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TAIYO NIPPON SANSO Corporation

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

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Our checklist for the future□ Capitalize on new opportunities for business growth andenhanced cash flows□ Reinforce compliance standards□ Expand operations in Japan and overseas
Annual Report 2006

□ Develop high-value-added products□ Realize full benefits of merger□ Invest strategically to maintain competitiveness□ Fulfill responsibilities to society□ Establish effective yardsticks for measuring growth□ Grow existing businesses

Me e t t h e Ga s
Annual Report

2006

For the year ended March 31, 2006

Printed in Japan

Professi

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

Financial Highlights
Taiyo Nippon Sanso Corporation and Consolidated Subsidiaries
Years ended March 31, 2006 and 2005

Operating Results
Net sales
Net income

Per share data:
Net income2
Cash dividends

Corporate Position
Total assets
Total shareholders’ equity

Millions of yen
2006
2005

Thousands of
U.S. dollars
2006¥397,308 ¥300,055
14,444
11,568$3,382,208
122,959

Yen

U.S. dollars¥

35.45 ¥0032.76
10.00
9.00

$

0.302
0.085

Millions of yen
2006
2005

Thousands of
U.S. dollars
2006¥471,602 ¥404,668
178,055
154,207$4,014,659
1,515,749

Percentagechange32.4%
24.9
Percentagechange8.2%
11.1
Percentagechange16.5%
15.5

Notes: 1. U.S. dollar amounts have been translated, solely for convenience, at the rate of ¥117.47=U.S. $1,
the approximate rate of exchange at March 31, 2006.
2. Net income per share is computed based on the weighted average number of shares of common stock outstanding during each year, as adjusted retroactively for free share distributions
made during the period.
3. Since the merger of Nippon Sanso Corporation and Taiyo Toyo Sanso Co., Ltd., took place
October 1, 2004, consolidated figures for fiscal 2005, ended March 31, 2005, exclude the figures
for the former Taiyo Toyo Sanso for the six months ended September 30, 2004. Taiyo Nippon
Sanso’s results for fiscal 2005 are compared to the fiscal 2004, ended March 31, 2004, totals of
the former Nippon Sanso.

Contents
1 Operational Highlights
2 To our Stakeholders
3 Corporate Governance4 Special Feature
12 Segment Overview
14 Our Businesses
21 Corporate Social Responsibility
22 Board of Directors, Corporate Auditors and Corporate Officers
23 Financial Section
49 Investor Information

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

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Operational Highlights

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Strategic Steps Aimed at Achieving Initial Targets
During fiscal 2006, ended March 31, 2006, Taiyo Nippon Sanso took a number of key
steps in Japan and overseas in line with a strategic business plan formulated to achieve thetargets set at the time of the merger of its two predecessors, namely, consolidated net salesof ¥400,000 million and consolidated return on equity (ROE) of 10% for fiscal 2008.
Overseas, we proceeded with expansion of our production capacity in California—
where we already have a presence thanks to our purchase in 2004 of a portion of the U.S.
operations of the Air Liquide Group—by building a new plant. In the high-growth markets of China and Vietnam, we established new operational bases and expanded thecapacity of existing plants.
In Japan, we accelerated efforts to realign our portfolio of ongoing businesses with theaim of realizing the full benefits of the merger as early as possible. We also sought toeliminate the problem of duplication among liquid petroleum (LP) gas sales companies
operating in the same geographical areas by integrating companies and establishing aunified brand name, “Taiyo Nippon Sanso Energy,” beginning in Kyushu. With theaim of expanding our industrial gases business, we acquired controlling interests in
Nippoku Sanso K.K. of Hokkaido and Hitachi Oxygen Co., Ltd., located in the northernpart of the Kanto region, northeast of Tokyo.

Realignment of Business Portfolio
Merger of Three Medical Gas Sales Companies
Suzusho Medical Co., Ltd. + Ozawa Sanso K.K. + Yamato Sanki K.K.
Nippon Megacare Corporation
Initial Step in the Reorganization of the Carbon Dioxide BusinessNippon Tansan Company Limited + Ekika Carbon Dioxide Co., Ltd.
Nippon-Ekitan Holding Co., Ltd.

Supplementary Information
Taiyo Nippon Sanso Corporation and Consolidated Subsidiaries
Years ended March 31
Billions of yen

Net sales
Operating profit
Net income

2006

2005

AmountchangePercentagechange¥397.326.7
14.4¥364.9
23.7
13.4

¥32.3
2.9
1.0

8.9%
12.6
7.6

Note: The merger of Nippon Sanso and Taiyo Toyo Sanso took place on October 1, 2004. As the latter
was the surviving entity, consolidated results for fiscal 2005 did not include the results of Taiyo
Toyo Sanso for the first six months of the period. In this table, these results have been added to
Taiyo Nippon Sanso’s reported consolidated results for fiscal 2005 for the purpose of comparison.

1

To Our Stakeholders□ Capitalize on new opportunities for businessgrowth and enhanced cash flows
ChairmanHiroshi Taguchi

Performance Highlights
In fiscal 2006—the first full-year period since theOctober 2004 merger that marked the creation of
Taiyo Nippon Sanso—we maximized the earnings
potential of our operating assets by increasing our presence in Japan and overseas, thus demonstrating thesoundness of the merger strategy. Net sales exceeded¥400,000 million after adding full-year sales of newly
consolidated subsidiaries to sales generated by theongoing operations of the Taiyo Nippon Sanso Group.
At the time of the merger, we set ¥400,000 million as
our sales target for fiscal 2008. Reaching this target
two years ahead of schedule shows clearly that we havesucceeded in taking full advantage of the opportunities
for business growth provided by the merger.
During fiscal 2006, the steel industry worldwide
benefited from firm demand for steel materials fromthe automobile and shipbuilding sectors and strong
private-sector capital investment. The chemicalindustry also saw further growth in demand from
China and other Asian countries, despite sharp rises
in fuel and raw materials prices. In the electronics
sector, there were fears of a temporary oversupply of
conventional products in the first half of the period.
However, demand flourished in the second half inthe wake of recovery in consumer sentiment andgrowing sales of flat-panel display (FPD) televisions.
Against this backdrop, we strengthened our dominant market position while reorganizing our consolidated businesses. Consolidated net sales reached¥397,308 million, owing to a strong performance by
our gas business, coupled with solid growth of ourplant and gas equipment business. Operating profit
totaled ¥26,788 million, due to improved capacity
utilization rates at our gas production facilities, which
helped lower costs, and strong performances by
Matheson Tri-Gas, Inc., and other subsidiaries. Net
income amounted to ¥14,444 million, as extraordinary gains from sales of idle land were partially offset
by an impairment loss accounted for as a special loss.

President
Hirosuke Matsueda

Three-Year Business Plan
Under our new structure, we intend to build a global presence that will secure our position as one of
the world’s top industrial gas producers. To achieve
this objective, we recognize the need to achieve
annual net sales of more than ¥500,000 million. As
the first step in this process, we have formulated Global 5000: Stage 1—a medium-term business plan thatwill guide our efforts for the three years to March
31, 2009. The plan’s two basic objectives are to further expand our businesses and improve operating
efficiency. To these ends, we will focus on effectively
utilizing cash flows to finance strategic mergers andacquisitions (M&As) and forward-looking capital
investments that will position us to capitalize on
emerging demand. At the same time, we will bolster
operating efficiency by merging and integrating theoperations of affiliated companies. For more details
on these efforts, please refer to the special featuresection of this report.
OutlookFor fiscal 2007, we project consolidated net sales of¥430,000 million and net income of ¥16,000 million.
Accordingly, a proposal by the Board of Directors toincrease annual cash dividends to ¥10.0 per share wasapproved at the annual shareholders’ meeting.
In fiscal 2007, we will also start laying the groundwork for establishing Taiyo Nippon Sanso as an
Asian-born global leader in the industrial gas business. As fiscal 2007 is also the first year of our business plan, we will also target consistent year-on-yearincreases in net income.
In closing, on behalf of the Board of Directors wewould like to reaffirm our commitment to satisfying
the expectations of all our stakeholders by carving
out our own destiny and increasing corporate value.
We will also continue to contribute to society byaddressing issues related to security, safety, quality
assurance and the environment.

Changes in Top Management
The Board of Directors, at its meeting on April 25,
2006, decided to appoint Hiroshi Taguchi to theposition of Chairman and Hirosuke Matsueda to theposition of President. These appointments were ratified at the annual shareholders meeting, held on June29, 2006, and approved by resolution of the Boardof Directors at a meeting held immediately after theshareholders’ meeting.

June 29, 2006
Hiroshi Taguchi
ChairmanHirosuke Matsueda
President

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□ Reinforce compliance standards

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Corporate Governance

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Corporate Governance Organization
Taiyo Nippon Sanso continues to assess ways to modify
its corporate governance system to enhance transparency and suitability to the nature of its businesses.
Our management team consists of the Board of
Directors, which has 16 members, and the Board ofAuditors, comprising four standing corporate auditors. To further ensure objectivity on the full spectrum of management issues and prevent poorly considered decisions, one of the directors on the Board
is external. During the period under review, the Boardof Directors convened six times and the attendance
rate was 50%. In a process designed to ensuretransparency and stringent monitoring, we have alsoestablished a Board of Auditors, which includes two
independent auditors and is tasked with conducting
rigorous internal audits. This Board of Auditors convenes four times annually to hear the results ofaudits conducted by our independent accountants.
They also meet to hear the Auditing Office’s annualinternal audit plans and results thereof.

a key component of corporate governance and is taking steps to fulfill its obligation to provide adequate
explanations to investors as well and to ensure investor feedback is properly communicated to management. In an effort to translate this commitment into
action, senior management attend two presentations
for analysts and institutional investors annually, where
they participate in question-and-answer sessions withparticipants on such topics as the Company’s performance, forecasts for subsequent periods and the formulation and progress of medium-term management
strategies and endeavor to respond in a manner thatprovides both information and insight.

Risk Management and Compliance
As a company engaged primarily in the provision ofhigh-pressure gases, Taiyo Nippon Sanso recognizes
the need to manage risks in four categories: security,
safety, quality assurance and the environment. To
oversee risk management and address related issues
Companywide, we have established the Technology
Risk Management Committee. In addition, as partof our effort to establish an effective internal control
framework we have adopted a system that enables
directors to more effectively fulfill their responsibilities. At the same time, we have tasked individual
directors with setting targets at the beginning of eachterm for the divisions they oversee and tracking eachdivision’s progress toward achieving these targets on
a quarterly basis, thereby enhancing efficiency.
Even with the best-conceived corporate governancepolicy, we risk losing public confidence and incurring incalculable damage to the entire Taiyo Nippon
Sanso Group and our shareholders without an effective compliance system. Recognizing this, we havepublished the Taiyo Nippon Sanso Group Code of
Conduct, which outlines standards of conduct for
all employees to observe in relation to compliancewith laws and ordinances, corporate ethics andinternal guidelines. To enforce this code, we havealso established a Compliance Committee, uponwhich all internal directors sit, and set up a compliance helpline, thereby enabling employees topromptly report suspected violations and enhancing
management awareness.

Compensation for Directors
Compensation for directors and auditors in the period under review was as shown below. Regarding
the granting of incentives to directors, we haveadopted a scheme using cash dividends per share—astandard for calculating retirement benefits—thereby
linking compensation to performance. This system
is also designed to ensure directors act in the interestof shareholders by giving them a direct interest in
the Company just like shareholders.
Compensation for Directors in Fiscal 2006
BreakdownCompensation to directors
Compensation to corporate auditors
Retained earnings applied to directors’ bonuses¥415 million¥080 million¥093 million

Reference:
Compensation for audit certificate¥036 million

Accountability
Taiyo Nippon Sanso recognizes ensuring the timely
disclosure of corporate and financial information as

3

Special Feature

An Interview with the President

Q
Can you tell us about the management of
Taiyo Nippon Sanso since you took over

□ Expand operations in Japan andoverseasfrom President Taguchi and about theCompany’s goals?

