Annual Report 2012
for the year ended March 31, 2012

Nitta Gelatin Inc.

Annual Report 2012

Nitta Gelatin Group History
The founder Chojiro Nitta started leather production in 1885, and then established NITTA LEATHER BELTING
Limited Partnership Company in 1909. In 1918, it started manufacturing and selling gelatin and glue. These
products were only used for industrial applications at that time. When the Showa Era started in 1926, thecompany began manufacturing edible and pharmaceutical gelatin. In 1935, the present day Osaka Plant wascompleted to respond to fast-growing gelatin demand. Photographic gelatin production started thereafter.
In 1945, Nitta Glue and Gelatin Co., Ltd. (the present day Nitta Gelatin Inc.) was established. In 1971, theadhesives business started, followed in 1974 by the start of the food material business to diversify businesses.

1975
Established Nitta Gelatin India
Ltd. (India)

1935
Completed the Osaka Plant

Started production ofgelatin and animal glue

1968
Established Hikone Gelatin Inc.

1979
Established Nitta Gelatin NA Inc.
(U.S.)

1918• • • • • • • • • •1970• • • • • • • • • •1980• • • • •1918
Started production ofanimal glue andindustrial gelatin for
the first time in Japan
with industrial production methods introduced from the West1937
Started production ofphotographic gelatin
After having relied on
imports, research yielded
Japan’s first domesticallymade photographic
gelatin1971
Started an adhesives
business
Commenced an adhesives
business by developing
high-speed, hot-melt-typeadhesives as a replacement
for animal glue

1930
Succeeded in producing thinleaf gelatin
Succeeded in producing
edible thin leaf gelatin of ahigh quality, and began marketing it

Note: The Company name recorded is the current Company name.

1974
Started a food material
business
Began marketing various
food products containing
natural polysaccharides
and other ingredients, inaddition to gelatin

Nitta Gelatin Inc.

Annual Report 2012

In 1975, Nitta Gelatin established a material pre-processing factory in India, making the company one of theearliest Japanese companies to branch out overseas at that time. Nitta Gelatin has continued to develop
overseas: a sales subsidiary was established in the U.S. in 1979, a gelatin plant was established in Canada
in 1990, and a casing business was started in North America in 1996. Furthermore, gelatin production
started in India in 1999 and in the U.S. in 2004.
Nitta Gelatin started a full-fledged peptide business in 2000.
In China, a collagen peptide manufacturing company was established in 2010, followed by a sales company
in 2011, with the aim of strengthening our business in China going forward.

1996
Established Nitta Casings Inc.
(U.S.)

2011
Established Shanghai Nitta
Gelatin Co., Ltd. (China)

1982
Established Bostik-Nitta Co., Ltd.

2004
Established Nitta Gelatin USA,
Inc. (U.S.)

2010

1990

Established Guangdong Baiwei
Bio Material Co., Ltd. (China)

Established Nitta Gelatin
Canada, Inc. (Canada)• • • • •1990

• • • • • • • • • •2000• • • • • • • • • •1996
Started a casing business
Commercialized a collagencasing business in North
America, after many yearsof research

2001
Moved into the consumer
products business
Began marketing Collagenaid ®,a collagen food supplement,
to general consumers

2000
1999

Started a peptide business
Fully entered the collagen
peptide business in
response to new applications, including as a healthfood

Began production ofgelatin in India
Started production ofgelatin in India in responseto the demand in Asia

1

2010

• •

Nitta Gelatin Inc.

Annual Report 2012

Contents

Consolidated Financial Highlights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
To Our Stakeholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Nitta Gelatin at a Glance—The Market at Large and Nitta Gelatin’s Uniqueness— . . . . . . . . . . . . . 6
Management System
Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8Internal Control System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Risk Management System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Board of Directors, Executive Officers and Statutory Auditors . . . . . . . . 11
Management’s Discussion and Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Business Risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Financial Section
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Consolidated Statements of Income . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Consolidated Statements of Comprehensive Income . . . . . . . . . . . . . . . 21
Consolidated Statements of Changes in Net Assets . . . . . . . . . . . . . . . 22
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . 24
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . 26
Investors Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Corporate Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49

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2

Nitta Gelatin Inc.

Annual Report 2012

Consolidated Financial Highlights
Nitta Gelatin Inc. and Consolidated Subsidiaries

71st term
From April 1,2009 to March
31, 2010

Millions of yen
72nd term
From April 1,2010 to March
31, 2011

73rd term
From April 1,
2011 to March
31, 2012

Thousands of
U.S. dollars
73rd term
From April 1,
2011 to March
31, 2012

For the year:
Net sales
Operating income
Net income
Comprehensive income
Research and development expenses
Capital expenditure
Depreciation and amortization
Net cash provided by operating activities
Net cash used in investing activities
Net cash provided by (used in) financing activities
Cash and cash equivalents at end of period¥26,392
1,407
1,047
–
818
624
818
738
(587)
(212)
1,467

¥27,923
1,486
1,051
863
895
1,049
898
1,570
(1,094)
(363)
1,538

¥27,763
2,015
1,375
986
895
769
841
568
(733)
713
2,078

$337,790
24,516
16,72911,996
10,889
9,356
10,232
6,910(8,918)
8,675
25,282

At year-end:
Property, plant and equipment
Net assets
Noncurrent liabilities
Total assets¥ 5,7095,990
7,240
21,806¥ 5,5376,185
6,516
21,466¥ 5,387
8,108
6,087
23,371$ 65,543
98,64974,060284,353

Per share information (yen, U.S. dollar):
Net assets per share (BPS)
Net income per share (EPS)¥390.5076.50¥449.5180.19¥509.41
99.87

$

27.2
20.1
4.8
–

28.5
17.4
4.9
4.7

34.4
19.4
5.9
10.0

Other:
Equity ratio (%)
Return on equity [ROE] (%)
Return on assets [ROA] (%)
Payout ratio (%)

6.19
1.21

Note 1: The U.S. dollar amounts are translated from Japanese yen at the rate of ¥82.19 = U.S.$1, the prevailing exchange rate at March 30, 2012.
Note 2: The Company prepares the consolidated financial statements from the year ended March 31, 2010.
Note 3: Net assets per share for the years ended March 31, 2010 and 2011 was calculated after taking into consideration the amount of preferred stock.
Note 4: Net income per share for the years ended March 31, 2010 and 2011 was calculated based on net income after deducting preferred dividends
for each period, and net income per share for the year ended March 31, 2012 was calculated based on net income after deducting thedifference between the redemption amount and the issued amount of preferred stock.
Note 5: For the year ended March 31, 2011, some Type A preferred stock was acquired and retired by the resolution of the board of directors on July21, 2010 and December 15, 2010. On May 23, 2011, all Type A preferred stock was acquired and retired by the resolution of the board of
directors on April 27, 2011.

Net sales

Operating income

Net income

Total assets/Return on assets [ROA]
Net assets/Return on equity [ROE](Millions of yen)
30,000(Millions of yen)
2,400(Millions of yen)
1,500(Millions of yen)
24,00026,392

27,923 27,763

1,375

21,806

2,015

20,0001,600

10,000800

1,000

1,407 1,486

1,047 1,051

16,00023,371(%)
30

21,466

20.1

19.4

20

17.4

0

500

0

0
10/3

11/3

12/3

8,000

10/3

11/3

0
10/3

12/3

11/3

12/3

8,108 10
5,990

6,185

4.8

4.9

5.9

10/3

11/3

12/3

Total assets (left)
Return on assets [ROA] right
Net assets (left)
Return on equity [ROE] (right)

30Nitta Gelatin Inc.

Annual Report 2012

To Our Stakeholders

Aiming to Be the Dominant No. 1 in Asia and a Globally
Unique Enterprise as a Global Gelatin Specialist
I am pleased to open this letter to all of
our stakeholders as we deliver Nitta
Gelatin’s Annual Report 2012.
On December 20, 2011, Nitta Gelatin Inc.
achieved a listing of its shares on theSecond Section of the Tokyo Stock
Exchange. I would like to take this opportunity to express my sincerest appreciation foryour continued understanding of our business activities and your heartfelt support,
without which our listing would not havebeen possible. To ensure that we continue
to meet your expectations, we intend toactively implement measures to accelerate
the growth of our businesses.

Nitta Gelatin Inc.
Representative Director and President

Norimichi Soga

Nitta Gelatin is the world’s only company that conducts
integrated operations ranging from ingredients to production,
sales and proposals for all aspects of gelatin, collagen
peptide, and collagen casing—products that are anticipatedto grow strongly worldwide. In gelatin, we are Asia’s largest
global gelatin specialist company ranked fourth in global
market share and boasting the top market share in Japan.
For over 90 years we have utilized our expertise processing gelatin and creating markets to provide a wide array ofgelatin and gelatin-related products globally; including edible
gelatin for a wide variety of food applications, gelatin for hardand soft capsules, collagen peptide for dietary supplements,
collagen for cosmetics and collagen casings for sausages,
food ingredients, adhesives and other products made fromsuch materials.
Our quest for a stable supply of safe, high-quality raw
materials led us as early as 1975 to expand overseas withthe production in India of ossein, the raw material for gelatin,from bovine bones, followed by the establishment of production and sales bases in the U.S. and Canada.
In recent years, we have set up laboratories to explore
applications within Japan and overseas, aiming to not only
sell gelatin and collagen peptide as raw materials, but also
propose their application in and use as end-use products toour manufacturing customers. In so doing, we haveenhanced our capabilities to develop and sell products
answering to customers’ needs around the world. Fur thermore, as a for ward-looking research and development
initiative, we have developed ultra-pure gelatin. In advanced
medical fields, ultra-pure gelatin is used as a biomaterial
for hydrogels for application in the clinical research of theinduction of human tissue regeneration. These gelatinshave contributed significantly to the advancement ofregenerative medicine.

4

Nitta Gelatin Inc.

Annual Report 2012

strengthening the functions of our application laboratories,
we will provide food solutions to customers and sell products
offering even more added value globally.

Ever since its founding, Nitta Gelatin has remained anever-evolving company that has anticipated changes in theindustrial structure. Despite product applications that wereadvanced on a daily basis in step with the times, there has
been no change in our basic approach of using the by-productsof the livestock industry to create high value-added products.
As a result, we have amassed an immense store of expertise
related to collagen and gelatin. In addition, as a global gelatin
specialist company, we have conducted our operations with
an emphasis on communicating in English on a daily basis.
We believe that these characteristics represent some of theGroup’s most unique features and greatest strengths.

Business Forecasts for the Fiscal Year Ending March 31,
2013
The outlook for the Japanese economy in the fiscal year
ending March 31, 2013 is for the continuation of uncertain
and challenging conditions due mainly to the yen’s prolonged
appreciation and the spread of deflation. Market conditions
are changing globally on a daily basis. In Japan, the nation’s
aging population with a falling birthrate has altered diets andconsumption patterns. Overseas, improving incomes notably
in Asia have driven the expansion of consumer markets. To
ensure sustained growth in this diversifying environment, we
believe that it is essential to read the changes in the markets
as quickly as possible, while promoting business with speed
and competitiveness from a global perspective.
Furthermore, we will address power supply restrictions inJapan and strive to reduce CO2 emissions Group-wide, whileworking to achieve internationally competitive product costs.
This will entail energy and resource conservation measures,
as well as steps to raise efficiency.
We will work to expand sales of high value-added
products in Japan by taking full advantage of our materials
development and application capabilities. Sales of theseproducts will also be expanded to overseas markets. We willfurther ramp up our product supply capacity overseas, in aneffort to expand sales of gelatin, collagen casing andcollagen peptide in North America, China and Asia.

Future Growth Strategies and Business Forecasts Going
ForwardAsia has become the main front for business competition in
the markets for gelatin and food materials. Collagen casing
and collagen peptide, a product whose functional properties
are being promoted, now offer strong prospects for growth as
global products. Seeing these areas as prime opportunities,
we are currently implementing our long-term vision CFG2016
strategy running through the fiscal year ending March 31, 2016.
Growth Strategy Going Forward
Targets: Achieve consolidated net sales of ¥40 billion andconsolidated operating income of ¥4.0 billion by the fiscal
year ending March 31, 2016
Strategies:
C Strategy (Collagen Material Business)
In the gelatin field, we will work to develop proprietary new
products unlike anything else that other companies offer.
Another priority is to ramp up our supply capacity to meetbuoyant demand. In the collagen peptide field, we will enhance our supply capacity by augmenting production sites,
while establishing a solid position for collagen peptide as afunctional material backed by scientific evidence throughresearch into its functional properties. Efforts in the collagencasing field will be focused on boosting productivity by upgrading production facilities, along with capturing increasing
demand by sharpening our competitiveness.

Consolidated Business Forecasts for
the Fiscal Year Ending March 31, 2013

(Millions of Yen)

Net sales

28,900(up 4.1% year on year)

Operating Income

2,070(up 2.7% year on year)

Net Income

1,370 (down 0.4% year on year)

In Closing
In the past, Nitta Gelatin has faced major challenges, such as
harmful rumors arising from the outbreak of BSE (bovine
spongiform encephalopathy), and the steep decline in photographic gelatin caused by the popularization of digital photography. However, we have overcome every hurdle by reinventing ourselves, and we have continued to achieve growth. In
this manner, we believe that it is our mission to constantly
move forward by surmounting the challenges posed by majorchanges in the market. As the world’s growth regions andproducts undergo drastic changes, the Nitta Gelatin Groupwill pursue its long-term vision CFG2016 strategy. Our goal is
to become the “dominant No. 1 in Asia and a globally uniqueenterprise” as a global gelatin specialist.
We look for ward to the continued suppor t and understanding of all our stakeholders, as we strive to realize
our vision.

F Strategy (Formula Solution Business)
In the food material field, we will work to develop new applications and cultivate new markets in the food market. To thisend, we will develop products and applications for the convenience store and senior food markets, as we provide customers with solutions. In adhesives, we aim to establish a solid
market position with a new environmentally friendly hot-meltadhesive. We are also targeting the development of a second
growth driver by cultivating the market for high-performanceresins for sealants.
G Strategy (Global)
In addition to Japan and North America, our current coremarkets, we are targeting key Asian markets such as India
and China, which are experiencing rapid economic growth.
Here, we will ramp up our supply capacity and expand salesof gelatin, collagen peptide and collagen casing. Also, bySeptember 2012

5

Nitta Gelatin Inc.

Annual Report 2012

Nitta Gelatin at a Glance—The Market at Large and Nitta Gelatin’s Uniqueness—
Fiscal year ended March 31, 2012

Collagen Material BusinessNet sales

Gelatin¥17,433
63

million¥2,25512.9

million(% of Group net sales)

Segment profit(■

For food■

For hard and soft capsules■

For photographic films and papers

Peptide% operating margin)■

For dietary food supplements■

For protein drinks and foods■

For cosmetics

Life Science■

Testing reagent for laboratory research■

Biomaterial■

Functional materials for cosmetics

Casing■

Sausage casing

Formula Solution BusinessNet sales¥10,32937(

million% of Group net sales)¥1,082
10.5

Segment profit(

Food Materials■

Gelling agents■

Stabilizers for meat products■

Stabilizers and quality enhancers for heat-and-serve meals■

Consumer products for mail-order sales

millionAdhesives% operating margin)

6■

Hot-melt adhesives■

High-performance polymer■

Animal glues

Nitta Gelatin Inc.

Annual Report 2012

The market at large

Nitta Gelatin’s uniquenessOwing to the Japanese population aging and having fewer children, and to changes inpeople’s diet, food needs have diversified and demand for gelatin in Japan for use mainly
in convenience store delicatessen items, frozen foods and food provided during medical
and nursing care has increased, in contrast to stagnant demand for the conventional use
of gelatin in desserts and confectionery. On the whole, steady growth in demand is
expected for gelatin in Japan.
Overseas, we expect our proposals for novel food applications of edible gelatin to giverise to new demand, even though the markets for gelatin in the leading industrial countries
have become saturated. Demand for edible and capsule-use gelatin is expected to increasein India, China and Southeast Asia as living standards rise as a result of economic growth.

