The Road to Growth
Annual Report
Year Ended March 31, 2015

2015

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

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

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

2

CONTENTS

To Our Stakeholders

P2
Special Feature

P4
Strategic Perspectives

P12
At a Glance

P15
Business Portfolio

P16
Corporate Governance

P22
CSR

23

Board of Directors, Audit & Supervisory Board Members
and Executive Officers

24

Six-Year Summary

25

Management’s Analysis of Operating Results and Financial Position

26

Consolidated Financial Statements

30

Notes to Consolidated Financial Statements

35

Report of Independent Auditors

54

Investor Information

55

Taiyo Nippon Sanso Corporation | Annual Report 20151

To Our Stakeholders

Despite a gradual revival in the United States, the global

Fiscal year 2015 was the 10th year since the merger

economy in fiscal year 2015, ended March 31, 2015, reflectedthat created Taiyo Nippon Sanso. This important milestone inslowing growth in Europe and Asia. The Japanese economy

our history also saw us embark on a new medium-term

continued to recover moderately, although causes for concern

business plan, Ortus Stage 1, which we have positioned asremained, including rising prices for raw materials, a

the first step in our drive to attain the targets of our long-consequence of yen depreciation.

term vision—net sales of ¥1 trillion, an operating margin ofAgainst this backdrop, we reported significant advances

10%, a return on capital employed (ROCE) of at least 10%,in net sales and operating income in North America and Asia,and an overseas sales ratio of 50% or higher—by the end of

the former attributable to the modest economic rally and thefiscal year 2023. Our operating results targets for fiscal year

positive impact on results of a newly consolidated carbon

2017, the final year of Ortus Stage 1, are consolidated net

dioxide manufacturer, and the latter to the robust performancesales of ¥600 billion, an operating margin of 7.5%, an ROCEof our Electronics segment businesses in Taiwan, China andof at least 8% and an overseas sales ratio of 40% or higher.

South Korea. In contrast, the pace of recovery in Japan was

Over the next year, we will continue to promote restructuring

measured, as trends varied from one sector to another. These

initiatives, particularly in Japan, as well as take steps tofactors contributed to a 7.0% increase in consolidated net

accelerate the expansion of our overseas operations, withsales, to ¥559,373 million, and a 12.1% gain in operating

the aim of meeting these targets.

income, to ¥35,297 million.

Owing to a tender offer by our principal shareholder,
Mitsubishi Chemical Holdings Corporation, which concluded

2

Taiyo Nippon Sanso Corporation | Annual Report 2015

Quantitative Targets of Ortus Stage 1 and Our Long-Term Vision
Long-term vision¥1,000Years ended/ending March 31 (Billions of yen)
1,000

(%)
10.0

Net sales (left scale)Operating margin (right scale)

Ortus Stage 1
800

8.0

600

6.0

400

4.0

200

2.0

0

Net sales
Operating income
Operating margin
Overseas sales ratio
ROCE

2013
Actual2014
Actual2015
Actual2016
Forecast*

2017
Target2023
Target¥468.3¥ 24.8
5.3%
27.6%
5.5%

¥522.7¥ 31.4
6.0%
31.4%
6.1%

¥559.3¥ 35.2
6.3%
35.0%
6.5%

¥600.0¥ 38.0
6.3%
39.1%
—

¥600.0¥ 45.07.5%
40% or higher
8.0% or higher¥1,000¥ 100
10.0%
50% or higher
10.0% or higher

Structural reforms, growth strategies

0

Optimization,
expansion ofscale* Forecast for fiscal year 2016 excludes the impact of a change in the fiscal year-ends of two subsidiaries, which is expected to add ¥50.0 billion to net sales and ¥3.0 billion to operating income.

in November 2014, the company’s stake in Taiyo Nippon

involved reducing our Board of Directors from 17 members to

Sanso increased to 50.57%, resulting in a change in our

11—including two individuals invited to serve as independent

relationship with Mitsubishi Chemical Holdings from that ofoutside directors—to clarify the separation between decision

equity-method affiliate to consolidated subsidiary. Looking

making/oversight and business execution.

ahead, we will maintain our status as a listed company with

Under our new management configuration, we will

independent management, while at the same time capitalizing

continue endeavoring to further enhance corporate value byon our new role in the Mitsubishi Chemical Holdings Group,working in concert with Mitsubishi Chemical Holdings andwhich we expect to yield broad synergies. Of particular note,

implementing the strategies of Ortus Stage 1, with the ultimate

we will leverage our global network to expand our supplies ofgoal of realizing our long-term management vision. In theseindustrial gases to the overseas sites of Mitsubishi Chemical

and all of our efforts, we look forward to the support andHoldings Group companies, the number of which is expectedguidance of our many stakeholders.

to increase substantially. We are also excited by the potential
for greater collaboration in R&D and the development of newJune 2015

cornerstone technologies.
Acting in accordance with Japan’s Corporate Governance
Code, in June 2015 we modified our management
configuration with the goal of improving our management

Yujiro Ichihara

efficiency and strengthening our corporate governance. This

President and CEO

Taiyo
TaiyoNippon
NipponSanso
SansoCorporation
Corporation||Annual
AnnualReport
Report2015
2014

33

SPECIAL FEATURE

An Interview
with Yujiro Ichihara
Taiyo Nippon Sanso’s president and CEO
answers questions about the first year of
Ortus Stage 1 and his outlook for theremaining two years of the plan.

4

Taiyo Nippon Sanso Corporation | Annual Report 2015

Part I: Evaluating Achievements in the First Year of Ortus Stage 1

Q1. What do you see as your principal achievements in the first year of your current medium-termbusiness plan?
Consolidated net sales reached ¥559.3 billion, while

to operating income growth, we accepted new on-site

operating income was ¥35.2 billion, so we met our fiscal

orders in the United States, the Philippines and Indonesia,

year 2015 Ortus Stage 1 targets for both, thereby creating

laying the groundwork for dramatic future growth in oura foundation on which we can build to achieve the ultimate

overseas operations. In Japan, we reported an

net sales and operating income targets of the plan, which

improvement in operating income, despite only a slightare ¥600.0 billion and ¥45.0 billion, respectively. In addition

increase in net sales, thanks to the implementation of

to reaping tangible benefits from a major acquisition in the

structural reforms.

United States made in fiscal year 2014, which contributed

Operating Results: Largely in Line with the Quantitative Targets of Ortus Stage 1
Ortus Stage 1(Billions of yen)

Years ended/ending March 31

2014 (Actual)

2015 (Actual)

2016 (Forecast)*2017 (Target)¥522.7¥559.3¥600.0¥600.0

+9.3

+30.0

+0.0

¥35.2

¥38.0

¥45.0

+0.2

+0.0

+0.0

Net sales
Increase from Ortus Stage 1 target
Operating income¥31.4

Increase from Ortus Stage 1 target
Operating margin

6.0%

6.3%

6.3%

7.5%

Overseas sales ratio

31.4%

35.0%

39.1%

40.0%

ROCE

6.2%

6.2%

—

8.0%

*Forecast for fiscal year 2016 excludes the impact of a change in the fiscal year-ends of two subsidiaries, which is expected to add ¥50.0 billion to net sales and ¥3.0
billion to operating income.

Q2. The central strategies of your medium-term business plan are to streamline and optimize youroperations in Japan and to selectively allocate management resources to businesses overseas.
Can you elaborate on what sort of concrete measures you are promoting in both areas?
Let’s start by looking at efforts to streamline and optimize ouris thus crucial to realizing our investment plans in promisingdomestic operations. One of the targets of our medium-term

overseas markets. Recognizing that the growth potential of

business plan is to achieve an overseas sales ratio of 40% or

the Japanese industrial gases market is limited, we must

higher, but our operating foundation remains in Japan.

promote structural reforms that will fortify our earnings base.

Ensuring sufficient cash flow from operating activities in JapanWe are thus implementing a variety of measures focused on

Taiyo Nippon Sanso Corporation | Annual Report 20155

Special Feature: An Interview with Yujiro Ichihara

swiftly creating an agile management structure that is small in

In terms of efforts to selectively allocate management

size but large in talent—one that is capable of responding

resources to businesses overseas, in the United States weeffectively to the multifaceted changes taking place in thestarted up a new air separation unit in Mesa, Arizona inmarket—and on bolstering profitability.

August 2014, and made acquisitions in Hawaii and California

We recently introduced an early retirement system atin February 2015. In Asia, we established a joint venture in

the parent company and our Japanese engineering subsidiary

February 2014 and secured two new on-site orders inin a bid to lower personnel expenses, which reduced theIndonesia. In the Philippines, we commenced operations at

combined headcount of the two companies by 170

an air separation unit for the production of liquid gases inindividuals. We also proceeded with further efforts to improve

April 2015, while in Malaysia we pushed forward with thethe efficiency of back office operations and realign ourconstruction of a new air separation unit. In light of the rapid

domestic affiliates. For example, in April 2015 we integrated

expansion of our overseas operations, we stepped up thethe various companies across the country selling liquefied

redeployment of personnel from Japan. We also reviewed

petroleum (LP) gas into one business entity. In addition, we

hardship allowances for employees posted overseas, a movecontinued working to strengthen our supply chains, an ongoingdirected at both reducing overall costs and enhancing ourchallenge, conducting reviews of our production and logistics

capabilities overseas.

configurations and taking steps to rationalize our production
bases through the integration and closure of facilities.

Q3. What is your assessment of your financial footing at present?
Thanks to an abundant flow of cash from operating activities¥200 billion over the three years of Ortus Stage 1, ¥180 billion

in fiscal year 2015, net interest-bearing debt as of March 31,

of which we expect to fund from cash generated by operating

2015, was ¥212.8 billion, ¥6.9 billion lower than at the end ofactivities, and anticipate being able to hold our net debt-to-

fiscal year 2014, and our net debt-to-equity ratio improved toequity ratio to 0.74 times in the final year of the plan.

0.67 times, from 0.80 times a year earlier. We plan to invest

Interest-Bearing Debt and Debt-to-Equity Ratio

Cash Flows

Years ended March 31

Years ended March 31(Billions of yen)

400

(Times)1.12(Billions of yen)

1.2

100

0.9

50

0.6

0

50
28.0

300

0.80

25

0.67

200

1.4

0
(3.2)

100

0
Equity2013
Net interest-bearing debt

2014
Net interest-bearing debt ratio

2015

0.3

–50

0

–100

–25

2013

Net cash used in (provided by) ﬁnancing activities
Net cash provided by operating activities

6

2014

Taiyo Nippon Sanso Corporation | Annual Report 2015

2015

Net cash used in investing activities

Free cash ﬂow–50

Q4. How do you see the operating environment changing in the near future?
Electricity is a major component of the cost of manufacturing

production prompted fears of a perilous contraction of the

our core products, which are oxygen, nitrogen and argon.

domestic market for industrial gases, which accounts for

Accordingly, fluctuations in electricity rates can significantly

approximately 65% of our sales. In response, we sought toaffect our profitability. In Japan, the impact of the Great Eastleverage our global supply network to lock in demand that has

Japan Earthquake of 2011 and the subsequent suspension

moved from Japan to other locales. The yen’s continuedof operations at nuclear power plants increased pressure on

correction since 2013 has mostly halted the stream ofelectricity supplies, prompting the country’s electric power

manufacturers moving overseas, encouraging a recovery incompanies to hike rates. We continue negotiating withdomestic demand from customers in certain industries.

customers to increase sales prices for our products to

Despite a temporary slowdown, emerging markets,

mitigate the impact of resulting production cost increases

including those of Southeast Asia, are expected to continue

on our profitability.

seeing rapid economic growth. In addition to Vietnam and the

A distinguishing feature of all but our most specialized

Philippines, where we already have robust supply networks,

products is that they are generally consumed where they are

we will continue working to solidify our bases in Thailand,

produced. Because imports and exports account for only aIndonesia and Malaysia, among others, through acquisitions

small portion of our business, the direct impact of foreign

and capital investment. We will also seek to capitalize on

exchange fluctuations on our operating results is minimal.

expanding demand in other markets by broadening the

However, the relentless strength of the yen prior to 2013 andgeographic coverage of our operations.

resulting moves by many of our customers to shift to offshore
Projected Growth in Real GDP
Ortus Stage 1

April 2015 outlook

Japan
United States
China
Singapore
ASEAN-5*

2013
Actual
1.6%
2.2%
7.8%
4.4%
5.2%

2014
Actual
– 0.1%
2.4%
7.4%
2.9%
4.6%

*Indonesia, Malaysia, the Philippines, Thailand and Vietnam

2015
Projection
1.0%
3.1%
6.8%
3.0%
5.2%

2016
Projection
1.2%
3.1%
6.3%
3.0%
5.3%

Change from October 2013 outlook
2014
Change– 1.3%– 0.2%
0.1%– 0.5%– 0.8%

2015
Change– 0.1%– 0.2%– 0.3%– 0.6%– 0.4%

2016
Change
0.0%
–0.4%
–0.7%
–0.7%
–0.1%

Source: World Economic Outlook, International Monetary Fund (October 2013 and April 2015)

Part II: The Next Stage of our Medium-Term Business Plan

Q5. How have you positioned the second year of Ortus Stage 1?
The measures we implement in fiscal year 2016 will largely

particularly important year for us from a strategic perspective.

determine our ability to achieve our ¥45.0 billion operating

Owing to a change in their fiscal year-ends, subsidiaries

income target for the final year of the plan, so this is a

Matheson Tri-Gas, Inc. in the United States and Leeden

Taiyo Nippon Sanso Corporation | Annual Report 20157

Special Feature: An Interview with Yujiro Ichihara

National Oxygen, Ltd. in Singapore will report results for avariety of initiatives. With sales likely to remain flat in Japan,

15-month period, which will automatically add approximately

we will continue to focus as a Group on reducing costs,¥3.0 billion to consolidated operating income. Excluding thismainly through the redeployment of personnel to overseas

amount, our forecast for operating income in fiscal year 2016businesses and the rationalization of affiliated companies, andis identical to the original target of ¥38.0 billion set forth inon strengthening our supply chains, principally by cutting

Ortus Stage 1 for the plan’s second year.

facility operating costs and enhancing the efficiency of

The difference between our operating income target for
fiscal year 2016 and ¥45.0 billion in fiscal year 2017 is a fairly

logistics. In tandem with structural reforms, we will also
continue to promote ambitious growth strategies.

significant ¥7.0 billion. Accordingly, we will press ahead with a

Q6. One of Ortus Stage 1’s strategic policies is innovation. What sort of progress have you madeon this front?
In addition to structural reforms—the principal objective ofWe are taking decisive steps to expand sales of our MOCVD

which is to raise efficiency—Ortus Stage 1 outlines three othersystems worldwide, and in fiscal year 2015 we delivered

growth-oriented strategic policies, summarized simply assystems to Sandia National Laboratories, a top U.S.

“innovation,” “globalization” and “M&A.”

government-affiliated research institute, and leading LED

In the area of innovation, our focus is on the development

manufacturer Epistar Corporation of Taiwan. We are alsoof groundbreaking materials that we can grow into mainstay

scheduled to install an MOCVD system at the University of

products in new businesses. In December 2014, Toyota

Malaya, a public-funded research university in Malaysia.

Motor Corporation launched a hydrogen fuel cell vehicle in

In addition to industrial gases, we are well known as aJapan. With the goal of expanding the number of hydrogen

manufacturer of stable isotopes. Capitalizing on our cryogenic

stations in operation, in August 2013 we released theair separation technologies, we manufacture Water-18O, an

Hydro Shuttle, an innovative mobile hydrogen station.

oxygen stable isotope that is the starting material for agents

Further evidence of the steady growth of our hydrogenused in positron emission tomography (PET) diagnostics,

station business is the fact that we received orders forthree conventional hydrogen stations in fiscal year 2014
and 11 mobile hydrogen stations in fiscal year 2015.
Another key focus under the heading of “innovation” isour metal organic chemical vapor deposition (MOCVD)
system, which is crucial to the production of blue lightemitting diodes (LEDs). These efficient and energy-saving lightsources attracted considerable attention when the three
Japanese scientists credited with their invention wereawarded the Nobel Prize in Physics for 2014. We began
developing MOCVD systems in 1983 and are one of only
three major MOCVD system manufacturers in existence today.