□ Develop high-value-added products□ Realize full benefits of merger

A□ Invest strategically to maintaincompetitivenessAfter the merger, I was able to observe firsthand the□ Fulfill responsibilities to society

everyday management of Taiyo Nippon Sanso in myposition as executive vice president as I worked closelywith Chairman Ose and President Taguchi. The
smooth integration of the two companies has brought

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us to a pivotal stage, where optimal use of our business resources will set us on a renewed growth path.
The Company’s goals are to become a global operator in the industrial gas market, comparable in scalewith our top overseas rivals. We have set an even-

operations, not only in Japan but also globally. Bytual annual sales target of ¥500,000 million, which

the time we achieve this target, we envisage that ourtranslates to a 10% share of the global market.

overseas operations will account for approximately
one quarter of consolidated net sales.

Q
What are the basic policies underpinning

Q

your efforts to attaining these goals?

What do you think will serve as aspringboard for this future growth?

A
Our primary strategy is outlined in our medium-termAbusiness plan, Global 5000: Stage 1. Quantitative

To reinforce our competitiveness in the short term,

targets of this plan include net sales of ¥450,000 mil-we will focus on ways to improve our business. Thislion, operating profit of ¥38,000 million and net

will include identifying key M&A opportunities inincome of ¥20,000 million on a consolidated basis.

the industrial gas business. Our primary focus, how-

The key to achieving our eventual target for annual

ever, will be on effectively utilizing our domestic net-

net sales of ¥500,000 million will be to expand ourwork of sales companies and forming closer
relationships with major direct sales customers. Our
next aim is to become the Asian-born industrial

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Breakdown of Planned New Investments in Japan¥20,000 million

Gas business¥16,000 million

Onsite and plant businesses¥5,000 million

LP gas business¥22,000 million

Electronics-related business¥7,000 million

Medical-related business¥4,000 million

R&D

0

5,000

10,00015,00020,00025,000Millions of yen

Note: For planned new investments overseas, see page 9.

Q
Drawing on your previous businessexperience, what do you believe holds
gas provider to break into the top ranks of the global

the key to expanding the Company’smarket. With this in mind, we must strengthenbusiness?

our support services to various companies that have
set up operations in Asia. Finally, we must formA

ties with growing companies in such advanced

In line with our corporate philosophy of “market-

fields as electronics, medical treatment and healthdriven, collaborative innovation: improving thecare, as well as other key industries, including steel

future through gases,” we have successfully strength-

and chemicals.

ened our market position by drawing on technologies that, prior to the merger, were beyond our reach.
Today, sales of our industrial gas-related businesses
are more than ¥350,000 million in Japan. By swiftly
developing high-value-added products, we are confidentof seizing a leading position in this market.

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As a first step toward expanding our business, we areproduct development capabilities. In Asia, we are

striving to realize the full benefits of the merger.

expanding our business through capital investments

Within the first three years, we aim to achieve net

to meet growth in demand. We will accord top

savings of approximately ¥10,000 million as a directpriority to areas in which we can fully exploit our

result of the merger. Broken down, this means sav-business resources, seizing opportunities from aings of ¥6,000 million from lower logistics costs andglobal perspective.

cheaper procurement, the integration of sites and personnel cost reductions. We also aim to expand earnings approximately ¥4,000 million through M&As

Q

and related activities. We have already achieved 70%

In the current fiscal year, your majorof our ¥10,000 million target—testimony to thecustomers in the steel, semiconductor,

success of the merger.

liquid crystal (LC) and petrochemical

From a geographical perspective, we are focusing

industries are reporting comparatively

on North America and Asia. In North America, we

solid results. While ongoing businessare currently examining the acquisition of industrial

investments are important, even at thegas distributors. In the field of electronic materials

bottom of the business cycle, yourgases, we are also looking at M&A opportunities,

investments seem rather high. What are

targeting upstream manufacturers of chemicals andyour thoughts on this?

other raw materials, as well as firms with exceptional

7

AFirst, we are looking at making future-oriented
investments of approximately ¥40,000 million
annually, which we will fund from healthy cash flows.

A

Depreciation will be around ¥20,000 million in the

In a rapidly changing operating environment, it iscurrent period, but we expect it will rise to approxi-

essential to maintain competitiveness through self-

mately ¥25,000 million annually for the following

renewal, just as it is crucial to raise business results to

two years. Therefore, I believe the plan’s target of

new levels. During the term, we plan to replace a¥72,000 million is appropriate.

number of filling stations for package gas businessand to increase gas facilities used to supply semiconductor and LC factories in Japan. Overseas, we planQ

to invest primarily in Matheson Tri-Gas’ large plant

Taiyo Nippon Sanso’s metal organicin California, and in specialty gas filling stations inchemical vapor deposition (MOCVD)
equipment, which uses gallium nitride forSouth Korea.

the blue laser diodes, has set a new
benchmark for the industry. What has

Qbeen the reaction of customers?

Under the new medium-term businessplan, you forecast depreciation expensesAof ¥72,000 million over the next three years.

This has caused quite a stir, as we have received an

With depreciation of ¥19,000 million in

extremely high number of inquiries concerning blue

fiscal 2006, what sort of a trend do you

laser diodes for use in next-generation DVDs. We

see developing?

have also received requests for equipment that can

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have also received requests for equipment that canemit multiple high-quality lasers, with stringent
requirements for both size and performance. Having

Qcompleted development of a cutting-edge large-scale

Lastly, how do you see the Company’s

mass production system, we are projecting steadyrole with respect to corporate social

orders, including for equipment used to make light-

responsibility?

emitting diodes.

A
Because selling gas is commensurate with sellingp e r a t i n g Pro fi

by Country/ton

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activities founded on security, safety, quality assurance and compliance. In addition to complying with

Years ended or ending March 31

various laws and regulations, we continuously target

Other Countries

Japan

North America

Billions of yen

Billions of yen

Billions of yen

advances in the safety, security and environmentfriendliness of our products.

375.0
329.4

ChangeNet sales
Operating profit

20.5 25.0
2.5
1.3
2006 2009
22.0%
92.3

Investment Program
New investments¥15,000 million

22.8
2006

safety and peace of mind, we are committed to

31.0
2009

47.4 50.0
6.5
5.1
2006

2009

13.8%
36.0

5.5%
27.5

¥75,000 million¥25,000 million

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New Medium-Term Business Plan
Having successfully completed our merger, we have formulated Global 5000: Stage
1, a medium-term business plan that will guide our efforts for the three years to
March 31, 2009. The plan is the first step in our quest to generate annual net salesof ¥500,000 million and capture a 10% share of the world market for industrial gas.
□ Establish effective yardsticks for measuring growth

Basic

ol
Group Picy

• Boost earnings while strengthening and expanding our industrial gasrelated business• Efficiently utilize cash flows to develop new businesses• Pursue greater efficiency for existing consolidated business operations

Gro u p Strategies9• Expand and upgrade operations by generating revenue from effective,
efficient investments• Enter markets for distinctive new products based on accurate understanding of customer needs• Further raise efficiency by reorganizing business operations, including
those of affiliates• Improve profitability through structural reforms of low-profit businesses• Rigorously pursue “zero incident” security, safety and quality assurance

Pe r fo r m a n c e Tar g e t s f o r Fi s c a

0
l 2

0

Years ended or ending March 31

Consolidated
net sales

Operating income

Net income

Return on equity(ROE)

Return on capital
employed (ROCE)

Billions of yen

Billions of yen

Billions of yen

%

%

450

38

20

397
11.5

14

26

10.0
8.7

2006

2009

2006

2009

2006

10

2009

2006

2009

9.0

2006

2009

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Gas BusinessAs a leading domestic producer ofindustrial gas, we will initiate structuralreforms of our gas operations aimed atsolidifying earnings, building a robust business foundation and reinforcing
our leading position in the Japanese market. Overseas, we will broaden ouroperations by pursuing mergers and acquisitions (M&A) opportunities andexpanding production facilities.

Target for fiscal 2009: Net sales of ¥196,000 million(up 15.4% from fiscal 2006)

Electronics-Related BusinessAs a prominent manufacturer ofvarious materials gases and gas-related
equipment for the electronics market,
we will bolster our technological capabilities and deliver comprehensive
solutions to customers’ needs, with a particular focus on growth areas,such as FPDs and compound semiconductors. In the process, we willcontinue to fortify our business foundation.

Target for fiscal 2009: Net sales of ¥126,000 million(up 10.1% from fiscal 2006)

In the onsite category, we will build
a stable operating foundation by
Target for fiscal 2009: Net sales of ¥51,000 million
prioritizing harmonious coexistence(up 4.1% from fiscal 2006)
with our onsite partners. At the sametime, we will seek to broaden our businesses in efficient plant replacement
and new piping. In the plant category, we will continue diverting resources totechnological development, with the aim of raising productivity. We will also
expand earnings through extensive cost reductions.

Onsite and Plant Business

Medical-Related Business
Target for fiscal 2009: Net sales of ¥20,000 million In the medical treatment field, we will
actively seek M&A opportunities and(up 70.9% from fiscal 2006)

alliances with prominent domestic
corporations. We will also expand our operations by entering the overseas
stable isotope market and tapping markets for new products.

LP Gas BusinessWe will strengthen earnings while
swiftly rebuilding our operations throughintegration and consolidation of our LP
gas sales affiliates. At the same time, we will exploit Groupwide merits ofscale to reinforce our procurement capabilities and thus further stabilize
earnings.

Target for fiscal 2009: Net sales of ¥45,000 million(up 8.4% from fiscal 2006)

1111

Segment Overview

Gas Business

Sales ShareIn fiscal 2006, shipments of mainstay oxygen, nitrogen and argon were boosted bysolid capital investments in related industries, resulting in higher year-on-year sales,both in unit and value terms. Sales of oxygen were sustained by favorable shipments of liquefied gas to the steel and shipbuilding sectors, while sales of nitrogen
benefited from onsite supplies to the electronics sector. We also reported increased
shipments of liquefied nitrogen to a broad spectrum of industries, including
chemicals, steel and food. Shipments of argon increased to silicon crystal manufacturers, reflecting brisk production of 300mm wafers. Demand for argon for diverse
industrial applications, such as welding, also grew. Consequently, sales of argon
were high in both volume and value terms. Sales of electronics materials gases
also rose, reflecting higher demand in the United States, China and elsewhere.
As a result, sales to outside customers in the Gas Business segment climbed
to ¥268,284 million. Operating income grew to ¥21,494 million.

(67.5% of net sales)

Plant and Gas Equipment Business

Sales Share

Sales of electronics-related equipment increased favorably, benefiting fromgrowing investment sentiment in the electronics industry. By contrast, sales ofcompound semiconductor fabrication equipment languished due to shrinking
investment budgets of customers. Sales of air separation plants increased thanks
to continued solid capital investments in the domestic electronics and steel
industries. We also attracted major interest from steel and petrochemical companies in South Korea and Taiwan looking to expand their production facilities. Salesof cutting and welding equipment increased, both in Japan and overseas, led bylaser cutters and numerically controlled (NC) cutters, owing to steady demand fromsteelmakers, shipbuilders and construction machinery makers.
Consequently, segment sales jumped to ¥113,626 million, and operating income
rose to ¥5,901 million.

Housewares Business and Others¥268,284 million¥113,626 million(28.6% of net sales)

Sales Share

Thermos K.K. spearheads the manufacture and sale of our housewares. Sales ofthese items increased in fiscal 2006, owing to higher sales of sports bottles, aswell as stronger demand for fall and winter items, notably lunch jars, which soldwell during a cold snap at the end of 2005.
Accordingly, segment sales surged to ¥15,397 million, and operating income
jumped to ¥1,859 million.