Nitta has a strong reputation for its quality assurance capabilities and manufacturing technology
nurtured in the course of development of photographic gelatin. We also have a long track recordin marketing gelatin to global capsule manufacturers.
Furthermore, in the food market, our proprietarilydeveloped granulated gelatin “GELATIN 21” andother similar products are complemented by ourability to develop and propose food recipes that
our customers find indispensable in developing
food-related products.

A large and burgeoning market for foods appealing to nutrient function claims has emergedin both breadth and scope as a result of increasing health consciousness, mainly because
more societies have aged and increased their caloric intake. In Japan, collagen has come tobe widely recognized as a staple material in skin-care cosmetics. But in part because of thiscosmetics aspect, the market for collagen peptide was an image-driven one initially. In
recent years, research has begun to shed light on some of the clinically efficacious properties and mechanisms of collagen peptide on biological regulation, providing evidence of its
additional advantages as a product and increasing the prospects for marketing it in both
Japan and overseas as a functional food material.

Our IXOS® series of fish collagen peptide is highly
prized in the health food market as an exceptionally flavorless, odorless and colorless product. We
are also developing and proposing products basedon our proprietary research for discovering peptide
formulations with physiological functions for theskin, bone and joint, and unraveling the mechanism behind their action and efficacy in humans.

Collagen for tissue culture used in clinical research is an indispensable material to theadvancement of medical science. Amid the heightened research activity in regenerative
medicine in recent years, demand for gelatin and collagen has developed robustly as asafe and physiologically compatible biomaterial for drug delivery systems (DDS) and cell
scaffolds to induce self-repair and regeneration of human tissue in tissue engineering.
Collagen is broadly utilized for cosmetics since its image for cosmetic advantage iswell-accepted.

Our Cellmatrix® has been broadly accepted bymany medical research institutes as a tissue
culture collagen. In addition, our beMatrix® series
gelatin and collagen is widely used as a promisingbiomaterial in tissue engineering research ranging
from basic studies to clinical trials. Furthermore,
we are conducting research into the functionalityof collagen with a view to developing cosmetics
formulations with scientifically proven efficacies.

Natural sausage casings made from animal intestines have declined in supply, despite
the preference among some consumers for the genuine material, and prices consequently
have trended higher. Natural casings also have the drawback of lacking a uniform sizeand length.
Collagen casings, by contrast, are stable across the board in quality, price and supply.
Moreover, collagen casings can also contribute to high productivity, as they can be made toeasily accommodate high-speed filling. As a result, collagen casings are expected todisplace natural casings as demand for sausages rises in step with economic development
among emerging countries.

Demand for collagen casings in the North American
market is firm, with more growth in demand
expected from China and other emerging markets
in Asia. We are striving to improve manufacturing
efficiencies and bolster our supply capabilities in
responding to this increase in demand. Moreover,
we are engaged in the product development of
medical and other materials that make full use of
our collagen processing technologies.

While demand for it in the traditional market of cup jellies, packaged for instance as gifts,
has stagnated, new demand for gelling agents in the market for chilled deserts sold mainly
through convenience stores and specialty stores is booming. Furthermore, the market forgelling agents in ready-made dishes sold in convenience stores and delicatessens, and as
part of medical diets for seniors is expanding as food market needs diversify in tandemwith the Japanese population aging and having fewer children.
Furthermore, cosmetics and dietary supplements featuring collagen have become
more popular, reflecting rising health and beauty consciousness among consumers.

We have a strong development capability in foodapplications that utilize the characteristics of foodingredients effectively. Harnessing this capability,
we design and propose food recipes for meetingthe product development needs of our customers.
We also have consumer-product line-ups of collagen supplements, such as Collagenaid ® and HG
Collagen®, and collagen-added cosmetics for
mail-order sales to consumers.

The biggest advantage of hot-melt adhesives, which are applied by heat and solidify whencooled, is high-speed adhesion property. Hence hot-melt adhesives are suitable for automated manufacturing. These adhesives have also gained attention lately as an environmentally responsible alternative to solvent-based adhesives.
Demand for such adhesives in bookbinding has declined as a consequence of therising popularity of electronic books, but remains firm for application in the packaging ofbeverages, foods, and medical products. Moreover, demand has risen in recent years foradhesives that help reduce the consumption of energy, electric power and resources.

Our adhesives NITTAIT ® provide optimal solutions
for many customers due to their wide range ofapplications, ranging from packaging to bookbinding, hygiene products, construction, woodworking,automobiles, and electrical work. Furthermore, weare developing new sealant applications for highperformance polymers which harden with ultraviolet exposure that we have developed based on
patented technologies.

7

Nitta Gelatin Inc.

Annual Report 2012Management System

Nitta Gelatin’s Corporate Philosophy is “Based on a spirit of empathy
and sincerity, we, the members of the Nitta Gelatin Family are
dedicated to the development of our business and contributions to
the global community. We will lead prosperous and fulfilling lives
through our competence and utmost efforts.” To this end, we will
pursue our Group vision: “The Nitta Gelatin Group, as a world leading gelatin manufacturer, uses its proprietary technology to quickly
and efficiency provide superior products and services to global
customers. The Group produces healthy, functional and valuable
products in multinational facilities that are safe, reliable and environmentally friendly.” We will carry out this mission and employ thorough compliance practices to raise our corporate value. These firm
principles have formed the foundation of our corporate governancesystem, and our commitment to transparent, sincere management.

resolve important issues regarding business operations, as well as
approve matters prescribed by laws and regulations and inscribed in
the Company’s Articles of Incorporation. The Board of Directors,
moreover, supervises and monitors the representative director andpresident, and the executive officers, to ensure that they are performing their duties in line with the board’s management guidelines
and strategies.
The Company has also adopted a system of statutory auditors.
This system seeks to further improve the Company’s managementtransparency and accountability to stakeholders by making full useof statutory auditors and their management monitoring functions. To
this end, a Board of Statutory Auditors has been established, consisting of three statutory auditors (of which two are outside statutory auditors).
In addition, an Executive Committee meets twice a month todiscuss matters of importance related to the Company’s businessexecution. This Executive Committee is made up of the Company’s
standing directors, standing statutory auditors, standing executive
officers in Japan, and other members appointed by the Company’s
representative director and president. Furthermore, a Strategy Committee meets once a month to discuss individual issues of particularimportance to the Company and offer their support to enable theCompany’s president and Board of Directors to make decisions
promptly. This Strategy Committee is made up of members appointed
by either the president or standing directors of the Company.

Corporate GovernanceCorporate Governance System and Status
The Company’s corporate governance system has functions foroversight and monitoring of management by means of directors, aBoard of Directors, statutory auditors and a Board of Statutory
Auditors. In addition, the Company has introduced an executive
officer system from January 2005 to raise management efficiency.
This has separated the system for business execution from oversight functions, increased management transparency, accelerated
decision-making, and strengthened the function for monitoring
management.
The Board of Directors is the highest decision-making body inmanagement. The board meets once a month to formulate management guidelines, propose management strategies, and vote to

What follows is a schematic chart of Nitta Gelatin’s corporate
governance and internal control system.

Annual General Meeting of Shareholders
Appointment anddismissal

Appointment anddismissal

Board of Statutory Auditors

Board of Directors
Monitor

Audit

Appointment and dismissal
ReportCollaborate

Supervise

Representative Director
and President

ReportAccounting
audit

Executive Committee

Strategy Committee
ReportInternal Audit Office
Collaborate

Adviceandguidance

Supervise

Executive Body
Internal
audit

Compliance and Risk
Management Committee

Corporate Attorneys, etc.

Accounting Auditor

Collaborate

Appointment anddismissal

Execution of duties

Number of Directorsof directors shall not be approved on the basis of cumulative voting.

The Company’s Articles of Incorporation stipulate that the Board of
Directors comprises a maximum of eight directors.

Status of Outside Directors and Outside Statutory
Auditors

Approval Criteria for the Appointment and Dismissal of
Directors

Nitta Gelatin has appointed one outside director and two outside
statutory auditors. We aim to strengthen our corporate governanceby reflecting the objective viewpoints of the outside director andstatutory auditors, as well as their extensive experience and knowledge, in our management.
Outside Director Mayumi Ishihara has extensive experience andknowledge as a lawyer. We adjudge that this will serve to improve
our management transparency, further enhance the supervisory
function with respect to business execution, and strengthen ourcompliance. Nitta Gelatin pays fees for the legal advice it receives
from OH-EBASHI LPC & PARTNERS, with whom Ms. Ishihara is

The Company’s Articles of Incorporation stipulate that the appointment of directors shall be approved by a majority of voting rights
exercised at a meeting attended by shareholders holding at least
one-third of all voting rights.
The same articles stipulate that the dismissal of a director shallbe approved by two-thirds majority of voting rights exercised at a
meeting attended by shareholders holding at least one-third of all
voting rights.
The Articles of Incorporation also stipulate that the appointment

8

Nitta Gelatin Inc.

Annual Report 2012

employed as a counsel. However, we discern that this poses noactual threat to her independence from the Company.
Outside Statutory Auditor Yoshihiro Sakatani is a certified public
accountant (CPA). We adjudge that his many years of experience andknowledge as a CPA will form a basis for securing the reasonable
and appropriate management of Nitta Gelatin. Mr. Sakatani is concurrently the representative director of Japan Management Consulting
Co., Ltd., and was once in the employ of Ernst & Young ShinNihon
LLC. However, we have determined that this nevertheless satisfies
the “Standards for Independence of Outside Directors and Outside
Statutor y Auditors,” and that his independence from the Company
is secure.
Outside Statutory Auditor Shigeoki Tougou is primarily a very
experienced executive business manager. Based on this, we havejudged that his broad perspective will serve to secure the reasonable and appropriate management of Nitta Gelatin. We have noconflicts of interest—either personal, financial, business or otherwise—with Mr. Tougou. Hence we are of the opinion that his independence from the Company is secure.
Nitta Gelatin has designated and registered outside statutory
auditors Shigeoki Tougou and Yoshihiro Sakatani as independent
statutory auditors, based on the rules of the Tokyo Stock Exchange.
The relationship of the outside director and outside statutory
auditors with the internal control bodies of Nitta Gelatin, as well as
their mutual cooperation in the supervisory, audit, internal audit,
statutory audit, and accounting audit functions of the Company are
documented under “Status of Internal Audits and Audits by Statutory Auditors” in this report. Moreover, the Company’s Board of
Directors and Board of Statutory Auditors receive reports andexchange opinions with regard to this relationship and mutual cooperation when relevant.

Financial Instruments Exchange Act. Since then, this team has been
involved in building an internal control system on financial reporting
under the guidance of Ernst & Young ShinNihon LLC. Consequently,
an internal control system for the entire Company, business operation processing, IT, and Group subsidiaries was documented alongwith a checklist. Following inspections, evaluations and correctionsof the operational status and shortfalls by the project team, thisinternal control system went into operation in the fiscal year ended
March 2012.
What follows are excerpts of a “Basic Policy on Building an
Internal Control System,” compliant with the Companies Act ofJapan, that the Board of Directors of Nitta Gelatin approved forinstitution on July 19, 2006 and revision on February 22, 2012.
1. System to ensure that the execution of duties by directors andemployees comply with laws and regulations, and the Articles
of Incorporation• A Principles of Business Conduct has been instituted as afoundation to the Company’s compliance system. In addition, aCompliance Risk Management Committee has been set up forthe establishment of corporate ethics and rigorous compliancewith relevant laws and regulations, with the General Affairs
Division serving as the administration office.
• Nitta Gelatin will undauntedly sever all associations with antisocial forces and groups that pose a threat to a law-abiding
society and the safety of its citizens by adhering to its Principles
of Business Conduct.
• As the division responsible for coordinating compliance, theGeneral Affairs Division will develop and uphold the Company’s
compliance system. As the need arises, relevant Group divisions and departments in each field of compliance will formulate the bylaws and guidelines, and provide the training in theirrespective field of compliance.
• A “Whistle-blowing System” has been established, with the
General Affairs Division and corporate attorneys as the contact. The system is aimed at facilitating the internal reportingof questionable conduct that may not comply with laws andregulations, and other issues pertaining to compliance.
• The Internal Audit Office will conduct internal audits on thedevelopment and operating status of the compliance system
as a part of its duties.
2. System to manage and safeguard information connected withdirectors’ performance of duties• Important documents pertaining to directors’ performance of
duties shall be properly retained for safekeeping and managedin accordance with the Company’s bylaws for managing documents. Such important documents include the minutes to themeetings of the Board of Directors and the Board of Executive
Officers, memos circulated to approve executive decisions,and other pertinent reports.
• The Internal Audit Office will conduct internal audits on thesafekeeping status of important documents pertaining to theBoard of Directors and the Board of Executive Officers meetings, among other executive decisions.
3. System with respect to internal rules and other stipulations on
managing risks of loss
• Internal rules on risk management have been instituted to
uphold the Company’s risk management system.
• A Compliance and Risk Management Committee has been
established to formulate policies and develop the Company’srisk management system, as well as provide evaluation andguidance on the individual risk management systems of theGroup’s divisions and departments.
• Each Group division and department will appoint a risk management officer, and autonomously manage risks.

Standards with Respect to the Independence of Outside
Directors and Outside Statutory Auditors
Nitta Gelatin’s standards with respect to the independence ofoutside directors and outside statutory auditors require that thefollowing does not apply to its outside directors or outside statutory
auditors in order to ensure that they remain independent of theCompany’s management team.
1. A business executor of the Company, its subsidiaries or affiliates
2. A major business partner of the Nitta Gelatin Group, or a business executor of said major business partner
3. A recipient of compensation (monetarily or in other assets) fromthe Nitta Gelatin Group as a consultant, accounting specialist, or
legal specialist (or an employee of corporations, cooperatives
and other organizations receiving such compensation), apartfrom remuneration as a director or statutory auditor
4. A person who was 1. through 3. in the past three years
5. A next of kin to whom either of the conditions (a) through (c)applies, unless (a) through (c) pose no material conflict ofinterest(a) A person who was 1. through 4.
(b) An important business executor of the Nitta Gelatin Group(c) A person who was (b) in the past three years* A business executor refers to a director (apart from an outside director), executive officer, employee, or a person in some other capacity
engaged in the execution of business operations.
* Next of kin refers to relatives within two degrees of kinship.

Internal Control System
Development Status of the Internal Control System
The Company formed an internal control project team in October
2006 in an effort to meet the requirements of an Internal Control
Report stipulated by provisions on financial reporting in the9Nitta Gelatin Inc.

