and certain of its subsidiaries do
not anticipate nonperformance by any of the counterparties to the above transactions, all of whom areleading financial institutions which are deemed
highly creditworthy.
The Company and certain of its subsidiaries
have established rules for the authorization of(b) Interest-related derivatives

There are no interest-related derivatives at March
31, 2008 and 2007.
(c) Currency-related derivatives

Market value information at March 31, 2008 and2007 is not required as all of the Company andcertain of its subsidiaries’ derivative transactions areaccounted for as hedging transactions.

17. 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, 2008 and2007 totaled ¥2,903 million ($28,975 thousand)and ¥2,713 million, respectively.

4318. Gain and Loss on Sale and Retirement of Noncurrent Assets
Significant components of the gain on sale ofnoncurrent assets of ¥1,334 million ($13,315
thousand) and ¥6,628 million for the years

ended March 31, 2008 and 2007, respectively,
were as follows:						Millions of yen		
2008		
2007

¥1,334

Land			

Significant components of the loss on sale andretirement of noncurrent assets of ¥785 million($7,835 thousand) and ¥5,826 million for the years¥6,628

Thousands of
U.S. dollars
2008$13,315

ended March 31, 2008 and 2007, respectively, wereas follows:					Millions of yen
2008		
2007

¥114
218

Land			Machinery		¥4,992
438

Thousands of
U.S. dollars
2008$1,1382,176

19. Impairment Loss
The Company and its subsidiaries categorize business assets by business segmentation and idle assets
without a specific future use are categorized separately. For idle assets affected by decrease of fairmarket value of land the book values are written
down to the recoverable amount and such writedowns are recorded as impairment loss of ¥49 million ($489 thousand) (of which land accounts for allof them) and ¥813 million (of which land accounts
for ¥598 million and buildings for ¥214 million) for
the years ended March 31, 2008 and 2007, respectively, due to luck of recovery provability of market
value or recovery provability in the near future.
Recoverable amounts for relevant assets are net selling price (selling price based on contract, valuationby property tax or valuation by inheritance tax).

20. Segment Information
The business, geographical and overseas segment
information of the Company and its consolidated

subsidiaries for the years ended March 31, 2008
and 2007 is summarized as follows:(a) Business Segments
			
		
Gas
Year ended or as of March 31, 2008
business

I. Sales:(1) Sales to third parties(2) Intersegment sales
Total sales
Operating costs and expenses
Operating income
II. Assets, depreciation expenses
and capital expenditure:
AssetsDepreciation expenses
Impairment loss
Capital expenditure

Millions of yen
Plant and gas Housewares
equipment
business		
businessand others
Total

Eliminations
or corporate

Consolidated¥338,347
19
338,366
307,421¥ 30,945¥151,717
11,720163,438
153,037¥ 10,400¥17,653150
17,804
15,871¥ 1,932¥507,718 ¥—
11,890 (11,890)
519,608 (11,890)
476,331(7,396)¥ 43,277 ¥ (4,494)¥507,718—
507,718
468,934¥ 38,783¥394,125¥ 22,507¥—¥ 33,312¥75,178¥ 2,121¥—¥ 2,081¥19,322
¥ 647
¥
—
¥ 826

¥488,626¥ 25,276¥—¥ 36,220¥547,237¥ 25,506¥49¥ 36,26044¥58,611
¥ 230
¥
49
¥
40

			
		
Gas
Year ended or as of March 31, 2007
business

I. Sales:(1) Sales to third parties(2) Intersegment sales
Total sales
Operating costs and expenses
Operating income
II. Assets, depreciation expenses
and capital expenditure:
AssetsDepreciation expenses
Impairment loss
Capital expenditure

