ANNUAL REPORT“Making human life and society richer, more comfortable through technological innovations”

Profile
Basic Corporate Vision

NIPPON SHOKUBAI CO., LTD. has been undertaking numerous
efforts to build a more solid business structure and gain a sharper
competitive edge to keep pace with rapid changes in the world, under its
corporate philosophy of ÒTechnoAmenityÓ, which means providing
affluence and comfort to society through technology, and the following
slogans:
1. Respect for humanity
2. Coexisting with society, and working in harmony
with the environment
3. Pursuing futuristic technology
4. Acting from an international perspective

Business Fields

Contents

Financial Highlights ...............1
To Our Shareholders ...............2
Review of Operations ..............4
Medium- and Long-termBusiness Plans .................6
Corporate Governance .............8
Corporate Behavior Charter ......10
Topics ..............................11
Responsible Care .................12
Management Indices .............14
Financial Section
Report of Independent Auditors ...17
Consolidated Balance Sheets ...18
Consolidated Statements ofIncome .........................20
Consolidated Statements ofChanges in Net Assets ........21
Consolidated Statements ofCash Flows ....................24
Notes to Consolidated
Financial Statements .........26
Corporate Data ....................38

Since the establishment in 1941, we have carried out original researchand development in four major fields such as polymer synthesis,
environment preservation systems, organic synthesis, and catalyst
technologies.
Our major products are 1) Basic Chemicals, such as acrylic acid,acrylic ester, ethylene oxide, ethanol amine, and higher alcohol
surfactants, etc., 2) Functional Chemicals, such as superabsorbent
polymers, polymers for concrete admixture, resins for paints/adhesives
and electronic and information materials, etc., and 3) Environment andCatalysts, such as catalysts for cleaning automobile exhaust gases,
process catalysts, De-NOx catalysts and dioxins decomposition /elimination equipments, etc.
In addition, our technologies for manufacturing chemical products areappreciated in foreign countries as well as our diversified line ofproducts. We have licensed our technologies worldwide for
manufacturing various chemicals such as acrylic acids and esters.
Created through our original technologies and know-how, our products
above have made various contributions to our society and daily life.

Nippon Shokubai Co., Ltd. and Consolidated Subsidiaries
Years ended March 31

Financial Highlights

Millions of Yen

For the YearNet sales . . . . . . . . . . . . . . . . . .
Operating Income . . . . . . . . . . .
Ordinary Income . . . . . . . . . . . .
Net Income . . . . . . . . . . . . . . . .

At Year End

Total Assets . . . . . . . . . . . . . . . .
Total Net Assets . . . . . . . . . . . .

Change%Thousands of
U.S. dollars

2006

2005

2007/20062007´ 266,513
19,42922,754
13,988´ 232,441
23,22826,14816,257

14.7%(16.4)(13.0)(14.0)$ 2,257,628
164,582
192,749
118,492´ 323,675
179,368´ 291,564
168,704

11.0
6.3$ 2,741,847
1,519,424

Yen

Per Share Amounts

Net Income . . . . . . . . . . . . . . . .
Cash Dividends . . . . . . . . . . . . .

U.S. dollars´ 85.8916.00´ 74.92
16.00(12.8)
–

$

0.63
0.14

Foreign Exchange Rate: US$ 1.00 = ´118.05
Notes: Sections under "Total Net Assets" are newly provided to conform Japanese accounting regulations.
The fiscal 2006 figures have also been restated to reflect this change.
See Note 2 of the Management Indices (Page 14-15) for details.

Net Sales(Billions of yen)
300

267

250
200

232
197
164 170

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

30

20

12

25

10.1 9.720

7.9 23.7 26.1
7.4

150

15 4.9

100

10

50

5

0

'03

'04

'05

'06

'07

0

10

22.8

17.2

8

2
'03

'04

'05

Ordinary Income
ROA

1

'06

'07

15.7 16.3

16

0

14

12

6
4

10.9

(Billions of yen)

8.8
8

5.5

4
0

'03

'04

'05

'06

'07

To Our Shareholders

It gives me great pleasure to report on theperformance of NIPPON SHOKUBAI GROUP(the ÒCompanyÓ) for the fiscal year ended March
31, 2007 (Fiscal 2006).
Overview

During the fiscal year ended March 31, 2007,
the Japanese economy expanded at a moderatepace backed by growth in corporate earnings andincreased capital spending, although crude
oil price movements and currency market
fluctuations remained a source of instability.
The chemical industry outlook, meanwhile,
was clouded by soaring raw material prices andinternational market trends.
Against this backdrop, consolidated net salesof the Company increased by ´34,072 million(14.7%), to ´266,513 million, compared with theprevious year. This was mainly due to an increasein sales volume of Functional Chemicals inparticular, and revised selling prices reflecting a
sharp rise in raw material prices.
Operating income decreased by ´3,799 million(16.4%) year on year, to ´19,429 million, due tothe weakened market conditions for some of basic
chemicals, and an increase in fixed costs
including higher depreciation expenses resulting
from expansion of facilities, though exhaustive
efforts were made to expand sales volumes andrevise selling prices in the face of a steep rise in
raw material prices.