Annual Report 2012

• The Strategy Committee will discuss the evaluation and countermeasures of risks pertaining to the Company’s importantinvestments and loans, among other funding issues.
• In the event of an unforeseen emergency, the representative
director and president of the Company will establish and headan “Emergency Countermeasures Headquarters,” with aims of
preventing the emergency from spreading and establishing asystem for minimizing the damages.
4. System to ensure the efficient execution of directors’ duties• The Company’s Board of Directors will meet once a month, andas the need arises, to ensure the efficient execution of directors’ duties.
• An executive officer system has been introduced to raise thesoundness and efficiency of the Company’s management, withthe view to clarifying the scope of responsibilities of each
executive officer.
• A Board of Executive Officers, chaired by the representative
director and president, meets twice a month to discuss mattersof importance related to the Company’s business execution.
These matters delegated from the Board of Directors are executed only after the Board of Executive Officers reviews them.
• The Company’s business performance is managed based on
annual budgets and the medium-term management plans theCompany as a whole and Group companies formulate. Progress in achieving the budgets and plans is reported to andevaluated by the Board of Executive Officers, which meets
twice a month.
5. System to ensure proper operation of the Group comprising
Nitta Gelatin, its subsidiaries and affiliates• A Principles of Business Conduct, applicable to the entire Nitta
Gelatin Group, has been instituted to ensure the proper operation of Group companies. Each Group company in addition tothis will also establish their own internal rules.
• Nitta Gelatin is managed systematically as a Group, with eachbusiness subsidiary and affiliate of the Group managing theirbusiness in accordance with “Bylaws for Affiliate Company
Management” and reporting back to the Company.
• The Internal Audit Office will conduct internal audits of theGroup companies as required.
6. System to ensure the reliability of financial reporting• To ensure the reliability of its financial reporting, Nitta Gelatin
and its Group companies have built an internal control systemon financial reporting, with the aim of filing an appropriate
Internal Control Report with the authorities. At the same time,
the Group is striving to continually evaluate and improve theproper functioning of this internal control system.
7. System for employees who help statutory auditors perform theirduties, and the independence of these employees from directors• Statutory auditors perform their duties with assistance fromthe Internal Audit Office and the accounting auditor, among
others. In the event that statutory auditors require staff toassist them, the Board of Directors approves the appointmentof nominees.
• Once staff are appointed to assist the statutory auditors, theirevaluation and transfer must be discussed in advance with theBoard of Statutory Auditors.
• Staff who assist statutory auditors are forbidden from concurrently holding positions involved in executing the Nitta GelatinGroup’s business.
8. System for reports from directors and their employees to statutory auditors, among other reports to statutory auditors, and toensure the effective implementation of statutory audits• Directors and their employees report each matter with a material impact on business operations and earnings performanceof Nitta Gelatin and its Group companies to the statutory

auditors. Notwithstanding the said matter, the statutory auditors may request the reports they deem necessary from directors and their employees at all times.
• Statutory auditors are entitled to attend all important Nitta
Gelatin meetings, including meetings of the Board of Executive Officers.
• The Company endeavors to uphold an environment that is
conducive to the statutory auditors performing their duties.

Status of Internal Audits and Audits by Statutory
Auditors
An Internal Audit Office, comprising three employees, conducts Nitta
Gelatin’s internal audits, performing inspections to make certainthat the Company’s divisions and segments are executing businessappropriately and efficiently in compliance with the relevant laws
and regulations, and that the Company’s assets are properly safeguarded. This Internal Audit Office consults with, as the needarises, and collaborates extensively with the Company’s accounting
auditor to plan and implement internal audits to be reported to theCompany’s management. Input from the accounting auditor is used
to improve the execution of duties of the Internal Audit Office andthe statutory auditors.
A system is in place for all statutory auditors, including the one
standing statutory auditor and two outside statutory auditors, toattend the Board of Directors meetings and provide sufficient oversight concerning the Board of Directors in the execution of theirduties. The standing statutory auditor also attends the Board of
Executive Officers and other important meetings within the Company
to monitor the execution of duties by the directors further. This
auditor also conducts in-house audits of various organizational
entities within the Group, interviewing the people in charge to makeassessments, and collaborates with the Internal Audit Office andaccounting auditors to inspect the execution of the Group’s business operations.

Risk Management System
Development Status of the Risk Management System
We firmly believe that effectively maintaining and upgrading thedegree of compliance of our management with relevant laws andregulations is of utmost importance in reducing exposure to various
corporate risks. We devised a Basic Policy on Building an Internal
Control System in line with this fundamental stance (instituted on
July 19, 2006 and revised on February 22, 2012). Furthermore, theCompany’s Compliance Bylaws and Risk Management Bylaws were
formulated in accordance with this Basic Policy.
A Compliance and Risk Management Committee has been
established as an organization for providing management oversight
throughout the Nitta Gelatin Group concerning compliance and risk
management. As a general rule, this committee chaired by theCompany president meets once a month to keep up to date with theGroup’s compliance issues and examine the countermeasures forpreventing various conceivable risks, and managing those risks inthe event that they arise.
We have also established Principles of Business Conduct andmade certain that these Principles have been disseminated rigorously throughout the Group. These Principles require all directors,
executive officers and employees of the Group to comply rigorouslywith the relevant laws and regulations, conduct business activities
with fairness and integrity, and recognize that they are a member ofsociety and must behave properly as both a corporate and an individual citizen.
Furthermore, we receive advice and guidance concerning compliance and risk management from our corporate attorneys andother relevant consultants, as the need arises.

10Nitta Gelatin Inc.

Annual Report 2012

Board of Directors, Executive Officers and Statutory Auditors(As of June 27, 2012)

Front row from left: Tsuneo Sasaki, Director and Senior Managing Executive Officer; Norimichi Soga,
Representative Director and President; Takeo Yamaki, Director and Executive Officer
Back row from left: Hiroshi Nitta, Director; Koichi Ogata, Director and Executive Officer; Tatsuro Otsuka,
Director and Executive Officer; Mayumi Ishihara, Outside Director

Board of Directors

Statutory Auditors

Executive Officers

Representative Director and President

Standing Statutory Auditor

Senior Executive Officer

Norimichi Soga

Shinzo Tatematsu

Raymond Merz

Director and Senior Managing Executive
Officer

Outside Statutory Auditor

Senior Executive Officer

Yoshihiro Sakatani

Toshikazu Nishio

Outside Statutory Auditor

Executive Officer

Shigeoki Tougou

Yasuyuki Nakai

Tsuneo Sasaki
Director and Executive Officer

Takeo Yamaki
Executive Officer

Hidenori Takemiya

Director and Executive Officer

Koichi Ogata
Executive Officer

Yuji Yamamoto

Director and Executive Officer

Tatsuro Otsuka
Executive Officer

Toru Tamaoka

Director

Hiroshi Nitta
Executive Officer

Yoshitaka Oda

Outside Director

Mayumi Ishihara

11

Nitta Gelatin Inc.

Annual Report 2012Management’s Discussion and Analysis

Business Performance Summary for the Fiscal Year
Ended March 31, 2012assets of ¥49 million, and a loss on valuation of golf clubmembership of ¥4 million as extraordinary losses.
As a result of the foregoing, net income increased ¥324
million, or 30.8%, year on year to ¥1,375 million.

In the fiscal year ended March 31, 2012, the Japanese
economy weakened substantially in the first half as a consequence of the Great East Japan Earthquake. On the other
hand, the economy showed signs of picking up gradually inthe second half as supply chains were restored, various
government policies began having an impact, and personal
consumption strengthened. The economic outlook, however,remained uncertain due to instabilities such as an abrupt
appreciation of the yen and sluggish stock prices stemming
mainly from the European debt problem, damages from theflooding in Thailand, restricted supplies of electric power inJapan owing to the nuclear power station accidents, and a
sharp rise in oil prices. Overseas, the world was increasingly
polarized into two camps. In contrast to the leading industrial economies either slowing or stagnating, the global
economy was driven by high and sustained growth among
the emerging markets, led by China and followed by other
Asian countries including India, Vietnam and Indonesia.
Against this backdrop, we have adopted three basic
management policies: (1) Beyond customers’ expectations;(2) Globalization & Innovation; and (3) Focusing and Concentration. Guided by these policies, we have actively worked toprovide products and services that satisfy customers,
develop new products and cultivate new markets with theaim of rising above the challenging business conditions.
On the sales front, net sales were ¥27,763 million, adecrease of 0.6% year on year. Meanwhile, on the earnings
front, operating income was ¥2,015 million, an increase of
35.6% year on year. Net income rose 30.8% year on year to¥1,375 million.

Segment Performance
Collagen Material Business
Demand for gelatin in Japan was strong throughout the
fiscal year under review. The Group experienced strong
sales of edible gelatin for both commercial use and homeuse, particularly for use in heat-and-serve delicatessen
items and chilled desserts in convenience stores, yogurt
and other dairy products, and gummy candy and other confectionery applications. By contrast, sales of gelatin for
capsules remained flat, with comparatively strong demand
for their use in the nutritional food supplement sector offsetting a slack for their use in the pharmaceutical sector.
Meanwhile, photographic gelatin sales held unchanged fromthe year before. In overseas markets, demand was strong
for gelatin capsules in both North America and Asia, withthe result our gelatin exports from Japan were roughly ontarget. Sales performances of overseas subsidiaries
strengthened, particularly in North America, as a consequence of gelatin prices that were revised to the Group’s
advantage in the second half.
The March 11 disaster affected collagen peptide
demand in Japan and resulted in lackluster sales for the
Nitta Gelatin Group as the nutritional food supplement
market softened. Import restrictions on Japanese productsthat a number of Asian countries imposed in reaction to the
nuclear power station accidents hurt exports to Asia andwere also an obstacle to collagen peptide sales expanding.
Collagen casing sales firmed, on the other hand, buoyedby favorable conditions in the North American meat packing
market and strong demand from Europe.
As a result of the foregoing, net sales in the Collagen
Material business decreased 2.5% year on year to ¥17,433
million. Segment profit was up 27.2% year on year at¥2,255 million.

Consolidated Business Performance for the Fiscal
Year Ended March 31, 2012
Net Sales and Earnings
Net Sales
Higher sales were posted for gelatin and food material, underpinned by strong conditions in the food market centered on
delicatessen items and confectionery, as well as post-quake
demand. However, collagen peptide sales stagnated, and thetranslation of sales denominated in foreign currencies into
Japanese yen had a negative impact on sales due to the
yen’s appreciation. Consequently, net sales declined ¥160
million year on year, or 0.6%, to ¥27,763 million.
Gross Profit
Consolidated gross profit rose ¥512 million, or 8.1%, year
on year to ¥6,838 million mainly on the back of reduced
manufacturing expenses and the positive impact of thestrong yen on imports of raw materials.
Selling, General and Administrative Expenses
Selling, general and administrative (SG&A) expenses decreased¥16 million, or 0.3%, year on year to ¥4,822 million.
Operating Income
As a result of the foregoing, operating income rose ¥528
million, or 35.6%, year on year to ¥2,015 million.
Net Income
We booked a gain on transfer of business of ¥15 million as
an extraordinary gain, and a loss on retirement of noncurrent

Formula Solution Business
Food material sales rose and were undergirded by strong
conditions in the Japanese food market. The Formula Solution business saw sales of stabilizers for ham, sausage andother meat products increase, in addition to gelling agentsfor use in chilled desserts and ready-made jellies sold in
convenience stores.
In adhesives, sales increased for hot melt adhesives for
packaging beverages, instant noodles and confectionery
among other applications in the food sector. On the other
hand, sales of hot melt adhesives for bookbinding applications continued to decrease due to weak conditions in the
publishing sector. Monetary sales of adhesives held steady,however, due to the product pricing revisions the Group
imposed in the second half to reflect a sharp increase in the
raw material cost of petroleum products and natural resins.
As a result of the foregoing, net sales in the Formula Solution business increased 2.9% year on year to ¥10,329 million.
Segment profit rose 15.8% year on year to ¥1,082 million.

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Nitta Gelatin Inc.

Annual Report 2012

Research and Development

Casing• Improve and upgrade collagen casing production• Develop new markets and productsLife Science• Research and development of collagen for biomaterials
and cell cultures• Research and development of gelatin and collagen foradvanced medical care

Under the business slogan of “Beyond the Expectation”(exceeding customers’ expectations), our vision is as follows: “As a world leading gelatin manufacturer, the Group
uses its proprietary technology to quickly and efficiently
provide superior products and services to global customers.
The Group produces healthy, functional and valuable products in multinational facilities that are safe, reliable andenvironmentally friendly.” Guided by this vision, we areadvancing both the Collagen Material and Formula Solution
businesses with the aim of establishing Nitta Gelatin as a
global brand that is chosen first by customers.
The markets the Nitta Gelatin Group faces are constantly
evolving and diversifying on a daily basis. Our basic R&D
policy is to quickly and efficiently develop products andservices that are a half step or a whole step ahead of customer expectations in order to enhance the Company’s
brand value and contribute to sustained business expansion
and growth. We have organized a product-development
structure that is as close to customers as possible in aneffort to energize R&D activities and identify shifts inmarket and customer needs with a constantly positive mindset. In other words, we have stationed sales, development
and production personnel across the R&D organization toensure that requests from the customer, markets andothers are directly conveyed to technology, service, productdevelopment and production technology development units,
so that timely responses are made. While the internal
research personnel are focused on product development
and customer service, we also actively conduct joint
research with and commission research to external research
institutes, universities and other entities, for the purpose ofpromoting basic research into core materials, obtaining new
fundamental technologies and meeting other priorities.
Since 2007, we have held TPM (Technology, Product,
Market) Presentations under the guidance of external consultants, in an initiative to promote and encourage R&D
activities. These presentations are based on the “TPM
cycle” approach of obtaining Market recognition throughProduct development driven by Technology. Group R&D
Information Meetings have been held since 2010, to share
information about R&D within our Group by introducing
examples of development projects, as well as new technologies and products.
The following is a breakdown of R&D activities by division in each business during the fiscal year ended March
31, 2012. Total R&D expenses were ¥895 million.

R&D expenses in the Collagen Material business were¥568 million.
Formula Solution Business
Food Material• Develop applications utilizing application laboratories• Develop novel products• Plan and develop consumer products
Adhesives• Environmentally friendly hot-melt adhesive• High-performance polymers (UVFG, CIPG)
R&D expenses in the Formula Solution business were¥326 million.

Cash FlowsNet cash provided by operating activities was ¥568 million,
down 63.8% year on year. The main contributing factors
were income before income taxes and minority interests of¥1,964 million and depreciation and amortization of ¥841
million. These inflows were partly offset by an increase innotes and accounts receivable of ¥842 million, an increase
in inventories of ¥631 million and income taxes paid of¥382 million.
Net cash used in investing activities was ¥733 million,
compared with ¥1,094 million in the previous fiscal year.
The main uses of cash were the purchase of property, plantand equipment of ¥673 million, and the purchase of stocks
of affiliates of ¥28 million.
Net cash provided by financing activities was ¥713
million, compared with net cash used in financing activitiesof ¥363 million in the previous fiscal year. This mainlyreflected proceeds from long-term debt of ¥2,047 million,
proceeds from issuance of common stock of ¥1,404 million
and proceeds from disposal of treasur y stock of ¥101
million. The main uses of cash were repayment of longterm debt of ¥1,987 million, purchase of treasur y stockof ¥528 million and repayments of lease obligations of¥111 million.
As a result, cash and cash equivalents were ¥2,078
million as of March 31, 2012, an increase of 35.1% from ayear earlier.

Collagen Material Business
Gelatin• Improve and upgrade production technology for raw
material and gelatin processes• Develop new gelatin• Enhance gelatin applications
Peptide• Develop collagen peptide production technology• Research functional characteristics of collagen peptide

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Annual Report 2012

Capital Investment

Noncurrent Liabilities
Noncurrent liabilities were ¥6,087 million as of March 31,
2012, a decrease of ¥428 million from the previous fiscal
year-end. This mainly reflected a decrease of ¥330 million
in bonds and a decline of ¥124 million in long-term debt.
Net Assets
Net assets stood at ¥8,108 million as of March 31, 2012,
an increase of ¥1,923 million from the previous fiscal yearend. This increase was mainly attributable to the issuanceof new shares and the disposal of treasury stock that
resulted in a ¥702 million increase in capital stock and a¥720 million increase in capital surplus, as well as anincrease of ¥799 million in retained earnings.

We executed capital investment of ¥769 million mainly forthe purpose of rationalizing production, maintaining production capacity and conducting research and development.
In the Collagen Material business, we executed total
capital investment of ¥670 million. The main components
were ¥305 million at the Osaka Plant, ¥93 million at Hikone
Gelatin Inc., and ¥55 million at Nitta Gelatin Canada, Inc.,for the purpose of enhancing quality, conserving energy andmaintaining production capacity. We also made capital
investment of ¥208 million at Nitta Casings Inc. and Nitta
Casings (CANADA) Inc. to upgrade collagen casing production facilities and increase production capacity.
In the Formula Solution business, we executed total
capital investment of ¥55 million, mainly comprising capital
investment at the Osaka Plant for the purpose of upgrading
testing and measurement equipment, and enhancing thequality of adhesive products and maintaining production
capacity.
Furthermore, in corporate assets, we made capital
investment of ¥43 million primarily for the purpose of producing a DVD-based corporate guide and enhancing the IT
environment.