8

Taiyo Nippon Sanso Corporation | Annual Report 2015

which are instrumental in the early detection and diagnosis ofcustomers with systems designed to produce ultra-high-purity

cancer. In response to steadily rising global demand, in latesteam for use in electronics manufacturing. These systems

2015 we plan to commence shipments of Water- O from ourwere developed by RASIRC, Inc., of the United States, athird stable isotope manufacturing facility, which will give us ancompany we acquired in 2012. Furthermore, we look forward

unparalleled global production configuration. With Water-18O,

to our new role within the Mitsubishi Chemical Holdings

we aim to capture a 40% share of the global market forGroup, which will provide us with the opportunity to step up

oxygen stable isotopes.

collaboration and promote new innovation.

18

We also continue to promote open innovation. As an
example, we recently began providing several major

Q7. What measures have you implemented in line with the plan’s other two strategic policies?
Efforts to promote globalization in fiscal year 2015 led to theSoutheast Asia. Japanese companies are currently investing

conclusion of a contract with Sasol Chemical (USA) LLC toactively to establish large facilities in Indonesia and, asbuild an air separation unit and supply piped oxygen andmentioned earlier, we have recently secured two new large

nitrogen to Sasol’s large-scale ethane cracker project in theon-site orders from Japanese manufacturers with operations

state of Louisiana, our first major on-site order in thein the country.

United States.

We are also encouraging our subsidiaries to expand their

In February 2014, we established a joint venture inIndonesia, the largest single market for industrial gases inoverseas operations. In response to soaring global demand,
Thermos K.K., a manufacturer of stainless steel vacuum

Expanding Our Global Operations
Germany
Acquired alfi GmbH, one of Europe’s leading
manufacturers of tabletop vacuum bottles,
in November 2014

United States (California)
Acquired Sims Welding Supplies, a California-based
independent distributor of industrial gases and welding
equipment, in February 2015
United States (Hawaii)
Acquired a Hawaii-based industrial
gases business in February 2015

ThailandIndustrial gas producer
acquired in June 2015

United States (Louisiana)
Concluded contract with Sasol Chemical(USA) LLC to supply piped gases to alarge-scale ethane cracker project(Supplies due to start in 2018)

the Philippines (Southern Luzon)
New production facility under construction will boost overall
production capacity for stainless steel vacuum bottles by
30% (Production due to start in November 2015)
Indonesia (Java)
Two piped gas supply contracts withJapanese firms unofficially announced(Supplies due to start in November 2016
and January 2017, respectively)

the Philippines (Southern Luzon)
Air separation unit in the Clark Special Economic Zone commenced operations in April 2015
the Philippines (Southern Luzon)
Piped gas supply contracts concluded for two projects(Supplies due to start in July 2016 and August 2016, respectively)

Taiyo Nippon Sanso Corporation | Annual Report 20159

Special Feature: An Interview with Yujiro Ichihara

bottles and other household products, is currently building its

distributor of industrial gases—will substantially increase ourfourth production facility, in the Philippines. The facility is

local market share and position us to capitalize on economic

expected to begin shipping products in late 2015.

growth in the state, where the growth rate for gross

In November 2014, we acquired alfi GmbH of Germany,a leading European manufacturer of tabletop vacuum bottles,

domestic product exceeds the national average.
Subsequent to the fiscal year-end, in June 2015, wewith the goal of strengthening Thermos’ sales in Europe andacquired an additional stake in Thai affiliate Air Products

alfi’s sales worldwide. We are confident that both companies

Industry Co., Ltd., as a result of which the company became awill benefit globally from complementary product lines—

consolidated subsidiary. To date, Air Products Industry has

Thermos focuses on portable vacuum bottles, whereas alfi’s

been primarily a bulk supplier. Going forward, we will expand

specialty is tabletop units—and significant operating synergies.

the scope of the company’s business to include other gases,

In February 2015, we made two acquisitions in thehard goods and gas supply facility construction, thereby

United States, in Hawaii and California. Our objectives intransforming the company into a comprehensive provider

Hawaii were twofold: establish a presence in the state, whichof industrial gases and fortifying both its operations and its

we previously did not have, and further expand our air

profitability. We expect to make several other important M&A-

separation unit network. Our acquisition in California—

related announcements in the near future.

Sims Welding Supply, Los Angeles’ premier independent

Part III: Looking Ahead

Q8. You have also made some forward-looking organizational changes. What did you do and why?
In June 2014, we integrated the parent company’s Industrial

We also took steps to improve our management

Gases and Electronics divisions to create the Gas Businesses

structure in Asia. Since setting up operations in Singapore in

Division. Combining the two divisions has thus enabled us to1982, we have expanded our presence in the region tocreate one sales force, thereby enhancing the efficiency ofinclude China, other Southeast Asian countries and India, tosales activities.

name just a few. In fiscal year 2015, sales in the region have

Another key move was the establishment of our Global

topped ¥60.0 billion. In a bid to further expand our businesses

Innovation Division, the purpose of which is to enhance

in Asia, in July 2014 we established a holding company incooperation among our electronics-related businesses in

Singapore, while in April 2015 we transformed a subsidiary inJapan, the United States and Asia. The division is tasked with

China into a company that integrates our businesses in that

advancing collaboration among Group companies andcountry. The responsibilities of our Singapore holding company

reinforcing our MOCVD system and other electronics-related

are currently limited to providing operational support to Groupbusiness in overseas markets. The efforts of the new divisioncompanies in Asia, but looking ahead the company will also

were instrumental in securing the recent new overseas orders

function as a regional headquarters and will be tasked withfor MOCVD systems that I spoke of earlier.

overseeing efforts to accelerate the expansion of ouroperations in Singapore and across Southeast Asia. Similarly,
to facilitate market- and product-specific collaboration, we are

10

Taiyo Nippon Sanso Corporation | Annual Report 2015

Streamlining for a More Efficient Organization
Taiyo Nippon Sanso Corporation

Taiyo Nippon Sanso Corporation

Industrial Gases Division
Operations-related divisions

Gas Businesses Division

Sales organization
streamlined

Electronics Division

Other business divisions

Other business divisions

Global Innovation Division

Matheson Tri-Gas, Inc. (US subsidiary)

Matheson Tri-Gas, Inc. (US subsidiary)

Electronics & Solar Division

Electronics & Solar Division

Other business divisions

Other business divisions

integrating the management of our 10 Group companies in

Enhancedcollaboration

Creating Holding Companies in Asia

China, engaged in the production of industrial gases, which is
not currently centralized.
I should also comment on the specialized team we havecreated to support strategic M&A-related efforts under Ortus
China

Stage 1. Formed in 2014, the team comprises staff from

ShanghaiJapan and the United States, which positions us to maximize
the know-how and business connections of both to takeadvantage of attractive M&A opportunities that will facilitate

Southeast Asia
Singapore

our expansion, including into overseas markets in Asia, theAmericas and elsewhere, where we do not currently have apresence. As you can see, the team has already achieved
some notable successes.

Q9. In closing, what can you tell us about your capital policy?
We have always recognized the provision of fair returns toperformance, bringing annual cash dividends to ¥13.00 per

shareholders as a key management responsibility. Accordingly,

share. In fiscal year 2016, we hope to pay annual cash

we place a high priority on maintaining stable dividends while

dividends of ¥14.00 per share. Going forward, we willat the same time ensuring that dividends are commensurate

continue working to implement the strategic policies of ourwith our consolidated operating results. In line with this policy,

medium-term business plan with the aim of further bolstering

we increased our year-end dividend for fiscal year 2015 byour operating results, thereby positioning us to enhance our¥1.00, to ¥7.00 per share, in recognition of our solid operating

dividend payout ratio.

Taiyo Nippon Sanso Corporation | Annual Report 201511

Strategic
gic P
Perspective
Perspectives
p v
pec

Total Sales and Operating Income in Japan

JAPAN

Years ended March 31 (Millions of yen)

As Japan’s leading manufacturer of industrial gases, we have an extensive

500,000

CAGR Total sales 3.6%
Operating income 4.0%

35,000nationwide network of production and sales bases, enabling us to provide
industrial gases to a wide range of customers, from major manufacturers inthe steel, chemicals and electronics industries, to small and medium-sizedusers. Formats for delivering gases include on-site plants, that is, air400,000

28,000300,000

21,000200,000

14,000100,000

7,000

separation units built on or adjacent to customers’ production facilities fromwhich we supply separated gases directly via pipeline, and tanker trucks,

00which enable us to supply liquefied gases in bulk. Sales in Japan account2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
(Forecast)

for approximately 65% of the Taiyo Nippon Sanso Group’s overall sales.

Total sales

Taiyo Nippon Sanso was created in 2004 through the merger ofOperating income

Note: Compound annual growth is calculated based on actual total sales andoperating income ﬁgures for the years ended March 31, 2005–2015 andestimates for the year ending March 31, 2016.

Nippon Sanso Corporation and Taiyo Toyo Sanso Co., Ltd. While ourdomestic industrial gases business has grown fairly steadily since, demand
was hit hard in 2008 by the global economic downturn and again in 2011by the Great East Japan Earthquake. The impact on our electronics-related businesses, which enjoy a strong competitive
advantage, was especially severe, as a result of which in fiscal year 2013 we reported our first-ever net loss. Since then, we haveseen a gradual recovery in domestic demand, particularly from the steel and automotive industries, but we recognize that a returnto robust economic growth is unlikely in the near future.
In fiscal year 2015, we embarked on a new medium-term business plan that focuses on structural reforms, the goal ofwhich is to ensure profitability in an era of low economic growth, as well as on innovation, through which we will endeavor to
attract new demand.

Breakdown of sales by business segment

Other (18)
Industrial Gas (231)65.0%
of total(¥363.3 billion)

Bulk/on-site supplies(134)

Packagedgases and
hard goods(34)

Electronics (73)
Gases
(51)

Plants andequipment(39)

Medicalgases(24)Business sites in Japan
Head office
Branches
Branch offices/sales offices
R&D facilities
Sanso centers/liquid oxygen facilities
Semiconductor gas production facilities

12

Taiyo Nippon Sanso Corporation | Annual Report 2015

Energy (39)
Gases
(36)

Equipment
and installation(21)

Thermos(16)
Equipment
(3)

Other
(2)

Uniteded States

Total Sales and Operating Income in United StatesYears ended March 31 (Millions of yen)

CAGR Total sales 13.9%

Efforts to expand our U.S. presence, w
which began in the 1980s whenn weOperating income 6.5%
200,000
12,000acquired a local company, initially foc
focused on the southern states. Sin
Sincen160,000
9,600
2004, we haveave reinforced our ope
operations across the country throughhstrategic acquisitions
uisitions of varying sca
scales and the construction of plants,s,
120,000
7,200
moves that have helped us momorere than tr
tripleple our annual sales of industrialr80,0004,800
gases in the United
d States to appapproximatelyi¥130 billion.
Our principal customers
ers in the United States are small and mediumu
40,0002,400
sized manufacturers, whom we primarily supply with pac
packaged and bbulk
00gases. We also provide a range of original
riginal cutting and welding equipmentp2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
(Forecast)and other related items, another area
ea in which we have secure
secured a
Total sales
Operating income
substantial market share. In recent years, we have built heliu
helium pro
production
Notes: 1. Compound annual growth is calculated based on actual total sales andfacilities and diversified our product lineup
neup through the acq
acquisition
iti ofoperating income ﬁgures for the years ended March 31, 2005–2015 andestimates for the year ending March 31, 2016.
acetylene and carbon dioxide gas producers.
cers.
2. Forecast for ﬁscal year 2016 excludes the impact of a change in the ﬁscal year
ends of two subsidiaries, which is expected to add ¥39.0 billion to net sales
We continue to expand our U.S. operations
erations usi
using a b
business modeland ¥2.2 billion to operating income in ﬁscal year 2016.
that
hat focuses on reinforcing our positionn as a pro
producer
producer, by periodicallyacquiringng local industrial gas distributors
utors tto secu
secure sales channels, capitalizing on our distinctive expertise to augment the
product lineupss of these companies and then installing air separation units fabricated in Japan to reinforce their market presence.
Thanks to these efforts, we currently have bases in 43 states and 18 air separation units. We have also taken steps to grow oursales network, thereby increasing our presence and positioning us to accept major on-site orders. In January 2015, we accepted
our first such order in the United States, which came from a chemicals company in Louisiana. Looking ahead, we will work tofurther grow our U.S. operations by capitalizing on M&A opportunities to expand our customer reach, install new air separation
units and secure additional major on-site orders.

Breakdown of sales by business segment
Industrial Gas (125)23.4%
of total(¥130.9 billion)

Bulk/on-site
Bulk/on-site
supplies
supplies(41)(134)

Packaged
gases
(34)

Packaged gases and hardGases
goods
Plants and
(83)
(52)
equipment(39)

Electronics (5)

Gases
(36)

Gases
(4)
Other
(1)

Operations in the United States
Corporate headquarters
Air separation units
R&D facilities
Filling stations and distribution facilities

HawaiiTaiyo Nippon Sanso Corporation | Annual Report 2015

13

Asia

Total Sales and Operating Income in Asia

Our operations in Asia center on the supply of industrial gases to90,000Years ended March 31 (Millions of yen)manufacturers in Southeast Asia, China and India and on electronics-

CAGR Total sales 15.9%
Operating income 14.3%

6,000

72,0004,800

54,0003,600

36,0002,400

18,0001,200

related businesses in Taiwan, China and South Korea.
We entered the Singaporean market in the early 1980s by establishing
National Oxygen Pte. Ltd. Since then, we have gradually expanded ourpresence across Asia. We also established a presence in Vietnam and thePhilippines comparatively early and are now the top producer of liquefied
0gases in both countries in terms of production capacity, an achievement02005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
(Forecast)facilitated by the creation of a robust operating infrastructure. We

Total sales

continue to seek out promising investment opportunities in this region
that will position us to capitalize on opportunities arising from brisk
economic growth.
In 2012, we acquired Singapore-based Leeden Limited, a producer

Operating income

Notes: 1. Compound annual growth is calculated based on actual total sales andoperating income ﬁgures for the years ended March 31, 2005–2015 andestimates for the year ending March 31, 2016.
2. Forecast for ﬁscal year 2016 excludes the impact of a change in the ﬁscal year
ends of two subsidiaries, which is expected to add ¥11.0 billion to net salesand ¥800 million to operating income in ﬁscal year 2016.

with a broad Southeast Asia-wide network. In addition to packaged gases,
Leeden is also a leading provider of cutting and welding equipment and safety-related products. In September 2014, we merged
Leeden and National Oxygen, integrating the extensive networks of these two companies and strengthening our industrial gases
business in Singapore and Malaysia. We have also broadened our geographic reach. In February 2014, we established a base inIndonesia, Southeast Asia’s largest market for industrial gases. Going forward, we will pursue additional decisive measures—
including acquisitions—aimed at expanding our operations in this strategically important region.

Breakdown of sales by business segment
Industrial Gas (37)11.6%
of total(¥65.0 billion)

Bulk/on-site supplies(15)

Electronics (24)

Packaged gases
and hard goods(13)

Plants andequipment(8)

Other (3)

Gases
(22)

Thermos(3)
Equipment(2)

Operations in Asia
Regional headquarters
Branches and sales offices
Air separation units

14

Taiyo Nippon Sanso Corporation | Annual Report 2015

Taiyo Nippon Sanso at a Glance

Share of Sales

Industrial Gas Business

Years ended March 31, 2015

Principal products and operations• Oxygen, nitrogen, argon, carbon dioxide, hydrogen, helium, acetylene
and other industrial gases• Gas supply (ﬁlling, transport, storage) equipment, facilities installationand construction• Gas-related equipment (including for cutting, welding, combustion and freezing)¥356.8 billion
64%

Plant and Engineering Business
Principal products and operations• Plant: Cryogenic air separation units, space simulation chambers/
cryogenic vacuum equipment and other chemical equipment¥13.3 billion
2%Electronics-related Business
Principal products and operations• High-purity nitrogen and argon• MOCVD system• Electronic materials gases• Gas puriﬁcation, abatement and other systems

19%¥103.6 billion• High-purity gas supply facility installation and construction

LP Gas Business
Principal products and operations• Propane, butane and other liquid gases• Related equipment and devices

7%¥39.3 billion• Construction of LP gas facilities, gas heat pumps

Medical Business
Principal products and operations• Medical-related oxygen and other gases• Synthesized (pure) air supply facilities, portable oxygen cylinders¥24.4 billion
4%

and medical-use oxygen compressors• Stable isotopes

Thermos Business and Others
Principal products and operations•Thermos: Stainless steel vacuum bottles, cooking implements

and professional-use cooking implements¥21.7 billion
4%•Others: Real estate leasing and other businesses

Taiyo Nippon Sanso Corporation | Annual Report 201515

Industrial Gas Business
Outline
In line with our commitment to provide
industrial gases to our customers when
and where needed, we have gas
production and supply capabilities inJapan, the United States and across Asia,
including in China and India. This
enables us to ensure safe, stable supplies
of gases to customers in the manner thatbest suits their particular needs, thereby
contributing to enhanced quality andproductivity, as well as to the safety andsecurity of their operations. Ourdistinctive gas technologies continue toearn us high marks from customers in awide range of industries, including
manufacturing and processing,materials, energy, chemicals, agriculture,
food, bioscience and aerospace.