2

Ordinary income decreased by ´3,393 million(13.0%), to ´22,754 million, due to a significant
decline in operating income, although nonoperating income/loss was improved by ´406
million from a year earlier because the combined
impact of an increase in investment profit basedon the equity method, and a decrease in costs ofdisposal and removal of fixed assets outweighed
the negative impact of a deterioration in thefinancial balance. Net income also declined by´2,269 million (14.0%) year on year, to ´13,988
million.

Taking into consideration the businessenvironment and our performance, we decided tohold the year end dividend per share on ´8.0.
Together with the interim dividend, the annual
dividend per share for the fiscal 2006 amounts´16.
We would like to express our sincere
appreciation and ask all of our shareholders fortheir continued support and guidance as we move
forward.
June 2007

Net income per share was ´74.92, while ROA(ordinary income to total assets) and ROE (netincome to shareholdersÕ equity) declined by 2.3
percentage points to 7.4% and to 8.2% respectively,from a year earlier.
On a non-consolidated basis, net sales were´192,177 million, operating income, ´16,008
million, ordinary income, ´20,378 million, andnet income, 12,378.

Tadao Kondo, President

Performance Highlights(million yen)

Fiscal YearNet sales
Operating income
Ordinary income
Net income
Net income per share
ROA
ROE
Exchange rate
Naphtha price2006
266,513
19,42922,754
13,988´74.92
7.4%
8.2%$=´117.00
EUR=´150.08´50,000/kl

3

2005
232,441
23,22826,14816,257´85.899.7%
10.0%$=´113.35
EUR=´137.85´42,400/kl

ChangeAmount34,072(3,799)(3,393)(2,269)(´10.97)
Ð
Ð

%
14.7%
(16.4%)(13.0%)(14.0%)(12.8%)(2.3points)(2.3points)´ 3.65´12.23´7,600/kl

Review of Operations
Performance by Business Segment
Basic Chemicals

Functional Chemicals

Acrylic acid and acrylic ester sales went up
thanks to higher sales volumes, even though themarket showed signs of weakness.
Sales of ethylene oxide, ethanolamine, andhigher alcohol products (trade name:
SOFTANOLE¨) grew, supported by brisk demandand progress made in revising selling prices.
Ethylene glycol sales declined due to a lower
sales volume with a tight inventory, though themarket remained strong.
As a result, the Basic Chemical Businessposted net sales of ´97,665 million, up 3.8% overthe previous year.
Operating income decreased by 51.6% year on
year, to ´5,399 million, reflecting the weakmarket conditions for some products, significantly
affected by an increase in fixed costs such as
higher depreciation expenses associated withfacility expansion, despite efforts to increase sales
volumes and revise selling prices to properlyreflect soaring raw material prices.

Superabsorbent polymer sales rose thanks to a
constantly increasing volume of sales due to
growing world demand, and the successful
outcome of revisions to selling prices.
Sales of maleic anhydride, resins foradhesives/paints, processed adhesive products,
and resin modifiers increased due to brisk
domestic demand.
Sales of special esters, and polymers forconcrete admixtures grew supported by strong
demand at home and abroad.
Sales of raw materials for detergents increased
due to steady overseas demand.
Sales of electronic and information materials
grew due to an increase in sales volume including
new product launches.
Sales of iodine compounds, intermediates forpharmaceuticals, and unsaturated polyester resinsremained on a par with the previous yearÕs level.
As a result, the Functional Chemicals Businessposted net sales of ´141,321 million, up 21.5%
over the previous year.
Operating income increased by 17.0% year on
year, to ´10,838 million, owing to higher sales
volumes and revisions to the selling prices ofsome products, despite the negative impact ofsoaring raw material prices and higher fixed costs,
including depreciation expenses, associated withfacility expansion.