Basic Profit Distribution Policy and Dividends
Our basic policy on profit distribution is to continuously pay
steady dividends, while securing the internal reserves
needed to develop future businesses and strengthen ouroperating structure.
Furthermore, our basic policy is to pay dividends twice
every fiscal year, with interim and year-end dividends determined by the Board of Directors and the Annual General
Meeting of Shareholders, respectively.
In regard to dividends for the fiscal year ended March
31, 2012, in accordance with the aforementioned policies,
management has decided to pay a year-end dividend of¥8.00 per common share, as well as a commemorative
dividend of ¥2.00 to mark the Company’s listing on theSecond Section of the Tokyo Stock Exchange. Combinedwith the interim dividend of ¥2.00, the annual dividend percommon share is ¥10.00.
In regard to funds set aside as internal reserves, we
intend to effectively invest these funds in enhancing costcompetitiveness even more than before, bolstering ourtechnology and product development structure in response
to market needs, as well as implementing global strategies.
These investments will help us to address anticipatedchanges in the business environment going forward.

Financial Position
Total assets were ¥23,371 million as of March 31, 2012,
an increase of ¥1,905 million from the previous fiscal
year-end.
Current Assets
Current assets were ¥14,935 million as of March 31,
2012, an increase of ¥2,067 million from March 31,
2011. This was mainly attributable to a ¥540 million
increase in cash and deposits, an ¥827 million increase innotes and accounts receivable and a ¥600 million increase
in inventories.
Fixed Assets
Fixed assets were ¥8,436 million as of March 31, 2012, a
decrease of ¥162 million from a year earlier. The decrease
mainly reflected a decline of ¥150 million in net property,
plant and equipment.
Current Liabilities
Current liabilities were ¥9,176 million as of March 31,
2012, an increase of ¥411 million from the previous fiscal
year-end. This mainly reflected an increase of ¥182 million
in the current portion of bonds due within one year and anincrease of ¥203 million in income taxes payable.

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Annual Report 2012

Business Risks(3) Exchange Rate Movements

This section provides information about the principal business risks concerning the Nitta Gelatin Group’s operations
and related matters that may have a material impact on thedecisions of investors. Matters that do not necessarily
constitute such risks, but are considered to have a material
impact on the investment decisions of investors are also
disclosed below from the standpoint of actively disclosing
information to investors. Recognizing the possibility for suchrisks to occur, we endeavor to prevent the occurrence ofsuch risks and to respond properly in the event that suchrisks occur.
This section includes for ward-looking statements
determined based on information available to us as of June27, 2012.

When selling products to overseas customers either directlyor through a subsidiary, we export products on a U.S. dollardenominated basis. On the procurement front, we purchaseraw materials for gelatin, such as bovine bones and ossein,
primarily using U.S. dollars. We also import pig skin gelatinfrom overseas on a Canadian dollar-denominated basis. For
this reason, we hedge our foreign exchange risk by concluding foreign exchange forward contracts with financial institutions with respect to U.S. dollar-denominated exports, aswell as U.S. dollar- and Canadian dollar-denominatedimports. Through these measures, we reduce our exposure
to foreign exchange risk related to operating transactions.
However, in the event of unforeseeable foreign exchange
rate movements, our operating results and financial position
could be negatively impacted.
Furthermore, gains and losses arising from foreign
currency-denominated transactions as well as the translation into Japanese yen of foreign currency-denominatedreceivables and payables as well as the translation into
Japanese yen of the accounts of the financial statements ofoverseas consolidated subsidiaries prepared in foreign
currencies, are subject to foreign exchange rate movements. This could have a negative impact on our operating
results and financial position.

(1) Product Development
Guided by our motto of quickly and efficiently providing
products and services that address shifting market conditions and customer needs, we actively conduct R&D andcapital investment. However, there is no guarantee that we
can successfully develop new products. In addition, even if
a new product is successfully developed, it may not matchcustomer needs and thus fail to gain their acceptance.
In regard to products for medical applications, customers using our products require an extensive lead time todevelop and launch medical products. During this period,
the customer may suspend product development or face
protracted development delays, among other contingencies,
mainly on account of shifting market conditions, changes inoperating performance, or delays in obtaining approval from
regulatory authorities.
In the event that we face delays or are unable to recoverR&D expenses and capital investment as a result, our operating results and financial position may be negatively
impacted.

(4) Price Fluctuations for Primary Raw Materials
Raw material costs accounted for 54.0% of our cost of
manufacturing in the year ended March 31, 2012. Raw
material prices fluctuate for a variety of reasons. In the
Collagen Material business, primary raw materials such as
bovine bones, pig skin and fish scales are all byproducts of
the livestock and fishery industries. The raw material pricemay fluctuate depending on changes in meat consumption
reflecting global economic conditions, as well as changes insupply-demand dynamics driven by regulations governing
food processing and distribution in response to various
animal epidemics and other factors. In the Formula Solution
business, prices of natural polysaccharides, the primary raw
material in the food material divisions may fluctuate due tochanges in the climate of growing regions and other factors.
Prices of petroleum resins, the key raw material for adhesives, may fluctuate due to changes in commodity prices
and supply-demand dynamics for heavy oil and naphtha.
Meanwhile, in some cases the market environment andother factors can make it difficult to transfer the impact ofprice fluctuations for these key raw materials to the selling
price of our products. Accordingly, fluctuations in raw materials prices could have a negative impact on our operating
results and financial position.

(2) Overseas Markets
Ever since the establishment of our first overseas sales
subsidiary in the U.S. in July 1979, we have been actively
working to expand sales in overseas markets. In the fiscal
year ended March 31, 2012, sales in overseas markets
accounted for 27.8% of our net sales. In the North American
market, our primary region for business development so far,our sales expansion may be negatively impacted by competition arising between our products and those of our competitors in the same industry.
In addition, in the future strategic Chinese, Indian andSoutheast Asian markets, our sales expansion may be
negatively impacted by even greater competition than in
North America between our products and those of our competitors in the same industry.
The Group is working to enhance its competitiveness,
mainly by reducing costs, improving quality, developing
unique new products, and conducting production in optimal
locations. However, if these measures prove ineffective,
sales growth could stagnate. This could have a negative
impact on our operating results and financial position.

15

Nitta Gelatin Inc.

Annual Report 2012

(5) Animal Diseases(7) Religious Rules

Our primary products, including gelatin, collagen peptide,collagen casing and collagen, are made from animal byproducts derived from livestock and fishery production, such as
bovine bones and hides, pig skins, and fish scales. Accordingly, these materials are subject to the risk of animal diseases. We therefore procure these materials only after
confirming that they are free from any animal infectious
diseases, while working to diversify the sourcing region of
raw materials in order to ensure their safety.
Despite these efforts, in the event that an extensive
outbreak of animal disease occurs in a region from which
we procure raw materials, the supply of raw material bones
and skins may decline or stop due to a suspension or stoppage of meat production, or may cause us to switch to analternative raw material source. These and other related
factors may have a negative impact on the stable procurement of raw materials.
In addition, our product sales may be affected by theoutbreak of an animal disease in countries in which raw
materials are produced or products are manufactured. Specifically, product sales may stagnate due to import restrictions and other measures imposed on animal products
made from raw materials originating from or products manufactured in these countries.
As a result of the foregoing, the Group may be impacted
by higher raw material procurement costs, reduced revenue
due to lower product sales, higher inventories and so forth.
This could negatively affect our operating results and financial position.

Gelatin is an animal-derived product that is widely used infood, pharmaceutical capsules and other items. However,
due to religious injunctions, some consumption of these
items may be forbidden, depending on the animal species
and the manufacturing methods. Main examples of suchreligious rules include the Halal (Islam) and Kosher (Judaism). Followers of these religions are forbidden from consuming pig-derived products. In order to sell proper gelatin
to business customers who manufacture products for these
consumers, we produce gelatin by procuring raw materials
derived from permissible animal species and by using
appropriate manufacturing methods in line with religious
rules. To make certain that our products conform to religious rules, we obtain certification through audits by certifying entities of each religion. In this context, we strictly
manage various processes. However, in the event that ourcertification is revoked as a result of a breach of a religious
rule due to a management deficiency, we will lose sales
opportunities, which could have a negative impact on ouroperating results and financial position.

(8) Natural Disasters, Accidents, Terrorism, War andOther Contingencies
In the event of natural disasters such as earthquakes,
storms and floods; accidents; problems with local communities; regional terrorism; wars and other contingencies at ourbusiness locations, the procurement of raw materials andthe production and sale of products could be disrupted,
which could have a negative impact on our operating results
and financial position. Our business locations include ourmain offices and major outsourcing partners (including
those in Osaka, Shiga and Tochigi prefectures, Japan; Province of Ontario, Canada; State of North Carolina, U.S.A.;
State of Kerala, India and Guangdong Province, China);
regions from which primary raw materials are procured(including India, Canada, U.S.A., New Zealand, Thailand andChina); and primary regions where products are sold (including Japan, North America, India, China and various other
Asian countries).
As a result of extensive flooding in Thailand, a partner
plant stopped production of ossein from bovine bones from
October to mid-December 2011. However, we responded bytaking steps such as increasing the procurement volume of
raw materials derived from bovine bones from India. Consequently, the impact on our operating results and financial
position was negligible.

(6) Laws and Regulations
In the course of executing business activities, the Group’sbusiness is subject to domestic laws and regulations,
including the Food Sanitation Law, the Japanese AgriculturalStandard and the Pharmaceutical Affairs Law, as well as
directives issued by the competent authorities. In the eventthat these laws and regulations are amended or abolished,or if new laws and regulations are established, we may incur
additional costs and other outlays to address these developments, or face restrictions in terms of the scope of ourbusiness activities. In such an event, our operating results
and financial position could be negatively affected.
In regard to the environment, gelatin production requires
large amounts of water in the whole process, from raw
materials to gelatin. For this reason, our plants are suppliedwith and release large amounts of water, and are subject tothe laws and regulations of each country and region inregard to wastewater volume and water quality. Efforts are
made at each plant to recycle and reuse water and to
upgrade production processes so as to reduce the volume
of water supplied and released and to maintain water quality. In the event of a major amendment to national orregional laws and regulations, we may incur costs associated with addressing such new legislative changes.
The foregoing impacts could negatively affect our operating results and financial position.

16

Nitta Gelatin Inc.

Annual Report 2012(9) Product Quality

Moreover, the Group conducts production and sales
activities on a global scale, and materials, semi-finishedgoods and other items are mutually supplied within theGroup. At the time of issuance of this report, there was noevidence of the application of transfer pricing taxation to ourtransactions. Going forward, however, in the event thatthese transactions become subject to transfer pricing taxation and we are obligated to pay a large amount of taxes,
our operating results and financial position could be negatively affected.

We endeavor to put quality first in order to earn our customers’ trust. To this end, we develop products focused on
customer needs, and manufacture products under an internationally accepted quality assurance system. One particular focus lies in ensuring traceability from raw materials tofinished products, in an effort to market safe products.
We have enrolled in product liability insurance policies,
among other safeguards. However, in the event that a customer suffers damages as a result of defects in our products, there is no guarantee that our liability for damages will
be covered within the compensation limits of these insurance policies.
Accordingly, in the event of a serious quality problem,the ensuing claims for damages, loss of public trust in theGroup and other factors could negatively impact our operating results and financial position.

(13) Information Security
We have established an information system that enables us
to obtain and analyze necessary information in real time invarious processes, including purchasing, production, sales
and management. We put particular emphasis on the strict
management of access rights to the system for the purposeof ensuring stable system operation and preventing any
leaks of sales data, including client data and personal information stored on the system. These efforts notwithstanding, in the event of difficulty in maintaining the stable
operation of the information system due to a software malfunction, unauthorized external access or other factors, ourbusiness activities could be disrupted. In the event thatsales or client data is leaked outside our Group, we could
face consequences such as claims for damages from customers, and a loss of public trust in our Group. As a result,our operating results and financial position could be negatively affected.

(10) Alternative Products
There is a growing trend to switch the raw materials used incertain pharmaceuticals, cosmetics and food from animalto plant-derived materials. In the capsule market, one of ourcore markets for gelatin, this trend has given impetus to thedevelopment of plant-derived (starch and cellulose derivatives) capsule products. Certain pharmaceutical and healthfood manufacturers have adopted these capsules as analternative to gelatin capsules. We believe that the popularization of plant-derived capsules has been limited only tocertain segments of the market.
Nevertheless, in the event of new regulations on animalderived products or a change in consumer sentiment, therapid popularization of plant-derived capsules could reducedemand for gelatin capsules, and have a negative impact on
our operating results and financial position.

(14) Infringement of Intellectual Property Rights
We protect our intellectual property rights through suchmeans as obtaining patents on proprietary technology andother innovations we have developed. Efforts are also madein the product development process to prevent any infringement of rights held by third parties, including intellectual
property rights. These efforts notwithstanding, we cannot
completely rule out the possibility of becoming subject toallegations and claims by third parties concerning the ownership or infringement of intellectual property and otherrights. In the event that we are subject to claims for damages or cease-and-desist orders as a result, our operating
results and financial position could be negatively affected.

(11) Interest-Rate Fluctuations
We primarily borrow funds from financial institutions tofinance capital investments. The percentage of interestbearing liabilities relative to total assets was 30.3%(including lease obligations) in the fiscal year ended March
31, 2012.
We endeavor to reduce borrowings and other interestbearing liabilities. However, in the event of an increase inmarket interest rates going forward, our operating results
and financial position could be negatively impacted.

(15) Legal Disputes and Litigation
In the course of our business activities, we endeavor toenhance our internal control system and strengthen compliance, encompassing legal compliance and observance ofsocial norms, while reducing our exposure to various formsof risk. At the same time, the Group receives advice fromlawyers and other experts as necessary. These efforts
notwithstanding, the Group may be subject to lawsuits inthe course of business activities, irrespective of whether or
not there is a breach of laws or regulations. In such an
event, our operating results and financial position could be
negatively affected.

(12) Taxation
In Japan, a 17% tariff is levied on imported gelatin except
for photographic use. Going forward, a price difference
between imports and domestic products may arise as aresult of the reduction or abolition of this tariff. In such an
event, our operating results and financial position could be
negatively affected.

17

Nitta Gelatin Inc.

Annual Report 2012

Consolidated Balance Sheets
Nitta Gelatin Inc. and Consolidated Subsidiaries
As of March 31, 2012 and 2011

Thousands of U.S.
dollars (Note 1)

Millions of yen
2012

2011

2012

AssetsCurrent assets:
Cash and deposits (Notes 6, 10 and 19)
Notes and accounts receivable (Notes 3 and 10)
Inventories (Note 4)
Deferred tax assets (Note 7)
Other
Allowance for doubtful accounts
Total current assets¥ 2,098
6,449
5,971
168
262
(14)
14,935¥ 1,558
5,621
5,370
161
167
(11)
12,868$ 25,526
78,464
72,648
2,044
3,187
(170)
181,713

Property, plant and equipment:
Buildings and structures (Notes 6 and 14)
Machinery, equipment and vehicles (Note 6)
Land (Note 6)
Lease assets (Note 9)
Construction in progress
Other
Accumulated depreciation
Net property, plant and equipment

6,593
7,638
741
654
365
1,219
(11,827)
5,387

6,552
7,492
762
477
312
1,228
(11,287)
5,537

80,216
92,931
9,015
7,957
4,440
14,831(143,898)
65,543

18

20

219

2,055
17
477
480
3,030
¥ 23,371

2,082
21
441
494
3,040
¥ 21,466

25,003
206
5,803
5,840
36,865$ 284,353

Intangible assets

Investments and other assets:
Investment securities (Notes 5, 6 and 10)
Long-term loans receivable (Note 10)
Deferred tax assets (Note 7)
Other
Total investments and other assets
Total assets
See notes to consolidated financial statements.