Plants and Engineering Business
OutlineWe have built an extensive lineup ofplants, which underpin our industrial
gas business, ranging from ultrahighpurity manufacturing equipment forcustomers in the electronics industry tolarge-scale plants for steelmakers andspecialized containers for the cryogenictransport of helium, and we enjoy afavorable reputation for all products
both in Japan and overseas. We also
provide space-simulation chambers,
large-scale helium refrigeration systems
and other cutting-edge offerings, which
we market primarily for use in spacedevelopment and in R&D in the area ofsuperconductive technologies.

16

Taiyo Nippon Sanso Corporation | Annual Report 2015

Industrial Gas Business
Breakdown of sales by business items

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

Years ended March 31 (Billions of yen)

2014

2015

Separated gases (bulk/on-site)¥115.5¥120.3

Other gases (bulk/on-site)

57.7

70.7

Packaged gases and hard goods

118.7

131.2

Gas equipment
Total

33.9

34.5

¥325.9¥356.8• One of only six companies in the world with rights to conduct transactions
directly with major helium producers
We have extensive offtake rights in North America. In the United States, subsidiary Matheson Tri-Gas, Inc., commenced operations at its joint venture with Air Products andChemicals, Inc. In China, India and elsewhere in Asia, we are pressing forward with the construction of helium filling stations with the aim of expanding our supply capabilities.

• Growing network of air separation units in the United States and Asia
In the United States, a new air separation unit in Vernon, California, is expected to begin operating in 2017. In Asia, a new unit in the Philippines began operating in April 2015,
while we are proceeding with the construction of units in Sabah, in Malaysia, and in northern Vietnam, the former scheduled for completion by the end of 2015 and the latter for
startup in March 2016.

• Expanded market coverage in the United States thanks to U.S. distributor acquisitions
We recently acquired Sims Welding Supply (California) and a business based in Hawaii.

• Increased presence in the U.S. carbon dioxide business
We recently acquired Continental Carbonic Products, Inc., the number two supplier of dry ice in the United States.

Plants and Engineering Business
Breakdown of sales by business items

Competitive advantages• Top share of Japan’s market for air separation units• A wealth of accumulated cryogenic and adsorption technologies, which we areleveraging to reduce consumption of electricity and cost per unit of production,
as well as to enhance the quality and size of plants

Years ended March 31 (Billions of yen)

2014

2015

Plants

¥12.8

¥13.3

Total

¥12.8

¥13.3

• Cutting-edge simulation technologies that ensure the optimal operation of air
separation units in response to different requirements• One of only three helium container manufacturers worldwide and the only one inJapan
We are expanding our production capacity to accommodate rising demand for containers that facilitate
the cryogenic transport of helium over long distances.

Taiyo Nippon Sanso Corporation | Annual Report 201517

Electronics-related Business
OutlineOperating in an industry that isincreasingly characterized by global-scalecompetition and cooperation, electronics
manufacturers face growing pressure toensure the efficiency and stability of
production. Such firms look to us forreliable supplies of high-grade materials
gases, as well for technologies that facilitate
the safe and efficient use of such gases.
To provide electronics manufacturers
with a wide range of materials gases, aswell as with a huge volume of high-purity
nitrogen gases, we install Total Gas
Centers (TGCs), which facilitate an
uninterrupted, around-the-clock productsupply. We also manufacture and sell
refining and exhaust gas abatement
equipment and MOCVD systems, usedin the production of compound
semiconductors, as well as constructpiping to deliver high-purity gases.

LP Gas Business
Outline
We wholesale LP gas to production
facilities and for other industrial
applications and supply it to fuelingstations for taxis and other vehicles, aswell as to a wide range of other customers,from restaurants and other commercial
users to residential users. Since the Great
East Japan Earthquake of March 2011,
we have seen renewed interest in LP gas
as a decentralized energy suited to theneeds of Japan, a country prone tonatural disasters, particularly earthquakes.
We also sell related equipment anddevices, including gas heat pumps, airconditioners, fuel cells for homes and hot
water heaters. In addition, we design, buildand provide maintenance services for LP
gas dispensers and other supply facilities.

18

Taiyo Nippon Sanso Corporation | Annual Report 2015

Electronics-related Business
Breakdown of sales by business items

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

Years ended March 31 (Billions of yen)

2014

2015

Separated gases¥21.6¥ 20.3

Electronics materials gases

50.5

57.8

Electronics materials gas equipment

26.2

25.3

Total

¥98.3

¥103.6• Rising sales of MOCVD systems in cutting-edge fields
We were recently selected to provide a MOCVD system to Sandia National Laboratories of the UnitedStates, a global leader in research in the area of compound semiconductors. In addition, we delivered an
UR-25K MOCVD system, designed for mass production, to Taiwan-based light-emitting diode (LED)manufacturer Epistar Corporation. We are also scheduled to install an MOCVD system at the University of
Malaya in Malaysia.

LP Gas Business
Breakdown of sales by business items

Competitive advantages• Ranked seventh in Japan in terms of market share, with an annual LP gas supply
capacity of 390,000 tons

Years ended March 31 (Billions of yen)

2014

2015

LP gas

¥40.8

¥36.0

3.6

3.2

¥44.5

¥39.3

LP gas supply equipment• Ability to provide stable LP gas supplies to approximately 100,000 households;
increasingly strong and efficient network in Japan for supplying commercial users
thanks to the integration and/or expansion of sales and delivery sites

Total

We merged five LP gas subsidiaries to create Taiyo Nippon Sanso Energy Corporation, a move aimed at
reinforcing our operating foundation and expanding our operations in this area.

Taiyo Nippon Sanso Corporation | Annual Report 201519

Medical Business
OutlineIn addition to providing stable supplies
of high-quality medical gases, we develop,
manufacture, sell and provide
maintenance services for gas supply
systems for hospitals, as well as homeoxygen therapy (HOT) and other homehealthcare equipment. We also extend
comprehensive support in the form ofaround-the-clock services, including
remote monitoring of gas levels andfollow-up services for equipment, which
are extended in cooperation with retailers.
Applying our advanced gas technologies,
we provide products for the biotechnology
field, including cryopreservation
containers for bioresources used inresearch, as well as stable isotopes andspecialty gases for use in advanced
diagnostics and medical treatment.

Thermos Business and Others
OutlineThermos K.K., a subsidiary in Japan, is
recognized as a pioneer in the stainlesssteel vacuum bottle industry. Leveraging
its outstanding vacuum insulation andmetal processing technologies, Thermos
manufactures a wide range of stainlesssteel vacuum bottles, vacuum insulated
cooking pots and other items for homeand commercial use. Trusted bycustomers the world over, Thermos has
established its own stringent quality
standards and created an integrated
production system that encompasses
planning, development, manufacturing
and sales.

20

Taiyo Nippon Sanso Corporation | Annual Report 2015

Medical Business
Breakdown of sales by business items

Competitive advantages• A world-class 300 kg annual production capacity for Water-18O, a starting
material for diagnostic agents used in positron emission tomography (PET)
diagnostics, with shipments from a third plant (annual capacity: 300 kg)
scheduled to begin by the end of 2015, doubling our current capacity and giving
us an unmatched supply configuration

Years ended March 31 (Billions of yen)

2014

2015

Medical gases

¥ 7.9

¥ 7.9

Medical gases equipment

13.9

16.5

Total

¥21.9

¥24.4

The reliability and quality of Water-18O is highly valued by customers in more than 20 countries,
including in the United States. We are working to contribute to the growing market for PET diagnostics
by ensuring stable supplies of high-grade Water-18O, demand for which is expected to grow for use indiagnosing Alzheimer’s disease and heart ailments.

• The newly established SI Innovation Center, which has reinforced our stable isotopes business• A leading market position in Japan for liquid nitrogen dewars for cryopreservation, which are crucial to the biotechnology field, as well as
for cell banking systems and auto-pick-up cryopreservation systems (trade name: CryoLibrary), used in cutting-edge areas such as thedevelopment of iPS cell therapies.
We have expanded our CryoLibrary lineup to include a new unit with a significantly larger storage capacity.

• Japan’s largest network of production bases, filling facilities and distribution bases for medical gases, ensuring the stability of supplies
nationwide• A well-organized distribution and maintenance network that includes the Medical Technical Service Center, which helps guarantee thestability of supplies to patients’ homes and maintain superior product quality• Rising sales of OXYMED-brand medical gas supply equipment and systems for hospitals, developed through an integrated process thatencompasses design, manufacturing, and testing and maintenance services

Thermos Business and Others
Breakdown of sales by business items

Competitive advantages• Products that are developed in Japan, manufactured in Malaysia and China andsold in approximately 120 countries and territories worldwide; a reputation for
unconditional commitment to quality and a solid top global market share• An increased manufacturing capacity, facilitating responsiveness to growth in
the market for stainless steel vacuum bottles worldwide

Years ended March 31 (Billions of yen)

2014

2015

Thermos

¥16.4

¥19.1

Others

2.5

2.6

Total

¥19.0

¥21.7

In China, we expanded our stainless steel vacuum bottle production facility. In the Philippines,
we established a new plant, which is expected to begin operating in December 2015, to raise our
production capacity for compact, ultralight steel vacuum bottles.

• An ultralight insulated mug that has swept markets worldwide, thanks to its
lightness, compact size and superb design; food containers for soup and other hot
liquids that are credited with creating and driving the expansion of a new market
by offering a brand-new way to enjoy lunch• Entry into the market for insulated wireless portable speakers, thanks to theapplication of our vacuum insulation technologies in this area

Taiyo Nippon Sanso Corporation | Annual Report 201521

Corporate Governance

Basic Policy

Auditing Structure and Internal Control System

In the interest of maintaining an effectively functioning
corporate governance framework, as well as to earn the trust
and respond to the expectations of our many stakeholders,
including shareholders, customers, local communities andTaiyo Nippon Sanso Group employees, we are committed toenhancing our internal control system and ensuring fairness,transparency, efficiency and appropriateness, all of which areessential to sustainable growth.

To ensure adequate monitoring capabilities, our Audit &Supervisory Board has four members, three of whom satisfy
the requirements of outside auditors, including two who are
independent. In fiscal year 2015, the three outside auditors
attended all 12 meetings of the Board of Directors. The Audit& Supervisory Board members meet with the independent
auditors 12 times annually and accompany the independentaccountants on their periodic site audits. This enables them tokeep abreast of the implementation status and to exchange
opinions with the independent accountants on key aspects of
the auditing process and on the assessment of internal control
risks associated with auditing. They are briefed on audit plans
and audit results by the internal auditing body, as well as by
the Technical Audit Office on annual safety plans and theirimplementation, and oversee management appropriatenessand efficiency.

Management Structure
We have adopted an internal auditing system and clarified
accountability on a fiscal year basis by setting the term ofoffice for our directors at one year. Our Board of Directors met
12 times in fiscal year 2015. In addition, our Management
Committee and Representative Directors Committee,
among others, met as necessary, helping to facilitate swift
management decision making. In fiscal year 2014, our Boardof Directors comprised 17 directors, none of whom qualified
as outside directors. At the General Meeting of Shareholders
held in June 2015, two outside director candidates were
included in the list for election as directors, a move aimed
at ensuring greater transparency. These individuals, bothof whom were elected, are unlikely to have any conflict ofinterest with general shareholders and will bring fresh andindependent guidance and advice. To further accelerate
decision making, we also resolved to reduce the number of
directors on the Board to 11, including two outside directors.

Remuneration for Directors
In fiscal year 2015, remuneration for 18 directors totaled ¥854
million, while that for four auditors totaled ¥104 million.
Remuneration for directors consists of monthly remuneration,
performance-linked bonuses and dividend-linked bonuses.
Performance-linked bonuses are tied to consolidated
operating results.

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

Appointment/dismissal

Appointment/dismissal
Coordination

Independent auditors

Audit & Supervisory Board

Board of Directors
Appointment/
dismissal

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

Compliance Taskforce
Risk Assessment Taskforce

Coordination

Technological Risk Management Taskforce

Representative Director
Management Committee
Corporate Audit Ofﬁce
Internal audit

Divisions and Group companies

22

Taiyo Nippon Sanso Corporation | Annual Report 2015

Coordination

Corporate Social Responsibility

To fulfill the responsibilities implied in our corporate slogan,“The Gas Professionals,” and in line with our belief that selling
gas is commensurate with selling safety and peace of mind,
we continue to expand our operations in a manner thatreflects our key priorities, which are to ensure stringent
compliance with pertinent laws and regulations, enhancesafety management, guarantee superior product quality andsafety, contribute to a healthy environment and manage thetechnology risk associated with use of intellectual property.
We recognize effective corporate social responsibility (CSR) asa crucial aspect of management. Through the practicalapplication of our corporate philosophy, “Market-driven
collaborative innovation: Improving the future through gases,”
we will continue working to develop products and technologies
that help address key social imperatives by alleviating
environment load, reducing energy consumption andincreasing production efficiency.

Contributing to the Prevention of Global Warming:
Promoting Energy-Saving Initiatives at Gas
Production Facilities

Air separation units produce oxygen, nitrogen and argon
simultaneously by separating atmospheric air into its
constituent gases. Air is first compressed and cooled almost
to the point where the gases liquefy, after which it is ready forthe distillation column, where it is separated into gas andliquid components using a thermal distillation process.
Nitrogen, which has a low boiling point, concentrates in thegas and is withdrawn from the top of the column, while
oxygen, which has a higher boiling point, concentrates in theliquid and is withdrawn from the bottom section. Argon, which
has an intermediate boiling point, is withdrawn from the
middle of the column.
Air compression in air separation units uses a
considerable amount of energy. The use of electricity for thispurpose comprises the single most significant environmental
impact of Taiyo Nippon Sanso’s operations.

Air Separation Unit: Simplified Process Flow
Main heat exchanger
Cold box

Distillation column

Puriﬁer unit
(removal of CO2 and water)

Argon
Gaseousnitrogen
Waste gas

Atmospheric
air

Air
inlet

Liqueﬁed nitrogen and oxygen

In addition to supplying industrial gases, we build air
separation units, which are used to produce oxygen, nitrogenand argon. Our product lineup is diverse, ranging fromcompact models used in the electronics industry to ultralarge
models used by steelmakers. We are currently Japan’s leading
supplier of all types of air separation units.
The production of oxygen, nitrogen and argon using air
separation requires a significant amount of energy. Having
established the Energy Savings Taskforce, a subcommittee of
our Environmental Committee, we are promoting ongoing,decisive efforts to address a critical challenge, namely,
reducing energy use per unit of production by these facilities.
As of fiscal year 2015, we had achieved a reduction of 25.9%
from the fiscal year 1991 level.