12¥15,397 million(3.9% of net sales)

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Main Products

R&D Highlights• Oxygen• Nitrogen• Argon• Carbon dioxide• Hydrogen• Helium• Medical-related gases• Electronics materials gases• Stable isotopes (SIs)• Gas technology: Commercialized“MG Shield,” a cover gas with a
global warming potential (GWP)
of approximately 1, for use in the
production of magnesium alloys• Electronics: Concentrated onpractical development of electronhexafluoropropene (C3F6) as analternative gas for plasma
chemical vapor deposition (CVD)chamber cleaning in the semiconductor fabrication process

Topics• Merged domestic carbon dioxidebusiness and medical gas sales
company• Acquired regional gas makers• Expanded gas production systems in
the United States and South Korea

Main Products

R&D Highlights• Large air separation plants• Compact nitrogen generators• MOCVD equipment• Cutting and welding equipment• Completed development andlaunched sales of equipment
enabling collective depositionof multiple LED wafers• Developed attractive products forcustomers in close collaboration
with our R&D department, as the
only domestic gas manufacturer
with its own plant engineering center• Successfully tested and operatedhydrogen station for large buses
at EXPO 2005 Aichi, Japan

Topic• Completed construction of cylinder
cabinet manufacturing plant in Taiwan

Main Products

R&D Highlights• Stainless steel vacuum bottles• Cooking implements• Actively developed products in thehome electrical appliance category(a new market) by launching two
coffeemakers, each with tabletop
pot and mug

Topics• Launch of two new portable mug
versions of the “Easy Drink” thermal
insulation bottle prompted by firm
demand• Line of tabletop pots augmented toincrease market share• Two new thermal insulation lunch jars
unveiled to meet demand in thelunchbox market

1313

Our Businesses

Electron

ic

s-

Re

lated Bu

s
e
n
si

s

□ Grow existing businesses

Ongoing advances in semiconductor device integration and liquid crystal display (LCD) panel sizes are
driving new demand in the digital appliance andautomotive markets. These trends have highlighted
the need for electronics firms to achieve higher quality and productivity. Taiyo Nippon Sanso helps such
firms by supplying via pipeline large volumes of highpurity nitrogen, an inert gas that is essential to semiconductor device and LCD fabrication processes. We
also deliver stable supplies of gases required for film
deposition and other electronic materials processes.
In constructing special piping, we draw on our
industrial gas supply technologies and other capabilities to optimally install gas purification and abatement systems. We also provide remote monitoringof safety levels and design alarm systems as part ofour broad range of solutions for semiconductor device
and LCD manufacturing processes.
Taiyo Nippon Sanso operates globally as a partner
for Japanese and overseas electronics manufacturers.
We produce and sell high-purity industrial gases, electronic materials gases and electronics-related
equipment in the United States,
Taiwan, South Korea,
China and Singapore.

Sales ofElectronics-Related
Business
Years ended March 31
Billions of yen

126
114

2006

14

2009

TA

PON SANSO C
OR
NIP
P

N ANNUAL R
EP
TIO
O
RA
O

O
IY

RT

Annual sales

Approximately ¥114,400 million

Principal products andHigh-purity nitrogen and argon

operations

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

Market needs

Comprehensive gas supplies
Total gas and equipment solutions
Global supply capabilities

Our advantages

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

Fiscal 2006 highlights

Secured onsite supply contracts for large users
Strengthened our position with manufacturers thanks to M&A activities in the electronic materials gas sector
Maintained strong orders for equipment installation owing to expansion of production
facilities
Recorded strong sales of electronic materials gases, consumables and related equipment
Focused mainly on projects in Asian region
Integrated operations of Taiyo Nippon Sanso Taiwan, Inc. and set up gas-related
equipment center

Targets

Sales of ¥126,000 million in fiscal 2009
Focus marketing on growing LCD FPD and compound semiconductor markets

15Gas Bus

in

es

s

Taiyo Nippon Sanso supplies oxygen, nitrogen,argon and a host of other industrial gases that are
indispensable to advanced production activities ofmodern industry. We supply these gases in safe forms,
including via pipeline, tank trucks and cylinders, forsuch purposes as cutting, welding, combusting, melting, chilling and freezing. We also provide a wide rangeof equipment and systems for the manufacture,supply, transportation and storage of gases.
We have built a strong technological base overmany years, gaining particular expertise in high temperatures and pressures, vacuums and gas controls.
Drawing on these capabilities, we provide a diverse
range of equipment for the manufacture, supply,transport and storage of various types of gases. In
these ways, we help industrial customers enhancetheir productivity and quality while supporting efforts
to improve the environment.
We maintain the largest industrial gas supply network in Japan. We are also expanding our overseas
manufacturing and supply bases in the United States,
China and Southeast Asia.

Sales ofGas Business
Years ended March 31
Billions of yen

196
169

2006

16

2009

TA

PON SANSO C
OR
NIP
P

N ANNUAL R
EP
TIO
O
RA
O

O
IY

RT

Annual sales

Approximately ¥169,900 million

Principal products andoperations

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

Market needs

Use of gas to raise productivity, enhance quality, save energy and enhance theenvironment
Optimal, stable, economic supply of gas

Our advantages

Japan’s largest and strongest industrial gas producer, offering increased costadvantages and price competitivenessProduction and supply capabilities
Balanced, nationwide network of production bases
Liquefaction capacity accounting for approximately 33% of domestic market
Logistics capabilities
Approximately 500 filling stations capable of serving around 40% of the domestic market
Tank truck fleet and extensive network of shipping bases
Growing marketing network, including around 250 sales agents
Further strengthening of operations in China and the United States
Operations in Shanghai and Suzhou
Expanding U.S. businesses of Matheson Tri-Gas
Gas distribution services
High market shares for other industrial gases
In Japan, No. 1 in carbon dioxide and No. 2 in helium and acetylene

Fiscal 2006 highlights

Reinforced production capacity in regular high-pressure gases in the United States
Strengthened gas and production operations in China
Upgraded large air-separation plant in Vietnam, doubling its supply capacity
Successfully raised price of liquefied gas products amid high logistics costs caused bysharp rise in crude oil prices
Bolstered Southeast Asian operations managed by Singapore-based subsidiary
National Oxygen Pte. Ltd.

Targets

Sales of ¥196,000 million in fiscal 2009
Focus on new demand for gas and expand business overseas

17Onsite
an
d
Pla
nt
B

usinesses
Sales of
Onsite and Plant
Businesses
Years ended March 31
Billions of yen

49

2006

51

In the onsite business, we construct large cryogenic air
separation plants on the premises of major industrial
gas users, notably steel mills and chemical complexes.
The largest of our plants can produce up to 65,000
cubic meters of gas per hour. We also provide stablesupplies of oxygen and nitrogen through our pipelines.
Our onsite business operates around the clock every
day of the year, ensuring consistent supplies of large
volumes of industrial gases and earning us the trust of
steelmakers and chemical manufacturers.
In our plant business, we build a wide range of air
separation plants, which form the foundation of theindustrial gases business. We draw on our expertisein industrial gas production and supply not only toserve industrial gas producers, but also to build astrong track record in manufacturing air separation
plants, many of which we export around the globe.
In addition, we supply many different types ofexperimental equipment, including space simulationchambers, which replicate the conditions of outerspace. We also supply equipment for exploring basic
physics and discovering new functional materials.

2009

Annual sales

Approximately ¥49,000 million

Principal products

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

Market needs

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

Our advantages

With onsite and plant businesses, we can provide support for both plant and engineering on a global scale, drawing on our capabilities as a manufacturer of industrial
gases
Ability to optimize facilities and boost operating efficiency

Fiscal 2006 highlight

Received healthy orders from steelmakers, electronics manufacturers and overseas
customers

Targets

Sales of ¥51,000 million in fiscal 2009
Secure new demand for gases and expand sales in overseas markets

18

TA

l-R

O
IY

PON SANSO C
OR
NIP
P

N ANNUAL R
EP
TIO
O
RA
O

Med i ca

ela

ted
Bu
sinessRT

We build special filling facilities for medical gases
within our industrial gas production and sales networks to ensure stable supplies of medical oxygenand other high-quality gases used by medical institutions. We help improve safety and reliability of
medical treatment by developing pure air supply systems and other medical support equipment, as well
as devices for home oxygen therapy. In addition,
we help improve safety and reliability in the medical treatment sector through such services as regular testing of equipment and operation of remotemonitoring systems.
Applying our advanced gas-related technologies, we
also make and sell stable isotopes (SIs) for advanced
diagnostics and treatment, as well as specialty gases.

Sales of
Medical-Related
Business
Years ended March 31
Billions of yen

20

11

2006

Annual sales

Approximately ¥11,700 million

Principal products

Medical-related oxygen and other gases

2009

Synthesized (pure) air supply facilities, portable oxygen cylinders and medical-use
oxygen compressors
SIs
Market needs

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

Our advantages

Production and sales of pharmaceutical ingredients for positron emission
tomography (PET) diagnostics
Strong position as a manufacturer of Water –18O, a pharmaceutical ingredient forreagents used in PET diagnostics, with an 80% domestic market share
Have commenced shipments of world-class pharmaceutical ingredients to leading
manufacturers of fluorodeoxyglucose (FDG) PET reagents in Europe and the United States

Fiscal 2006 highlights

Expanded medical gas sales business in response to Pharmaceutical Affairs Law
revisions
Established Nippon Megacare Corporation through integration of three subsidiaries(annual sales target of ¥7,000 million within three years)

Targets

Sales of ¥20,000 million in fiscal 2009
Expand SI sales; strengthen marketing capabilities in medical gases and equipment
via M&A initiatives

19

LP GasBusin

LP gas is highly valued as a clean energy source. Its
expanding range of applications includes commercial air conditioning and heating equipment, home
power generation and hot water systems using generators and waste heat, as well as fuel for taxi fleets.
An environment-friendly alternative to chlorofluorocarbons, LP gas is also used as an aerosol gas. We
satisfy a broad range of industrial needs through an
integrated structure, which encompasses everythingfrom tank truck deliveries of bulk LP gas to thedesign and installation of air conditioning andcogeneration systems.
We supply 450,000 households around Japan with
LP gas for heating, hot water and air conditioning.
Our energy business will likely
become a focus of attention in
the years ahead as fuel cells proliferate the residential market.

ess

Sales of
LP Gas Business
Years ended March 31
Billions of yen

45
41

2006

2009

Annual sales

Approximately ¥41,500 million

Principal products

Supply of LP gas for residential and industrial customers
Annual unit sales of around 460,000 metric tons

Market needs

Stable supply of household fuel to 25 million households in areas not adequately
served by electric power and town gas services

Our advantages

450,000 customers (ranked 6th in Japan)

Fiscal 2006 highlights

Streamlined efficiency by transferring filling and sales operations and merging LP
gas affiliates
Strengthened procurement capabilities by exploiting Groupwide economies of scale

Targets

Sales of ¥45,000 million in fiscal 2009
Annual unit sales of around 500,000 metric tons
Expand cogeneration business

20

TA

PON SANSO C
OR
NIP
P

N ANNUAL R
EP
TIO
O
RA
O

Corporate Social Responsibility

O
IY

RT

As a producer of industrial gases, Taiyo Nippon Sanso
recognizes its principal obligation to society as being
to ensure the safety of its products and preventing
related accidents.
With the aim of fulfilling this obligation, we participate in a number of programs. These include highpressure gas accident emergency drills organized by
local governments with the aim of increasing employee
awareness and enhancing the effectiveness of such drills
by providing related materials and equipment.
We also contribute to related efforts in the cultural and academic arenas. As an example, for many
years we have provided liquid nitrogen to the
Science Museum, Tokyo, a facility established by theJapan Science Foundation to promote public understanding of science and technology. We also cooperate in experiments that use liquid nitrogen at –196˚C
to freeze flower petals and rubber balls, as well as test
its superconductivity. We also strive to contribute to
public education by sharing our unique expertise, as
well as our experiences and views, on the uses ofnitrogen—one of our core businesses—through awide range of efforts, including cooperating withJapan Broadcasting Corporation (NHK), the country’s
national broadcaster, in the production of sciencerelated television programs, offering plant tours andproviding gas free-of-charge to universities.
Our commitment to corporate social responsibility also encompasses a number of environmentrelated initiatives. Our operations use significant

amounts of energy and electric power, with 97% of
the CO2 emissions from our operations generated in
the production of gases. Accordingly, we have set atarget for reducing consumption of electric power
per unit of production of 20% from the fiscal 1990
level by fiscal 2010 and are implementing a variety
of measures to achieve this target. We have also set atarget for reducing chlorofluorocarbon (CFC) emissions from our air separation plants by 30% fromthe fiscal 1990 level by fiscal 2010.
On another front, we continue to develop and promote products that help protect the environment. For
example, we developed a combustion-type waste gas
abatement system that eliminates the risk explosionof silane gas (SiH4), a spontaneously combustible gas,
as well as prevents damage to the environment causedby the release of perfluorocarbons (PFCs), thereby
enabling the stable treatment of waste gas released
during the semiconductor fabrication process.
As a corporate citizen, we also strive to serve community needs. We responded decisively in the aftermath of the Sumatra earthquake and resulting
tsunamis and the earthquake that struck Japan’s
Niigata Prefecture, both in 2004, donating funds andproviding oxygen cylinders for home oxygen therapy
patients. We also donated funds to assist in the aftermath of the devastating 2005 Kashmir earthquake,
which caused widespread damage, particularly innorthern Pakistan.