18

Nitta Gelatin Inc.

Annual Report 2012

Thousands of U.S.
dollars (Note 1)

Millions of yen
2012

2011

2012

Liabilities
Current liabilities:
Notes and accounts payable (Note 10)
Short-term loans payable (Note 6)
Current portion of long-term debt (Notes 6 and 10)
Current portion of bonds (Notes 6 and 10)
Lease obligations (Notes 6, 9 and 10)
Other payable (Note 10)
Income taxes payable
Provision for bonuses
Other
Total current liabilities¥ 3,476
925
1,878
330
127
1,388
387
235
426
9,176

¥ 3,537
1,047
1,695
260
90
1,251
183
209
490
8,765

$ 42,292
11,254
22,8494,015
1,545
16,887
4,708
2,859
5,183
111,643

Noncurrent liabilities:
Bonds (Notes 6 and 10)
Long-term debt (Notes 6 and 10)
Lease obligations (Notes 6, 9 and 10)
Provision for retirement benefits (Note 8)
Provision for directors’ retirement benefits
Other
Total noncurrent liabilities
Total liabilities

200
3,261
348
2,158
33
85
6,087
15,263

530
3,386
303
2,162
32
102
6,516
15,281

2,433
39,676
4,234
26,256401
1,034
74,060185,703

1,577

875

19,187

1,398
6,889

677
6,090

17,00983,817

(0)
9,865

(82)
7,560

(0)
120,026416
6(1,350)(903)(1,832)
74
8,108¥23,371408
2(1,180)(665)(1,435)59
6,185¥21,466

5,061
73(16,425)(10,986)(22,289)900
98,649$284,353

Commitments and contingent liabilities (Notes 9, 11 and 12)
Net assets
Shareholders’ equity (Note 16):
Capital stock:
Authorized –– 50,000,000 shares
Issued –– 15,770,074 shares in 2012 and
7,366,937 shares in 2011
Capital surplus
Retained earnings
Treasury stock ––162 shares in 2012 and109,503 shares in 2011
Total shareholders’ equity
Accumulated other comprehensive income:
Valuation difference on available-for-sale securities
Deferred gains or losses on hedges
Foreign currency translation adjustment
Pension liability adjustment of foreign subsidiaries
Total accumulated other comprehensive income
Minority interests
Total net assets
Total liabilities and net assets
See notes to consolidated financial statements.

19

Nitta Gelatin Inc.

Annual Report 2012

Consolidated Statements of Income
Nitta Gelatin Inc. and Consolidated Subsidiaries
Years ended March 31, 2012 and 2011

Thousands of U.S.
dollars (Note 1)

Millions of yen

Net sales
Cost of sales (Note 4)
Gross profit
Selling, general and administrative expenses (Note 13)
Operating income
Other income (expenses):
Interest and dividends income
Interest expenses
Equity in earnings of affiliates
Rent income
Foreign exchange gains (losses)
Going public expenses
Loss on retirement of noncurrent assets
Gain on abolishment of retirement benefit plan
Gain on transfer of business
Loss on valuation of golf club memberships
Impairment loss (Note 14)
Other, net

Income before income taxes and minority interests
Income taxes (Note 7):
Current
Deferred
Total income taxes
Income before minority interests
Minority interests in income
Net income (Note 18)
See notes to consolidated financial statements.

20

2012

2011

2012

¥27,763
20,924
6,838¥27,923
21,597
6,325$337,790
254,580
83,197

4,822
2,015

4,838
1,486

58,66824,516

17
(167)
118
28
3
(45)
(49)
–
15
(4)
–
31
(51)

14
(180)
129
27
(89)
–
(20)
140
–
–
(15)
1
8

206
(2,031)
1,435
340
36
(547)
(596)
–
182
(48)
–
377
(620)

1,964

1,494

23,895

568
12
581

432
3
436

6,910
146
7,068

1,383
7
¥ 1,375

1,058
6¥ 1,051

16,82685$ 16,729

Nitta Gelatin Inc.

Annual Report 2012

Consolidated Statements of Comprehensive Income
Nitta Gelatin Inc. and Consolidated Subsidiaries
Years ended March 31, 2012 and 2011

Thousands of U.S.
dollars (Note 1)

Millions of yen

Income before minority interests
Other comprehensive income (Note 20):
Valuation difference on available-for-sale securities
Deferred gains or losses on hedges
Foreign currency translation adjustment
Pension liability adjustment of foreign subsidiaries
Share of other comprehensive income of associates
accounted for using equity method

Total other comprehensive income
Comprehensive income

2012

2011

¥1,383¥1,058$16,826

2012

8
8
(50)
(238)

(57)
(16)
(458)
442

97
97
(608)
(2,895)

(123)
(396)
¥ 986

(105)
(195)
¥ 863

(1,496)(4,818)$11,996

¥ 978
7

¥ 856
6

$11,899
85

Comprehensive income attributable to:
Owners of the parent
Minority interests
See notes to consolidated financial statements.

21

Nitta Gelatin Inc.

Annual Report 2012

Consolidated Statements of Changes in Net Assets
Nitta Gelatin Inc. and Consolidated Subsidiaries
Years ended March 31, 2012 and 2011

Millions of yen
Shareholders’ equity

Balance at March 31, 2010
Effect of changes in accounting policies applied to foreign
affiliates accounted for by equity method
Transfer to pension liability adjustment of foreignsubsidiaries
Dividends from surplus
Net income
Purchase of treasury stock
Retirement of treasury stock
Net changes of items other than shareholders’ equity
Balance at March 31, 2011
Issuance of new shares
Dividends from surplus
Net income
Purchase of treasury stock
Disposal of treasury stock
Retirement of treasury stock
Net changes of items other than shareholders’ equity
Balance at March 31, 2012

Capital stock

CapitalsurplusRetainedearnings

Treasury
stock

Total

¥ 875

¥ 677

¥4,593¥ (82)¥6,063

875
702

677
702

(22)

(22)

1,108
(123)
1,051

1,108
(123)
1,051
(516)
–
–

(516)

(516)
516

6,090

(82)

(48)
1,375
18
(527)
¥1,577¥1,398¥6,889

(528)
82
527
¥

(0)

7,560
1,404
(48)
1,375
(528)
101
–
–
¥9,865

Millions of yen
Accumulated other comprehensive income

Balance at March 31, 2010
Effect of changes in accounting
policies applied to foreign
affiliates accounted for by equity
methodTransfer to pension liability adjustment of foreign subsidiaries
Dividends from surplus
Net income
Purchase of treasury stock
Retirement of treasury stock
Net changes of items other thanshareholders’ equity
Balance at March 31, 2011
Issuance of new shares
Dividends from surplus
Net income
Purchase of treasury stock
Disposal of treasury stock
Retirement of treasury stock
Net changes of items other thanshareholders’ equity
Balance at March 31, 2012

Valuationdifference on
available-forsale securities

Deferred
gains orlosses onhedgesForeigncurrencytranslation
adjustment

¥465

¥ 16

¥ (613)Pension liability
adjustment offoreignsubsidiaries

¥

–

Total

Minority
interests

Total net
assets¥ (131)¥58¥5,990(22)(1,108)(1,108)

–
(123)
1,051
(516)
–

(56)
408

(14)
2

(566)
(1,180)

442
(665)

(195)
(1,435)

0
59

(194)
6,185
1,404
(48)
1,375
(528)
101
–

7
¥416

4
¥ 6

(170)
¥(1,350)(238)¥ (903)(397)¥(1,832)

15
¥74

(381)
¥8,108

See notes to consolidated financial statements.

22

Nitta Gelatin Inc.

Annual Report 2012

Thousands of U.S. dollars (Note 1)
Shareholders’ equity

Balance at March 31, 2011
Issuance of new shares
Dividends from surplus
Net income
Purchase of treasury stock
Disposal of treasury stock
Retirement of treasury stock
Net changes of items other than shareholders’ equity
Balance at March 31, 2012

Capital stock

CapitalsurplusRetainedearnings

Treasurystock$10,646
8,541$ 8,237
8,541$74,096$ (997)(0)(584)
16,729(6,424)
997
6,411

219
(6,411)$19,187$17,009$83,817$

Total$ 91,981
17,082(584)
16,729(6,424)
1,228––$120,026

Thousands of U.S. dollars (Note 1)
Accumulated other comprehensive income

Balance at March 31, 2011
Issuance of new shares
Dividends from surplus
Net income
Purchase of treasury stock
Disposal of treasury stock
Retirement of treasury stock
Net changes of items other thanshareholders’ equity
Balance at March 31, 2012

Valuationdifference on
available-forsale securities

Deferred
gains orlosses onhedgesForeigncurrencytranslation
adjustment

Pension liability
adjustment offoreignsubsidiaries

Total

Minority
interests

Total net
assets$4,964$24$(14,356)$ (8,091)$(17,459)$717$75,252
17,082(584)
16,729(6,424)1,228–

85$5,06148$73(2,068)$(16,425)(2,895)$(10,986)(4,830)$(22,289)

182
$900

(4,635)$98,649

See notes to consolidated financial statements.

23

Nitta Gelatin Inc.

Annual Report 2012

Consolidated Statements of Cash Flows
Nitta Gelatin Inc. and Consolidated Subsidiaries
Years ended March 31, 2012 and 2011

Thousands of U.S.
dollars (Note 1)

Millions of yen
2012

2011

Operating activities:
Income before income taxes and minority interests
Depreciation and amortization
Impairment loss
Decrease in provision for retirement benefits
Increase in provision for directors’ retirement benefits
Increase in provision for bonuses
Increase (decrease) in allowance for doubtful accounts
Interest and dividends income
Interest expenses
Foreign exchange losses
Equity in earnings of affiliates
Loss on retirement of noncurrent assets
Loss on valuation of golf club memberships
Increase in notes and accounts receivable(Increase) decrease in inventories(Decrease) increase in notes and accounts payable
Increase in accrued consumption taxes
Other, net
SubtotalInterest and dividends income received
Interest expenses paid
Income taxes paid
Net cash provided by operating activities¥ 1,964
841
–
(165)
1
25
4
(17)
167
12
(118)
49
4
(842)
(631)
(50)
22
(194)
1,072
45
(167)
(382)
568

¥ 1,494
898
15
(200)
1
9
(18)
(14)
180
46
(129)
20
–
(509)
357
98
25
(185)
2,091
152
(183)
(490)
1,570

$ 23,895
10,232–(2,007)
12
304
48
(206)
2,031
146
(1,435)596
48(10,244)(7,677)(608)
267(2,360)13,042547(2,031)(4,647)
6,910

Investing activities:
Payments into time deposits
Proceeds from withdrawal of time deposits
Purchase of property, plant and equipment
Proceeds from sales of property, plant and equipment
Purchase of intangible assets
Purchase of investment securities
Purchase of stocks of affiliates
Proceeds from cancellation of insurance funds
Purchase of insurance funds
Payments of loans receivableCollection of loans receivable
Other, net
Net cash used in investing activities

(20)
20
(673)
7
(7)
(4)
(28)
16
(10)
(0)
5
(38)
¥ (733)

(20)
20
(946)
0
(1)
(4)
(149)
20
(11)
(0)
5
(7)
¥(1,094)(243)
243(8,188)
85
(85)
(48)
(340)
194
(121)
(0)
60
(462)
$ (8,918)

See notes to consolidated financial statements.

24

2012

Nitta Gelatin Inc.

Annual Report 2012

Thousands of U.S.
dollars (Note 1)

Millions of yen

Financing activities:
Net (decrease) increase in short-term loans payable
Proceeds from long-term debt
Repayment of long-term debt
Redemption of bonds
Proceeds from issuance of common stock
Proceeds from stock issuance to minority shareholders
Proceeds from sale and leaseback transaction
Repayments of lease obligations
Proceeds from disposal of treasury stock
Purchase of treasury stock
Cash dividends paid
Cash dividends paid to minority shareholders
Net cash provided by (used in) financing activities
Effect of exchange rate change on cash and cash equivalents
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period (Note 19)
See notes to consolidated financial statements.

25

2012

2011

¥

¥

(94)
2,047
(1,987)
(260)
1,404
15
183
(111)
101
(528)
(48)
(7)
713
(8)
540
1,538
¥ 2,078102
1,950(1,874)
(60)
–
–
233
(69)
–
(516)
(123)
(5)
(363)
(41)
70
1,467
¥ 1,5382012$ (1,143)
24,905(24,175)(3,163)17,082182
2,226(1,350)1,228(6,424)
(584)
(85)
8,675
(97)
6,570
18,712$ 25,282

Nitta Gelatin Inc.

Annual Report 2012

Notes to Consolidated Financial Statements
Nitta Gelatin Inc. and Consolidated Subsidiaries

1. Basis of Presenting Consolidated Financial Statements
The accompanying consolidated financial statements of Nitta Gelatin Inc. (the “Company”) and its consolidated subsidiaries(together, the “Group”) have been prepared in accordance with the provisions set forth in the Financial Instruments andExchange Act of Japan and its related accounting regulations and in conformity with accounting principles generally acceptedin Japan which are different in certain respects as to application and disclosure requirements of International Financial
Reporting Standards.
In preparing these consolidated financial statements, certain reclassifications and rearrangements have been made to
the consolidated financial statements issued domestically in order to present them in a form which is more familiar to readers outside Japan. In addition, certain reclassifications have been made in the 2011 financial statements to conform to theclassifications used in 2012.
The consolidated financial statements are stated in Japanese yen, the currency of the country in which the Company isincorporated and operates. As permitted by the regulations under the Financial Instruments and Exchange Act of Japan,
amounts of less than one million yen have been omitted. As a result, the totals shown in the accompanying consolidated
financial statements in yen do not necessarily agree with the sums of the individual amounts.
The U.S. dollar amounts shown in the accompanying consolidated financial statements and notes thereto were translated
from the presented Japanese yen amounts into U.S. dollar amounts at the rate of ¥82.19 = U.S. $1, the approximate rate ofexchange at March 30, 2012, and were then rounded down to the nearest thousand. As a result, the totals shown in theaccompanying consolidated financial statements in U.S. dollar do not necessarily agree with the sums of the individual
amounts. This translation of Japanese yen amounts into U.S. dollar amounts is included solely for convenience of readers
outside Japan. Such translation should not be construed as a representation that Japanese yen could be converted into U.S.
dollars at that or any other rate.

2. Significant Accounting Policies(1) Principles of consolidation and accounting for investments in unconsolidated subsidiaries and affiliates
The consolidated financial statements as of and for the year ended March 31, 2012 include the accounts of the Company
and its 12 significant subsidiaries (10 significant subsidiaries in 2011). The fiscal year-end of one consolidated subsidiary(December 31) is different than the consolidated fiscal year-end (March 31), and necessary adjustments are made for any
significant transactions between its fiscal year-end and the consolidated fiscal year-end.
Under the control or influence concept, those companies in which the Company, directly or indirectly, is able to exercise
control over operations are consolidated, and those companies over which the Group has the ability to exercise significant
influence are accounted for using the equity method.
For the year ended March 31, 2012, three affiliates (three affiliates in 2011) are accounted for using the equity method.
Investments in companies accounted for using the equity method whose fiscal year-ends are different than the consolidated
fiscal year-end are accounted for on the basis of the companies’ respective fiscal year-end. Investments in one unconsolidated subsidiary and two affiliates are excluded from the application of the equity method and stated at cost because theGroup’s share of their net income and retained earnings have slight effects on the accompanying consolidated financial
statements and are considered insignificant overall.

(2) Foreign currency translation
Receivables and payables denominated in foreign currencies are translated into yen at the exchange rate as of the consolidated balance sheet date, and differences arising from the translation are included in the consolidated statements ofincome.
The asset and liability accounts of the foreign consolidated subsidiaries are translated into yen at the exchange rates asof the consolidated balance sheet date, and revenue and expense accounts are translated at the average rate during theyear. Differences arising from the translation are presented in foreign currency translation adjustment and minority interests
in net assets.