Environmental Impact

Gaseous oxygenAircompressor

Atmospheric air(raw material)

Ambient temperature

Cryogenic temperature

Key Initiatives• Develop, build and install energy-efficient air separation units• Replace the equipment used in our air separation units withenergy-efficient alternatives• Optimize plant operating methods

Taiyo Nippon Sanso Corporation | Annual Report 201523

Board of Directors, Audit & Supervisory Board Members andExecutive Officers
Board of Directors

Audit & Supervisory Board
Members

Chairman
Shotaro Yoshimura

Executive Officers
Masami Takaine
Kazunori Takeda

Yasufumi Miyazaki*

Shigeyuki Osawa

Kiyoshi Fujita

Masahisa Kanzaki

Vice Chairmen

Ichiro Yumoto*Haruhiko Yasuga

Shinji Tanabe

Kazuo Yoshida*

Kenji Nagata

Kunishi Hazama

Kunihiro Kobayashi
Junzo Tai

President andExecutive Officers

Chief Executive Officer
Yujiro Ichihara
Executive Vice President

Masami Myobatake
Managing Executive Officer and

Hideaki Hirose

Chief Compliance Officer

Hiroshi Matsuda

Kinji Mizunoe

Yasuhiko Kawano

Tadashige Maruyama

Yuki EndoManaging Executive Officers

Toshikazu Kurishita

Senior Managing Executive

Akihiko Umekawa

Satoshi Wataru

Officers

Shin-ichiro Hiramine

Tsutomu Moroishi

Shigeru Amada

Keiki Ariga

Toshihiro Fukagawa

William J. Kroll

Yuki Hajikano

Hiroshi Katsumata

Jun Ishikawa
Yoshihide Kenmochi

Directors
Akio Yamada**

Senior Executive Officers

Mitsuhiro Katsumaru**

Shigenobu Somaya

Masanori Karatsu

Mikio Yamaguchi
Kazushige Arai
Masahiro Sakamoto
Hiroyuki Tanizawa
Norikazu Ishikawa
Kou Matsumoto
Hirohisa Yanagida
Masahiro Uehara

Note: *Outside Auditor**Outside Director

24

Nobuaki Kobayashi

Taiyo Nippon Sanso Corporation | Annual Report 2015

(As of June 23, 2015)

Six-Year Summary
Taiyo Nippon Sanso Corporation and Consolidated Subsidiaries

Millions of yen
Years ended March 31

2015

2014

2013

2012

2011

2010

¥559,373¥522,746¥468,387¥477,451¥483,620¥433,390

Operating income

35,29731,48924,88431,06735,46827,556

Net income (loss)

20,764

20,194(2,071)

21,20012,736

15,748

Capital expenditures

35,201

32,532

31,71531,452

31,99138,366

Investments and loans

5,710

35,749

5,672

8,035

15,171

63,408Depreciation and amortization

35,56833,507

29,40030,471

32,16730,143

Amortization of goodwill

4,959

3,668

2,719

2,472

3,635

3,153

Research and development expenses

3,430

3,170

3,177

3,458

3,924

4,137

Interest-bearing debt

266,276

278,063

253,424

241,121

256,358

259,111Net interest-bearing debt

212,855

219,727

228,681

206,524

211,808

235,082

Total net assets

341,207

298,475

224,253

219,611

207,416

212,396

Total assets

782,357

731,677

615,820

607,024

617,676

617,215

For the year:
Net sales

At year-end:

Financial indicator:
SGA expenses ratio (%)

26.7%

26.4%

26.8%

26.3%

26.1%

27.5%

Return on equity 1 (%)

7.0%

8.4%

(1.0)%

10.8%

6.5%

8.3%

Return on capital employed (%)

6.2%

6.2%

5.5%

7.0%

7.8%

6.6%

Net debt equity ratio (times)

0.67

0.80

1.12

1.03

1.10

1.11

2

Yen

Amounts of per share of common stock:
Net income (loss) 3¥47.98¥49.42¥ (5.25)¥53.33¥31.86¥39.39Cash dividends

13.00

12.00

12.00

12.00

12.00

12.00

Dividends payout ratio (%)

27.1%

24.3%

—%

22.5%

37.7%

30.5%

Price earnings ratio (times)

34.16

16.43

—

10.95

21.75

23.20

1

Return on equity is computed as net income (loss) divided by average shareholders’ equity.
Return on capital employed is computed as operating income (loss) divided by capital employed (average shareholders’ equity + average interest-bearing debt).
3
Net income per share is computed based on the weighted average number of shares of common stock outstanding during each year, as adjusted retroactively forfree share distributions made during the period.
2

Taiyo Nippon Sanso Corporation | Annual Report 201525

Management’s Analysis of Operating Results and Financial Position

Scope of Consolidation and Application of the Equity Method
As of March 31, 2015, Taiyo Nippon Sanso Corporation had
159 consolidated subsidiaries (74 based in Japan and 85
based overseas)—including newly consolidated subsidiaries
Taiyo Nippon Sanso Holdings Singapore Pte. Ltd. andNorthern Vietnam Japan Gas Company Limited—and 27
equity-method affiliates (10 based in Japan and 17 based
overseas).

Operating Results
In fiscal year 2015, ended March 31, 2015, consolidated net
sales rose 7.0%, to ¥559,373 million. Cost of sales was up
6.1%, to ¥374,923 million, while selling, general and administrative expenses advanced 8.0%, to ¥149,151 million. As aconsequence, operating income climbed 12.1%, to ¥35,297
million. The operating margin improved 0.3 percentage point,
to 6.3%. Net income increased 2.8%, to ¥20,764 million,
bolstered by equity in earnings of affiliates of ¥2,500 million.
Net income per share was ¥47.98, while return on capital
employed (ROCE) was 6.2%.

Net Sales

Operating Income

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

600

35

40

40

24

60

480

28

32

32

18

45

360

21

24

24

12

30

240

14

16

16

6

15

120

7

8

8

0

0

0

0

0

–6

0

2011

2012

2013

2014

2015

Gas Business in Japan
Gas Business in the United States
Gas Business in Asia
Other
Overseas sales as a percentage of
total (right scale)26

At a general meeting of the Company’s shareholders on
June 23, 2015, shareholders approved a proposal to pay a
year-end dividend of ¥7.00 per share, an increase of ¥1.00,
bringing cash dividends for the term, comprising interim andyear-end dividends, to ¥13.00 per share, representing apayout ratio of 27.1%.
Capital expenditures, on a final acceptance basis, totaled¥35,201 million, up ¥2,669 million. Depreciation and amortization was up ¥2,061 million, to ¥35,568 million. Research anddevelopment costs rose ¥260 million, to ¥3,430 million,
equivalent to approximately 0.6% of net sales.

2011

2012

2013

2014

2015

Overseas operating income as apercentage of total (right scale)Taiyo Nippon Sanso Corporation | Annual Report 2015

2011

2012

(Yen)

2013

2014

2015

Net income per share (right scale)–15

Results by Segment
Gas Business in Japan
Sales of separated gases, our core products, increased,
despite a decline in demand from the chemicals industry,underpinned by brisk sales to the steel industry, in particular,
as well as to shipbuilding and other transportation equipment
industries. Sales of air separation units rose substantially, as
did sales of cutting and welding equipment and materials,
bolstered by an uptick in domestic capital investment. Robust
shipments to manufacturers of liquid crystal displays (LCDs),
solar cells and semiconductors pushed up sales of electronics
materials gases. Sales in the medical business were up
significantly, reflecting higher sales of stable isotopes andcontributions from Pacific Medico Co., Ltd., acquired in fiscal
year 2014, although sales of medical-use oxygen were down
somewhat. In contrast, sales of liquefied petroleum gas (LPG)
fell sharply, owing to falling import prices. As a result, segment
sales inched up 0.8%, to ¥344,635 million, and operating
income increased 7.2%, to ¥25,045 million.

Gas Business in the United States
Economic recovery, together with the positive impact of the
February 2014 acquisition of Continental Carbonic Products,
Inc., an increase in sales after translation into yen attributable
to foreign exchange fluctuations, and sales price hikes forindustrial gases, supported solid results in our U.S. gas
business. Segment sales rose 21.8%, to ¥130,983 million andoperating income advanced 22.9%, to ¥5,795 million.
Gas Business in Asia
Sales of separated gases in southeastern China were brisk,
while sales in the northeastern part of the country were sluggish. Sales of electronic materials gases and equipment were
healthy in Taiwan, China and South Korea. These and otherfactors boosted segment sales 14.1%, to ¥61,995 million,
and operating income 29.1%, to ¥2,468 million.
Other Businesses
Sales in the Thermos business remained robust, particularly
for new products. A subsidiary in South Korea that was newly
consolidated in fiscal year 2014 also continued to post favorable results. For these reasons, segment sales rose 14.5%,
to ¥21,758 million and operating income advanced 12.2%, to¥3,437 million.

Financial Position
Total assets as of March 31, 2015, amounted to ¥782,357
million, an increase of 6.9%. Approximately ¥43,200 million ofthis was attributable to the depreciation of the yen, which was¥15.16 lower against the U.S. dollar on March 31, 2015, thanon the same day a year earlier. The current ratio was 145%,
up 11.0 percentage points from the end of fiscal year 2014.
Property, plant and equipment, less accumulated depreciation, rose 5.8%, to ¥324,842 million, bolstered primarily byincreases in gas supply facilities and transport equipment.
Total investments and other assets increased 9.7%, to¥97,235 million, owing to increases in investment securities.
Total current liabilities edged down 0.8%, to ¥184,570
million, despite a ¥7,034 million increase in notes andaccounts payable—trade, reflecting a ¥15,000 million decline
in the current portion of long-term loans payable. Total noncurrent liabilities rose 3.8%, to ¥256,579 million, as long-termloans payable and deferred tax liabilities rose ¥4,007 millionand ¥7,687 million, respectively. Total interest-bearing debt
thus amounted to ¥266,276 million, a decrease of ¥11,787
million. Total net assets stood at ¥341,207 million, a consequence of changes in capital surplus, which was down ¥523
million, to ¥55,955 million, and the balance of treasury stock,which was ¥232 million, compared with ¥108 million at theend of fiscal year 2014. Retained earnings rose ¥13,688 million, to ¥190,957 million, owing to changes in net income anddividends paid. In addition, the Company reported positive
foreign currency translation adjustments of ¥20,067 million,
compared with negative adjustments of ¥2,035 million at theprevious fiscal year-end. As a consequence, the equity ratio
improved 3.0 percentage points, to 40.5%, while net assets
per share increased ¥99.35, to ¥733.04.

Taiyo Nippon Sanso Corporation | Annual Report 201527

Cash FlowsNet cash provided by operating activities in fiscal year 2015
amounted to ¥58,615 million, an increase of ¥1,899 million.
Principal factors behind this result included income before
income taxes and minority interests and changes in depreciation and amortization, notes and accounts receivable—tradeand notes and accounts payable—trade. The interest coverage
ratio improved 0.5 point, to 14.8 times.
Net cash used in investing activities, at ¥30,583 million,
was down ¥24,712 million. Principal applications of cash
included purchases of property, plant and equipment andpurchases of investment securities.

Net cash used in financing activities came to ¥33,866
million, compared with net cash provided by such activities, of¥27,884 million, in fiscal year 2014. This result was primarily
attributable to outlays for the repayment of long-term loans
receivable and the redemption of bonds.
After factoring in the effect of exchange rate fluctuations
on cash and cash equivalents, which totaled ¥1,287 million,
and the impact on cash and cash equivalents resulting fromchanges in the scope of consolidation, operating, investing
and financing activities in fiscal year 2015 yielded cash andcash equivalents at end of period of ¥51,547 million, ¥4,541
million lower than at the end of fiscal year 2014.

Business Risks
Management Policy- and Business-Related Risks
Purchase of Property, Plant and Equipment
The Company maintains large-scale gas supply facilities for
major customers and needs to spend heavily to maintainand upgrade these facilities. Accordingly, interest rate trends
could have a material impact on the Company’s businessperformance.

Manufacturing Costs
Electricity is the major component of the cost of manufacturing such core products as oxygen, nitrogen and argon.
Accordingly, a sharp increase in the price of crude oil could
result in a substantial increase in electricity charges, which
the Company may be unable to reflect in the pricing of its
products.

Total Assets

Equity(Billions of yen)(Billions of yen)

(%)

(%)

800

350

40

12

640

280

32

9

480

210

24

6

320

140

16

3

160

70

8

0

0

–3

0

2011

2012

2013

2014

2015

0

2011

Return on Equity (ROE) and
Return on Capital Employed (ROCE)

2012

2013

2014

2015

Equity ratio (right scale)28

Taiyo Nippon Sanso Corporation | Annual Report 2015

2011
ROE
ROCE

2012

2013

2014

2015

Overseas Factors
The Company maintains operations overseas, particularly in
the United States and in other parts of Asia, including China,
where the Company has substantial gas operations. Politicaland economic changes in countries where the Company
has operations may have an adverse impact on its businessperformance.
Technological and Safety Factors
Technological Development
The creation of new products and technologies entails various
uncertainties, owing to the Company’s reliance on technological development in such areas as compound semiconductors,
the environment and energy.
Intellectual Property
The Company’s business depends on proprietary technological development. The Company endeavors to obtain
intellectual property rights as necessary for its proprietary
technologies. However, there are no guarantees that its
technologies are completely protected.
Product Defects
The Company sells high-pressure gas-related products andhandles toxic and flammable gases used in electronics manufacturing. While the Company strives to ensure the effective
management of related risks, it cannot guarantee that all of its
products are free of defects.
Financial Risks and Other Factors
Foreign Exchange Risk
The Company exports products for sale outside of Japan. The
Company strives to hedge foreign exchange risks by entering
into forward exchange contracts and other derivative transactions. However, the Company may not be able to respond tosudden fluctuations in currency rates, which therefore may
have an adverse impact on its business performance.
Retirement Benefit Liabilities
A sudden deterioration in retirement plan returns resulting in
an increase in retirement benefit costs may have an adverse
impact on the Company’s business performance.

Natural Disasters and Contingencies
The occurrence of earthquakes or other natural disasters inareas where the Company has manufacturing facilities may
damage facilities. In particular, damage to the Company’s
large-scale manufacturing facilities may lead to a significant
decline in production capacity and incur major recovery costs.
Such factors may adversely affect the Company’s businessperformance. Major accidents occurring as a result of contingencies, including those attributable to human factors, mayalso adversely affect the Company’s business performance.
Legal Issues
Unanticipated changes to existing laws and the introductionof new laws—particularly in countries overseas where theCompany maintains operations—may adversely affect theCompany’s business performance. Revisions to environmental
laws that result in a tightening of restrictions may result in
an increase in costs to ensure compliance, which may also
adversely affect the Company’s business performance.
Because the Company does business both in Japan andoverseas, there is a risk that it may become involved in legal
disputes or be the subject of investigations and/or legal action
by relevant authorities in the markets in which it operates.
Such legal and regulatory action may adversely affect theCompany’s operations, business performance, financial
condition, reputation and reliability.
Medium-Term Business Plan
The Company’s ability to meet the targets of its medium-termbusiness plan may be adversely affected by a number offactors, including changes in the operating environment.
Capital Alliance with Mitsubishi Chemical Holdings
Mitsubishi Chemical Holdings Corporation owns a 50.57%
stake in the Company (indirect holding: 14.07%). With the aimof further strengthening the capital alliance, established on
May 13, 2014, and enhancing corporate value, the twocompanies have agreed that Mitsubishi Chemical Holdings
will maintain its stake in the Company at the current level.
Accordingly, the Company does not at present anticipate
any increase or decrease in the percentage of its shares heldby Mitsubishi Chemical Holdings. However, there is still achance that the capital alliance between the two companies
will change. Any such change has the potential to significantly
affect the Company’s financial condition and businessperformance.

Taiyo Nippon Sanso Corporation | Annual Report 201529

Consolidated Balance Sheets
Taiyo Nippon Sanso Corporation and Consolidated Subsidiaries

Millions of yen
March 31

2015

2014

AssetsCurrent assets:
Cash and deposits (Notes 16 and 23)
Notes and accounts receivable—trade (Notes 7 and 16)
Merchandise and finished goods
Work in process
Raw materials and supplies
Deferred tax assets (Note 11)
Other
Allowance for doubtful accounts
Total current assets¥ 53,420
150,552
30,252
8,758
9,782
8,387
9,470
(2,520)268,105¥ 58,336
134,959
25,954
6,640
9,186
6,698
8,761
(1,216)249,322$

Property, plant and equipment (Notes 9, 10, 13 and 22)
Accumulated depreciation
Property, plant and equipment, net

828,957(504,115)
324,842

780,134(473,077)
307,057

6,898,203(4,195,015)
2,703,187

Investments and other assets:
Investment securities (Notes 6 and 16)
Long-term loans receivable
Goodwill (Notes 22 and 25)
Other intangible assets
Net defined benefit asset (Note 14)
Deferred tax assets (Note 11)
Other
Valuation allowance for investments
Allowance for doubtful accounts
Total investments and other assets
Total assets

75,377
1,199
66,47125,701
8,396
2,073
10,542(20)(333)
189,408¥ 782,357

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

627,253
9,978
553,141
213,872
69,86817,25187,726(166)(2,771)
1,576,167$ 6,510,419

See notes to consolidated financial statements.