Polyester fiber (Ethylene glycol)

Disposable Diapers(Superabsorbent Polymers)

LCD (organic and inorganic finesphere particles)(unit : million of yen)

Performance by Business Groups and Regions

Fiscal Year 2005
ChangeFiscal Year 2006
Business Group
Basic Functional Environment Basic Functional Environment Basic Functional Environment
Chemicals Chemicals & Catalysts Chemicals Chemicals & Catalysts Chemicals Chemicals & Catalysts
Sales
97,665 141,321
27,526
94,095 116,300
22,046
3,751
25,022
5,480
Operating income 5,399
10,838
2,982
11,1589,262
3,123(5,759)
1,576
(141)
4

Environment & Catalysts

Sales of automotive catalysts increased, due toselling prices going up in step with escalating
precious metal prices.
Sales of equipment and catalysts for
wastewater treatment increased due to export oflarge-scale equipment.
Sales of process catalysts decreased because of
declining demand for replacements.
Sales of De-NOx catalysts, and equipment
and catalysts for waste gas treatment remained
almost unchanged from the previous year.

As a result, the Environment & Catalysts
Business posted net sales of ´27,526 million, up
24.9% over the previous year.
Operating income
decreased by 4.5%
year on year, to ´2,982
million due to higher
raw material prices
and a change in sales
mix.
Automotive catalysts / De-NOx catalysts

Performance by Regions
Japan

Asia

Net sales increased by 10.4% from a year earlier,to ´186,288 million, due to higher sales volumes ofFunctional Chemicals such as superabsorbent
polymers and polymers for concrete admixtures,
acrylic acids, and acrylic esters.
Operating income decreased by 15.0% year-onyear, to ´17,301 million, affected by surging raw
material prices and higher fixed costs, including
depreciation expenses, associated with facility
expansion, even though sales actually grew.

Acrylic acid and acrylic ester sales increased involume but slightly decreased in value reflecting the
weak market conditions. Net sales in this region,
however, increased by 10.2% over the previous year,to ´30,194 million, due to a significant increase in
the sales volume of superabsorbent polymers.
Operating income decreased by 76.4% year on
year, to ´864 million, affected by the weak market
conditions for acrylic acids and acrylic esters against
a backdrop of a steep rise in raw material prices,
although sales of superabsorbent grew.

EuropeNet sales increased by 35.9% year on year, to´32,521 million thanks to brisk sales ofsuperabsorbent polymers.
Operating income decreased by 66.3% from theperiod a year earlier, to ´70 million, because theimpact of escalating raw material prices and higher
fixed costs, including depreciation expenses,
associated with facility expansion, was more thanoffset by the effects of higher sales and selling pricerevisions.

Other Regions

Net sales increased by 42.0% year on year, to´17,510 million due to higher sales volumes ofFunctional Chemicals such as superabsorbent
polymers and raw materials for detergents.
Operating loss stood at ´285 million, though thisresult showed a substantial improvement over thatfor the previous year, thanks to boosted sales andrevisions to selling prices amid escalating raw
material prices.
(unit : million of yen)

Fiscal Year 2006
Fiscal Year 2005
ChangeRegion
Other
Other
Other
Japan Europe Asia Regions Japan Europe Asia Regions Japan Europe Asia Regions
Sales
186,288 32,521 30,194 17,510 168,773 23,953 27,405 12,329 17,515 8,586 2,790 5,181
Operating income 17,301
70
864 (285) 20,350 207 3,663 (1,318) (3,050) (137) (2,800) 1,033
5

Medium- and Long-term Business Plans
The Company drew up a long-term business plan, ÒTechnoAmenity V3,Ó which sets out the
management vision for the five years since fiscal 2006 to fiscal 2010, together with a mediumterm business plan as its action program, in a bid to deliver further growth.
Challenges and Medium- and Long-term Management Strategies

The Company seeks further growth under the
long-term business plan ÒTechnoAmenity V3Ó (forfiscal 2006 to 2010), which sets out a long-term
management vision, coupled with the Medium-

term Business Plan (for fiscal 2006 to 2008),
which provides a concrete action plan to realize
the long-term business plan.

1) Outline of the Long-term Business Plan “TechnoAmenity V3”

1. Vision for the future: ÒA global company creating new values through unique technologiesÓ
2. Slogan:ÒPursuitÓ to our strength such as key technologies and key materialsÒInnovationÓ of way of marketing and researchÒAscentÓ to be realized through Ò PursuitÓ and ÒInnovationÓ

3. Target for FY 2010: Net Sales: ´350 billions
Ordinary Income: ´35 billions
ROA: above 7.5%
Net sales: ¥350 billions
Ordinary income: ¥35 billions
ROA: above 7.5%
TechnoAmenity V3(FY2006 – 2010)- Pursuit, Innovation and Ascent -concentration on electronic & information materials businessfurther selection and concentration in priority areas

New
Business
Field

selective advance into growth areas
continuous improvement of production technologies

Existing
BusinessFieldenhancement of division's roles and responsibilities
creating business synergy with domestic subsidiaries
and developing divisional responsible system
for foreign subsidiaries

Themes of
Whole
Company

FY2006FY2010
6

A
Global Company
Creating
New Values
Through
UniqueTechnologies

2) Outline of the Medium-term Business Plan

The Company seeks to enter into growth areas(fields; overseas) outside the domain of its existing
business, and at the same time, continue to pursue
innovative production technologies in order toenhance its cost competitiveness. As for new lines ofbusiness, the Company will concentrate its
management resources on the electronic andinformation materials business as the top priority forthe ÒTechnoAmenity V3Ó plan, while searching for
more sharply focused next-generation businessthemes.
Through the execution of these measures, theCompany aims to attain the fiscal 2008 target for net
sales of ´300 billions (including ´40 billions of new
products), ordinary income of ´30 billions, and ROAof 7.5% or higher.