(3) Cash and cash equivalents
Cash and cash equivalents consist of cash on hand, cash in banks which can be withdrawn at any time and short-term
investments with a maturity of three months or less when purchased which are readily convertible into cash and are exposed
to insignificant risk of changes in value.

26

Nitta Gelatin Inc.

Annual Report 2012(4) Investment securities
In general, securities are classified into three categories: trading, held-to-maturity or available-for-sale securities. Securities
held by the Group are all classified as available-for-sale securities. Available-for-sale securities with a determinable market
value are stated at fair value, with any changes in unrealized holding gain or loss, net of the applicable income taxes,
included directly in net assets. Cost of securities sold is determined by the moving-average method. Available-for-sale securities without a determinable market value are stated at cost determined by the moving-average method.

(5) Inventories
Finished goods are mainly stated at the lower of cost determined by the gross average method or net selling value. Merchandise, semi-finished goods, work in process, raw materials and supplies are mainly stated at the lower of cost determined by
the moving-average method or net selling value.

(6) Property, plant and equipment and depreciation (excluding lease assets)
Depreciation of property, plant and equipment held by the Company and its domestic consolidated subsidiaries is computedby the declining-balance method, except for buildings on which depreciation is computed by the straight-line method. Depreciation of property, plant and equipment held by foreign consolidated subsidiaries is computed mainly by the straight-line
method.
The useful lives of property, plant and equipment are summarized as follows:
Buildings and structures:

7 to 50 years

Machinery, equipment and vehicles: 4 to 10 years(7) Intangible assets and amortization (excluding lease assets)
Intangible assets are amortized by the straight-line method. Internal use software is amortized by the straight-line method
over an estimated useful life of five years.

(8) Lease assets
Lease assets are depreciated by the straight-line method over the lease term with no residual value (residual value guarantee amount if it is agreed).
In addition, the Group accounts for the finance lease transactions that commenced on or before March 31, 2008 and do
not transfer ownership of the leased property to the lessee as operating lease transactions.

(9) Allowance for doubtful accounts
The Company and its domestic consolidated subsidiaries provide allowance for doubtful accounts mainly to cover a loss from
uncollectible receivables at an amount determined based on the historical experience of bad debt with respect to ordinary
receivables and an estimated uncollectible amount based on individual collectibility of specific receivables such as doubtful
accounts receivable.
The foreign consolidated subsidiaries provide allowance for doubtful accounts mainly at an estimated uncollectible
amount for specific receivables.

(10) Provision for bonuses
The Company and its consolidated subsidiaries record provision for bonuses at an amount estimated to cover the bonus
payments for services rendered by employees during each fiscal year.

(11) Provision for retirement benefits
The Company and certain consolidated subsidiaries record provision for retirement benefits based on the estimated amountsof the retirement benefit obligation and the fair value of pension plan assets as of the consolidated balance sheet date tocover future payments of employees’ retirement benefits.
Actuarial gains and losses are mainly amortized by the straight-line method over a certain period (10 years), which iswithin the average remaining years of service of the employees at the time when the gains or losses arise, from the fiscal
year following the fiscal year in which they arise.
Prior service benefits and costs are mainly recognized as income or expense by the straight-line method over a certain
period (10 years) which is within the average remaining years of service of the employees at the time they arise.

27

Nitta Gelatin Inc.

Annual Report 2012(12) Provision for directors’ retirement benefits
Certain domestic consolidated subsidiaries record provision for directors’ retirement benefits to cover future payments at an
amount required according to the internal rules as of the balance sheet date.

(13) Hedge accounting
In principle, deferral hedge accounting is adopted for hedge transactions. Interest rate swaps are accounted for by the exceptional treatment if the interest rate swaps meet certain criteria to adopt the treatment.
The following summarizes hedging derivative instruments used by the Group and items hedged:
2012
Hedging instruments
Foreign exchange forward contracts

Hedged items
Payables denominated in foreign currencies in connection with imports of raw
materials and forecasted transactions denominated in foreign currencies

Interest rate swaps

Loans and debt

2011
Hedging instruments
Foreign exchange forward contracts

Hedged items
Payables denominated in foreign currencies in connection with imports of raw
materials and forecasted transactions denominated in foreign currencies

Interest rate swaps

Loans and debt

As a policy, the Group utilizes derivative transactions within a certain range to hedge market fluctuations in connection
with hedged items in accordance with internal management rules defining authorization policies and transaction limits. The
Group assesses the hedge effectiveness by comparing the accumulated gains or losses on the hedging instruments andthe related hedged items during the period from the commencement of the hedging transactions to the assessment ofeffectiveness. For interest rate swaps accounted for by the exceptional treatment, however, the assessment of effectivenessis not performed.

(14) Going public expenses
Going public expenses are charged to income as incurred.

(15) Income taxes
Income taxes are computed based on taxable income of each group company.
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences
between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred
tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in whichthose temporary differences are expected to be recovered or settled. The effect of deferred tax assets and liabilities due tothe change in tax rate is recognized in the statement of income for the period including the enacted date.

(16) New accounting standards
The “Accounting Standard for Accounting Changes and Error Corrections” (Accounting Standards Board of Japan (“ASBJ”)
Statement No. 24, issued on December 4, 2009) and the “Guidance on Accounting Standard for Accounting Changes andError Corrections” (ASBJ Guidance No. 24, issued on December 4, 2009) have been applied to the accounting changes andcorrections of prior period errors which are made after the beginning of the fiscal year ended March 31, 2012.

28

Nitta Gelatin Inc.

Annual Report 2012

3. Notes Receivable and Notes Payable Maturing at Fiscal Year-End
Notes receivable and notes payable maturing at the fiscal year-end are settled on the date of clearance. As March 31, 2012
was a bank holiday, the following notes receivable and notes payable were included in the balances as of March 31, 2012
and 2011.
Thousands of
U.S. dollars

Millions of yen
2012

Notes receivable
Notes payable

2011

¥113
–

2012

¥–
–

$1,374–

4. Inventories
The balances of inventories as of March 31, 2012 and 2011 consisted of the following:Thousands of
U.S. dollars

Millions of yen

Merchandise and finished goods
Work in process
Raw materials and supplies
Inventories, total

2012

2011

¥4,011651
1,308¥5,971¥3,500611
1,258¥5,3702012$48,801
7,920
15,914$72,648

The inventory write-down of ¥23 million ($279 thousand) and reversal of inventory write-down of ¥149 million wererecorded in cost of sales for the years ended March 31, 2012 and 2011, respectively, due to decline in profitability.

5. Investment Securities
Information of available-for-securities as of March 31, 2012 and 2011 was as follows:
Millions of yen
2012

Securities whose carrying value
exceeds their acquisition cost:
Equity securities
Securities whose carrying value does
not exceed their acquisition cost:
Equity securities
Total

2011

Carrying value

Acquisition
cost

Difference

Carrying value

¥820

¥158

¥661

30
¥850

48
¥206

(17)
¥644

Thousands of U.S. dollars
2012

Securities whose carrying value
exceeds their acquisition cost:
Equity securities
Securities whose carrying value does
not exceed their acquisition cost:
Equity securities
Total

Carrying value

Acquisition
cost

Difference$ 9,976$1,922$8,042365$10,341584$2,506(206)$7,83529

Acquisition
cost

Difference

¥847

¥146

¥700

39
¥886

54
¥201

(15)
¥685

Nitta Gelatin Inc.

Annual Report 2012

Unlisted equity securities of ¥18 million ($219 thousand) as of March 31, 2012 and 2011 were not included in theabove tables as there were no market prices available and it is extremely difficult to determine their fair value.
Investments in unconsolidated subsidiaries and affiliates of ¥1,185 million ($14,417 thousand) and ¥1,176 million were
included in investment securities as of March 31, 2012 and 2011, respectively.

6. Short-Term Loans Payable, Long-Term Debt, Bonds and Lease Obligations
Millions of yen
2012

Current portion of long-term debt
Lease obligations (current portion)
Long-term debt excluding current
portionLease obligations excluding current
portionNo. 14 unsecured corporate bonds
No. 15 unsecured corporate bonds
No. 16 unsecured corporate bonds
Less: Current portion

AmountWeighted
average interest
rate (%)¥ 1,878
127

1.978%
–

3,261
348
330
–
200
6,145
(2,335)¥ 3,809

Due

Millions of yen

Thousands of
U.S. dollars

2011

2012

AmountAmount––¥ 1,695
90$ 22,849
1,545

1.811

2013 to 2017

3,386

39,676

–
1.55
1.58
1.82

2013 to 2017
Aug. 2012
Aug. 2011
Aug. 2013

303
390
200
200
6,265
(2,046)¥ 4,219

4,234
4,015
–
2,433
74,765(28,409)$ 46,343

The weighted average interest rate of short-term loans payable at March 31, 2012 was 2.604%. Average interest rate onlease obligations is not provided because the balance of lease obligations includes interest equivalent that is contained in
the total lease payments.
The maturities of bonds, long-term debt and lease obligations outstanding on or after April 1, 2012 were as follows:
Millions of yen
Year ending March 31,

2013
2014
2015
2016
2017
Total

Bonds

¥330
200
–
–
–
¥530

Long-term debt

¥1,878
1,608
995
545
111
¥5,13930

Thousands of U.S. dollars
Lease
obligations

¥127
129
108
81
28
¥475

Bonds

Long-term debt

Leaseobligations$4,0152,433–––$6,448$22,849
19,564
12,1066,630
1,350$62,525$1,545
1,569
1,314
985
340
$5,779

Nitta Gelatin Inc.

Annual Report 2012

The following assets were pledged as collateral as of March 31, 2012 and 2011.
Thousands of
U.S. dollars

Millions of yen

Time deposits
Buildings and structures
Machinery, equipment and vehicles
Land
Investment securities
Total
Assets pledged as factory foundation mortgage included in
the above assets:
Buildings and structures
Machinery, equipment and vehicles
Land
Total

2012

2011

¥

20
1,192
155
191
314
¥1,873

¥

20
1,233
163
191
307
¥1,9152012

243
14,502
1,885
2,323
3,820
$22,788¥1,192
155
191¥1,539¥1,233163
191¥1,588$14,502
1,885
2,323$18,724$

The obligations collateralized by the above assets as of March 31, 2012 and 2011 were as follows:
Thousands of
U.S. dollars

Millions of yen

Long-term debt
Accounts payable (accrued liabilities such as customs duty)
Total
Factory foundation mortgage included in the above liabilities:
Long-term debt
Total

2012

2011

¥4,24942¥4,291¥4,27251¥4,323$51,697511$52,2082012¥3,865¥3,865¥3,868¥3,868$47,025$47,025

For the purpose of obtaining working funds effectively, the Company and one consolidated subsidiary have entered into
overdraft agreements and loan commitment agreements amounting to ¥4,950 million ($60,226 thousand) in total with fivebanks at March 31, 2012 and 2011. There was no borrowing outstanding under these agreements as of March 31, 2012
and 2011.

7. Income Taxes
Income taxes applicable to the Company and its domestic consolidated subsidiaries comprise corporation, inhabitants andenterprise taxes. The statutory tax rate applicable to the Company was approximately 40.69% for the years ended March 31,
2012 and 2011. The effective tax rates reflected in the consolidated statements of income for the years ended March 31,
2012 and 2011 differ from the statutory tax rate for the following reasons:Statutory tax rate
Adjustments for:Non-deductible expenses for income tax purposes
Non-taxable income
Inhabitants taxes—per capita levy
Tax credit for research and development, etc.
Adjustment to deferred tax assets due to changes in tax rates
Unrecognized tax benefits of net operating losses of subsidiaries
Difference in tax rates between the Company and subsidiaries
Equity in earnings of affiliates
Other
Effective tax rates
31

2012

2011

40.69%

40.69%

0.53(0.36)
0.35(1.66)
4.88(9.66)(1.92)(2.45)(0.81)
29.59%

0.70(0.37)
0.51(2.74)(0.11)(4.66)(0.26)(3.53)(1.04)
29.19%

Nitta Gelatin Inc.

Annual Report 2012

Following the promulgation on December 2, 2011 of the “Act for Partial Revision of the Income Tax Act, etc. for the
Purpose of Creating a Taxation System Responding to Changes in Economic and Social Structures” (Act No. 114 of 2011)
and the “Act on Special Measures for Securing Financial Resources Necessary to Implement Measures for Reconstruction
following the Great East Japan Earthquake” (Act No. 117 of 2011), the corporate income tax rate will be reduced and thespecial reconstruction corporation tax, a surtax for reconstruction funding after the Great East Japan Earthquake, will be
imposed for the fiscal years beginning on or after April 1, 2012. As a result, the statutory tax rate to calculate deferred tax
assets and liabilities was changed from 40.69% to 38.01% for temporary differences expected to reverse from the fiscal
year beginning on April 1, 2012 to the fiscal year beginning on April 1, 2014, and to 35.64% for temporary differences
expected to reverse from the fiscal years beginning on or after April 1, 2015, respectively.
Due to these changes, deferred tax assets decreased by ¥65 million ($790 thousand), and valuation difference on
available-for-sale securities, deferred gains or losses on hedges and income taxes - deferred increased by ¥32 million ($389
thousand), ¥0 million ($0 thousand) and ¥98 million ($1,192 thousand), respectively.
The significant components of deferred tax assets and liabilities at March 31, 2012 and 2011 were as follows:
Thousands of
U.S. dollars

Millions of yen

Deferred tax assets:
Loss on valuation of inventories
Provision for bonuses
Accrued enterprise tax
Loss on valuation of golf club membership
Loss on valuation of investment securities
Provision for retirement benefits
Provision for directors’ retirement benefits
Interest expenses
Impairment loss
Net loss carried forward
Other
Subtotal
Valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Depreciation
Valuation difference on available-for-sale securities
Provision for retirement benefits
Other
Total deferred tax liabilities
Net deferred tax assets

32

2012

2011

2012

¥

44
84
30
11
246
763
30
38
31
801
79
2,164
(999)
1,164

¥

51
109
18
11
281
810
38
111
37
793
55
2,317
(1,159)
1,157

$

(242)
(228)
(56)
(7)
(534)
¥ 629

(248)
(277)
(34)
–
(560)
¥ 597

(2,944)(2,774)(681)(85)(6,497)$ 7,652

535
1,022
365
133
2,993
9,283
365
462
377
9,745
961
26,329(12,154)
14,162

Nitta Gelatin Inc.

Annual Report 2012

8. Retirement Benefit Plans
The Company and certain consolidated subsidiaries primarily have defined benefit plans, i.e., lump-sum payment plans anddefined benefit corporate pension plans.
The company and three consolidated subsidiaries have defined benefit retirement pension plans as of March 31, 2012.
The following table sets forth the funded and accrued status of the plans and the amounts recognized in the consolidatedbalance sheets as of March 31, 2012 and 2011 for the Company’s and the consolidated subsidiaries’ defined benefit plans.
Thousands of
U.S. dollars

Millions of yen

Retirement benefit obligation
Plan assets at fair value
Unfunded retirement benefit obligation
Unrecognized actuarial loss
Unrecognized prior service benefit and cost
Net retirement benefit obligation
Prepaid pension cost
Provision for retirement benefits

2012

2011

¥(6,817)
4,572(2,244)451(89)(1,882)275¥(2,158)¥(6,647)
4,483(2,163)383(109)(1,889)273¥(2,162)2012$(82,941)
55,627(27,302)
5,487(1,082)(22,898)
3,345$(26,256)

Note: Certain consolidated subsidiaries apply the simplified method in calculating retirement benefit obligation.