30

Thousands of
U.S. dollars(Note 5)

Taiyo Nippon Sanso Corporation | Annual Report 2015

2015

444,537
1,252,825
251,743
72,88081,401
69,79378,805(20,970)
2,231,048

Millions of yen
March 31

Thousands of
U.S. dollars(Note 5)

2015

2014

2015

Liabilities and net assets
Current liabilities:
Notes and accounts payable—trade (Notes 9 and 16)
Short-term loans payable (Notes 8, 9 and 16)
Income taxes payable (Note 11)
Other
Total current liabilities¥ 77,036
65,746
7,113
34,673
184,570¥ 70,002
81,508
4,492
29,972
185,975$ 641,059
547,108
59,191
288,533
1,535,907

Noncurrent liabilities:
Long-term loans payable (Notes 8, 9 and 16)
Pension and severance indemnities (Note 14)
Net defined benefit liability (Note 14)
Deferred tax liabilities (Note 11)
Negative goodwill (Note 22)
Lease obligations (Note 8)
Other
Total noncurrent liabilities

193,904
1,230
3,824
43,451
—
4,779
9,387
256,579

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

1,613,581
10,23531,822
361,579—
39,76978,1142,135,134

Contingent liabilities (Note 15)
Total liabilities

441,149

433,201

3,671,041

37,34455,955
190,957(232)
284,025

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

310,760
465,632
1,589,057(1,931)
2,363,527

12,777(461)
20,067835
33,21923,963
341,207¥782,357

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

106,324(3,836)
166,9886,948
276,433
199,4092,839,369$6,510,419

Net assets (Notes 12 and 26):
Shareholders’ equity:
Common stock:
Authorized—1,600,000,000 shares
Issued—433,092,837 shares in 2015 and 2014
Capital surplus
Retained earnings
Treasury stock
Total shareholders’ equity
Accumulated other comprehensive income:
Valuation difference on available-for-sale securities
Deferred gains or losses on hedges
Foreign currency translation adjustments
Remeasurements of defined benefit plans (Note 14)
Total accumulated other comprehensive income
Minority interests
Total net assets
Total liabilities and net assets

Taiyo Nippon Sanso Corporation | Annual Report 201531

Consolidated Statements of Operations
Taiyo Nippon Sanso Corporation and Consolidated Subsidiaries

Millions of yen

Years ended March 31
Net sales (Note 22)
Cost of sales (Note 18)
Gross profit
Selling, general and administrative expenses (Note 18)
Operating income
Other income (expenses):
Interest and dividend income
Interest expenses
Amortization of negative goodwill
Gain on sales of noncurrent assets (Note 19)
Loss on sales and retirement of noncurrent assets
Loss on valuation of investment securities
Gain on sales of investment securities
Loss on valuation of golf club memberships
Equity in earnings of affiliates
Impairment loss (Notes 20 and 22)
Loss on step acquisitions
Loss on liquidation of subsidiaries and affiliates
Early extra retirement payments
Other
Income before income taxes and minority interests
Income taxes (Note 11):
Current
DeferredIncome before minority interests
Minority interests in income
Net income

Thousands of
U.S. dollars(Note 5)

2015¥559,373
374,923
184,449
149,151
35,297

2014¥522,746
353,204
169,542
138,052
31,4892015$4,654,847
3,119,938
1,534,901
1,241,167
293,726

1,259(3,508)
23
—
(832)
—
2,491
—
2,500
(2,266)
—
—
—
(457)
(789)
34,507

1,372(3,912)
199
3,846
(656)
(199)
3,641
(10)
1,999
(1,183)(151)(451)(1,667)54
2,881
34,37010,477(29,192)
191—(6,924)—
20,729—20,804(18,857)———(3,803)(6,566)287,152

12,856(482)
12,373
22,133
1,369¥ 20,764

9,303
3,505
12,80821,562
1,367¥ 20,194106,982(4,011)
102,962
184,181
11,392$ 172,789
U.S. dollars(Note 5)

Yen

Amounts per share:
Net assets
Net income
Cash dividends¥733.04
47.98
13.00

¥633.69
49.42
12.00

$6.10
0.40
0.11

See notes to consolidated financial statements.

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

Millions of yen
Year ended March 31

Income before minority interests
Other comprehensive income (Note 21):
Valuation difference on available-for-sale securities
Deferred gains or losses on hedges
Foreign currency translation adjustments
Remeasurements of defined benefit plans
Share of other comprehensive income of associates accounted for using the equity method
Total other comprehensive income
Comprehensive income
Total comprehensive income attributable to:
Owners of the Company
Minority interests
See notes to consolidated financial statements.

32

Taiyo Nippon Sanso Corporation | Annual Report 2015

Thousands of
U.S. dollars(Note 5)

2015

2014

2015

¥22,133¥21,562$184,181

5,547
(454)
21,5592,764
1,416
30,831¥52,965

927
113
21,761154
1,992
24,950¥46,512

46,160(3,778)179,404
23,001
11,783
256,562$440,751¥50,660
2,305¥44,3832,129$421,569
19,181

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

Millions of yen
Shareholders’ equity
Number of shares ofcommon stock

Balance at April 1, 2013
Issuance of common stock
Disposal of treasury stock
Dividends from surplus
Net income
Change of scope of consolidation
Purchase of treasury stock
Net changes of items other than shareholders’ equity
Balance at March 31, 2014
Cumulative effects of changes in accounting policies
Restated balance at March 31, 2014
Dividends from surplus
Net income
Change of scope of consolidation
Purchase of treasury stock
Disposal of treasury stock
Purchase of shares of consolidated subsidiaries
Change in treasury stock arising from change in equity in entities account for
using equity method
Net changes of items other than shareholders’ equity
Balance at March 31, 2015

Common stock

Capital surplus

Retained earnings

Treasury stock

Total
shareholders’ equity

403,092,837
30,000,000
—
—
—
—
—
—
433,092,837—
433,092,837
—
—
—
—
—
—

¥27,039
10,305——————¥37,344—¥37,344
—
—
—
—
—
—

¥44,90910,305
1,263
—
—
—
—
—
¥56,478—¥56,478
—
—
—
—
12
(534)

¥159,999——(4,655)20,194
1,731——¥177,269(1,539)¥175,730(5,195)
20,764(341)———¥(9,161)
—
9,109
—
—
—
(57)
—
¥ (108)—¥ (108)
—
—
—
(148)
31
—

¥222,787
20,61010,373(4,655)20,194
1,731(57)—¥270,983(1,539)¥269,444(5,195)
20,764
(341)
(148)
43
(534)

—
—
433,092,837——¥37,344——¥55,955——¥190,957(6)—¥ (232)(6)—¥284,025

Total
Pension liability
Remeasurements of accumulated otheradjustment ofdefined benefit
comprehensive
foreign subsidiaries
plans
income (loss)

Minority interests

Millions of yen
Accumulated other comprehensive income

Balance at April 1, 2013
Issuance of common stock
Disposal of treasury stock
Dividends from surplus
Net income
Change of scope of consolidation
Purchase of treasury stock
Net changes of items other thanshareholders’ equity
Balance at March 31, 2014
Cumulative effects of changes inaccounting policies
Restated balance at March 31, 2014
Dividends from surplus
Net income
Change of scope of consolidation
Purchase of treasury stock
Disposal of treasury stock
Purchase of shares of consolidated
subsidiaries
Change in treasury stock arising fromchange in equity in entities account for
using equity method
Net changes of items other thanshareholders’ equity
Balance at March 31, 2015

Valuation difference
on available-for-salesecurities

Deferred gains orlosses on hedges

Foreign currencytranslation
adjustments¥ 6,322
—
—
—
—
—
—

¥(120)——————¥(25,020)
—
—
—
—
—
—

¥(197)
—
—
—
—
—
—

¥

—
—
—
—
—
—
—

¥(19,016)
—
—
—
—
—
—

¥20,481
—
—
—
—
—
—

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

934
¥ 7,257

¥

113
(7)

22,984¥ (2,035)

197¥ —(1,891)¥(1,891)

22,339¥ 3,323

3,686¥24,168

26,026¥298,475

—
(7)
—
—
—
—
—

—
¥ (2,035)
—
—
—
—
—

—
¥ —
—
—
—
—
—

—
¥(1,891)
—
—
—
—
—

—
¥ 3,323
—
—
—
—
—

(47)
¥24,120—————(1,587)¥296,888(5,195)
20,764
(341)
(148)
43

—

—

—

—

—

—

(534)

—
¥ 7,257
—
—
—
—
—

¥

—

Total net assets

—

—

—

—

—

—

—

(6)

5,520
¥12,777(454)¥(461)

22,103¥ 20,067

—
¥ —

2,727
¥ 835

29,895¥ 33,219(157)¥23,963

29,738¥341,207

Thousands of U.S. dollars (Note 5)
Shareholders’ equity
Common stock

Balance at April 1, 2014
Cumulative effects of changes in accounting policies
Restated balance at April 1, 2014
Dividends from surplus
Net income
Change of scope of consolidation
Purchase of treasury stock
Disposal of treasury stock
Purchase of shares of consolidated subsidiaries
Change in treasury stock arising from change in equity in entities account for using equity method
Net changes of items other than shareholders’ equity
Balance at March 31, 2015

Capital surplus$310,760—$310,760
—
—
—
—
—
—
—
—
$310,760$469,984—$469,984
—
—
—
—
100
(4,444)——$465,632

Retained earnings

Treasury stock$1,475,152(12,807)$1,462,345(43,230)
172,789(2,838)—————$1,589,057$ (899)—$ (899)———(1,232)
258
—
(50)
—
$(1,931)

Total
Pension liability
Remeasurements of accumulated otheradjustment ofdefined benefit
comprehensive
foreign subsidiaries
plans
income (loss)

Total
shareholders’ equity$2,254,997(12,807)$2,242,190(43,230)
172,789(2,838)(1,232)358(4,444)(50)—$2,363,527

Thousands of U.S. dollars (Note 5)
Accumulated other comprehensive income
Valuation difference
on available-for-salesecurities

Balance at April 1, 2014
Cumulative effects of changes inaccounting policies
Restated balance at April 1, 2014
Dividends from surplus
Net income
Change of scope of consolidation
Purchase of treasury stock
Disposal of treasury stock
Purchase of shares of consolidated
subsidiaries
Change in treasury stock arising fromchange in equity in entities account for
using equity method
Net changes of items other thanshareholders’ equity
Balance at March 31, 2015

$ 60,389—$ 60,389
—
—
—
—
—
—

Deferred gains orlosses on hedges$$

Foreign currencytranslation
adjustments

Minority interests

Total net assets(58)$ (16,934)$—$(15,736)$ 27,652$201,115$2,483,773

—
(58)
—
—
—
—
—

—
$ (16,934)
—
—
—
—
—

—
$—
—
—
—
—
—

—
$(15,736)
—
—
—
—
—

—
$ 27,652
—
—
—
—
—

(391)
$200,716—————(13,206)$2,470,567(43,230)
172,789(2,838)(1,232)
358

—

—

—

—

—

—

(4,444)

—

—

—

—

—

—

—

(50)

45,935$106,324(3,778)$(3,836)

183,931$166,988—$—

22,693$ 6,948248,773$276,433(1,306)$199,409

247,466$2,839,369

See notes to consolidated financial statements.

Taiyo Nippon Sanso Corporation | Annual Report 201533

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

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

2015

2014

2015

Interest and dividends income received
Interest expenses paid
Payments for early extra retirement payments
Income taxes paid
Net cash provided by operating activities¥ 34,507
35,5682,266
4,959(1,259)3,508(2,500)634(2,506)———(11,080)(175)
53(3,931)
4,979
2,203
876
(43)
489
2,424
70,9732,851(3,521)(1,398)(10,290)
58,615¥ 34,370
33,507
1,183
3,668(1,372)
3,912(1,999)(3,410)(3,670)
151
451
1,667
(3,713)
1,051
(537)
1,351
(5,995)
573
(757)
(76)
428
4,505
65,288
1,753(3,954)(251)(6,121)
56,716$ 287,152
295,981
18,85741,267(10,477)
29,192(20,804)
5,276(20,854)———(92,203)(1,456)441(32,712)41,433
18,332
7,290
(358)
4,069
20,171
590,605
23,725(29,300)(11,634)(85,629)487,767

Investing activities
Decrease in short-term investments
Purchases of property, plant and equipment
Proceeds from sales of property, plant and equipment
Purchases of intangible assets
Purchases of investment securities
Proceeds from sales of investment securities
Purchases of investments in subsidiaries resulting in change in scope of consolidation (Note 23)
Payments of loans receivable
Other, net
Net cash used in investing activities

804(33,357)
2,035
(886)
(3,038)6,411—(1,084)(1,467)(30,583)

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

6,691(277,582)
16,934(7,373)(25,281)
53,349—(9,021)(12,208)(254,498)

Financing activities
Net increase (decrease) in short-term loans payable
Proceeds from long-term loans payable
Repayment of long-term loans payable
Proceeds from issuance of bonds
Redemption of bonds
Purchases of investments in subsidiaries not resulting in change in scope of consolidation
Repayments of lease obligations
Proceeds from issuance of common stock
Purchase of treasury stock
Proceeds from sales of treasury stock
Proceeds from disposal of treasury stock
Cash dividends paid
Cash dividends paid to minority shareholders
Net cash (used in) provided by financing activities
Effect of exchange rate change on cash and cash equivalents
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Increase in cash and cash equivalents resulting from change of scope of consolidation
Increase in cash and cash equivalents resulting from merger with unconsolidated subsidiaries
Cash and cash equivalents at end of period (Note 23)¥ 7,265
36,987(53,339)—(15,000)(1,586)(2,049)
—
(182)
12
21
(5,196)(799)(33,866)
1,287(4,546)56,0885—¥ 51,547¥ (7,921)
31,808(43,371)
24,857——(2,880)20,452(55)
210,370(4,656)(722)
27,884
485
29,791
22,7213,568
7¥ 56,088$ 60,456
307,789(443,863)—(124,823)(13,198)(17,051)—(1,515)100
175(43,239)(6,649)(281,817)
10,710(37,830)
466,73942—$ 428,951

See notes to consolidated financial statements.

34

Thousands of
U.S. dollars(Note 5)

Taiyo Nippon Sanso Corporation | Annual Report 2015

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

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

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

2. Summary of Significant Accounting Policies(a) Consolidation
The accompanying consolidated financial statements include theaccounts of the Company and its 159 significant subsidiaries. All
significant intercompany accounts and transactions have been
eliminated in consolidation.
In accordance with the regulations for the preparation of consolidated financial statements under the FIEA, investments in certain
unconsolidated subsidiaries and significant affiliates are accounted forby the equity method of accounting.
The differences at the dates of acquisition between the cost andthe underlying net equity in investments in consolidated subsidiaries
and the companies accounted for by the equity method are amortized
equally over the years for which their effect is reasonably estimated.
Investments in unconsolidated subsidiaries and affiliates otherthan those which are accounted for by the equity method are
principally stated at cost.
(b) Cash equivalents
For purposes of the statements of cash flows, the Company considers all highly liquid instruments with maturity of three months or lesswhen purchased to be cash equivalents.
(c) Investment securities
Investments in securities are classified into three categories: trading
securities, held-to-maturity securities and available-for-sale securities.
The Company and certain consolidated subsidiaries have marketablesecurities classified as available-for-sale securities, which are carriedat fair value with any changes in valuation difference on availablefor-sale securities, net of the applicable income taxes, reported asa separate component of net assets. Cost of marketable securities
sold is determined by the moving-average method. Non-marketablesecurities classified as available-for-sale securities are carried at cost
determined by the moving-average method. Under the Companies
Act of Japan (the “Act”), unrealized gain or loss on available-for-salesecurities, net of the applicable income taxes, is not available for
distribution as dividends.
(d) Inventories
Inventories are stated at cost, determined by the average method,
specific identification method or the moving-average method (lower
than book value due to decline in profitability).