21

Board of Directors, Corporate Auditors
and Corporate Officers

Board of Directors

Corporate Auditors

ChairmanHiroshi Taguchi

Toshiro Hatagami
Yoshinori Kobayashi *2
Yasusuke Nakanishi *2
Kiyoshi Fujita

President
Hirosuke Matsueda

Corporate Officers

Executive Vice Presidents
Yasunobu Kawaguchi
Kazuya Ito
Keiji Futamatsu

Corporate Executive Officers
Kazuhiro Yoshida
Katsuji Tsukada
Hiroshi Kanno
Toshio Sato
Akira Ito
Shinji Tanabe
Yoshihisa Shibata

Executive Director/Advisor
Konosuke Ose
Senior Managing Directors
Soichi Hirabayashi
Hiroyuki Miura
Yutaka Kurosawa
Kenichiro Ebisawa

Corporate Officers
Junichi Ishimaru
Toshio Suwa
Kunishi Hazama
Tadashige Maruyama
Yasuharu Kamioka
Yoshikazu Yamano
Shigeto Umatani
Masayuki Tanino
Yujiro Ichihara
Shigeru Amada
Shuichi Yoshida
Masakazu Naruo
Hiroshi Katsumata
Kinji Mizunoe
Masanori Zaima
Shinichiro Hiramine
Akihiko Umekawa

Managing Directors
Fumio Hara
Toyoo Go
Masashi Yamashita
Kenichi Kasuya
Executive Directors
Ryuichi Tomizawa *1
William J. Kroll(As of June 29, 2006)

Note: *1 Outside Director*2 Outside Corporate Auditor

22

Financial Section

Contents
24 Analysis of Operating Results and Financial Position
27 Six-Year Summary
28 Consolidated Financial Statements
33 Notes to Consolidated Financial Statements
48 Report of Independent Auditors

23

Analysis of Operating Results and Financial Position

Scope of Consolidation and Application of the Equity Method
The Taiyo Nippon Sanso Group consists of
Taiyo Nippon Sanso Corporation (the parent
company), 60 consolidated subsidiaries (44 in

Japan and 16 overseas) and 28 equity-method
affiliates (10 in Japan and 18 overseas).

Operating Results
In fiscal 2006, consolidated net sales amounted
to ¥397,308 million, up 32.4% from fiscal 2005.
Cost of sales jumped 33.8%, to ¥275,326 million, while selling, general and administrative
expenses climbed 29.3%, to ¥95,193 million.
Accordingly, operating profit grew 29.2%, to¥26,788 million, and the operating margin edged
down 0.2 percentage point, to 6.7%.

Net Sales

Other income amounted to ¥6,246 million,
down 19.3%, while other expenses were ¥4,967
million, down 31.2%, resulting in a net gain of¥1,279 million, up from ¥520 million.
Net income grew 24.9%, to ¥14,444 million.
Net income per share was ¥35.45, and return on
equity (ROE) was 8.7%.

Operating Income

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

(Yen)

400

30

30

25

16

40

320

24

24

20
12

30

8

20

4

10

240

18

18

15

160

12

12

10

80

6

6

5

0

0

0

0

0

0

2002 2003 2004 2005 2006

2002 2003 2004 2005 2006

2002 2003 2004 2005 2006

Gas business
Plant and gas equipment businessHousewares business and others
Overseas sales ratio (right scale)

Gas business
Plant and gas equipment businessHousewares business and others
Overseas sales ratio (right scale)

Net income per share (right scale)Notes: 1. Since the merger of Nippon Sanso and Taiyo Toyo Sanso took place October 1, 2004, consolidated figures for fiscal 2005,
ended March 31, 2005, exclude the figures for the former Taiyo Toyo Sanso for the six months ended September 30, 2004.
Taiyo Nippon Sanso’s results for fiscal 2005 are compared to the fiscal 2002 to 2004 totals of the former Nippon Sanso.
2. In fiscal 2001 and 2002, Nippon Sanso reported results in two segments: gases, gas equipment and gas-related business, andliving and housewares business. Accordingly, only gross figures are available for these two periods.

24

Financial Position
Total current liabilities rose 3.9%, to ¥142,064
million. This was the net result of a ¥16,682 million decline in short-term banks loans and current
portion of long-term debt, and a ¥13,195 million
increase in notes and accounts payable—trade.
Total long-term liabilities were up 26.7%, to¥134,570 million, owing mainly to increases indeferred income taxes and long-term debt.
Total shareholders’ equity grew ¥23,847 million, to ¥178,055 million. The equity ratio slipped
0.3 percentage point, to 37.8%.

At fiscal year-end, total assets stood at ¥471,602
million, up 16.5% from a year earlier. The increase
stemmed mainly from rises in notes and accounts
receivable—trade and investment securities. The
current ratio edged up 0.1 point, to 1.28 times.
Property, plant and equipment, net, climbed
13.0%, to ¥190,196 million, owing mainly to anincrease in construction in progress. Total investments and other assets jumped 32.3%, to¥100,064 million, due largely to a ¥18,806 million
rise in investment securities.
Cash Flow Analysis
In fiscal 2006, net cash provided by operating
activities amounted to ¥31,937 million, up ¥4,234
million from fiscal 2005. Major factors includeda ¥6,821 million increase in income before
income taxes and minority interests and a ¥6,610
million increase in payables, compared with a¥3,668 million decrease in the previous period.
The interest coverage ratio was down 2.0 points, to14.7 times.
Net cash used in investing activities totaled¥25,238 million, ¥6,997 million less than in theprevious year. This was due mainly to an outlay of¥23,074 million for purchase of property, plantand equipment.
Net cash used in financing activities was ¥8,977
million. Major factors were a combined total of¥29,283 million in repayments of short-term bankloans and long-term debt and ¥4,040 million in
cash dividends to shareholders.
As a result, cash and cash equivalents at end of
the year amounted to ¥17,416 million, down ¥422
million from a year earlier.

Total Assets

Shareholders’ Equity

Return on Equity (ROE) and
Return on Assets (ROA)(Billions of yen)(Billions of yen)

(%)

(%)

500

200

40

10

150

30

100

20

8

400

6

300

4

200
10

50

2

100

0

0

0
2002 2003 2004 2005 2006

0

2002 2003 2004 2005 2006

2002 2003 2004 2005 2006

Equity ratio (right scale)

ROE
ROA

25

Business Risks
A number of other factors could also affect theCompany’s business performance. These include
unforeseen revisions to existing laws and theenactment of new ones.

External Factors
Foreign Exchange and Interest Rates

The Company uses various means to minimize theeffect of currency fluctuations on its import andexport transactions, including the purchase of foreign exchange forward contracts. Nonetheless, sudden fluctuations in exchange rates could negatively
affect the Company’s business performance.
In addition, interest-rate trends could have amaterial impact on performance, as the Company
maintains large-scale supply facilities for large customers and needs to spend heavily to maintain andupgrade these facilities.

Technical and Safety Factors
Technological Development

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

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

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

Changes in Oil Prices

Product Defects

Electricity is the major component of the cost of
manufacturing such core products as oxygen,nitrogen and argon. Surging oil prices could leadto a substantial increase in electricity charges, andit may be impossible for the Company to reflect
such charges in the pricing of its products.

The Company works in various ways to enhance
product safety, having introduced a product safetyassessment system as part of its response to theenactment of the Product Liability Law. However,
the Company cannot guarantee that all of its
products are free of defects.

Competition
Gas Prices

Other Factors
Retirement Benefit Liabilities

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

Further decreases in the discount rate and a sudden
deterioration in retirement plan returns may materially affect the Company’s business performance.

Overseas Factors

Natural Disasters

The Company maintains gas operations overseas,
primarily in the United States and Asia. Politicaland economic changes in other countries, including China, which continues to see rapid economic
growth, may have an adverse impact on the
Company’s business performance.

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

Reliance on Specific Industries26

Six-Year Summary
Taiyo Nippon Sanso Corporation and Consolidated Subsidiaries

Years ended March 31

Net sales

2006

2005

Millions of yen
2004
2003

2002

2001

¥397,308¥300,055¥230,272¥238,445¥241,546¥257,804

Operating profit

26,78820,727

14,317

10,313

9,758

13,679Net income

14,444

11,568

4,541

4,263

3,134

1,736

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

24.0%

24.5%

24.1%

24.8%

25.0%

24.0%

Return on equity (%)

8.7%

8.7%2

4.9%

4.7%

3.5%

1.9%

Return on assets (%)

3.1%

3.3%

2

1.8%

1.6%

1.1%

0.6%

Capital expenditure

22,17638,092

7,413

17,693

17,284

11,948Depreciation and amortization

18,982

14,592

11,627

13,70914,213

14,317

Research and development
2,223

2,056

2,296

2,508

3,454

3,451

Interest-bearing debt

expenses

122,196

122,089

86,32590,489106,021

115,073

Total shareholders’ equity

178,055

154,207

94,802

89,18290,70487,027

Total assets

471,602404,668

263,595

253,698

275,649

303,950Yen

Per share data:
Net income1¥35.45¥32.76¥15.38¥14.36¥10.58¥5.86

Cash dividends

10.00

9.00

6.00

6.00

6.00

3.00

Price earnings ratio

24.54

19.17

31.21

22.98

31.19

82.59

Times

Notes: 1. Net income per share is computed based on the weighted average number of shares of common stock outstanding during
each year, as adjusted retroactively for free share distributions made during the period.
2. ROE and ROA for fiscal 2005 are computed based on the combined net incomes of Taiyo Nippon Sanso for fiscal 2005 and theformer Taiyo Toyo Sanso for the six months ended September 30, 2004.
3. Since the merger of Nippon Sanso and Taiyo Toyo Sanso took place October 1, 2004, consolidated figures for fiscal 2005
exclude the figures for the former Taiyo Toyo Sanso for the six months ended September 30, 2004. Taiyo Nippon Sanso’s
results for fiscal 2005 are compared to the fiscal 2001 to 2004 totals of the former Nippon Sanso.