The components of retirement benefit expenses for the years ended March 31, 2012 and 2011 were outlined as follows:
Thousands of
U.S. dollars

Millions of yen

Service cost
Interest cost
Expected return on plan assets
Amortization of actuarial loss
Amortization of prior service benefit and cost
Total retirement benefit expenses

2012

2011

¥ 168
245
(222)
49
(23)
¥ 217

¥ 203
217
(165)
79
13
¥ 348

2012

$ 2,044
2,980(2,701)596(279)$ 2,640

Note: Retirement benefit expenses of consolidated subsidiaries which apply the simplified method are included in “service cost.”

Both discount rates and expected rates of return on plan assets used in calculation of retirement benefit obligations forthe years ended March 31, 2012 and 2011 were mainly 2.10%.
During the year ended March 31, 2011, one consolidated subsidiary terminated its post-retirement health benefit plan.
Accordingly, the Group recognized gain on abolishment of retirement benefit plan of ¥140 million for the year ended March
31, 2011.

33

Nitta Gelatin Inc.

Annual Report 2012

9. Leases(1) Finance leases (lessee)
The Company leases production facilities (machinery, equipment and vehicles) in connection with collagen material businessas a lessee through finance lease transactions that do not transfer ownership of the leased property to the lessee. Financeleases that do not transfer ownership of the leased property to the lessee and commenced on or before March 31, 2008 are
accounted for as operating leases.
The following pro forma amounts represent the acquisition cost, accumulated depreciation and net book value of theleased properties as of March 31, 2012 and 2011, which would be reflected in the consolidated financial statements if thefinance lease accounting was applied to the finance leases currently accounted for as operating leases.
Millions of yen
2012

Machinery, equipment and vehicles
Other (property, plant and equipment)
Other (intangible assets)
Total

2011

Acquisition
cost

Accumulated
depreciation

Net bookvalue

Acquisition
cost

Accumulated
depreciation

Net book
value

¥623
–
–
¥623

¥476
–
–
¥476

¥147
–
–
¥147

¥940
7
13
¥960

¥638
5
12
¥655

¥302
1
1
¥304

Thousands of U.S. dollars
2012

Machinery, equipment and vehicles
Other (property, plant and equipment)
Other (intangible assets)
Total

Acquisition
cost

Accumulated
depreciation

Net book
value$7,579––$7,579$5,791––$5,791$1,788––$1,788Future minimum lease payments subsequent to March 31, 2012 for finance leases accounted for as operating leases
were as follows:Year ending March 31,

Millions of yen

Thousands of
U.S. dollars

¥115
46
¥161

$1,399559$1,95820132014 and thereafter
Total

Lease payments relating to finance leases accounted for as operating leases and the pro forma depreciation expenses
and interest expenses relating to assets leased under finance leases accounted for as operating leases for the years ended
March 31, 2012 and 2011 were as follows:
Thousands of
U.S. dollars

Millions of yen
2012

Lease payments
Depreciation expenses
Interest expenses

¥140
118
11

2011

¥189
162
18

2012

$1,703
1,435
133

The pro forma depreciation expenses are computed by the straight-line method over the lease term with no residual value(residual value guarantee amount if it is agreed), and the pro forma interest expenses are computed by the interest method.
There were no impairment losses allocated to lease assets for the years ended March 31, 2012 and 2011.

34

Nitta Gelatin Inc.

Annual Report 2012

(2) Operating Leases
Future minimum lease payments subsequent to March 31, 2012 for non-cancelable operating leases were as follows:Year ending March 31,

20132014 and thereafter
Total

Millions of yen

Thousands of
U.S. dollars

¥184
722
¥906

$ 2,238
8,784$11,023

10. Financial Instruments(1) Overview(a) Policy for financial instruments
In consideration of plans for capital investment, the Group raises necessary funds mainly through bank borrowings. The
Group invests temporary surplus funds mainly in highly liquid financial assets and raises short-term operating capitalthrough bank borrowings. The Group uses derivatives to avoid after-mentioned risks and does not enter into derivatives
for speculative purposes.
(b) Descriptions of financial instruments and related risk
Trade receivables such as notes and accounts receivable are exposed to customer credit risk. Although trade receivables
denominated in foreign currencies arising from foreign operations are exposed to foreign currency risk, the balances ofreceivables are always less than payables denominated in the same currencies.
Investment securities are mainly composed of equity securities of companies with business relationship and are
exposed to market risk. The Company also provides long-term loans to companies with business relationship.
Substantially all trade payables such as notes and accounts payable have payment due dates within five months.
Although certain payables denominated in foreign currencies are exposed to foreign currency risk, such risk is hedged byforeign exchange forward contracts except for payables less than receivables denominated in the same currencies.
Debt, bonds and lease obligations under finance leases are principally for the purpose of making capital investments
and due up to five years from the balance sheet date. Although certain of them are exposed to interest rate fluctuation
risk, such risk is hedged by derivatives (interest rate swaps).
As for derivatives, the Group has entered into foreign exchange forward contracts to hedge the foreign currency risk
arising from trade payables denominated in foreign currencies and interest rate swap transactions to hedge fluctuation
risk deriving from interest payments of debt.
Information regarding the method of hedge accounting, hedging instruments and hedged items, hedging policy andassessment of hedge effectiveness is disclosed in Note 2. “Significant Accounting Policies (13) Hedge accounting.”(c) Risk management for financial instruments
Credit risk management (risk of default by customers or counterparties)
In accordance with the credit management rules of the Company, for trade receivables and long-term loans receivable,sales departments of each division monitor credit worthiness of their main customers periodically and manage due dates
and outstanding balances by customer. In addition, the Company is making efforts to identify uncollectibility in the earlier
stage and mitigate risks of bad debts from customers having financial difficulties. Consolidated subsidiaries similarly
manage such risks in accordance with the Company’s credit management rules.
The Company believes that the credit risk of derivatives is insignificant as it has entered into derivative transactions
only with financial institutions with a sound credit rating.

35

Nitta Gelatin Inc.

Annual Report 2012

Market risk management (risks of fluctuations in foreign exchange rates, interest rates and others)
For trade payables denominated in foreign currencies, the foreign currency risk of the Company identified by currency ona monthly basis is hedged by foreign exchange forward contracts. In addition, in order to mitigate the interest rate risk forinterest payments of debt, the Company has entered into interest rate swap transactions.
For investment securities, Company periodically monitors the fair values and the financial position of the issuers(companies with business relationship) and continuously reviews the holding status taking into account market conditions
and relationships with the issuers.
Derivative transactions are conducted and managed by the responsible division with the approval of authorized personnel in accordance with the internal management rules which define the authorization policies and transaction limits.
Consolidated subsidiaries have not entered into derivative transactions.
Management of liquidity risk on funding (risk of default at due dates)
Based on reports from each division, the responsible division of the Company prepares and updates its cash flow plan
on a timely basis and manages liquidity risk by maintaining liquid funds. Consolidated subsidiaries manage their liquidity
risk in a similar manner.
(d) Supplementary explanation of the fair value of financial instruments
The fair value of financial instruments is based on their market price if available. When there is no market price available,
fair value is reasonably calculated. Since various assumptions and factors are reflected in the calculation of fair value,
different assumptions and factors could result in different fair value. In addition, the notional amounts of derivatives inNote 11. “Derivative Transactions” are not indicative of the market risk involved in derivative transactions.

(2) Fair value of financial instruments
Carrying value of financial instruments on the consolidated balance sheets as of March 31, 2012 and 2011, fair value andtheir difference are shown in the following table. Financial instruments whose fair value is extremely difficult to determine are
not included in the following table.
Millions of yen
2012
Carrying value

Cash and deposits
Notes and accounts receivable
Investment securities
Total assets
Notes and accounts payable
Other payable
Long-term debt
Total liabilities
Derivative transactions (*)¥ 2,098
6,449
850¥ 9,398¥ 3,476
1,388
5,139¥10,005¥
13

Fair value

Difference¥ 2,098
6,449
850¥ 9,398¥ 3,476
1,388
5,175¥10,041
¥
13

¥ –
–
–
¥ –
¥ –
–
36
¥36
¥ –

(

*) The value of assets and liabilities arising from derivative transactions is shown at net value.

Millions of yen
2011
Carrying value

Cash and deposits
Notes and accounts receivable
Investment securities
Total assets
Notes and accounts payable
Other payable
Long-term debt
Total liabilities
Derivative transactions (*)¥1,5585,621
886¥8,066¥3,537
1,251
5,081¥9,870¥ (110)(Fair value

Difference¥1,5585,621
886¥8,066¥3,537
1,251
5,103¥9,891¥ (110)*) The value of assets and liabilities arising from derivative transactions is shown at net value, and the net liability position is shown in parentheses.

36

¥ –
–
–
¥ –
¥ –
–
21
¥21
¥ –

Nitta Gelatin Inc.

Annual Report 2012

Thousands of U.S. dollars
2012
Carrying value

Fair value

Difference$ 25,526
78,464
10,341$114,344$ 42,292
16,88762,525$121,730$
158$ 25,526
78,464
10,341$114,344$ 42,292
16,88762,963$122,168$
158$

Cash and deposits
Notes and accounts receivable
Investment securities
Total assets
Notes and accounts payable
Other payable
Long-term debt
Total liabilities
Derivative transactions (*)

–
–
–
$ –
$ –
–
438
$438
$ –

(

*) The value of assets and liabilities arising from derivative transactions is shown at net value.

Note 1. Methods to calculate the fair value of financial instruments and other matters related to securities and derivativetransactions
Assets:Cash and deposits and Notes and accounts receivable
Since these items are settled in a short period of time, their carrying value approximates fair value.
Investment securities
The fair value of equity securities is based on quoted market prices. The information on securities classified by holding purpose is disclosed in Note 5. “Investment Securities.”
Liabilities:
Notes and accounts payable and Other payable
Since these items are settled in a short period of time, their carrying value approximates fair value.
Long-term debt
The fair value of long-term debt is based upon the present value of the total of principal and interest discounted by
the interest rate to be applied if similar new borrowings were entered into.
Derivative transactions:
The information on derivative transactions is disclosed in Note 11. “Derivative Transactions.”
Note 2. Financial instruments whose fair value is extremely difficult to determine
Thousands of
U.S. dollars

Millions of yen
2012

Carrying value:
Unlisted equity securities

¥18

2011

¥18

2012

$219

These are not included in investment securities in the above table because there was no quoted market price available
and it is extremely difficult to determine the fair value.

(3) As of March 31, 2012 and 2011, monetary receivables with maturities were deposits of ¥2,094 million ($25,477
thousand) and ¥1,555 million and notes and accounts receivable of ¥6,449 million ($78,464 thousand) and¥5,621 million, respectively. These were all due within one year.

37

Nitta Gelatin Inc.

Annual Report 2012

11. Derivative Transactions
The hedge accounting has been applied to all derivative transactions held by the Group as of March 31, 2012 and 2011, andtheir fair value information is stated as follows. Fair value is measured based on quotes and prices provided by counterparty
financial institutions.

Currency related:
Millions of yen
2012
Contract ornotional
amountDeferral hedge accounting
Foreign exchange forward contracts
Buy: USD and CAD

Maturing after
one year

¥457

2011

Fair value

Contract ornotional
amount

¥18

¥698

¥–

Maturing after
one year¥–

Fair value¥13

Thousands of U.S. dollars
2012
Contract ornotional
amountDeferral hedge accounting
Foreign exchange forward contracts
Buy: USD and CAD

Maturing after
one year$5,560Fair value

$–

$219

Interest related:
Millions of yen
2012

Deferral hedge accounting
Interest rate swaps
Receive/floating and pay/fixed
Exceptional treatment
Interest rate swaps
Receive/floating and pay/fixedContract ornotional
amountMaturing after
one year¥1,500

2,450

2011

Fair value

Contract ornotional
amountMaturing after
one year

¥150

¥(5)

¥1,500

¥ 450

¥(13)

680

(

3,350

1,025

(

*)

Fair value*)

Thousands of U.S. dollars
2012

Deferral hedge accounting
Interest rate swaps
Receive/floating and pay/fixed
Exceptional treatment
Interest rate swaps
Receive/floating and pay/fixedContract ornotional
amountMaturing after
one year$18,250$1,825$(60)

29,808

8,273(

Fair value*)(*) Interest rate swaps to which the exceptional treatment is applied are accounted for together with long-term debt designated as a hedged item. Therefore, theirfair value is included in the fair value of long-term debt.

12. Contingent Liabilities
As of March 31, 2012 and 2011, the Group was contingently liable for the assignment of receivable with recourse in theamount of ¥249 million ($3,029 thousand) and ¥496 million, respectively.

38

Nitta Gelatin Inc.

Annual Report 2012

13. Selling, General and Administrative Expenses
The main components of selling, general and administrative expenses for the years ended March 31, 2012 and 2011 wereas follows:
Thousands of
U.S. dollars

Millions of yen

Packing and freightage expenses
Salaries
Bonuses
Provision for bonuses
Provision for retirement benefits
Provision for directors’ retirement benefits
Provision of allowance for doubtful accounts
Research and development expenses

2012

2011

¥ 741
1,145
226
75
89
1
2
730

¥ 757
1,155
220
77
91
0
0
739

2012

$ 9,015
13,931
2,749
912
1,082
12
24
8,881

For the years ended March 31, 2012 and 2011, research and development expenses included in general and administrative expenses and manufacturing costs were as follows:
Thousands of
U.S. dollars

Millions of yen
2012

General and administrative expenses
Manufacturing costs
Total

¥730
164
¥895

2011

¥739
156
¥895

2012

$ 8,881
1,995$10,889

14. Impairment Loss
Business assets of the Group are grouped based on the categories used for their managerial accounting.
For the year ended March 31, 2012, the group recognized no impairment loss.
For the year ended March 31, 2011, the Group recognized impairment losses on the following asset group.
2011
Location

Use

Category

Amount(Millions of yen)

Shiki-gun, Nara

Formula solution business

Building¥15

The Group recognized impairment losses for the above asset group on the ground that its ability to generate cash flows
declined significantly for the year ended March 31, 2011. The recoverable amount of the above asset group was measured
at net selling value.

39

Nitta Gelatin Inc.

Annual Report 2012

15. Information on Related Party Transactions
For the years ended March 31, 2012 and 2011, significant affiliates were Nitta Gelatin India Ltd. and Bostik-Nitta Co., Ltd., andthe condensed financial information prepared by combining the financial statements of these significant affiliates was as follows:
Thousands of
U.S. dollars

Millions of yen
2012

2011

Total current assets
Total noncurrent assets¥2,401
1,585¥2,482
1,690$29,212
19,2842012

Total current liabilities
Total noncurrent liabilities

1,410
127

1,263
188

17,155
1,545

Total net assets

2,448

2,720

29,784

Net sales
Income before income taxes
Net income

7,026
594
337

6,192
471
256

85,4847,227
4,100

16. Shareholders’ Equity
The Companies Act of Japan provides that an amount equivalent to 10% of the amount of deduction from surplus as a resultof the payment of dividends shall be recorded as additional paid-in capital (a component of capital surplus) or legal reserve(a component of retained earnings) on the dividend date until the total of additional paid-in capital and legal reserve equals
25% of the capital stock account.
Such distributions can be made at any time by resolution of the shareholders’ meeting or the board of directors if certain
conditions are met.
Changes in total number of shares of capital stock issued for the years ended March 31, 2012 and 2011 were as follows:
As of March 31,

Issued:Common stock
Type A preferred stock
Total
Treasury stock:
Common stock

2010

Increase/(decrease)

2011

Increase/(decrease)2012

6,366,937
2,000,000
8,366,937–(1,000,000)(1,000,000)

6,366,937
1,000,000
7,366,937

9,403,137(1,000,000)
8,403,137

15,770,074–
15,770,074

109,406

97

109,503(109,341)

162

For the year ended March 31, 2012, the increase in the number of issued shares of common stock was due to two-forone stock split on April 1, 2011 (6,366,937 shares) and issuance of new shares by public offering, the payment date ofwhich was December 19, 2011, (2,781,000 shares) and issuance of new shares by third-party allotment, the payment dateof which was January 18, 2012 (255,200 shares).
For the years ended March 31, 2012 and 2011, the number of issued shares of Type A preferred stock decreased by
1,000,000 shares due to retirement of shares after acquisition.
For the year ended March 31, 2012, the number of shares of treasury stock of common stock increased by 109,503
shares due to two-for-one stock split on April 1, 2011 and by 156 shares due to the acquisition of shares less than one unit.
For the year ended March 31, 2011, the number of shares of treasury stock of common stock increased by 97 shares due tothe acquisition of shares less than one unit.
For the year ended March 31, 2012, the number of shares of treasury stock of common stock decreased by 219,000
shares due to the disposal of treasury stock by public offering, the payment date of which was December 19, 2011.