Progress on the Medium-term Business Plan
(1) Existing businessinternationally competitive functional chemicals. To
this end, a new manufacturing plant with an annual
capacity of 10,000 tons for polymers for concrete
admixtures is under construction at NISSHOKUCHEMICAL INDUSTRY (ZHANGJIAGANG)
CO., LTD., and is due for completion in autumn
2007.

The construction of superabsorbent polymer
manufacturing plants was completed at Nippon
Shokubai Europe N.V. (Belgium) and the Himeji
Plant, adding 30,000 tons to annual capacity at bothsites, with commercial operations starting in spring
2006. A manufacturing plant with an annual capacityof 60,000 tons is also scheduled to be completed at
the Himeji Plant, and go into commercial operationin summer 2007. With the completion of theseplants, the annual production capacity ofsuperabsorbent polymers will expand to 410,000
tons, allowing the Company to maintain its
leadership position in the global market.
For the acrylic acid business, a manufacturing
plant with an annual production capacity of 160,000
tons completed at the Himeji Plant has been
operating since December 2006, enabling theCompany to achieve an annual production capacityof 620,000 tons for acrylic acids.
For the ethylene oxide business, the Company
seeks to establish a solid business foundation lesssusceptible to market fluctuations, by boosting salesof ethylene oxide and its derivative products up to
the target ratio of 80% or higher for non-EG(ethylene glycol) products.
The Company also acquired a new site with theintention of consolidating the manufacture ofethylene oxide and its derivative products into the
Kawasaki area.
For other businesses, the Company seeks tofurther expand global operations for its(2) New Business

For the electronic and information materials
business, the Company newly formed the E&I
Materials Business Division in April 2006, and has
been making steady progress toward thedevelopment and commercialization of new
products. Among other things, the production
facilities for acrylic resins for optical materials,
which were constructed at the Himeji Plant and went
into commercial operation at the end of 2006, arescheduled for further expansion with the aim ofachieving an annual production capacity of 6,000
tons by the autumn 2007. Business development forfine spherical particles and functional pigments has
also made solid progress. The Company, meanwhile,
opened a new office in South Korea, a promisingoverseas market, pursuing further growth in theelectronic and information materials business.
Meanwhile, the Company remains committed todevelopment and commercialization initiatives infields considered to be the next growth areas, health& medical care, and new energy, with a view tocommercialization around 2010.
7

Corporate Governance
We have strived toward reinforcing our staying

board

of

directors,

increase

operation, and ensure tighter compliance.

fluctuation

of

the

world,

andregard corporate governance as key for achieving
the

goal.

We

are

takingsteps

torevitalize

The

the

diagram

below

and

audit

flexiblyany

efficiency

thepower and competitive edge so that we can cope
with

the

strengthenshowssystem,effectiveness

the

frame

of

of

our

corporate governance system.

Corporate Governance System
General Meeting of Shareholders

Board of Directors

Board of Corporate
Auditors

President
reportaudit

Corporate
Management
Committee

Accounting
Auditoraudit

RiskManagement
Committee

support

Auditor's Office

Legal
Advisors

CSR Management Committee
Responsible Care Promoting
Committee

communicate

Compliance Committee

cooperate

Internal Control Committee

Internal
Audit Officeinternal
audit

Corporate
Planning
OfficeFinance &Accounting

Administration

Responsible
Care OfficeInformational
Technology
Management Office

Research &Development

Sales

Production

Board of Directors, comprised of 16 directors

Corporate Management Committee , as an

as of March 31, 2007, deliberates and resolves theadvisory organ to the president, deliberates basic

matters

management

relating

operations,

and

to

the

execution

policies,

thematters

relatedtothedirector Õs

policies, and the execution of important business
operations by individual divisions. Agenda items

Directors convenes once a month, chaired by thethat come up to this Committee and are regardedpresident,

as

which

four

each

business

execution of operation. In principle, the Board ofatsupervisesofcorporate

auditors,

including two from outside, are in attendance. The
corporate

auditorspresent

statements

important

will

be

forwarded

to

the

Board

of

Directors for deliberation.

when

The

deemed necessary.

memberCommittee
directors

are

of

the

the

Corporatepresident,

managing

8

seniordirectors

nominated by the president.