27

Consolidated Balance Sheets
Taiyo Nippon Sanso Corporation and Consolidated Subsidiaries

Millions of yen
2006
2005

March 31

Thousands of
U.S. dollars(Note 3)
2006

AssetsCurrent assets:
Cash and cash equivalents (Note 4)¥017,416

Short-term investments (Notes 4 and 5)¥ 17,839 $0,148,259

1,669

1,260

14,208Notes and accounts receivable—trade (Note 6)

119,390102,378

1,016,345

Inventories (Note 7)

31,31629,156

266,587

Deferred income taxes (Note 11)

5,803

4,333

49,400

Other current assets

6,492

6,386

55,265

Allowance for doubtful receivables

(748)

(704)

(6,368)181,340

160,651

1,543,713

4,215,340

Total current assets

Property, plant and equipment (Notes 9, 10 and 19)495,176

443,621

Accumulated depreciation(304,979)(275,249) (2,596,229)

Property, plant and equipment, net

190,196

168,372

1,619,103

63,73844,931

542,590

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

1,249

1,414

10,633

Intangible assets, net

17,00914,474

144,794

Prepaid pension expenses (Note 14)

12,821

10,123

109,143

Deferred income taxes (Note 11)

1,339

1,066

11,399Other assets

6,066

5,042

51,639Valuation allowance for investments

(865)

(270)

(7,364)(1,294)(1,137)(11,016)

Total investments and other assets

Allowance for doubtful receivables

100,064

75,645

851,826

Total assets¥471,602

See notes to consolidated financial statements.

28¥404,668 $4,014,659

Millions of yen
2006
2005

March 31

Thousands of
U.S. dollars(Note 3)
2006

Liabilities and shareholders’ equity
Current liabilities:
Short-term bank loans and current portionof long-term debt (Notes 8 and 9)¥023,768

Notes and accounts payable—trade77,979¥ 40,451 $0,202,333
64,783663,821

Accrued income taxes (Note 11)

7,752

4,853

65,991Other current liabilities

32,565

26,623

277,220

142,064

136,7121,209,364

84,59971,495

720,175

Total current liabilities
Long-term liabilities:
Long-term debt (Notes 8 and 9)
Pension and severance indemnities (Note 14)

5,432

5,672

46,242

Deferred income taxes (Note 11)

33,13518,990282,072

Consolidation adjustment account

1,318

407

11,220

Other liabilities

10,0859,644

85,852

Total long-term liabilities

134,570

106,210

1,145,569

16,9107,537

143,952

Issued—405,892,837 shares

27,03927,039230,178

Capital surplus

44,83344,807

381,655

Retained earnings

93,42583,672

795,309

Unrealized holding gain on securities

19,4529,300

165,591

Foreign currency translation adjustments(5,038)(10,132)(42,888)

Contingent liabilities (Note 15)
Minority interests in consolidated subsidiaries
Shareholders’ equity (Notes 12 and 22):
Common stock:
Authorized—600,000,000 shares

Less:
Treasury common stock, at cost—(1,657)(479)(14,106)

Total shareholders’ equity

3,171,053 shares in 2006 and 1,094,323 shares in 2005

178,055

154,207

1,515,749

Total liabilities and shareholders’ equity¥471,602¥404,668 $4,014,659

29

Consolidated Statements of Income
Taiyo Nippon Sanso Corporation and Consolidated Subsidiaries

Millions of yen
2006
2005

Years ended March 31

Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses (Note 17)
Operating profit
Other income (expenses):
Interest and dividend income
Interest expense
Amortization of consolidation adjustment accountGain on sale of property, plant and equipment (Note 18)
Loss on sale and disposal of property, plant and equipment(Note 18)
Gain on sales of investment securities
Early retirement expense
Loss on devaluation of golf club memberships
Equity in earnings of affiliates
Income on receiving of national subsidy
Loss on replacement of fixed assets
Impairment loss (Note 19)
Loss on liquidation of affiliates
Loss on revaluation of investments
Merger expense
Gain from prior period adjustments
Gain from reversal of allowance for doubtful receivables
Gain from termination of part of the retirement benefit plan
(Note 14)
Other, net
Income before income taxes and minority interests
Income taxes (Note 11):
Current
Deferred
Minority interests in earnings of consolidated subsidiaries
Net income¥397,308
275,326
121,981
95,193
26,788¥300,055 $3,382,208
205,713
2,343,798
94,341
1,038,401
73,614810,360
20,727228,041842(1,982)
395
3,044

517
(1,824)
282
4,802

7,168
(16,872)
3,363
25,913

(964)
107
—
(155)
779
—
—
(738)
(128)
(725)
(275)
161
149

(2,496)
280
(192)
—
1,053
411
(411)
—
(149)
(270)
(1,873)——(8,206)911—(1,319)6,631——(6,282)(1,090)(6,172)(2,341)
1,371
1,268

51
718
1,279
28,068—391
520
21,246434
6,112
10,888238,938

10,551
1,843
12,395
1,228¥ 14,444

5,921
89,8192,884
15,6898,805
105,516872
10,454¥ 11,568 $ 122,959

Yen

Amounts per share:
Net assets
Net income
Cash dividends¥ 441.86
35.45
10.00

See notes to consolidated financial statements.

30

Thousands of
U.S. dollars(Note 3)2006

U.S. dollars(Note 3)¥ 380.70 $
32.76
9.00

3.760
0.302
0.085

Consolidated Statements of Changes in Shareholders’ Equity
Taiyo Nippon Sanso Corporation and Consolidated Subsidiaries

Millions of yen
Number ofshares ofcommonstock

Balance at March 31, 2004
Increase by merger
Gain on disposal of treasury stock
Adjustments of retained
earnings for newly
consolidated subsidiaries
Bonuses to directors andcorporate auditors
Cash dividends paid
Other
Net income for the year
ended March 31, 2005
Unrealized holding gain on
securities
Foreign currency translation
adjustments
Net change in treasury stock
Balance at March 31, 2005
Gain on disposal of treasury stock
Increase due to merger ofsubsidiaries
Decrease due to decrease ofownership ratio
Bonuses to directors andcorporate auditors
Cash dividends paid
Other
Net income for the year
ended March 31, 2006
Unrealized holding gain on
securities
Foreign currency translation
adjustments
Net change in treasury stock
Balance at March 31, 2006

Commonstock

Capitalsurplus

Foreign
Unrealized
currency
Retained holding gain translation
earnings on securities adjustments

292,892,053 ¥27,039
113,000,784———¥19,50225,200104¥51,274
18,458—¥ 6,544——¥ (9,492)——

Treasury
stock

¥

(66)
—
—

—

—

—

4,181

—

—

—

—
—
—

—
—
—

—
—
—

(42)
(1,756)
(11)

—
—
—

—
—
—

—
—
—

—

—

—

11,568

—

—

—

—

—

—

—

2,756

—

—

—
—
405,892,837———
27,039———44,807
25——
83,672
—

—
—
9,300
—

(640)
—
(10,132)
—

—
(413)
(479)
—

—

—

—

22

—

—

—

—

—

—

(499)

—

—

—

—
—
—

—
—
—

—
—
—

(146)
(4,040)
(27)

—
—
—

—
—
—

—
—
—

—

—

—

14,444

—

—

—

—

—

—

—

10,151

—

—

—
—
—
—
405,892,837 ¥27,039——¥44,833——¥93,425——¥19,452

5,094—¥ (5,038)—(1,177)¥(1,657)

Thousands of U.S. dollars (Note 3)

Commonstock

Balance at March 31, 2005
Gain on disposal of treasury stock
Increase due to merger ofsubsidiaries
Decrease due to decrease ofownership ratio
Bonuses to directors andcorporate auditors
Cash dividends paid
Other
Net income for the year
ended March 31, 2006
Unrealized holding gain on
securities
Foreign currency translation
adjustments
Net change in treasury stock
Balance at March 31, 2006

Capitalsurplus

Foreign
Unrealized
currency
Retained holding gain translation
earnings on securities adjustments$230,178 $381,434 $712,284 $ 79,169
—
213
—
—

Treasurystock$(86,252) $ (4,078)
—
—

—

—

187

—

—

—

—

—

(4,248)

—

—

—

—
—
—

—
—
—

(1,243)(34,392)
(230)

—
—
—

—
—
—

—
—
—

—

—

122,959

—

—

—

—

—

—

86,414

—

—

—
—
—
—
—
—
—
—
$230,178 $381,655 $795,309 $165,591

See notes to consolidated financial statements.

31

43,364—— (10,020)$(42,888) $(14,106)

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

Millions of yen
2006
2005

Years ended March 31

Operating activities
Income before income taxes and minority interests
Depreciation and amortization
Impairment loss
Amortization of consolidation adjustment accountInterest and dividend income
Interest expense
Equity in earnings of affiliates
Gain on disposal and sale of property, plant and equipment
Gain on sales of investment securities(Increase) decrease in receivables
Decrease (increase) in accounts receivable
Decrease in inventories(Decrease) increase in payables(Decrease) increase in accrued expenses(Decrease) increase in advances received
Increase in prepaid pension expenses
Increase in pension and severance indemnities
Other
Interest and dividend received
Interest paid
Income taxes paid
Net cash provided by operating activities

Thousands of
U.S. dollars(Note 3)
2006

¥28,068
18,982
738
(207)
(842)
1,982
(779)
(2,201)(108)
951(8,741)
(466)
6,610
1,489
(1,544)(2,697)(1,786)837
40,282
1,155(2,173)(7,325)31,937¥ 21,246
14,592
—
(122)
(517)
1,824
(1,053)(2,340)(292)(870)
10,583(4,219)(3,668)(582)
1,620(1,996)170
1,349
35,723897(1,654)(7,263)27,703$238,938
161,590
6,282(1,762)(7,168)16,872(6,631)(18,737)
(919)
8,096
(74,410)(3,967)56,27012,676(13,144)(22,959)(15,204)
7,125
342,913
9,832(18,498)(62,356)
271,874

Investing activities(Decrease) increase in short-term investments
Proceeds from redemption of investment securities
Purchase of property, plant and equipment
Proceeds from sales of property, plant and equipment
Purchase of intangible assets
Proceeds from sales of intangible assets
Payment for purchase of investment securities
Proceeds from sales of investment securities
Payment for acquisition of subsidiaries’ stocks
with change in scope of consolidataion
Other
Net cash used in investing activities

303
506(23,074)
4,298
(418)
171
(1,883)151(14)—(30,263)2,274(5,402)
17
(295)
741

2,579
4,307
(196,425)
36,588(3,558)1,456(16,030)
1,285(5,158)(135)(25,238)—706(32,235)(43,909)(1,149)(214,846)

Financing activities
Repayments of short-term bank loans
Proceeds from commercial paper
Proceeds from issuance of long-term debt
Repayment of long-term debt
Proceeds from issuance of stock
Proceeds from issuance of bonds
Redemption of bonds
Cash dividends to shareholders
Dividends paid to minority interests
Redemption of treasury stock
Proceeds from sales of treasury stocks
Net cash used in financing activities
Effect of exchange rate changes on cash and cash equivalents
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of the year
Increase by merger
Increase by change in the scope of consolidation
Increase by newly consolidated subsidiaries
Increase by merger of subsidiaries
Cash and cash equivalents at end of the year (Note 4)(5,873)3,000
22,440(23,410)150——(4,040)(183)(1,186)125(8,977)190(2,087)
17,839
—
830
458
376
¥17,416

(689)
5,000
14,467(14,182)—
15,000(20,300)(1,756)
(132)
(356)
270
(2,679)39(7,172)
13,260
6,032
749
4,970
—
¥ 17,839(49,996)
25,538191,027(199,285)
1,277——(34,392)(1,558)(10,096)
1,064(76,420)
1,617(17,766)
151,860
—
7,066
3,899
3,201
$148,259

See notes to consolidated financial statements.