40

Nitta Gelatin Inc.

Annual Report 2012

17. Information Related to Consolidated Statements of Changes in Net Assets(1) Dividends paid to shareholders
2012

Resolution

June 28, 2011
Annual general meetingof shareholders
November 7, 2011
Board of directors

AmountAmount(Thousands of(Millions of yen) U.S. dollars)

Type of shares

Amountper share(Yen)

Amountper share(U.S. dollars) Record date

Effective dateCommon stock

¥23

$279

¥3.75

$0.04

March 31, June 29,
2011
2011

Common stock

25

304

2.00

0.02

September December
30, 2011 8, 20112011

Resolution

June 28, 2010
Annual general meetingof shareholders
November 5, 2010
Board of directors

Amountper share(Yen)

Amount(Millions of yen)Type of shares

Common stock
Type A preferredstockCommon stock
Type A preferred
stock

¥23

¥ 3.75

44

22.44

23

3.75

31

22.56

Record date

Effective date

March 31, June 29,
2010
2010
September December
30, 2010 10, 2010

(2) Dividends with a record date during the fiscal year but an effective date subsequent to the fiscal year
2012

Resolution

June 27, 2012
Annual general meetingof shareholders

Type ofsharesCommonstock

AmountAmount(Thousands of(Millions of yen) U.S. dollars)¥126$1,533

Paid from

Retainedearnings

Amountper share
(Yen)

¥8.00

Amountper share(U.S. dollars) Record date

$0.09

Effective date

March 31, June 28,
2012
2012

2011

Resolution

June 28, 2011
Annual general meetingof shareholders

Type ofsharesCommonstock

Amount(Millions of yen)

Paid from

Retainedearnings¥23

41

Amountper share
(Yen)

¥3.75

Record date

Effective date

March 31, June 29,
2011
2011

Nitta Gelatin Inc.

Annual Report 2012

18. Amounts per Share
Net assets per share is computed based on net assets available for distribution to the shareholders of common stock andthe number of shares of common stock outstanding at the year-end.
Net income per share is computed based on the net income available to shareholders of common stock and weighted
average number of shares of common stock outstanding during the period which was 13,496,766 shares and 12,515,046
shares for the years ended March 31, 2012 and 2011, respectively.
Yen

Net assets per share
Net income per share

U.S. dollars

2012

2011

¥509.4199.87¥449.51
80.19

2012

$6.19
1.21

The Company conducted a two-for-one stock split on April 1, 2011. The Company calculated net assets per share and net
income per share assuming the stock split had conducted on April 1, 2010.
Diluted net income per share is not disclosed due to the absence of dilutive shares for the years ended March 31, 2012
and 2011.
(Changes in accounting policies)
Effective April 1, 2011, the Group has applied the “Accounting Standard for Earnings Per Share” (ASBJ Statement No. 2,
issued on June 30, 2010), the “Guidance on Accounting Standard for Earnings Per Share” (ASBJ Guidance No. 4, issued onJune 30, 2010) and the “Practical Solution on Accounting for Earnings Per Share” (Practical Issue Task Force No. 9, issued
on June 30, 2010).
By the application of the standard, as for the two-for-one stock split for the year ended March 31, 2012, the Company
calculated net assets per share and net income per share assuming the stock split had conducted on April 1, 2010.
If the standard was not applied, net assets per share and net income per share for the year ended March 31, 2011
would be as follows:Yen

Net assets per share
Net income per share¥899.02160.3919. Cash Flow Information
Reconciliations between cash and cash equivalents in the consolidated statements of cash flows for the years ended March 31,
2012 and 2011 and cash and deposits in the consolidated balance sheets as of March 31, 2012 and 2011 were as follows:
Thousands of
U.S. dollars

Millions of yen

Cash and deposits
Time deposits with a maturity in excess of three months
Cash and cash equivalents

42

2012

2011

¥2,098(20)¥2,078¥1,558(20)¥1,538

2012$25,526(243)$25,282

Nitta Gelatin Inc.

Annual Report 2012

20. Comprehensive Income
Reclassification adjustments and income tax benefit (expense) on components of other comprehensive income for the year
ended March 31, 2012 were as follows:

Millions of yen

Thousands of
U.S. dollars

2012

2012

¥ (40)–(40)
48
8$ (486)
–
(486)
584
97

(17)
8
22
13
(4)
8

(206)
97
267
158
(48)
97

(50)

(608)

(256)
18
(238)

(3,114)219(2,895)(123)¥(396)(1,496)$(4,818)

Valuation difference on available-for-sale securities:
Losses arising during the period
Reclassification adjustments
Pre-tax amount
Income tax benefit
Valuation difference on available-for-sale securities
Deferred gains or losses on hedges:
Losses arising during the period
Reclassification adjustments
Adjustments to acquisition cost of assets
Pre-tax amount
Income tax expense
Deferred gains or losses on hedges
Foreign currency translation adjustment:
Losses arising during the period
Pension liability adjustment of foreign subsidiaries:
Losses arising during the period
Reclassification adjustments
Pension liability adjustment of foreign subsidiaries
Share of other comprehensive income of associates accounted for using
equity method:
Losses arising during the period
Total other comprehensive income

21. Segment Information(1) Overview of reportable segment
Reportable segments are defined as a component of the Group for which separate financial information is available andwhose operating results are regularly evaluated by the board of directors to make decisions about how resources are allocated among the Group and assess its performance.
The Group plans comprehensive domestic and overseas strategies for its products and services and develops businessactivities based on business segments by product and service.
Accordingly, the Group consists of two segments by product and service based on the business activities as follows:“Collagen material business” produces gelatin, collagen peptide, collagen casings and others.
“Formula solution business” produces various materials for foods, adhesives and others.

(2) Basis of measurement for the amounts of net sales, profit, assets and other items by reportable segment
The accounting policies of each repor table segment are consistent with those disclosed in Note 2. “Significant Accounting Policies.” Segment profit is based on operating income, and intersegment sales and transfers are based on actual
market prices.

43

Nitta Gelatin Inc.

Annual Report 2012(3) Information about net sales, profit, assets and other items by reportable segment
Millions of yen
2012

Collagen material
business

Net sales:
Sales to third parties
Intersegment sales and transfers
Total
Segment profit
Segment assets
Other items:
Depreciation and amortization
Increase in property, plant andequipment and intangible assets

Formula solution
business

Reconciliation(Note 1)

Total

Amounts on
consolidated
financial statements (Note 2)¥17,433
1,352
18,7862,255
16,389¥10,329–
10,3291,082
4,867¥27,763
1,352
29,115
3,338
21,256¥–(1,352)(1,352)(1,323)
2,115¥27,763–
27,763
2,015
23,371

722

78

801

40

841

670

55

726

43

769

Millions of yen
2011

Collagen material
business

Net sales:
Sales to third parties
Intersegment sales and transfers
Total
Segment profit
Segment assets
Other items:
Depreciation and amortization
Impairment loss
Increase in property, plant andequipment and intangible assets

Formula solution
business

Reconciliation(Note 1)

Total

¥17,882
1,180
19,063
1,773
15,399¥10,040–
10,040934
4,350¥27,923
1,180
29,104
2,708
19,750

778
–

87
15

935

100

¥

Amounts on
consolidated
financial statements (Note 2)–(1,180)(1,180)(1,222)
1,716¥27,923–
27,923
1,486
21,466

866
15

32
–

898
15

1,036

12

1,049

Thousands of U.S. dollars
2012

Net sales:
Sales to third parties
Intersegment sales and transfers
Total
Segment profit
Segment assets
Other items:
Depreciation and amortization
Increase in property, plant andequipment and intangible assets

Collagen material
business

Formula solution
business

Total(Note 1)

$212,106
16,449228,567
27,436
199,403$125,672–
125,672
13,164
59,216$337,790
16,449354,240
40,613
258,620$–(16,449)(16,449)(16,096)
25,733$337,790–
337,790
24,516284,353

8,784

949

9,745

486

10,232

8,151

669

8,833

523

9,356

44

Reconciliation

Amounts on
consolidated
financial statements (Note 2)

Nitta Gelatin Inc.

Annual Report 2012

Note 1. “Reconciliation” included the following:Thousands of
U.S. dollars

Millions of yen
2012

Segment profit:
Intersegment elimination
Corporate expense (*)
Total

2011

¥

3
(1,326)¥(1,323)¥

7(1,229)¥(1,222)

2012

$

36
(16,133)$(16,096)(*) “Corporate expense” presents mainly general and administrative expenses that are not allocated to reportable segments.

Thousands of
U.S. dollars

Millions of yen

Segment assets:
Intersegment elimination
Corporate assets (*)

2012

2011

¥ (498)2,614¥2,115¥ (432)
2,148¥1,716(*) “Corporate assets” presents mainly property, plant and equipment and investment securities that are not allocated to reportable segments.

Note 2. Segment profit is reconciled to operating income on the consolidated statements of income.
Note 3. Related information for the years ended March 31, 2012 and 2011(a) Information by geographical area
Net sales:
Millions of yen
2012
Japan

Asia

North America¥20,037¥1,082

Other¥6,255

¥387

Total

¥27,763

Millions of yen
2011
Japan

Asia

North America¥19,686¥1,201

Other¥6,569

¥465

Total

¥27,923

Thousands of U.S. dollars
2012
Japan

Asia

North America$243,788$13,164$76,104

Other$4,70845

Total$337,7902012$ (6,059)
31,804$25,733

Nitta Gelatin Inc.

Annual Report 2012

Property, plant and equipment:
Millions of yen
2012
Japan

Asia

¥2,675

North America

¥0

Total

¥2,711¥5,387

Millions of yen
2011
Japan

Asia

¥2,688

North America

¥–

Total

¥2,849¥5,537

Thousands of U.S. dollars
2012
Japan

Asia

$32,546

North America

Total$32,984$65,543$0(b) Information by product and service has been omitted since similar information is disclosed as information byreportable segment. Information by major customer has been omitted since there were no sales to single external customer accounting for 10% or more of the consolidated sales.

22. Subsequent Events
Establishment of a new subsidiary
At the board of directors on March 21, 2012, the Company resolved that Nitta Casings Inc., one of the consolidated subsidiaries of the Company, would enter into a joint venture agreement in China.

(1) Purpose of establishment
To promote collagen casing sales in China, Nitta Casings Inc. has entered into a joint venture agreement with Beijing Quishi
Agricultural Department Co., Ltd., a sheep casing processing company in Beijing, for the purpose of establishing a joint
venture company.

(2) Outline of joint venture company
Trade name:Beijing Nitta Collagen Casing Co., Ltd.

Representative:

J. Ronald Frump (President & CEO, Nitta Casings Inc.)

Address of head office: Beijing, People’s Republic of China
Established in:

September 2012

Business description:

Production and sales of collagen casings

Capital stock:

Equivalent of U.S. $3,000 thousand

Investment ratio:

Nitta Casings Inc. 70%
Beijing Quishi Agricultural Department Co., Ltd. 30%

46

Nitta Gelatin Inc.

Annual Report 2012

(Supplementary Note)
As stated in Note 1. “Basis of Presenting Consolidated Financial Statements,” the Company, by its own judgment, has
prepared the accompanying consolidated financial statements by making reclassification and rearrangements to the financial
statements issued domestically in order to present them in a form which is more familiar to readers outside Japan. These
financial statements have not been audited by independent auditors.
The Group’s consolidated financial statements for the years ended March 31, 2012 and 2011, which were included in
the Annual Securities Report, have been prepared in thousands of yen and audited by Ernst & Young ShinNihon LLC in accordance with Article 193-2 (1) of the Financial Instruments and Exchange Act of Japan.

47

Nitta Gelatin Inc.

Annual Report 2012

Investor Information

Stock Information (As of March 31, 2012)
Number of shares authorized: 50,000,000 shares
Number of shares issued:

15,770,074 shares (including treasury stock of 162 shares)

Number of shareholders:

3,812

Major Shareholders (Top 10)
Shareholder Name

Number of Shares

Shareholding Percentage

2,946,316

18.68%

Nitta Corporation

840,014

5.33

The Bank of Tokyo-Mitsubishi UFJ, Ltd.

621,074

3.94

Sumitomo Mitsui Banking Corporation

600,286

3.81

IBP Co., Ltd.

Nitta Gelatin Employees Shareholding Association

460,800

2.92

Iwaki Co., Ltd.

391,000

2.48

Ishizuka Corporation

382,014

2.42

Resona Bank, Ltd.

334,672

2.12

Hiroshi Nitta

239,474

1.52

Masanori Hayashi

221,400

1.40(Note) Shareholding percentage is calculated based on the total number of shares issued minus treasury stock (162 shares).
Percentages are rounded to two decimal places.

Share Distribution<Breakdown of Shareholding by Investor Type>
Financial institutions:
16 (0.4%)

Securities companies:
24 (0.6%)

Domestic companies:
65 (1.7%)

13 (0.3%)<Breakdown of Shareholding by Number of Shares Held>
Securities companies:

204 thousand shares (1.3%)

Foreign companies, others:

Financial
institutions:Individual, other:

2,760

thousand shares(41.5%)

thousand shares(17.5%)

Individual, other:

3,694

Domestic
companies:(96.9%)

6,138
thousand shares(38.9%)

48

Foreign companies, others:
129 thousand shares (0.8%)

6,540

Nitta Gelatin Inc.

Annual Report 2012

Corporate Information (As of March 31, 2012)

Company Outline

Affiliates

Headquarters:

4-26, Sakuragawa 4-chome, Naniwa-ku, Osaka
556-0022, Japan

Nitta Gelatin NA Inc. (U.S.A.)

Establishment:

January 1918

Nitta Gelatin USA, Inc. (U.S.A.)

Incorporation:

February 1945

Nitta Casings Inc. (U.S.A.)

Capital:¥1,577,121,250

Nitta Casings (CANADA) Inc. (Canada)

Net Sales:

Non-consolidated: ¥20,567 million
Consolidated: ¥27,763 million(Year ended March 31, 2012)

Shanghai Nitta Gelatin Co., Ltd. (China)

Employees:

Main Business:

Nitta Gelatin Canada, Inc. (Canada)

Aibis Inc. (Japan)
Alma Corporation (Japan)

Non-consolidated: 254
Consolidated: 592

Nitta Biolab Inc. (Japan)(As of March 31, 2012)

Hikone Gelatin Inc. (Japan)

Production and sales of edible gelatin,
pharmaceutical gelatin and photographic gelatin.

Nitta Gelatin Holding, Inc. (U.S.A.)

Production and sales of collagen peptide.

Bostik-Nitta Co., Ltd. (Japan)

Production and sales of collagen casing.

Nitta Gelatin India Ltd. (India)

Production and sales of collagen for cosmetics,
biomaterials and biochemical products.

Guangdong Baiwei Bio Material Co., Ltd. (China)

Production and sales of edible gelling agents,
stabilizers and other food materials.

Bamni Proteins Ltd. (India)

Nitta Hong Kong, Inc. (China)

Shinju Service Co., Ltd. (Japan)

Reva Proteins Ltd. (India)
Production and sales of adhesives and sealants
for packaging, bookbinding, building materials,
hygiene products and automobiles.
Operating facilities: 4 locations in Japan

49