Management

andmanaging
directors

Board of Corporate Auditors is comprised offour

corporate

auditors,

includingtwoCompliance Committee ,president,

discusses

outside. In principle, the Board convenes once a

fromenhanceourmonth to report, discuss and resolve importantmanagement.

andchaireddecidesbythemeasurescompany-wide

tocompliancematters. In addition to attending the Board of
Directors,

theauditors

attendCorporate

Management

Committee

andimportantmeetings

monitormakingcorporate

process,toanddirectorsÕ operation,

grasp

decision-

execution

chairedbythepresident,

discusses and prepares for the highly efficientofInternal Control System enforced by Financial
Instruments and Exchange Law as of April 1st
2008, not only aim to ensure the riability of theforwardcompanyÕs financial reporting, but also to ensure

opinionfromreporting,

the

audit

reports

financialaccounting auditors, directors and others, and put
anreceivethethe

The Internal Control Committee concerning

the

other

followingdue

consultation.

the effectiveness and efficiency of the companyÕs

The two current Corporate Auditors frombusiness activities.

outside have no personal or any other relationship

Legal Advisers provide their opinions for us

through investments that could create a conflict ofinterest in the performance of their duties.

when solicited. None of the Legal Advisors is
involved in the management of the Company.

Risk Management Committee, chaired by therisks

Accounting Auditors perform their services

surrounding the Company. On the basis of theunder the Commercial Code and Securities andanalysis, the Committee discusses the preventive

Exchangemeasures or countermeasures for the risks.

opinions when we call for it to make decisions onpresident,

exploresandanalyzestheaccounting

CSR (Corporate Social Responsibility)
Management Committee , chaired by the

Law

of

issues.

Japan,

None

and

of

provide

the

their

Accounting

Auditors is involved in the management of theCompany.

president, discusses and decides the CSR policy

Internal Audit Office carries out internal

and activities that would make all the stakeholders
beneficial,incooperation

with

the

other

audits (verify the adequacy and effectiveness ofcommittees such as Risk Management Committee

the business process in each division and reportor the Compliance Committee.

the results to the directors) in cooperation with theBoard of Corporate Auditors.

Responsible Care Promoting Committee,
Responsible Care Office carries out internal

chaired by the president, discusses and decides thepolicy and plans of activities for ÒResponsible

auditsCaredivision.

(RC)Ó

placingaspecialemphasisonenvironmental preservation, safety and quality
throughout the entire life cycle of our products
from the development to disposal. In March 2006,
the Committee established the Ò5th Medium-term
RC promotion Basic PlanÓ to reinforce our RC
more active.

9

onresponsible

care

activities

in

each

Nippon Shokubai Corporate Behavior CharterIn the belief that it is our social responsibility

following basic corporate behavior guidelines into conduct business based upon the principles oftheÒNipponcompliance and self-responsibility for the sake ofCharter.Ó

Shokubai

Corporate

Behavior

proper social development, we have set forth the1.

Guided by our Corporate Philosophy of ÒTechnoAmenity,Ó we will conduct all of ouractions as a good corporate citizen.

2.

We

will

complywithrelevant

laws

both

insideandoutsideofJapan,

and

act

in

accordance with in-house regulations.
3.

We will create and nurture a sound, vibrant workplace, where each individual can honetheir professional competence and find fulfillment in their career.

4.

We will develop and market products and services that are both safe and useful, based
upon an accurate understanding of social demands.

5.

We will commit ourselves to eliminating labor hazards and accidents, and constantly
strive to protect the global environment.

6.

We will conduct business based on fair and open competition.

7.

We will take a firm stance when dealing with unlawful or antisocial groups.

8.

We will ensure frequent communications with our shareholders and members of society
in general, and guarantee the appropriate disclosure of corporate information.

9.

With

respect

contribute

to

for

the

their

cultureanddevelopment

customs
and

of

every

wellbeing

nation/region

throughweserve,

community-based

we

will

business

undertakings.
10.

We will ensure the solid and sustainable development of the company through businessundertakings based soundly upon the above action guidelines.

To

ensureandrealizetheprinciples

of

the

Charter above, the Compliance Committee issued
ÒThe
for

Nipponongoing

ShokubaiCompliancecompliancetraining

GuidebookÓ
for

all

the

managers and the employees.