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

Taiyo Nippon Sanso Corporation | Annual Report 201535

(i) Pension and severance indemnities
The benefit formula method is used as the method of attributing
expected benefits to periods through the end of the fiscal year ended
March 31, 2015 in calculating the projected benefit obligation.
For transition benefit liability, the Company established a pension and severance indemnity trust by contribution of shares ownedby the Company, and the remaining transition benefit liability is being
amortized over a period of 15 years. Actuarial gains or losses andprior service cost are recognized for each defined benefit plan over a
period not exceeding the expected average remaining service years of
the employees participating in the plan. The Company and its consolidated domestic subsidiaries amortize actuarial gains or losses using
the straight-line method over 12 to 16 years following the respective
fiscal years when such gains or losses are recognized. Prior service
cost is amortized using the straight-line method over 13 to 16 years.
Certain consolidated domestic subsidiaries apply the simplified
method, which assumes projected benefit obligations to be equal tothe benefit payable assuming the voluntary retirement of all employees at fiscal year-end, in computing net defined benefit liability andretirement benefit expenses.
(j) Allowance for directors’ and corporate auditors’ retirement
benefits
The allowance for directors’ and corporate auditors’ retirement benefits of the Company and certain consolidated domestic subsidiaries
is provided at the amount which would have been required to be
paid if all directors and corporate auditors had voluntarily terminatedtheir services as of the balance sheet date. This amount has been
determined in accordance with the internal rules of the respective
companies.
The allowance included ¥810 million ($6,740 thousand) and¥799 million for directors and corporate auditors at March 31, 2015
and 2014, respectively, and included ¥420 million ($3,495 thousand)and ¥497 million for corporate officers at March 31, 2015 and 2014,
respectively.
(k) Research and development expenses
Research and development expenses are charged to operations as
incurred.
(l) Income taxes
Deferred tax assets and liabilities are determined based on the
differences between financial reporting and the tax bases of assets
and liabilities and are measured using the enacted tax rates and laws
which will be in effect when the differences are expected to reverse.

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

(m) 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,
2015 and 2014.

36

Taiyo Nippon Sanso Corporation | Annual Report 2015

3. Changes in Accounting Policies(a) Accounting standard for retirement benefits
Effective from the year ended March 31, 2015, the Company has
adopted the main text of Paragraph 35 of “Accounting Standard for
Retirement Benefits” (Statement No. 26, issued by the AccountingStandards Board of Japan (ASBJ) on May 17, 2012 (hereinafter,“Standard No. 26”)) and the main text of Paragraph 67 of “Guidanceon Accounting Standard for Retirement Benefits” (Guidance No. 25,
issued by the ASBJ on March 26, 2015 (hereinafter, “Guidance
No. 25”)). Accordingly, the calculation methods of projected benefit
obligations and service costs have been revised, the method of attributing expected benefits to periods has been changed from thestraight-line method to the benefit formula method, and the methodfor determining the discount rate has been changed from determining
the discount rate based on the yields of bonds with maturities thatapproximate the average remaining service period of the employees
to using a single weighted average discount rate reflecting the estimated period and amount of retirement benefit payment. With regards
to the adoption of the standard and the guidance, in accordance withthe provisions on transitional treatment set forth in Paragraph 37 ofStandard No. 26, the cumulative effect of the change in calculation
methods of projected benefit obligations and service costs has beenrecognized in retained earnings as of April 1, 2014.
As a result of this change, net defined benefit liability increased by¥92 million ($766 thousand) and net defined benefit asset, retained
earnings and minority interests decreased by ¥2,226 million ($18,524
thousand), ¥1,539 million ($12,807 thousand) and ¥47 million ($391
thousand), respectively, as of April 1, 2014. The impact on operating
income and income before income taxes and minority interests for theyear ended March 31, 2015 was immaterial.
In addition, the effect on net income per share for the year ended
March 31, 2015 was immaterial while net assets per share as ofMarch 31, 2015 decreased by ¥3.56 ($0.03).
(b) Accounting standards for business combinations“Revised Accounting Standard for Business Combinations” (ASBJ
Statement No. 21, issued on September 13, 2013 (hereinafter,“Statement No. 21”)), “Revised Accounting Standard for Consolidated

Financial Statements” (ASBJ Statement No. 22, issued on
September 13, 2013 (hereinafter, “Statement No. 22”)) and “Revised
Accounting Standard for Business Divestitures” (ASBJ Statement
No. 7, issued on September 13, 2013 (hereinafter, “Statement
No. 7”)), etc., are effective from April 1, 2014. Accordingly, effectivefrom the year ended March 31, 2015, the Company has adopted
these standards, etc. (except Paragraph 39 of Statement No. 22) andany changes in a parent’s ownership interest in a subsidiary when theparent retains control over the subsidiary are recorded as capitalsurplus and acquisition-related costs are expensed in the year whensuch costs are incurred. With regards to business combinations
occurring on or after April 1, 2014, changes in acquisition costallocation following the determination of transitional treatment isreflected in the consolidated financial statements applicable to theyear in which the business combination occurs.
In accordance with the provisions on transitional treatment set
forth in Paragraph 58-2 (4) of Statement No. 21, Paragraph 44-5 (4)of Statement No. 22 and Paragraph 57-4 (4) of Statement No. 7,
these standards have been applied from the beginning of the year
ended March 31, 2015 to the future periods.
As a result of this change, capital surplus decreased by ¥534
million ($4,444 thousand) as of March 31, 2015. The impact on operating income and income before income taxes and minority interests
for the year ended March 31, 2015 was immaterial.
Accordingly, purchases of investments in subsidiaries not resulting
in change in scope of consolidation are recorded under financing
activities and investments in subsidiaries resulting in change in scopeof consolidation and acquisition-related expenses for investments in
subsidiaries not resulting in change in scope of consolidation arerecorded under operating activities in the consolidated statement ofcash flows from the year ended March 31, 2015.
As a result of this change, capital surplus in the consolidated
statement of changes included in net assets decreased by ¥534
million ($4,444 thousand) as of March 31, 2015.
The impacts on net income per share for the year ended
March 31, 2015 and net assets per share as of March 31, 2015 wereimmaterial.

4. Accounting Standards Issued but Not Yet Effective
On March 26, 2015, the ASBJ issued “Practical Solution on
Accounting for Unification of Accounting Policies Applied to Foreign
Subsidiaries for Consolidated Financial Statements” (Practical Issues
Task Force (PITF) No. 18).
(1) Overview
This practical solution was revised in response to a change in a
related accounting standard for goodwill in the United States ofAmerica, which was revised in January 2014, and “Revised
Accounting Standard for Consolidated Financial Statements” (ASBJ
Statement No. 22), which was revised in September 2013, as well as

to clarify amortization of actuarial gains or losses under retirement
benefit accounting.
(2) Expected application dateThis practical solution is expected to be applied from the beginning of
the year ending March 31, 2016.
(3) Effects of the adoption
The Company is currently evaluating the effects of applying thispractical solution on its consolidated financial statements.

5. U.S. Dollar Amounts
The translation of Japanese yen amounts into U.S. dollar amounts is
included solely for convenience, as a matter of arithmetical computation only, at the rate of ¥120.17=U.S.$1, the approximate rate ofexchange at March 31, 2015. The translation should not be construed

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

Taiyo Nippon Sanso Corporation | Annual Report 201537

6. Investment Securities
At March 31, 2015 and 2014, information with respect to available-for-sale securities for which market prices were available was summarized
as follows:

Carrying
amountUnrecognized gain items: Stock
Unrecognized loss items: Stock
Total¥41,480
191¥41,672

Carrying
amountUnrecognized gain items: Stock
Unrecognized loss items: Stock
Total

Millions of yen
2015
Acquisition
Unrecognized
costgain (loss)¥22,483
228¥22,712¥18,996(36)¥18,959

Thousands of U.S. dollars
2015
Carrying
UnrecognizedamountAcquisition cost gain (loss)$345,178
1,589$346,775$187,093
1,897$188,999$158,076(300)$157,768

Millions of yen
2014
Acquisition
Unrecognized
costgain (loss)¥27,120
10,045¥37,166

Proceeds from sales of securities classified as available-for-salesecurities amounted to ¥6,198 million ($51,577 thousand) and ¥4,655
million with an aggregate gain on sales of ¥2,535 million ($21,095¥15,524
10,515¥26,040¥11,596(469)¥11,126

thousand) and ¥3,653 million for the years ended March 31, 2015
and 2014, respectively, and an aggregate loss on sales of nil for theyears ended March 31, 2015 and 2014.

7. Notes and Accounts Receivable(a) Notes and accounts receivable liquidated at March 31, 2015 and 2014 were as follows:
Thousands of
U.S. dollars
2015

Millions of yen
2015
2014

Accounts receivable transferred by liquidation
Notes receivable transferred by liquidation

¥ —
1,791

¥4,742
1,839$—
14,904(b) Notes receivable discounted at March 31, 2015 and 2014 were as follows:
Thousands of
U.S. dollars
2015

Millions of yen
2015
2014

Notes receivable discounted

¥2

¥2

$17

8. Short-Term Loans Payable, Long-Term Loans Payable and Lease Obligations
As of March 31, 2015 and 2014, short-term loans payable and the current portion of long-term loans payable consisted of the following:
Millions of yen
2015
2014

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

¥28,827
36,919—¥65,746¥19,677
46,831
15,000¥81,508

The average interest rates applicable to bank loans outstanding at March 31, 2015 and 2014 are 1.10% and 1.32%, respectively.

38

Taiyo Nippon Sanso Corporation | Annual Report 2015

Thousands of
U.S. dollars
2015$239,885
307,223—$547,108

Long-term loans payable at March 31, 2015 and 2014 consisted of the following:
Millions of yen
2015
2014

Loans from banks due through 2033 at average interest rates of 1.32% in 2015 and 1.53% in 2014
0.55% unsecured bonds, payable in yen, due 20170.44% unsecured bonds, payable in yen, due 20170.32% unsecured bonds, payable in yen, due 2019
0.56% unsecured bonds, payable in yen, due 2021

¥148,904
10,00010,00015,00010,000¥193,904¥144,897
10,00010,00015,00010,000¥189,897

Thousands of
U.S. dollars
2015$1,239,111
83,215
83,215
124,823
83,215$1,613,581

Short-term lease obligations at March 31, 2015 and 2014 included in other current liabilities were ¥1,843 million ($15,337 thousand) and ¥1,760
million, respectively.
The annual maturities of long-term loans payable subsequent toMarch 31, 2015 are summarized as follows:

Years ending March 31

Millions of yen

Thousands of
U.S. dollars

2016
2017
2018
2019
2020
2021 and thereafter¥ 36,919
49,75538,91925,81022,652
11,768¥185,823$ 307,223
414,038
323,866
214,779
188,500
97,928$1,546,334

The annual maturities of lease obligations subsequent toMarch 31, 2015 are summarized as follows:

Years ending March 31

Millions of yen

Thousands of
U.S. dollars

2016
2017
2018
2019
2020
2021 and thereafter¥1,843
1,395
1,511
468
306
1,099
¥6,622$15,337
11,60912,574
3,894
2,546
9,145
$55,105

9. Pledged Assets
Assets pledged as collateral for short-term loans payable of ¥10
million ($83 thousand) and ¥120 million, long-term loans payable of nil
and ¥197 million, accounts payable—trade of nil and ¥5 million andother of ¥31 million ($258 thousand) and ¥47 million at March 31,
2015 and 2014, respectively, were as follows:
Millions of yen
2015
2014

Property, plant and equipment, at net book value

¥491

¥701

Thousands of
U.S. dollars
2015$4,086

10. Assets Replaced by National Subsidy
Assets replaced by national subsidy at March 31, 2015 and 2014 were as follows:
Millions of yen
2015
2014

Property, plant and equipment¥411

Taiyo Nippon Sanso Corporation | Annual Report 2015

¥411

Thousands of
U.S. dollars
2015$3,42039

11. Income Taxes
Income taxes applicable to the Company comprise corporation,enterprise and inhabitants’ taxes, which, in the aggregate, resulted
in statutory tax rates of 35.64% and 38.01% for the years ended
March 31, 2015 and 2014, respectively.

Significant components of the Company’s deferred tax assets andliabilities at March 31, 2015 and 2014 were as follows:

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

Thousands of
U.S. dollars
2015¥ 2,100
26
4,220
97
2,256
8,701
(312)
8,389
(1)
¥ 8,387¥ 2,144
11
2,504
199
2,096
6,956
(238)
6,718
(19)
¥ 6,698$ 17,475
216
35,117807
18,77372,406(2,596)69,809(8)$ 69,793

¥

¥

$

¥

Noncurrent deferred tax assets and liabilities
Deferred tax assets:
Depreciation
Net defined benefit liability
Other
Deferred tax assets—subtotal
Valuation allowance
Deferred tax assets—net
Deferred tax liabilities
Net deferred tax assets
Deferred tax liabilities:
Valuation difference on available-for-sale securities
Reserve for replacement of fixed assets
Reserve for special depreciation
Reserve for replacement of fixed assets—special
Depreciation
Other
Deferred tax liabilities—subtotal
Offset by deferred tax assets
Net deferred tax liabilities
The reconciliation of the difference between the statutory tax rate
and the effective tax rate for the years ended March 31, 2015 and2014 was not presented since the difference was less than 5% of thestatutory tax rate.
The “Act on Partial Revision of the Income Tax Act” (Act No. 9 of
2015) and the “Act on Partial Revision of Local Tax Act” (Act No. 2 of2015) were promulgated on March 31, 2015 and income tax rates will
be reduced effective from years beginning on or after April 1, 2015.
Accordingly, the normal effective statutory tax rate used to measure the Company’s deferred tax assets and liabilities was changed
from 35.64% to 33.10% and 32.34% for the temporary differences
expected to be realized or settled in the year beginning April 1, 2015
and from years beginning April 1, 2016, respectively.

40

Millions of yen
2015
2014

(1)
(1)
1
—

¥

(87)
(87)
19
(67)

$

(8)
(8)
8
—

¥ 2,191
1,168
7,211
10,570(4,082)
6,488(4,414)¥ 2,073¥ 2,385
1,248
7,030
10,664(3,961)
6,702(4,726)¥ 1,976$ 18,233
9,720
60,007
87,959(33,969)
53,990(36,731)$ 17,251¥ (6,120)(3,471)(55)(656)(29,750)(7,811)(47,865)
4,414¥(43,451)¥ (3,980)(4,260)—(572)(20,166)(11,510)(40,490)
4,726¥(35,764)$ (50,928)(28,884)(458)(5,459)(247,566)(65,000)(398,311)
36,731$(361,579)

As a result, deferred tax assets, net of deferred tax liabilities,
as of March 31, 2015 decreased by ¥641 million ($5,334 thousand)and income taxes—deferred, deferred losses on hedges, valuationdifference on available-for-sale securities and remeasurements ofdefined benefit plans increased by ¥13 million ($108 thousand),¥17 million ($141 thousand), ¥616 million ($5,126 thousand) and¥56 million ($466 thousand), respectively, as of and for the year ended
March 31, 2015.

Taiyo Nippon Sanso Corporation | Annual Report 2015

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

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

13. Leases(a) The following pro forma amounts represent the acquisition costs,
accumulated depreciation and net book value of leased property
at March 31, 2015 and 2014, which would have been reflected in
the consolidated balance sheets if finance lease accounting had
been applied to the finance lease transactions currently
accounted for as operating leases:
Millions of yen
2015
2014

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

Thousands of
U.S. dollars
2015

¥993

¥1,274$8,263

859

1,087

7,148

¥133

¥ 187

$1,107

Lease payments relating to finance lease transactions accounted
for as operating leases amounted to ¥59 million ($491 thousand) and¥94 million, which were equal to the depreciation expense of theleased assets computed by the straight-line method over the respective lease terms for the years ended March 31, 2015 and 2014,
respectively.