32

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

1. Basis of Consolidated Financial Statements
As permitted by the Securities and Exchange
Law of Japan, 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 in U.S. dollars) do notnecessarily agree with the sums of the individual
amounts.
Certain amounts previously reported havebeen reclassified to conform to the current year
presentation.

The accompanying consolidated financial
statements of TAIYO NIPPON SANSO CORPORATION (the “Company”) and consolidated
subsidiaries are prepared on the basis of accounting
principles generally accepted in Japan, which are
different in certain respects as to application anddisclosure requirements of International Financial
Reporting Standards, and are compiled from theconsolidated financial statements prepared by theCompany as required by the Securities andExchange Law of Japan.
2. Summary of Significant Accounting Policies

securities are stated at amortized cost. Amortization is calculated by the straight-line method.
Marketable securities classified as other securities
are carried at fair value with any changes in unrealized holding gain or loss, net of the applicable
income taxes, included directly in shareholders’equity. Other securities are stated at cost, which isdetermined by moving average method. Nonmarketable securities classified as other securities
are carried at cost.

(a) Consolidation

The accompanying consolidated financial statements include the accounts of the Company andits 60 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 Securities and Exchange Law of Japan,
investments in certain unconsolidated subsidiaries
and significant affiliates are accounted for by theequity method of accounting.
The differences at the dates of acquisition
between the cost and the underlying net equity ininvestments in consolidated subsidiaries and thecompanies accounted for by the equity method areamortized by the straight-line method over a
period of five years.
Investments in unconsolidated subsidiaries andaffiliates other than those which are accounted forby the equity method are principally stated at cost.

(d) Inventories

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

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

(b) Cash equivalents

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

Marketable securities and investment in securities
are classified by their holding objectives into heldto-maturity and other securities. Held-to-maturity

33

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

The Company recognized the amount of
unrecognized past service cost due to the revisionof the retirement rule at April 1, 2003.
For transition benefit liability, the Company
established the pension and severance indemnity
trust by contribution of shares owned by theCompany, and the remaining transition benefit
liability is being recognized over a period of 15 years.
The Company introduced the new retirement
benefit plan effective October 1, 2005, and shiftedpart of the retirement benefits to the defined contribution benefit plan. As a result, the Company
recognized termination of a part of the retirement
benefit plan and recorded ¥51 million as gain on
termination of a part of the retirement benefit planunder other income. In the new retirement benefit
plan, the defined benefit pension plan has also
shifted from the qualified retirement benefit plan
to the cash balance plan (market rate linked pension plan). Due to this change, past service liabilities (decrease of liabilities) arose, which wereprorated for certain years within the averageremaining service period (13 years) and treated as adeductible item under retirement benefit expenses.

(f) Translation of foreign currency transactions

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

Allowance for employees’ retirement benefits is
recognized at the net total of the present value ofthe defined benefit obligation at the balance sheet
date, plus any actuarial gains (less any actuarial
losses) not yet recognized, minus the fair value ofplan assets (if any) at the balance sheet date out of
which the obligations are to be settled directly. If
the amount determined above is negative (anasset), such asset should be recorded as prepaid
pension expenses.
Net retirement benefit expense or income isrecognized as the net total of current service costand interest cost, minus the expected return on any
plan assets, minus any actuarial gains (less any
actuarial losses) and past service cost recognized
during the year, plus any retirement benefits paid
at a lump sum.
To determine the present value of a defined
benefit obligation and the related current service
cost and, where applicable, past service cost, theproject unit credit method was used.
Actuarial gains or losses and past service cost
are recognized for each defined benefit plan over a
period not exceeding the expected average remaining service years of the employees participating in
the plan. The Company and its domestic subsidiaries recognize actuarial gains or losses evenly
over the 16 years following the respective fiscal
years when such gains or losses are identified. Past
service cost is amortized using the straight-line
method over 16 years.

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

The allowance for directors’ and corporate auditors’ retirement benefits of the Company and certain of its domestic subsidiaries is provided at theamount which would have been required to be
paid if all directors and corporate auditors had
terminated their 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 ¥193 million($1,643 thousand) for corporate officers at March
31, 2006.
(i) Research and development expenses

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

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

34Under the “Accounting Standard for Financial
Instruments,” derivative transactions are valued atmarket prices, except for hedging transactions
whose gains or losses are deferred and recorded in
the balance sheet until the hedged transactions aresettled. Moreover, if interest-rate swaps in Japanare specifically tied to the hedged loan transactions,
unrealized gains or losses on those swaps are notrecognized in the consolidated financial statements
as such gains or losses are to be offset with those on
the hedged transactions. Deferred hedge accounting is applied to currency swaps.
Receivables and payables hedged by qualified
foreign exchange forward contract are translated at
the corresponding foreign exchange forward
contract rates.

(k) Amounts per share

Presentation of diluted net income per share is notapplicable as there were no potentially dilutive
securities for the years ended March 31, 2006
and 2005.
(l) Allowance for doubtful receivables

To cover possible losses on collection of receivables, the Company and its subsidiaries provided
for an allowance with respect to specific debts ofwhich recovery is doubtful, based on estimatedwrite-off amounts, after considering the likelihoodof recovery on an individual basis.
(m) Valuation allowance for investments

To state the investment amount fairly, theallowance is provided by considering the relatedparties’ assets and other factors.

(o) Impairment of fixed assets

In the year ended March 31, 2006, the Company
and its consolidated domestic subsidiaries adopted
the “Opinion Concerning Establishment of
Accounting Standards for Impairment of Fixed
Assets,” issued by the Business Accounting
Deliberation Council on August 9, 2002, andimplementation guidance for accounting standards
for impairment of fixed assets (Financial
Accounting Standard Implementation Guidance
No. 6 issued by the Accounting Standard Board ofJapan on October 31, 2004). The effect of thischange was to decrease income before income taxesby ¥738 million ($6,282 thousand) for the year
ended March 31, 2006. Less accumulated
impairment loss is deducted directly.

(n) Derivative and hedging transactions

The Company and certain of its subsidiaries haveused foreign exchange forward contract in order tosolely hedge against risks of fluctuations in foreign
currency exchange rates relating to its receivables
and payables denominated in foreign currencies,
and have used interest-rate swap agreements inorder to solely hedge against risks of fluctuations ininterest rates relating to its long-term debt, andalso have used currency exchange swap agreement
in order to solely hedge against risks of fluctuations
in foreign exchange of long-term debt denominated in foreign currencies, in compliance with theinternal rules of respective companies.
3. U.S. Dollar Amounts
The translation of Japanese yen amounts into U.S.
dollar amounts is included solely for convenience,as a matter of arithmetical computation only, atthe rate of ¥117.47=U.S.$1, the approximate rateof exchange at March 31, 2006. The translation

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

4. Cash and Cash Equivalents
The components of cash and cash equivalents at March 31, 2006 and 2005 were as follows:
Millions of yen
2006
2005

Cash and deposits
Time deposits with maturities of more than three months
Short-term investments

35¥18,714(1,669)371¥17,416¥18,593(754)—¥17,839

Thousands of
U.S. dollars
2006$159,309(14,208)
3,158$148,259

5. Marketable and Investment Securities
At March 31, 2006 and 2005, information withrespect to other securities for which market prices

Cost

Unrecognized gain items:
Stock
Unrecognized loss items:
Stock
Total

Millions of yen
2006
Balance sheet Unrecognizedamountgain (loss)

Thousands of U.S. dollars
2006
Balance sheet Unrecognized
Costamountgain (loss)¥11,263¥44,472¥33,208$95,880$378,582$282,693

181¥11,445156¥44,628(24)¥33,183

1,541$97,429

1,328$379,910(204)$282,481

Cost

Unrecognized gain items:
Stock
Unrecognized loss items:
Stock
Total

were available was summarized as follows:

Millions of yen
2005
Balance sheet Unrecognizedamountgain (loss)¥10,609¥26,300¥15,691

208¥10,818200¥26,501(8)¥15,682

The balance sheet amount of non-marketablesecurities classified as held-to-maturity securities
and other securities at March 31, 2006 and 2005
were as follows:

Proceeds from sales of securities classified asother securities amount to ¥127 million ($1,081
thousand) with an aggregate gain on sales of ¥108
million ($919 thousand) for the year ended March
31, 2006.

Millions of yen
2006
2005

Held-to-maturity securities:
Discounted bank debentures
Other securities:
Unlisted securities (except for OTC securities)
Preferred securities
Preferred stock
Money market fund¥The redemption schedule for securities withmaturity dates classified as held-to-maturity

—

¥ 506

2,337
1,000
1,000
371

2,355
1,000
1,000
—

$

—
19,894
8,513
8,513
3,158

securities and other securities at March 31, 2005
is summarized as follows:

Millions of yen
2005
Due after one
Due in one
year throughyear or lessfive years

Bonds:
Bank debenture
Other

Thousands of
U.S. dollars
2006

¥506
—
¥506

There are no securities with maturity dates
classified as held-to-maturity securities and other———securities at March 31, 2006.

36

6. Notes and Accounts Receivable(a) Notes and accounts receivable liquidated at March 31, 2006 were as follows:
Millions of yen

Thousands of
U.S. dollars¥3,059¥6,160$26,041$52,439

Millions of yen
2006
2005

Thousands of
U.S. dollars
2006

Accounts receivable transferred by liquidation
Notes receivable transferred by liquidation(b) Notes receivable discounted at March 31, 2006 and 2005 were as follows:

Notes receivable discounted
Notes receivable endorsed

¥617
67

¥35
—

$5,252570

7. Inventories
Inventories at March 31, 2006 and 2005 consisted of the following:
Millions of yen
2006
2005

Merchandise
Finished products
Semifinished products and work in process
Raw materials and supplies¥12,027
1,698
13,1784,413¥31,316¥10,172
2,773
11,973
4,236¥29,156

Thousands of
U.S. dollars
2006$102,384
14,455
112,182
37,567$266,587

8. Short-Term Borrowings and Long-Term Debt
At March 31, 2006 and 2005, short-term borrowings and the current portion of long-term debt

consisted of the following:
Millions of yen
2006
2005

Bank loans
Current portion of long-term debt
Total

¥13,130
10,637¥23,768

The average interest rates applicable to shortterm bank loans outstanding at March 31, 2006
and 2005 were 0.96% and 1.23%, respectively.

¥17,676
22,774¥40,451

Thousands of
U.S. dollars
2006$111,773
90,551$202,333

Long-term debt at March 31, 2006 and 2005
comprised the following:

Millions of yen
2006
2005

Loans from banks due through 2016 at averageinterest rate of 1.92% in 2006 and 1.69% in 2005
0.92% unsecured bonds, payable in yen, due 2007
0.95% unsecured bonds, payable in yen, due 2009

¥59,599
10,00015,000¥84,599

0.13% commercial paper (¥8,000 million($68,102 thousand)) at March 31, 2006 and
0.22% commercial paper (¥5,000 million) at¥46,495
10,00015,000¥71,495

Thousands of
U.S. dollars
2006$507,355
85,128
127,692$720,175

March 31, 2005 were included in other current
liabilities.

37

The annual maturities of long-term debt are summarized as follows:
Years ending March 31

Millions of yen

Thousands of
U.S. dollars

2007
2008
2009
2010
2011
2012 and thereafter¥10,637
10,021
22,628
5,071
19,016
2,862¥70,236$ 90,551
85,307
192,628
43,168161,880
24,364$597,906

9. Pledged Assets
Assets pledged as collateral for short-term bankloans of ¥1,192 million ($10,147 thousand), longterm debt of ¥857 million ($7,295 thousand)and other liabilities of ¥3,156 million ($26,866
thousand) at March 31, 2006 were as follows:

Property, plant and equipment, at net book value

Millions of yen

Thousands of
U.S. dollars¥6,119$52,090

Millions of yen

Thousands of
U.S. dollars¥411$3,499

10. Assets Replaced by National Subsidy
Assets replaced by national subsidy were as follows:
Property, plant and equipment

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 40.69% for 2006 and 40.7% for 2005.