10Topics
Himeji Plant: Completion of Superabsorbent Polymer Plant
The

construction

polymer

(SAP)

of

a

new

manufacturing

superabsorbent
plant

with

The

Company

will

strivetomaintainits

anleadership position in the global market, and seek

annual capacity of 60,000 tons, which started last

to make further advances, capitalizing on its

year with the aim of reinforcing the SAP businessstrength as an integrated manufacturer of acrylic-as the CompanyÕs core operation, and responding

based products.

to growing SAP demand, has been completed.
The

facilities

aredesigned

to

cut

costs

including reducing construction costs per unit
capacity by scaling up annual capacity from thecurrent 30,000 tons to 60,000 tons.
With the new facilities coming into operation,
theCompany

has

now

a

total

annualSAP

production capacity of 410,000 tons at four sitesaround the world.

AwardsÒDevelopment of New Production Process for(

N-vinyl-2-pyrrolidoneÓ was awarded The CSJ *ÒDevelopment)ofEnvironmental

Friendly

Acrylic Emulsion for PaintsÓ was awarded The

Award for Technical Development (2006).

Kinka Chemical Society Award for Environmental
Technology.

( * The Chemical Society of Japan )11Responsible Care
1. Our Fundamental Policy on Environment,
Safety and Quality

3. The 5th Medium-Term RC Promotion Basic
Plan(FY2006-FY2008)

The Company has set the corporate philosophy
as “TechnoAmenity: providing affluence and comfort
to society through technology”. Adhering to thephilosophy, the Company has defined the fourpriorities regarding Environment, Safety andQuality, which will bring our business activities into
harmony with global environmental preservationand conservation:
1. Acknowledging environmental preservation
throughout the entire life cycle of a product, fromdevelopment to disposal
2. Aiming for zero accidents and disasters andkeeping society, including our employees, safe
3. Confirming the safety of chemical materials,
intermediates and products, and considering thehealth of respective people such as ourcustomers, employees of logistics, and our
employees, etc.
4. Stably supplying products and associated services
that meet customer satisfaction and inspire theirtrust

Process
Safety &DisasterPrevention Occupational
Safety &HealthEnvironmental
Prevention
Chemical
SafetyQuality

Goals(1) Voluntarily pursuing goals in each of the related areas
within the company

Environmental Preservation.6% reduction of energy per unit of production on FY2008 (vs.FY2005)(3% reduction of CO2 emission per unit of production on
FY2008 (vs.FY2005)).Accession to zero emission* and its maintenance.40% reduction of emission of PRTR* chemical substances (vs.FY2005).Establishment of eco-friendly product design system*Zero emission is defined as less quantity of final off-site
landfill than 0.1% of total amount of waste generated.
Process Safety and Disaster Prevention.Zero disasters .Zero accidents
Occupational Safety and Health.Zero industrial injuries with lost workdays (including contractors).Zero industrial injuries without lost workdays (including contractors)
Chemical Safety.Zero problem on chemical safety (legal or social)
Quality.Zero serious claims
Communication with Society.Promotion of dialogue with stake holders and adequate
disclosure of the information regarding RC

2. RC Promotion Organization(1) RC Promotion Organization
President

Director responsible for RC

RC Division

Environment and Safety
Committee
Chairman: Senior Managing Director

Environment &Safety Dept.
Quality Assurance
Dept.

Communications Society

Chemical Total Management
Responsible Care
Product Safety Review
Committee
Promotion Committee
Sub-committee
Chairman:President Chairman: Senior Managing Director(2) Group RC activities in domestic and overseas.Attainment of common targets to all NIPPON SHOKUBAI GROUP<Group common targets>
1)Environmental preservation.Promotion of energy saving activities.Reduction of emission of PRTR chemical substances.Reduction of amount of waste generated2)Process Safety and Disaster Prevention.Zero disasters .Zero accidents3)Occupational Safety and Health.50% reduction of industrial injuries with lost workdays(vs.FY2004 - FY2005)
4)Chemical Safety.Zero problems on chemical safety(legal or social)5)Quality.Zero serious claims6)Communication with Society.Promotion of dialogue to stakeholders and adequate disclosureof the information
7)Management System.Introduction of ISO14001 and risk assessment of OHSAS18001.

Quality Committee
Chairman: Senior Managing Director(2) RC Management System
ISO 14001(EMS)
Registration of all operations completed in July
2001. Up grading to improved 2004 standards
completed in 2005.
ISO 9001(QMS)
Registration of all operations completed. Up
grading to improved 2000 standards completed in
2003.

12

4. RC Performance in FY 2006

(1) Environmental Preservation① Energy saving② Reduction of emission of PRTR* chemical
substances③ Reduction of industrial wastes(6) Communication with Society
Regional activities such as conserving local
chrysanthemum ÒNoji-GikuÓ in danger of extinction,and inviting children to potato digging in Himeji
Plant.