Future minimum lease payments (including the interest portion
thereon) subsequent to March 31, 2015 and 2014 for finance leasetransactions accounted for as operating leases are summarized
as follows:
Years ending March 31

2015
2016
2017 and thereafter
Total
2014
2015
2016 and thereafter
Total

Millions of yen

Thousands of
U.S. dollars

¥ 51
82
¥133

$ 424
682
$1,107

¥ 56
131
¥187

(b) Future minimum lease payments subsequent to March 31, 2015
and 2014 for non-cancelable operating leases are summarized
as follows:
Years ending March 31

2015
2016
2017 and thereafter
Total
2014
2015
2016 and thereafter
Total

Taiyo Nippon Sanso Corporation | Annual Report 2015

Millions of yen

Thousands of
U.S. dollars¥ 2,607
9,971¥12,579$ 21,694
82,974$104,677¥ 1,688
8,590¥10,27841

14. Pension and Severance Indemnities
The Company and certain consolidated subsidiaries have funded
and unfunded cash balance plans (market-linked pension plans) anddefined contribution benefit plans for future retirement benefits. The
other consolidated domestic subsidiaries have a lump-sum retirement
benefit plan as a defined benefit plan. Certain consolidated overseas
subsidiaries have a defined contribution benefit plan.
A lump-sum amount or pension are paid based on salary andservice period of employees under the defined benefit corporate
pension plans.
Certain defined benefit corporate pension plans establish
retirement benefit trusts.

A lump-sum amount is paid based on salary and service periodof employees as retirement benefits under the lump-sum retirement
benefit plan.
Certain consolidated domestic subsidiaries apply the simplified
method in computing net defined benefit liability and retirement benefit
expenses for their defined benefit corporate pension plans andlump-sum payment plans.
The tables below include plans to which the simplified method
is applied.

Defined benefit plans(a) The changes in projected benefit obligations for the years ended March 31, 2015 and 2014 were as follows:
Millions of yen
2015
2014

Balance at beginning of year
Cumulative effects of changes in accounting policies
Restated balance at beginning of the year
Service cost
Interest cost
Actuarial loss
Retirement benefits paid
Other
Balance at end of year

¥31,669
2,319¥33,9881,435
350
2(2,814)19¥32,982¥32,019—¥ 32,019
1,282
539
66
(2,424)
185¥31,669

Thousands of
U.S. dollars
2015$263,535
19,298$282,833
11,9412,913
17(23,417)158$274,461

Note: Certain consolidated domestic subsidiaries apply the simplified method in computing projected benefit obligations.

(b) The changes in plan assets for the years ended March 31, 2015 and 2014 were as follows:
Millions of yen
2015
2014

Balance at beginning of year
Expected return on plan assets
Actuarial gainContributions from the employer
Retirement benefits paid
Other
Balance at end of year

¥34,810
837
3,110
1,122
(2,327)
2¥37,554¥32,616
808
1,832
1,603
(2,102)
49¥34,810

Thousands of
U.S. dollars
2015$289,673
6,965
25,8809,337(19,364)17$312,507(c) The reconciliation between the balances of projected benefit obligation and plan assets and net defined benefit liability and the funded net
defined benefit asset recorded on the consolidated balance sheets as of March 31, 2015 and 2014 was as follows:

42

Millions of yen
2015
2014

Thousands of
U.S. dollars
2015

Funded projected benefit obligation
Plan assets at fair market value¥ 29,725(37,554)¥ 28,558(34,810)$ 247,358(312,507)

Unfunded retirement benefit liabilities
Net liability and asset recorded on the consolidated balance sheet
Net defined benefit liability
Net defined benefit asset
Net liability and asset recorded on the consolidated balance sheet(7,829)3,257¥ (4,572)¥ 3,824(8,396)¥ (4,572)(6,251)
3,110¥ (3,140)¥ 6,235(9,376)¥ (3,140)(65,149)
27,103$ (38,046)$ 31,822(69,868)$ (38,046)

Taiyo Nippon Sanso Corporation | Annual Report 2015

(d) The components of retirement benefit expenses for the years ended March 31, 2015 and 2014 were as follows:
Millions of yen
2015
2014

Service cost
Interest cost
Expected return on plan assets
Amortization of actual loss
Amortization of prior service cost
Net loss on change in accounting standard for employees’ retirement benefits
Additional early retirement expenses
Total¥1,435
350
(837)
891
(226)
461
—
¥2,074¥ 1,282
539
(808)
1,043
(226)
458
(1,667)¥ 3,956

Thousands of
U.S. dollars
2015$11,941
2,913(6,965)
7,414(1,881)
3,836—$17,259

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

(e) The components of remeasurements of defined benefit plans (before applicable tax effects) in other comprehensive income for the years ended
March 31, 2015 and 2014 were as follows:
Millions of yen
2015
2014

Actuarial gain
Prior service cost
Effect of change in accounting standard
Other
Total
(f)

¥3,999
(226)
423
(74)
¥4,121

¥ —
—
—
275
¥275

Thousands of
U.S. dollars
2015$33,278(1,881)
3,520(616)$34,293

The components of remeasurements of defined benefit plans (before applicable tax effects) in accumulated other comprehensive income as ofMarch 31, 2015 and 2014 were as follows:
Millions of yen
2015
2014

Net unrecognized actuarial losses
Unrecognized prior service cost
Unsettled effect of change in accounting standard
Total¥ (604)(785)—¥(1,389)

Thousands of
U.S. dollars
2015¥ 3,395(1,011)423¥ 2,806$ (5,026)(6,532)—$(11,559)

2015

2014

33%
25
31
2
9
100%

16%
40
38
0
6
100%

(g) Information on plan assets for the years ended March 31, 2015 and 2014 was as follows:(1) Components of plan assets as of March 31, 2015 and 2014 were as follows:
Debt securities
Equity securities
Life insurance general accounts
Cash and cash equivalents
OthersTotal

The retirement benefit trusts established for defined benefit corporate pension plans hold 17% and 15% of plan assets as of March 31, 2015
and 2014, respectively.
(2) Expected long-term rate of return
The expected long-term rate of return on plan assets is determined considering current and expected distribution of plan assets and the long-term
rate of return derived from various components of the plan assets.
(h) The principal assumptions used for the actuarial calculation for the years ended March 31, 2015 and 2014 were as follows:
2015

Discount rates
Expected long-term rate of return on plan assets
Expected rate of salary increase2014

Mainly 0.9% Mainly 2.0%
Mainly 3.0% Mainly 3.0%
Mainly 5.3% Mainly 5.3%

Defined contribution benefit plan
The required contribution amount to the defined contribution benefit plan was ¥1,285 million ($10,693 thousand) and ¥1,087 million for the years
ended March 31, 2015 and 2014, respectively.

Taiyo Nippon Sanso Corporation | Annual Report 201543

15. Contingent Liabilities
At March 31, 2015 and 2014, the Company and certain consolidated
subsidiaries had contingent liabilities as guarantor of indebtedness,amounting to ¥2,473 million ($20,579 thousand) and ¥2,682 million,
which included reguarantees by joint investors amounting to ¥163
million ($1,356 thousand) and ¥229 million and commitments toguarantees amounting to ¥39 million ($325 thousand) and ¥57 million,
and guarantees for employees’ bank loans based on employees’
house ownership discount policy amounting to ¥970 million ($8,072
thousand) and ¥890 million, respectively.

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

(1) Fair value of financial instruments
Carrying amount on the consolidated balance sheets as of March 31, 2015 and 2014 and estimated fair value and differences of financial
instruments were as follows:

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

44

Carrying
amountMillions of yen
2015
Fair
value

¥ 53,420
150,552¥ 53,420
150,552¥——$ 444,537
1,252,825$ 444,537
1,252,825$

41,672¥245,645¥ 77,036
28,827
230,824¥336,688

41,672¥245,645¥ 77,036
28,827
232,437¥338,301

—
—
—
—
1,613
¥1,613

346,775$2,044,146$ 641,059
239,885
1,920,812$2,801,764

346,775$2,044,146$ 641,059
239,885
1,934,235$2,815,187————
13,423$13,423

Taiyo Nippon Sanso Corporation | Annual Report 2015

Difference¥¥

Thousands of U.S. dollars
2015
Carrying
Fair
amountvalue
Difference

$
$

—
—

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

Carrying
amountMillions of yen
2014
Fair
value

¥ 58,336
134,959¥ 58,336
134,959¥

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

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

—
—
—
—
2,572
¥2,572Difference

—
—

¥
¥

The table above does not include financial instruments for which it is extremely difficult to determine the fair value. For information on those
items, please refer to note (2) below. The current portion of long-term loans payable shown as “Short-term loans payable” in consolidated balance
sheets are included in “Long-term loans payable” in the table above.
Valuation method of fair value of financial instruments andinformation on investment securities and derivative transactions
were as follows:
Cash and deposits and notes and accounts receivable—trade
Since these items are settled in a short period of time, their carrying
amount approximates fair value.
Investment securities
The fair value of stocks is based on quoted market prices of the stock
exchange. For information on securities classified by holding purpose,
please refer to Note 6 “Investment securities.”
Notes and accounts payable—trade and short-term loans payable
Since these items are settled in a short period of time, their carrying
amount approximates fair value.
Long-term loans payable
The fair value of bonds is measured at the quoted market price. The
fair value of long-term loans payable other than bonds is based on thepresent value of the total of principal and interest discounted by theinterest rate combined of the risk free rate and credit spread. Interestrate swap transactions are utilized for most variable rate loans to fix
interest expense. All interest-rate swap transactions meet the criteria
for the short-cut method of interest-rate swap transactions and are
integrally processed with those loans. Therefore, the fair value of
those loans is based on the present value of the total of principal
and interest processed with interest-rate swap discounted by therate above.

(2) Financial instruments as of March 31, 2015 and 2014 for which it
is extremely difficult to determine the fair value
Millions of yen
2015
2014

Unlisted stocks¥33,705¥30,154

Thousands of
U.S. dollars
2015$280,478(3) Redemption schedule for financial assets with maturities
subsequent to March 31, 2015 and 2014
Thousands ofMillions of yen
U.S. dollars
2015
2014
2015
Due in one year or less

Cash and deposits
Notes and accounts
receivable—trade¥ 53,420¥ 58,336$ 444,537

150,552

134,959

1,252,825(4) Redemption schedule for long-term loans payable is disclosed in
Note 8. “Short-Term Loans Payable, Long-Term Loans Payable
and Lease Obligations.”(5) Unused overdraft agreements and loan commitment lines were¥56,376 million ($469,135 thousand) and ¥51,282 million as ofMarch 31, 2015 and 2014, respectively.

Taiyo Nippon Sanso Corporation | Annual Report 201545

17. Derivative and Hedging Activities
Derivative transactions for which hedge accounting is applied for the years ended March 31, 2015 and 2014 were as follows:(a) Currency-related

Hedged item

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

46

Fair
value

Accounts receivable—trade¥5,705
664

¥—
—

1,275
157
46
4
1,624

—
—
—
—
—

50

—

30
¥9,559—¥—*Accounts payable—tradeLong-term loans payable

Hedged item

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

Contract
amountMillions of yen
2015
Due after
one yearContract
amountMillions of yen
2014
Due after
one year

Fair
value

¥

*

Accounts receivable—trade
¥ 568
4
668

—
—
—

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

—
—
—
—
—
—

1,576

1,501

169
¥9,53730¥1,532Long-term loans payable

Taiyo Nippon Sanso Corporation | Annual Report 2015

Thousands of U.S. dollars
2015
Contract
Due after
Fair
amountone yearvalue

Hedged item

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

Accounts receivable—trade$47,474
5,526

$—
—

10,6101,306
383
33
13,514

—
—
—
—
—

416

—

250
$79,546—$—*

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

(b) Interest-related
Millions of yen

Thousands of U.S. dollars

2015

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

Hedged item

Contract
amountDue after
one yearLong-term loans payable¥47,252 ¥35,224

2015
Fair
value

*

Contract
amountDue after
one year

Fair
value

$393,210 $293,118*

Millions of yen
2014

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

Hedged item

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

Fair
value

*

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

18. Research and Development Costs
Research and development costs included in cost of sales and selling, general and administrative expenses for the years ended March 31, 2015 and2014 totaled ¥3,430 million ($28,543 thousand) and ¥3,170 million, respectively.

19. Gain on Sales of Noncurrent Assets
Significant components of the gain on sales of noncurrent assets of nil and ¥3,846 million for the years ended March 31, 2015 and 2014,
respectively, were as follows:
Millions of yen
2015
2014

Land and buildings¥—

Taiyo Nippon Sanso Corporation | Annual Report 2015

¥3,846

Thousands of
U.S. dollars
2015

$—

47

20. Impairment Loss
The Company and its consolidated subsidiaries categorize businessassets by business segmentation and idle assets without a specificfuture use are categorized separately.
Components of impairment loss for the years ended March 31,
2015 and 2014, respectively, were as follows:
Millions of yen
2015
2014

Buildings
Machinery
Land
Other
Total

¥ 113
2,152
—
—
¥2,266

¥ 159
884
127
11
¥1,183Thousands of
U.S. dollars
2015

$

940
17,908——$18,857

For gas production facilities whose profitability has declined due
to changes in the business environment and whose future cash flows
have proven to be below their book values, the book values were
written down to the recoverable amounts and such write-downs wererecorded as impairment loss of ¥1,077 million ($8,962 thousand) for
the year ended March 31, 2015. The recoverable amounts of theseassets were measured by value in use, calculated by discounting thefuture cash flows at 10.6 to 16%.

For idle assets whose recoverable amounts have proven to be
below their book values, the book values were written down to therecoverable amounts and such write-downs were recorded as impairment loss of ¥1,189 million ($9,894 thousand) for the year ended
March 31, 2015. The recoverable amounts of these assets were
measured based on the net realizable value using market prices, etc.
For specialty gas production facilities whose future cash flows
were below their book values due to a decline in profitability due tochanges in the business environment, the book values are written
down to the recoverable amounts and such write-downs wererecorded as impairment loss of ¥1,055 million for the year ended
March 31, 2014. The recoverable amounts for the relevant assets aremeasured by value in use, calculated by discounting the future cash
flows at 6 to 12%.
For business assets affected by a decrease in the fair market
value of land, the book values are written down to the recoverable
amounts and such write-downs were recorded as impairment loss of¥127 million for the year ended March 31, 2014, due to the probabilityof a recovery in the market value in the near future. The recoverable
amounts for the relevant assets are the estimated net selling price(publicly notified land price based on property tax valuation).

21. Other Comprehensive Income
Reclassification adjustments and tax effects allocated to each component of other comprehensive income for the years ended March 31, 2015 and2014 were as follows:
Millions of yen
2015
2014

Valuation difference on available-for-sale securities:
Amount arising during the year
Reclassification adjustments for gains and losses included in net income
Amount before tax effects
Tax effects
Valuation difference on available-for-sale securities
Deferred gains or losses on hedges:
Amount arising during the year
Reclassification adjustments for gains and losses included in net income
Amount before tax effects
Tax effects
Deferred gains or losses on hedges
Foreign currency translation adjustments:
Amount arising during the year
Reclassification adjustments for gains and losses included in net income
Amount before tax effects
Tax effects
Foreign currency translation adjustments
Remeasurements of defined benefit plans:
Amount arising during the year
Reclassification adjustments for gains and losses included in net income
Amount before tax effects
Tax effects
Remeasurements of defined benefit plans
Share of other comprehensive income of associates accounted for using the equity method:Amount arising during the year
Reclassification adjustments for gains and losses included in net income
Share of other comprehensive income of associates accounted for using the equity method
Total other comprehensive income

48

Taiyo Nippon Sanso Corporation | Annual Report 2015

Thousands of
U.S. dollars
2015¥10,059(2,351)
7,707(2,160)5,547¥ 5,090(3,652)
1,438
(511)
927

$ 83,706(19,564)
64,134(17,975)
46,160

(479)
(200)
(680)
225
(454)

297
(119)
178
(65)
113

(3,986)(1,664)(5,659)1,872(3,778)21,559—21,559—21,55921,761—
21,761—
21,761

179,404—
179,404—
179,404

3,033
1,088
4,121
(1,357)
2,764

261
14
275
(121)
154

25,2399,054
34,293(11,292)
23,001

1,427
(11)
1,416
¥30,831

1,581
411
1,992
¥24,950

11,875(92)
11,783$256,562

22. Segment Information(a) Overview of reportable segments
The reportable segments of the Company are components for which
discrete financial information is available and whose operating results
are regularly reviewed by the Board of Directors to make decisions
about resource allocation and to assess performance.
The Company operates gas businesses in Japan and overseas,
mainly for customers in the steel, chemical and electronics industries,
and it has established sales and production platforms for its main
products in Japan, the United States and Asia. Therefore, theCompany has determined its four reportable segments as “GasBusiness in Japan,” “Gas Business in the United States,” “GasBusiness in Asia” and “Other Businesses.” “Other Businesses” mainly
includes the thermos business, which primarily manufactures andsells household items.