The effective tax rate reflected in the statements
of income for the year ended March 31, 2006 differs from the statutory tax rate for the following
reasons:
2006

Statutory tax rate
Effect of:
Expenses not deductible for income tax purposes
Dividend income deductible for income tax purposes
Change in valuation allowance
Other, net
Effective tax rate

38

40.69%
1.72(1.04)
3.14(0.35)
44.16%

Significant components of the Company’sdeferred tax assets and liabilities at March 31, 2006

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

Millions of yen
2006
2005

Current deferred tax assets and liabilities
Deferred tax assets:
Accrued bonus
Loss from valuation of inventory
Accrued expenses
Tax losses carried forward
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 receivables
Deferred tax liabilities—subtotal
Deferred tax assets
Net deferred tax liabilities¥ 2,036
143
1,266
2,169
2,222
7,837
(2,033)5,804(1)¥ 5,803¥1,802
229
945
—
1,356
4,333
—
4,333
—
¥4,333$17,332
1,217
10,777
18,464
18,91566,715(17,307)49,408(9)$49,400

¥

¥

$

¥

(61)
(61)
1
(60)

¥

(2)
(2)
—
(2)

Millions of yen
2006
2005

Non-current deferred tax assets and liabilities
Deferred tax assets:
Depreciation
Reserve for retirement benefits
Net operating loss carryforward for tax purposes
Other
Deferred tax assets—subtotal
Valuation allowance
Deferred tax assets—net
Deferred tax liabilities
Net deferred tax assets
Deferred tax liabilities:
Valuation difference on other securities
Reserve for replacement of fixed assets
Reserve for replacement of fixed assets—special
Depreciation
Other
Deferred tax liabilities—subtotal
Deferred tax assets
Net deferred tax liabilities

The reconciliation between the effective
tax rate and the statutory tax rate has been omitted
for the year ended March 31, 2005 because

$

(519)
(519)
9
(511)

Thousands of
U.S. dollars
2006

¥

760
1,341
37
6,573
8,713
(3,514)
5,199(3,859)¥ 1,339

¥

586
1,581
2,608
6,624
11,400(4,485)
6,914(5,848)¥ 1,066$

6,470
11,416315
55,95574,172(29,914)44,258(32,851)$ 11,399¥(13,609)(6,403)(1,545)(5,930)(9,506)(36,994)
3,859¥(33,135)¥ (6,448)(5,097)(1,375)(4,670)(7,247)(24,838)
5,848¥(18,990)$(115,851)(54,508)(13,152)(50,481)(80,923)(314,923)
32,851$(282,072)

the difference was less than 5% of the statutory
tax rate.

39

12. Shareholders’ Equityof the Board of Directors. On October 1, 2001, an
amendment (the “Amendment”) to the Codebecame effective. The Amendment provides that if
the total amount of the additional paid-in capitaland the legal reserve exceeds 25% of the amount ofcommon stock, the excess may be distributed tothe shareholders either as a return of capital or as
dividends subject to the approval of the shareholders. The Amendment also provides that all shareissuances after September 30, 2001 will be ofshares with no par value. Prior to the date on
which the Amendment came into effect, theCompany’s share had a par value of ¥50.

In accordance with the Commercial Code of Japan(the “Code”), the Company has provided a legal
reserve, which was included in retained earnings.
The Code provides that an amount equal to atleast 10% of the amount to be disbursed as a distribution of earnings be appropriated to the legal
reserve until the total of such reserve and the additional paid-in capital account equals 25% of thecommon stock account.
The Code provides that neither the additional
paid-in capital nor the legal reserve is available fordividends, but both may be used to reduce or eliminate a deficit by resolution of the shareholders or
may be transferred to common stock by resolution
13. Leases(a) The following pro forma amounts represent
the acquisition costs, accumulated depreciationand net book value of leased property at March
31, 2006 and 2005 which would have beenreflected in the consolidated balance sheets if
finance lease accounting had been applied to thefinance lease transactions currently accounted for
as operating leases:
Millions of yen
2006
2005

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

Lease payments relating to finance lease transactions accounted for as operating leases amounted
to ¥1,234 million ($10,505 thousand) and ¥1,194
million, which were equal to the depreciation

Thousands of
U.S. dollars
2006¥7,941318¥8,260¥7,419327¥7,747$67,600
2,707$70,316¥3,577153¥3,730¥3,340144¥3,485$30,450
1,302$31,753¥4,363165¥4,529¥4,077183¥4,261$37,141
1,405$38,555

expense of the leased assets computed by thestraight-line method over the respective lease terms
for the years ended March 31, 2006 and 2005,
respectively.

40

Future minimum lease payments (including theinterest portion thereon) subsequent to March 31,
2006 and 2005 for finance lease transactions

accounted for as operating leases are summarized
as follows:

Years ended/ending March 31

2006
2007
2008 and thereafter
Total
2005
2006
2007 and thereafter
Total

Millions of yen

Thousands of
U.S. dollars¥1,162
3,367¥4,529$ 9,892
28,663$38,555¥1,0503,210¥4,261(b) Future minimum lease payments subsequent to March 31, 2006 and 2005 for non-cancelable operatingleases are summarized as follows:
Years ended/ending March 31

2006
2007
2008 and thereafter
Total
2005
2006
2007 and thereafter
Total

Millions of yen

Thousands of
U.S. dollars¥1,9406,796¥8,737$16,51557,853$74,376¥1,4655,300¥6,765

14. Pension and Severance Indemnities
The Company introduced the new retirement
benefit plan as of October 1, 2005, and shiftedpart of the retirement benefits to the defined contribution benefit plan. In the new retirement
benefit plan, the defined benefit pension plan has
also shifted from the qualified retirement benefit
plan to the cash balance plan (market rate linked
pension plan).
The Company’s domestic subsidiaries have,jointly or severally, defined benefit plans, including
funded non-contributory tax-qualified retirement
pension plans and a lump-sum retirement benefits

plan, which together cover substantially all fulltime employees who meet certain eligibility
requirements.
Certain foreign subsidiaries have the defined
contribution benefit plan.
The funded status and amounts recognized in
the accompanying consolidated balance sheets at
March 31, 2006 and 2005 and the components of
net retirement benefit expenses recognized in theaccompanying consolidated statement of income
for the year ended March 31, 2006 and 2005 aresummarized as follows:(a) Retirement benefit liabilities

Projected benefit obligation
Plan assets at fair market value
Unfunded retirement benefit liabilities
Net unrecognized actuarial losses
Difference at change of accounting standard
Unrecognized prior service cost
Prepaid pension expenses
Allowance for employees’ retirement benefits

41

Millions of yen
2006
2005

Thousands of
U.S. dollars
2006¥ 35,293 ¥ 40,652(45,712)(35,614)(10,418)
5,038
2,385
(7,786)(4,199)(5,391)
3,097
2,590
12,821
10,123(3,686)(4,573)$ 300,443(389,138)(88,686)
20,303(35,745)
26,364
109,143(31,378)

The effect by the shift of a part of the retirement
benefits to the defined contribution benefit plan in

the year ended March 31, 2006 were as follows:
Millions of yen

Thousands of
U.S. dollars¥ 1,416(681)
381(1,064)¥51$12,054(5,797)3,243(9,058)$ 434

Decrease in projected benefit obligation
Difference at change of accounting standard
Net unrecognized actuarial losses
Unrecognized prior service cost
Decrease in retirement benefit plan

Plan assets transferred to defined contribution benefit plan were ¥4,224 million ($35,958 thousand).
(b) Net retirement benefit expenses
Millions of yen
2006
2005

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

(c) The principal assumption used in determining
retirement benefit obligations and otherThousands of
U.S. dollars
2006¥1,463
660
(639)
775

¥1,449
636
(502)
761

$12,4545,618(5,440)
6,597

609
(213)
¥2,656(51)462¥3,067589(185)¥2,748——¥2,7485,184(1,813)$22,610(434)
3,933$26,109

components for the Company and certain of its
domestic subsidiaries’ plans are shown below:

Discount rate
Rate of return on assets
Period of recognition of actuarial gains or losses
Period of recognition of transition gains or losses
Period of recognition of prior service cost
Allocation method of estimated retirement benefits

2006

2005

Mainly 2.0%
Mainly 2.5%
Mainly 16 years
15 years
Mainly 16 years
Evenly for period

Mainly 2.0%
Mainly 2.5%
Mainly 16 years
Mainly 15 years
16 years
Evenly for period

15. Contingent Liabilities
At March 31, 2006, the Company and certain of
its subsidiaries had contingent liabilities as guarantor of indebtedness, amounting to ¥10,584 million($90,100 thousand) which included reguarantees

by joint investors amounting ¥938 million($7,985 thousand) and commitments to guarantee
amounting ¥1,803 million ($15,349 thousand).

42

16. Derivative and Hedging Activities
The Company and certain of its subsidiaries
have established rules for the authorization ofderivative transactions and related risk management rules which stipulate the limits on derivativetransactions for each contract amount. All
derivative transactions have been entered into incompliance with these rules.
Risk management for derivative transactions
has been under the control of the Finance
Department of the Company which reports
regularly or as necessary to the responsible officer.

(a) Outline of transactions and conditions

The Company and certain of its subsidiaries haveused foreign exchange forward contracts, interestrate swap agreements, currency swap agreements
and interest-rate cap agreements in order to hedge
against the risk of fluctuations in interest rates andcurrency exchange relating to their short-term
receivables and payables and long-term debt.
No market risk is anticipated as such derivatives have been entered into in order to offset or
mitigate gains or losses resulting from the hedgedloan and other transactions.
The Company and certain of its subsidiaries do
not anticipate non-performance by any of thecounterparties to the above transactions, all ofwhom are leading financial institutions which are
deemed highly creditworthy.

(b) Interest-related derivatives

At March 31, 2006 and 2005 the contracted
amounts, market value and unrealized loss onderivatives were as follows:

March 31, 2006

Interest rate swaps:
Receive/floating and pay/fixed

March 31, 2005

Interest rate swaps:
Receive/floating and pay/fixedContracted amounts

Millions of yen
Market value

Unrealized loss

¥177
¥177

¥1
¥1

¥1
¥1

Contracted amounts

Millions of yen
Market value

Unrealized loss

¥413
¥413

¥(1)
¥(1)

¥(1)
¥(1)

Thousands of U.S. dollars
Contracted amounts
Market value

March 31, 2006

Interest rate swaps:
Receive/floating and pay/fixed$1,507$1,507The market value and unrealized loss presented
above represent the amounts furnished by therespective financial institutions.

$9$9Unrealized loss

$9$9(c) Currency-related derivatives

Market value information at March 31, 2006 and2005 is not required as all of the Company andcertain of its subsidiaries’ derivative transactions
are accounted for as hedging transactions.

43

17. Research and Development Costs
Research and development costs included in costof sales and selling, general and administrative
expenses for the years ended March 31, 2006 and2005 totaled ¥2,223 million ($18,924 thousand)and ¥2,056 million, respectively.

18. Gain and Loss on Sales or Disposal of Property, Plant and Equipment
Significant components of the gain on sales ofproperty, plant and equipment of ¥ 3,044 million($25,913 thousand) for the year ended March 31,
2006 were as follows:
Millions of yen

Thousands of
U.S. dollars¥3,039$25,870

Land

Significant components of the loss on sales
and disposal of property, plant and equipment of¥425 million ($3,600 thousand) for the year
ended March 31, 2006 were as follows:
Millions of yen

Thousands of
U.S. dollars

¥222
130
184

$1,890
1,107
1,566

Land
Buildings and structures
Machinery

19. Impairment Loss
The Company and its subsidiaries categorize
business assets by business segmentation and idle
assets without a specific future use are categorized
separately. For idle assets affected by decrease offair market value of land, the book values are written down to the recoverable amount and such
writedowns are recorded as impairment loss of¥738 million ($6,282 thousand) (of which land

account for ¥726 million ($6,180 thousand) andbuildings for ¥12 million ($102 thousand) in otherexpenses due to luck of recovery provability ofmarket value or provability in the near future.
Recoverable amounts for relevant assets are net selling price (appraisal reports by real estate agencies
or valuation by inheritance tax).