(2) Process Safety and Disaster Prevention① Implementation of safety assessment by
HAZOP*② Reduction of change risk through Managementof Changes*③ Training for emergency④ Logistic safety using Yellow Card* system andtraining for transportation emergencyÒNoji-GikuÓ and Himeji Plant

Potato digging (Himeji Plant)(7) RC activities of the Company in Japan & overseas
Reduction of environmental emission, labor
accident, equipment trouble and quality claim& nonconformity
Information sharing for RC activity① Affiliated companies in Japan:
RC audit and case study workshop about
quality carried out by the Group companies
ISO 9001 certification (Tokyo Fine ChemicalCo., Ltd.)② Overseas affiliated companies:
ISO 14001 certification (NA Industries, Inc.)
RC meeting in Himeji Plant■(3) Occupational Safety and Health① Reduction of risk in workspace throughOccupational Safety and Health Management
System② Prevention of injuries caused by unsafe action

■

■

■

(4) Chemical Safety① Safety assessment of new products throughStage Gate System② Global Product Stewardship for REACH* and
GHS*

■
■

(5) Quality① Prevention of quality complaint by improving
Quality Management System②Disclosing information concerning green
procurement to the customers

RC meeting (Himeji Plant)

REACH:Registration, Evaluation, and Authorization of Chemicals

PRTR:Pollutant Release and Transfer RegisterA new EU regulatory framework for the Registration, Evaluation andAuthorization of Chemicals aiming to improve the protection of humanhealth and the environment through the better and earlier identificationof the properties of chemical substances.

A regulatory system which requires reporting of emission volumes ofwastes. Data compiled to the government bodies are disclosed to the
public.

HAZOP:Hazard and Operability Studies

An execution to estimate the safety of plants.

GHS:Globally Harmonized System of Classification and Labeling ofChemicals

A system for classification and labeling of chemicals hazard according
to the globally harmonized rule.

Management of Changes:

Program to ensure that proposed changes to plant operations areevaluated changes are prevented so as to public, and the environmental,
etc.

Yellow Card:

A card staring the producers to be taken and contact information fortransporters, fire squads, and police in the event of an accident during theroad transport of chemicals.
13

Management Indices(1) Consolidated Management IndicesYear ended March 31(Fiscal Year)

2003(2002)

2004(2003)

2005(2004)

2006(2005)

2007(2006)(Millions of Yen)

Net Sales
Ordinary Income
Net Income
Total Assets
Total Shareholders' Equity
Total Net Assets

163,514
10,971
5,516
216,756
121,297
-

169,733
17,212
8,822
220,185
131,685
-

197,222
23,709
15,705
249,349
144,660
-

232,441
26,148
16,257
291,564
164,631
168,704

266,513
22,754
13,988
323,675-
179,368(Yen)

Net Assets per ShareNet Income per Share
Fully Diluted Net Income per Share
Capital Ratio(%)
Return on Equity(%)
Price Earning Ratio(times)

631.12
27.97

56.0
4.6
20.4

685.2045.37

59.8
7.0
18.0

757.72
81.37

58.0
11.4
11.9

875.0085.89

56.5
10.5
16.3

948.34
74.92
-

54.1
8.2
17.0
(Millions of Yen)

Cash Flow from Operating Activities
Cash Flow from Investing Activities
Cash Flow from Financing Activities
Cash and Cash Equivalents at Year-end

Number of Employees

23,117 
(8,751)(15,956)
21,217

16,399  22,161  17,468  16,087 
(9,161) (16,934) (20,663) (23,109)(9,506)(861)(2,562)
4,037
18,654
24,16019,856
16,991

2,967

2,658

2,721

2,806

2,841

Note 1: Net Sales do not include consumption taxes.
Note 2: Effective the year ended March 31, 2007, the Company has adopted a new accounting standard for the presentation of net assets inthe balance sheet and the related implementation guidance. In addition, effective the year ended March 31, 2007, the Company isrequired to prepare consolidated statements of changes in net assets instead of consolidated statements of shareholders' equity. In thisconnection, the previously reported consolidated balance sheet as of March 31, 2006 and consolidated statement of shareholders'equity for the year then ended have been restated to conform to the presentation and disclosure of the consolidated financial
statements for the year ended March 31, 2007.
Note 3: Fully diluted Net Income per Share is not recorded because no dilutive shares exist.