The Company has changed its reportable segments from the year
ended March 31, 2015, in accordance with a decision to reorganize
for the purposes of “improvement of profitability of domestic businessunder a lower growth environment” and “focusing management
resources on opportunities for overseas growth” to carry out the management strategy policies set out under the medium-term businessplan, “Ortus Stage 1,” which was established on May 13, 2014.
Therefore, the amounts for the year ended March 31, 2014 havebeen reclassified to conform to the new segmentation.
(b) Method of calculating net sales, income, assets, liabilities
and other items by reportable segment
Accounting policies of the reportable segments are consistent tothose described in Note 2. “Summary of Significant Accounting
Policies.” Segment income is based on operating income.
Intersegment sales or transfers are based on prevailing market price.

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

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

Total

Adjustments

Consolidated¥344,635
6,267
350,902¥ 25,045¥130,983
6,645
137,629¥ 5,795¥61,995
1,190
63,186¥ 2,468¥21,758656
22,414¥ 3,437¥559,373
14,759574,132¥ 36,747¥—(14,759)(14,759)¥ (1,449)¥559,373—
559,373¥ 35,297¥ 17,451¥ 13,405¥ 4,112¥¥ 35,658¥(89)¥ 35,568

Adjustments

Consolidated

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

Millions of yen
2015
Reportable segments
Gas Business in
Gas Business
Other
the United Statesin Asia
Businesses

688

Millions of yen
2014
Reportable segments
Gas Business in
Gas Business
Other
the United Statesin Asia
Businesses

Total¥341,883
5,673
347,556¥ 23,368¥107,504
4,610
112,114¥ 4,714¥54,349897
55,246¥ 1,912¥19,010746
19,756¥ 3,064¥522,746
11,926534,672¥ 33,059¥—(11,926)(11,926)¥ (1,569)¥522,746—
522,746¥ 31,489¥ 17,576¥ 11,045¥ 4,328¥¥ 33,556¥¥ 33,507

Taiyo Nippon Sanso Corporation | Annual Report 2015

606

(48)

49

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

Thousands of U.S. dollars
2015
Reportable segments
Gas Business in
Gas Business
Other
the United Statesin Asia
Businesses

Total

Adjustments

Consolidated$2,867,895
52,1512,920,047$ 208,413$1,089,981
55,297
1,145,286$ 48,223$515,894
9,903
525,805$ 20,538$181,060
5,459
186,519$ 28,601$4,654,847
122,818
4,777,665$ 305,792$—(122,818)(122,818)$ (12,058)$4,654,847—
4,654,847$ 293,726$ 145,219$ 111,550$ 34,218$$ 296,730$$ 295,981

5,725

(741)

Notes: 1. Adjustments for segment income of ¥(1,449) million ($(12,058) thousand) and ¥(1,569) million for the years ended March 31, 2015 and 2014 include intersegment eliminations of ¥72 million ($599 thousand) and ¥14 million, and corporate general administration expenses which mainly consisted of basic research anddevelopment expenses and are not allocable to each reportable segment of ¥(1,377) million ($(11,459) thousand) and ¥(1,554) million, respectively.
2. The Company does not allocate assets to reportable segments.
3. Change in reportable segments
From the year ended March 31, 2015, to better reflect the Company’s operating results by reportable segment, the Company has changed the method of
allocating certain expenses to a reasonable method based on the nature of the reorganized segments. The figures in “(c) Net sales, income, assets, liabilities
and other items by reportable segment” for the year ended March 31, 2014 have been prepared in accordance with the new allocation method.
As a result of this change, segment income in “Gas Business in Japan” increased by ¥1,074 million ($8,937 thousand) and segment income in “GasBusiness in the United States” and “Gas Business in Asia” decreased by ¥227 million ($1,889 thousand) and ¥846 million ($7,040 thousand), respectively, forthe year ended March 31, 2015, and segment income in “Gas Business in Japan” increased by ¥884 million and segment income in “Gas Business in the
United States” and “Gas Business in Asia” decreased by ¥128 million and ¥756 million, respectively, for the year ended March 31, 2014.

As described in Note 3. “Changes in Accounting Policies,” thecalculation methods of projected benefit obligations and service costs
have been changed. Accordingly, the calculation methods of projected
benefit obligations and service costs for the reportable segments havealso been changed. The impact on segment income was immaterial.

As described in Note 3. “Changes in Accounting Policies,” anychanges in a parent’s ownership interest in a subsidiary not resulting achange in control of the subsidiary is recorded as capital surplus andacquisition-related costs are expensed in the year when such costs
are incurred. The impact on segment income was immaterial.

(d) Information by geographical area
(1) Net salesJapan¥354,241Japan¥352,069

Japan$2,947,832(2) Property, plant and equipment
Millions of yen
2015
The United States
Others¥126,203¥78,928

Millions of yen
2014
The United States
Others¥102,772¥67,905

Thousands of U.S. dollars
2015
The United States
Others$1,050,204$656,803

Total

Japan

¥559,373¥152,888

Total

Japan

¥522,746¥161,440

Total

Japan

$4,654,847$1,272,264

Millions of yen
2015
The United States
Others¥130,231¥41,723

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

Thousands of U.S. dollars
2015
The United States
Others$1,083,723$347,200

Total¥324,842

Total¥307,057

Total$2,703,187(e) Information about major customers
Information about major customers is not disclosed since there are no outside customers that make up more than 10% of net sales on the
consolidated statements of income.

50

Taiyo Nippon Sanso Corporation | Annual Report 2015

(f) Information on impairment loss by reportable segments

Impairment loss

Impairment loss

Impairment loss

Gas Business inJapan

Gas Business in
the United States¥—¥—

Gas Business inJapan

Gas Business in
the United States

¥796

¥387

Gas Business inJapan

Gas Business in
the United States$—$—

Millions of yen
2015
Gas Business in
Asia
Other Businesses¥2,266¥—

Millions of yen
2014
Gas Business in
Asia
Other Businesses¥—¥—

Thousands of U.S. dollars
2015
Gas Business in
Asia
Other Businesses$18,857$—

Corporate/Eliminations

Total

¥—

¥2,266

Corporate/Eliminations

Total

¥—

¥1,183

Corporate/Eliminations

Total

$—

$18,857(g) Information on amortization and unamortized balance of goodwill by reportable segments

Amortization
Unamortized balance

Amortization
Unamortized balance

Amortization
Unamortized balance

Gas Business inJapan

Gas Business in
the United States

¥ 801
2,462

¥ 4,036
62,627

Gas Business inJapan

Gas Business in
the United States

¥ 503
2,735

¥ 3,233
61,335

Gas Business inJapan

Gas Business in
the United States$ 6,666
20,488$ 33,586
521,153

Millions of yen
2015
Gas Business in
Asia
Other Businesses

¥ 144
1,381

¥—
—

Millions of yen
2014
Gas Business in
Asia
Other Businesses

¥ 131
1,256

¥—
—

Thousands of U.S. dollars
2015
Gas Business in
Asia
Other Businesses$ 1,198
11,492$——

Corporate/Eliminations

Total

¥—
—

¥ 4,983
66,471

Corporate/Eliminations

Total

¥—
—

¥ 3,868
65,327

Corporate/Eliminations

Total

$—
—

$ 41,466
553,141(h) Information on amortization and unamortized balance of negative goodwill which resulted from business combinations prior to April 1,2010 by reportable segments

Amortization
Unamortized balance

Amortization
Unamortized balance

Amortization
Unamortized balance

Gas Business inJapan

Gas Business in
the United States

¥23
—

¥—
—

Gas Business inJapan

Gas Business in
the United States

¥123
22

¥—
—

Gas Business inJapan

Gas Business in
the United States

$191
—

$—
—

Millions of yen
2015
Gas Business in
Asia
Other Businesses

¥—
—

¥—
—

Millions of yen
2014
Gas Business in
Asia
Other Businesses

¥0
—

¥76
—

Thousands of U.S. dollars
2015
Gas Business in
Asia
Other Businesses$——

Taiyo Nippon Sanso Corporation | Annual Report 2015$——

Corporate/Eliminations

Total

¥—
—

¥23
—

Corporate/Eliminations

Total

¥—
—

¥199
22

Corporate/Eliminations

Total

$—
—

$191
—

51

23. Supplementary Cash Flow Information
Cash and cash equivalents in the consolidated statements of cash
flows for the years ended March 31, 2015 and 2014 were reconciled to cash and deposits reported in the consolidated balance
sheets as of March 31, 2015 and 2014 as follows:
Millions of yen
2015
2014

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

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

Thousands of
U.S. dollars
2015¥53,420¥58,336$444,537(1,873)¥51,547(2,248)¥56,088(15,586)$428,951

Millions of yen
2014

Current assets
Noncurrent assets
Goodwill
Current liabilities
Noncurrent liabilities
Acquisition cost of stock
Cash and cash equivalents
Purchase of investments in subsidiaries
resulting in change in scope of consolidation¥ 7,181
11,307
15,665(1,968)(312)(31,873)
1,711¥(30,162)

24. Related Party Transactions
Related party transactions for the year ended March 31, 2015 are summarized as follows:
Millions of yen
2015

Thousands of
U.S. dollars
2015

Sale of parent company’s stock¥5,923$49,289

Gain on sale of parent company’s stock

2,332

19,406

Related party

Transactions

Mitsubishi Chemical Holdings Corporation

Notes: 1. Mitsubishi Chemical Holdings Corporation, the Company’s parent company, is listed on the Tokyo Stock Exchange.
2. The above transaction amounts do not include consumption taxes.
3. Transaction terms and their determination
The sales price of the parent company’s stock is based on the average closing price of the shares on the Tokyo Stock Exchange from January 5, 2015 throughFebruary 2, 2015.

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

Transactions

Millions of yen
2014

Mitsubishi Chemical Holdings Corporation *1

Third-party allotment *2¥20,610

Disposal of treasury stock *2

10,370*1 The Company executed a capital and business alliance agreement with Mitsubishi Chemical Holdings Corporation on September 26, 2013.
*2 Mitsubishi Chemical Holdings Corporation entered into an agreement on the third-party allotment and disposal of treasury stock of the Company based on theclosing price of the Company’s common stock at the Tokyo Stock Exchange, Inc. on the business day immediately before the date of the resolution at the Board of
Directors’ meeting.

52

Taiyo Nippon Sanso Corporation | Annual Report 2015

25. Business Combinations(Transactions, etc., under common control)
On October 1, 2014, National Oxygen Pte. Ltd and Taiyo Nippon
Sanso Singapore Pte. Ltd., consolidated subsidiaries of the Company,
were merged into Leeden Limited, a consolidated subsidiary of theCompany, based on a resolution of the Board of Directors’ meeting
held on July 30, 2014.
(a) Overview of business combination(1) Name and description of business
Surviving company:
Name:
Leeden Limited
Business description:
Manufacturing, purchasing and selling of welding
equipment, safety equipment, high pressure gas
Absorbed companies:
Name:
National Oxygen Pte. Ltd.
Business description:
Manufacturing and selling of oxygen, nitrogenand argon
Name:
Taiyo Nippon Sanso Singapore Pte. Ltd.
Business description:
Investment company in Singapore(2) Objective of business combination
To integrate the business in Singapore and Malaysia, which
had been conducted separately by each company, andimprove efficiency by expanding the business scale and alsoenhancing capabilities for developing new markets.
(3) Date of business combination
October 1, 2014
(4) Legal form of business combination
Absorption-type merger with Leeden Limited as the surviving
company and National Oxygen Pte. Ltd. and Taiyo Nippon
Sanso Singapore Pte. Ltd. as the absorbed companies.

(Purchase price allocation resulting in significant adjustments)
Continental Carbonic Products, Inc. was acquired in the year ended
March 31, 2014, however, the purchase price allocation had not been
finalized at that time since the determination and fair value measurement of identifiable assets and liabilities at the acquisition date had
not been finalized. Therefore, the purchase price allocation was provisional based on the available information as of March 31, 2014. The
purchase price allocation was finalized and accounted for in the year
ended March 31, 2015.
The goodwill adjustment due to a revision of the purchase priceallocation for the year ended March 31, 2015 is as follows:(1) Acquisition cost of acquired company
Millions of U.S. dollars

Consideration for acquisition
Direct acquisition-related costs(advisory fees, etc.)
Acquisition cost

$234
0
$235

(2) Goodwill adjustment due to revision of purchase priceallocation
Millions of U.S. dollars
Revised accounts

Adjustments

Current assets
Noncurrent assets
Current liabilities
Noncurrent liabilities
Total
Direct expenses for acquisition
Goodwill adjustment
Goodwill before adjustment
Goodwill after adjustment

$

1
(31)
(3)
8
(24)
0
$ (24)$128$104(3) Method and period of amortization
Straight-line method over 20 years(5) Company name after business combination
Leeden National Oxygen Ltd.
(b) Overview of accounting treatment
This transaction was accounted for as a transaction undercommon control in accordance with “Accounting Standard forBusiness Combinations” (ASBJ Statement No. 21 on September
13, 2013) and “Guidance on Accounting Standard for Business
Combinations and Accounting Standard for Business
Divestitures” (ASBJ Guidance No. 10 on September 13, 2015).

26. Subsequent Events
Appropriation of retained earnings
The following appropriations of retained earnings, which have not been reflected in the accompanying consolidated financial statements for the year
ended March 31, 2015, were approved at the shareholders’ meeting held on June 23, 2015.

Cash dividends—¥7.00 ($0.058) per share

Taiyo Nippon Sanso Corporation | Annual Report 2015

Millions of yen

Thousands of
U.S. dollars¥3,030$25,21453

Report of Independent Auditors

54

Taiyo Nippon Sanso Corporation | Annual Report 2015

Investor Information(At March 31, 2015)

Head Office:Toyo Building, 1-3-26, Koyama, Shinagawa-ku, Tokyo 142-8558, Japan
Number of Employees:
13,142
Date of Incorporation:
October 1910
Number of Shares:
Authorized—1,600,000,000

Issued—433,092,837

Minimum Trading Unit:
1,000 shares** Changed to 100 shares effective from April 1, 2015.

Number of Stockholders:
15,012
Transfer Agent for Shares:
Mizuho Trust & Banking Co., Ltd.
Major Stockholders:Thousands ofShares Owned

Major Stockholders

Mitsubishi Chemical Holdings Corporation
Mitsubishi Chemical Corporation
JFE Steel Corporation
Taiyo Nippon Sanso Client Shareholding Society
Mizuho Corporate Bank, Ltd.
Meiji Yasuda Life Insurance Company
The Norinchukin Bank
The Master Trust Bank of Japan, Ltd. (Trust Account)
Japan Trustee Services Bank, Ltd. (Trust Account)
TAIYO NIPPON SANSO CORPORATION
Employee Shareholding Association

158,048
60,94725,254
19,282
16,365
10,007
7,000
5,819
5,441

Percentage of
Total

36.51%
14.08
5.83
4.45
3.78
2.31
1.62
1.34
1.26

3,879

0.90

312,04272.08%

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

125,000

2,000
Common Stock Price Range
1,600

100,000

1,200

75,000800

50,000400

25,000
Trading Volume

0

1st Quarter 2nd Quarter 3rd Quarter

4th Quarter

Fiscal year 2014

Taiyo Nippon Sanso Corporation | Annual Report 2015

1st Quarter 2nd Quarter 3rd Quarter

4th Quarter0

Fiscal year 201555

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