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

subsidiaries for the years ended March 31, 2006
and 2005 is summarized as follows:(a) Business Segments

Year ended or as of March 31, 2006

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

Millions of yen
Plant and gas Housewares
equipment
businessbusinessand others
Total

Eliminations
or corporate

Consolidated¥268,284
162
268,447
246,952¥ 21,494¥113,626
6,251
119,877
113,975¥ 5,901¥15,39773
15,47013,611¥ 1,859¥397,308
6,486
403,795
374,539¥ 29,255¥—(6,486)(6,486)(4,019)¥ (2,467)¥397,308—
397,308
370,520¥ 26,788¥309,469¥ 16,517¥—¥ 19,455¥ 67,238¥ 1,243¥—¥ 2,055¥17,627
¥ 709
¥
—
¥ 741

¥394,334¥ 18,470¥—¥ 22,252¥77,267
¥ 512
¥ 738
¥
(76)

¥471,602¥ 18,982¥
738¥ 22,17644

Year ended or as of March 31, 2005

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

Year ended or as of March 31, 2006

Gas
business

Millions of yen
Plant and gas Housewares
equipment
businessbusinessand others
Total

Eliminations
or corporate

Consolidated¥207,049241
207,290
191,228¥ 16,062¥82,697
8,626
91,32385,698¥ 5,625¥10,30881
10,3899,086¥ 1,303¥300,055
8,949
309,004
286,013¥ 22,990¥—(8,949)(8,949)(6,686)¥ (2,263)¥300,055—
300,055
279,327¥ 20,727¥275,396¥ 12,501¥ 36,376¥47,422¥ 1,317¥ 551¥23,061
¥ 547
¥ 348

¥345,880¥ 14,366¥ 37,276¥58,787
¥ 225
¥ 815

¥404,668¥ 14,592¥ 38,092

Eliminations
or corporate

ConsolidatedGasbusiness

Plant and gas
equipment
business

I. Sales:(1) Sales to third parties$2,283,851 $ 967,277(2) Intersegment sales
1,379
53,214
Total sales
2,285,239 1,020,490
Operating costs and expenses 2,102,256
970,248
Operating income$ 182,974 $ 50,234
II. Assets, depreciation expenses,
capital expenditure:
Assets$2,634,451 $ 572,384
Depreciation expenses$ 140,606 $ 10,581
Impairment loss$
— $—Capital expenditure$ 165,617 $ 17,494

Thousands of U.S. dollars
Housewares
businessand others
Total$131,072 $3,382,208 $— $3,382,208
621
55,214 (55,214)—
131,693 3,437,431 (55,214) 3,382,208
115,868 3,188,380 (34,213) 3,154,167$ 15,825 $ 249,042 $(21,001) $ 228,041$150,055 $3,356,891$ 6,036 $ 157,232$— $—$ 6,308 $ 189,427$657,759 $4,014,659$ 4,359 $ 161,590$ 6,282 $6,282$(647) $ 188,780

Millions of yen
Othercountries
Total

Eliminations
or corporate

Consolidated¥397,308 ¥—
12,526 (12,526)
409,834 (12,526)
380,725 (10,205)¥ 29,108 ¥ (2,320)¥393,013 ¥ 78,588¥397,308—
397,308
370,520¥ 26,788¥471,602(b) Geographic Segments

Year ended or as of March 31, 2006

Japan

North
America

Sales:
Sales to third parties
Intersegment sales
Total sales
Operating costs and expenses
Operating income
Assets¥329,413
3,968
333,382
310,607¥ 22,774¥304,390¥47,369
6,804
54,17449,091¥ 5,082¥63,125¥20,524
1,754
22,27821,027¥ 1,251¥25,497

Japan

North
America

Millions of yen
Othercountries
Total¥247,129
2,647
249,777
232,148¥ 17,628¥265,967¥37,393
6,809
44,20340,462¥ 3,741¥53,553¥15,531
1,385
16,917
15,810¥ 1,106¥23,367

Year ended or as of March 31, 2005

Sales:
Sales to third parties
Intersegment sales
Total sales
Operating costs and expenses
Operating income
Assets45

Eliminations
or corporate

Consolidated¥300,055 ¥—
10,842(10,842)
310,897(10,842)
288,421(9,093)¥ 22,476 ¥ (1,749)¥342,888 ¥ 61,780¥300,055—
300,055
279,327¥ 20,727¥404,668

Year ended or as of March 31, 2006

Japan

Sales:
Sales to third parties
Intersegment sales
Total sales
Operating costs and expenses
Operating income
Assets$2,804,231
33,7792,838,018
2,644,139$ 193,871$2,591,215

Thousands of U.S. dollars
Othercountries
Total

North
America

its foreign consolidated subsidiaries, for the years
ended March 31, 2006 and 2005 are summarized
as follows:

Overseas sales, which include export sales of theCompany and its domestic consolidated subsidiaries and sales (other than exports to Japan) of

Millions of yen

Overseas sales
Consolidated net sales
Ratio of overseas sales toconsolidated net sales

Consolidated$403,243 $174,717 $3,382,208 $— $3,382,208
57,921
14,931
106,631 (106,631)—
461,173 189,648 3,488,840 (106,631) 3,382,208
417,902 178,999 3,241,040 (86,873) 3,154,167$ 43,262 $ 10,650 $ 247,791 $ (19,750) $ 228,041$527,371 $217,051 $3,345,646 $669,005 $4,014,659(c) Overseas SalesYear ended or as of March 31, 2006

Eliminations
or corporate

North
AmericaOther¥40,998

Total¥37,946 ¥ 78,945
397,308

10.3%

9.5%

Thousands of U.S. dollars
North
America
Other
Total

$349,008 $323,027 $ 672,004
3,382,208

19.8%

Millions of yen
Year ended or as of March 31, 2005

Overseas sales
Consolidated net sales
Ratio of overseas sales toconsolidated net sales

North
America¥32,032

Other

Total

¥29,881 ¥ 61,914
300,055

10.6%

9.9%

20.6%

21. Assets and Liabilities Acquired by Merger
Assets and liabilities acquired by merger with
Taiyo Toyo Sanso Co., Ltd., effective in fiscal year

2005 consisted of following:

Millions of yen

Current assets
Fixed assets
Total assets¥42,843
47,517¥90,361

Current liabilities
Fixed liabilities
Total liabilities¥25,284
18,898¥44,182

Capital surplus increased ¥26,625 million by the merger.

46

22. Assets and Liabilities of Newly Consolidated Subsidiaries by Acquisition of Stock
Assets and liabilities of newly consolidated subsidiaries, TAIYO NIPPON SANSO HIGASHIKANTO Corporation and NIPPOKU SANSOCORPORATION through the acquisition ofstock, acquisition cost and net payments for theacquisition effective in fiscal year 2006 wereas follows:

Millions of yen

Thousands of
U.S. dollars

Current assets
Fixed assets
Total assets¥ 5,481
3,161¥ 8,642$ 46,659
26,909$ 73,568

Current liabilities
Fixed liabilities
Total liabilities¥ 4,062719¥ 4,781$ 34,579
6,121$ 40,700

Acquisition cost of newly consolidated subsidiaries’ stock
Cash and cash equivalents of newly consolidated subsidiaries
Payments for acquisition of subsidiaries’ stock with change
in scope of consolidation¥(6,993)
1,835$(59,530)
15,621¥(5,158)$(43,909)

23. Subsequent Events
financial statements for the year ended March 31,
2006, were approved at a shareholders’ meeting
held on June 29, 2006:(a) Appropriation of retained earnings

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

Millions of yen

Thousands of
U.S. dollars

Cash dividends—¥6.00 ($0.051) per share
Bonuses to directors¥2,416100$20,567851(b) Issuance of domestic straight bonds

regarding issuance of domestic bonds at the Board
meeting on May 17, 2006.

The Company made a comprehensive resolution
The outline is as follows:(1) Total amount of issuance:(2) Period of issuance:(3) The value of the bond:(4) Term:(5) Interest rate:

Within ¥15 billion
From May 18, 2006 to Sep. 30, 2006
¥100 per ¥100 of the face value
Within five (5) years
Fixed interest rate, swap rate corresponding to the term to maturity of
the corporate bond with 0.5% or less added.
(6) Intended usage of the fund: Capital investment, loan and investment, repayment of borrowed funds,
and redemption of commercial paper
The determination of the specific conditionsof issuance, as well as the necessary issues
regarding this corporate bond, shall be entrusted

to the representative director within the abovementioned range.

47

Report of Independent Auditors

The Board of Directors
Taiyo Nippon Sanso Corporation
We have audited the accompany consolidated balance sheets of Taiyo Nippon Sanso Corporation and consolidated subsidiaries as of March 31, 2006 and 2005, and the related consolidated statements of income, shareholders’ equity and cash flows for the years then ended, all expressed in yen. These financial statements are theresponsibility of the Company’s management. Our responsibility is to express an opinion on these financial
statement based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in Japan. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting
principles used and significant estimate made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Taiyo Nippon Sanso Corporation and consolidated subsidiaries at March 31,
2006 and 2005, and the consolidated results of their operations and their cash flows for the years then ended
in conformity with accounting principles generally accepted in Japan.
The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the year
ended March 31, 2006, are presented solely for convenience. Our audit also included the translation of yen
amounts into U.S. dollar amounts and, in our opinion, such translation has been made on the basis describedin Note 3.

June 29, 2006

48

Investor Information(At March 31, 2006)

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

7,496
Date of Incorporation:

October 1910
Number of Shares:

Authorized—600,000,000

Issued—405,892,837

At the annual meeting of shareholders on June 29, 2006, shareholders approved a proposal to amend the Company’s articles of incorporation. As a consequence, the numberof authorized shares increased 200,000,000, to 800,000,000, effective the same day,and the following sentence was deleted: “However, should shares of common stock
be cancelled, the total number of shares shall be reduced by an equivalent number.”
Minimum Trading Unit:

1,000 shares
Number of Stockholders:

21,392Major Stockholders:Thousands ofShares Owned

Major Stockholders

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

40,947
17,231
16,491
15,293
14,484
13,225
11,000
10,137
10,037
6,858
155,703

Percentage of
Total

10.09%
4.25
4.06
3.77
3.57
3.26
2.71
2.50
2.47
1.69
38.37%

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

1,000

100,000

800

80,000Common Stock Price Range

600

60,000400

40,000
Trading Volume200

20,00000
1st Quarter

2nd Quarter

3rd Quarter

4th Quarter

1st Quarter

2nd Quarter

3rd Quarter

4th Quarter

Note: Data for the third and fourth quarters of fiscal 2005 and beyond is for Taiyo Nippon Sanso. Data forprior quarters is for the former Nippon Sanso.

49

a C
TAIYO NIPPON SANSO Corporation

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

r Maintaigni
no nsistent Strat

c
egi

on

Checklist fo

D

ir

t
c
e

Our checklist for the future□ Capitalize on new opportunities for business growth andenhanced cash flows□ Reinforce compliance standards□ Expand operations in Japan and overseas
Annual Report 2006

□ Develop high-value-added products□ Realize full benefits of merger□ Invest strategically to maintain competitiveness□ Fulfill responsibilities to society□ Establish effective yardsticks for measuring growth□ Grow existing businesses

Me e t t h e Ga s
Annual Report

2006

For the year ended March 31, 2006

Printed in Japan

Professilonasi