Plant and gas
equipment
business

Millions of yen
Housewares
business		and others
Total

Eliminations
or corporate

Consolidated¥305,442
99
305,542
278,545¥ 26,996¥136,896
12,299149,196
137,581¥ 11,615¥16,248
182
16,43014,608¥ 1,822¥458,587 ¥—
12,581(12,581)471,169(12,581)430,735(8,635)¥ 40,434 ¥ (3,945)¥458,587—
458,587
422,099¥ 36,488¥378,606¥ 18,607¥—¥ 32,941¥72,182¥ 1,695¥—¥ 1,800¥19,101¥ 612¥—¥ 1,426¥469,890¥ 20,915¥—¥ 36,168¥77,900¥ 294¥ 813¥ (277)¥547,791¥ 21,210¥
813¥ 35,891

Eliminations
or corporate

Consolidated

			
		
Gas
Year ended or as of March 31, 2008
business

Plant and gas
equipment
business

I. Sales:		(1) Sales to third parties$3,377,054 $1,514,293(2) Intersegment sales
190
116,978
Total sales
3,377,243 1,631,281
Operating costs and expenses 3,068,380 1,527,468
Operating income$ 308,863 $ 103,803
II. Assets, depreciation expenses
and capital expenditure:		
Assets$3,933,776 $ 750,354
Depreciation expenses$ 224,643 $ 21,170
Impairment loss$
— $—Capital expenditure$ 332,488 $ 20,771

Thousands of U.S. dollars
Housewares
business		and others
Total$176,195 $5,067,552 $— $5,067,552
1,497
118,675 (118,675)—
177,702 5,186,226 (118,675) 5,067,552
158,409 4,754,277 (73,820) 4,680,447$ 19,283 $ 431,949 $ (44,855) $ 387,095$192,854 $4,876,994 $ 584,999$ 6,458 $ 252,281 $ 2,296
$
— $
— $
489
$ 8,244 $ 361,513 $
399$5,461,992$ 254,576$
489$ 361,912

Eliminations
or corporate

Consolidated¥507,718 ¥—
22,069 (22,069)
529,787 (22,069)
488,261 (19,326)¥ 41,525 ¥ (2,742)¥472,890 ¥ 74,346¥507,718—
507,718
468,934¥ 38,783¥547,237(b) Geographical Segments			Year ended or as of March 31, 2008
Japan

North
America

Millions of yen
Other		countries
Total

Sales:		
Sales to third parties¥393,227
Intersegment sales
5,762
Total sales
398,990
Operating costs and expenses
369,542
Operating income¥ 29,447
Assets¥311,037¥ 84,833
13,12897,962
87,940¥ 10,021¥121,374¥29,656
3,178
32,83430,778¥ 2,056¥40,479			Year ended or as of March 31, 2007
Japan

North
America

Millions of yen
Other		countries
Total

Sales:
Sales to third parties
Intersegment sales
Total sales
Operating costs and expenses
Operating income
Assets¥ 62,208
9,402
71,611
63,741¥ 7,869¥117,870¥23,765
2,121
25,887
24,344¥ 1,543¥33,547¥372,614
6,629
379,243
348,593¥ 30,650¥306,355

45

Eliminations
or corporate

Consolidated¥458,587 ¥—
18,154(18,154)476,742(18,154)436,678(14,579)¥ 40,063 ¥ (3,574)¥457,773 ¥ 90,017¥458,587—
458,587
422,099¥ 36,488¥547,791

			Year ended or as of March 31, 2008
Japan

Thousands of U.S. dollars
Other		countries
Total

North
America

Eliminations
or corporate

Consolidated

Sales:		
Sales to third parties$3,924,813 $ 846,721 $295,998 $5,067,552 $— $5,067,552
Intersegment sales
57,511
131,031
31,720220,271 (220,271)—
Total sales
3,982,334
977,762 327,717 5,287,823 (220,271) 5,067,552
Operating costs and expenses
3,688,412
877,732 307,196 4,873,351 (192,894) 4,680,447
Operating income$ 293,912 $ 100,020 $ 20,521 $ 414,463 $ (27,368) $ 387,095
Assets$3,104,472 $1,211,438 $404,022 $4,719,932 $ 742,050 $5,461,992(c) Overseas Sales

overseas consolidated subsidiaries, for the years
ended March 31, 2008 and 2007 are summarized
as follows:

Overseas sales, which include export sales of theCompany and its domestic consolidated subsidiaries and sales (other than exports to Japan) of its
		Year ended or as of March 31, 2008

Millions of yen
North			America
Other
Total

Thousands of U.S. dollars
North
America
Other
Total

Overseas sales¥71,448 ¥55,140 ¥126,589$713,125 $550,354 $1,263,489
Consolidated net sales			 507,718			 $5,067,552
Ratio of overseas sales toconsolidated net sales
14.1%
10.8%
24.9%
Millions of yen
		Year ended or as of March 31, 2007

North
America

Other

Total

Overseas sales¥55,344 ¥40,826 ¥ 96,171
Consolidated net sales			 458,587
Ratio of overseas sales toconsolidated net sales
12.1%
8.9%
21.0%

21. Assets and Liabilities of Newly Consolidated Subsidiaries by Acquisition of Stocks
Assets and liabilities of newly consolidated subsidiaries, Five Star Gas & Gear, Inc., and Polar Cryogenics,
Inc., through the acquisition of stocks, acquisition

cost and net payments for the acquisition effectivein the year ended March 31, 2008 were as follows:					Millions of yen¥

Thousands of
U.S. dollars

Current assets
Property, plant and equipment
Goodwill
Other assets
Total assets

566
477
2,711
28
¥ 3,783$ 5,649
4,761
27,059279$ 37,758

Current liabilities
Noncurrent liabilities
Total liabilities

¥

486
260
747

$ 4,851
2,595$ 7,456¥(3,352)
91$(33,456)
908¥(3,261)$(32,548)¥

Acquisition cost of newly consolidated subsidiaries’ stock
Cash and cash equivalents of newly consolidated subsidiaries
Payments for acquisition of subsidiaries’ stock with change
in the scope of consolidation46

22. Subsequent EventAppropriation of retained earnings

financial statements for the year ended March 31,
2008, were approved at the shareholders’ meeting
held on June 27, 2008:

The following appropriations of retained earnings,
which have not been reflected in the accompanying					Millions of yen

Cash dividends—¥6.00 ($0.060) per share¥2,41547

Thousands of
U.S. dollars$24,104

Report of Independent Auditors

48

Investor Information(At March 31, 2008)

Head Office:Toyo Building, 1-3-26, Koyama, Shinagawa-ku, Tokyo 142-8558, Japan
Number of Employees:

8,741
Date of Incorporation:

October 1910
Number of Shares:

Authorized—800,000,000

Issued—403,092,837

Minimum Trading Unit:

1,000 shares
Number of Stockholders:

16,499Major Stockholders:Thousands ofShares Owned

Major Stockholders

Mitsubishi Chemical Corporation
JFE Steel Corporation
Taiyo Nippon Sanso Client Shareholding Society
Meiji Yasuda Life Insurance Company
Mizuho Corporate Bank, Ltd.
State Street Bank and Trust Company (Account 505103)
The Master Trust Bank of Japan Ltd. (Trust Account)
Dai-ichi Mutual Life Insurance Company
The Norinchukin BankJapan Trustee Services Bank, Ltd. (Trust Account)

40,947
20,617
17,33016,491
14,484
13,926
13,686
10,037
10,0009,281
166,802

Percentage of
Total

10.16%
5.11
4.30
4.09
3.59
3.45
3.40
2.49
2.48
2.30
41.38%

Common Stock Price Range and Trading Volume:
(Yen)
1,250

(Thousand Shares)
100,000

Common Stock Price Range

1,000

80,000750

60,000500

Trading Volume

40,00020,000250

00
1st Quarter

2nd Quarter

3rd Quarter

Fiscal 2007

4th Quarter

1st Quarter

2nd Quarter

3rd Quarter

Fiscal 200849

4th Quarter

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