14(2) Non-consolidated Management IndicesYear ended March 31(Fiscal Year)

2003(2002)

2004(2003)

2005(2004)

2006(2005)

2007(2006)(Millions of Yen)

Net Sales
Ordinary Income
Net Income
CapitalIssued and Outstanding Shares(Thousands shares)

126,612
10,879
3,094
16,529
194,881

132,622
14,228
5,966
16,529
194,881

146,789
17,795
11,063
16,529
194,881

170,510
23,008
14,502
16,529
194,881

192,177
20,378
12,378
16,529
194,881(Millions of Yen)

Total Assets
Total Shareholders' Equity
Total Net Assets

176,155
115,593
-

182,806
124,417
-

207,303
133,100
-

237,571
148,283
148,283

262,059-
151,266
(Yen)

Return on Equity(%)
Price Earning Ratio(times)
Dividend Payout Ratio(%)

601.48 
7.00 
(3.50)
15.55 

65.6 
2.7 
36.7 
45.0

647.41 
9.00 
(4.00)
30.56 
68.1 
5.0 
26.7 
29.5

697.19 
13.00 (5.00)
57.20 

64.2 
8.6 
17.0 
22.7

788.11 
16.00 (7.50)
76.61 
62.4 
10.3 
18.3 
20.9

819.47 
16.00 (8.00)
66.30 
57.7 
8.3 
19.2 
24.1

Number of Employees

1,881

1,774

1,731

1,730

1,742

Net Assets per ShareDividend per Share(Interim Dividend per Share)
Net Income per Share
Fully Diluted Net Income per Share
Capital Ratio(%)

Note 1: Net Sales do not include consumption taxes.
Note 2: Effective the year ended March 31, 2007, the Company has adopted a new accounting standard for the presentation of net assets inthe balance sheet and the related implementation guidance. In addition, effective the year ended March 31, 2007, the Company isrequired to prepare consolidated statements of changes in net assets instead of consolidated statements of shareholders' equity. In thisconnection, the previously reported consolidated balance sheet as of March 31, 2006 and consolidated statement of shareholders'equity for the year then ended have been restated to conform to the presentation and disclosure of the consolidated financial
statements for the year ended March 31, 2007.
Note 3: The dividend per share for the fiscal year ended March 31,2005(fiscal 2004) include a ´2 memorial dividend our 65th anniversary of
the company's foundation.
Note 4: Fully diluted Net Income per Share is not recorded because no dilutive shares exist.
15

Nippon Shokubai Co., Ltd.
Consolidated Financial Statements
Years ended March 31, 2007 and 2006

Contents
Consolidated Financial Statements
Report of Independent Auditors ...................................17
Consolidated Balance Sheets ......................................18
Consolidated Statements of Income ..............................20
Consolidated Statements of Changes in Net Assets ..........21
Consolidated Statements of Cash Flows ........................24
Notes to Consolidated Financial Statements ...................26

16

Report of Independent Auditors

17

Consolidated Balance Sheets
Nippon Shokubai Co., Ltd. and Consolidated Subsidiaries

March 31,

2007

2006

2007
(Thousands of
U.S. dollars)(Note 2)

(Millions of yen)

AssetsCurrent assets:
Cash and cash equivalents .....................................
Time deposits (Note 7) .........................................

¥ 16,991
165´

19,856223$ 143,931
1,398

Notes and accounts receivable (Note 4):
Unconsolidated subsidiaries and affiliates ................

Other current assets ............................................

11,14759,855(568)
45,941
3,172
8,742

6,412

94,424
507,033(4,812)
389,166
26,87074,053

Total current assets ...............................................

145,445

125,9141,232,063

25,636

Accumulated depreciation .....................................

27,60968,383
255,592
6,778(240,715)(229,418)

233,875
579,272
2,165,117
57,416(2,039,094)

Property, plant and equipment, net .............................

117,647

105,089996,586

31,45635,610266,463

11,138Other assets ......................................................

16,507
901
2,997
8,722

10,158139,831
7,632
25,38873,884

Total investments and other assets ..............................

60,58360,561

513,198

Total assets .........................................................

¥ 323,675´ 291,564$2,741,847

Trade ...........................................................
Allowance for doubtful receivables ........................
Inventories (Note 6) ............................................
Deferred income taxes (Note 9) ..............................

7,091
50,353(94)
38,705
3,368

Property, plant and equipment (Note 7):
Land ..............................................................
Buildings and structures .......................................
Machinery and equipment .....................................
Construction in progress .......................................

63,972
227,941
16,958Investments and other assets:
Investments in securities (Notes 5 and 7) ...................
Investments in and advances tounconsolidated subsidiaries and affiliates ................
Deferred income taxes (Note 9) ..............................
Prepaid pension cost ...........................................

18

925
2,730

2007

March 31,
2006

2007
(Thousands of
U.S. dollars)(Note 2)

(Millions of yen)

Liabilities and Net Assets

Current liabilities:
Short-term bank loans (Note 7) ...............................
Current portion of long-term debt (Note 7) .................
Notes and accounts payable (Note 4):
Unconsolidated subsidiaries and affiliates ................
Trade ...........................................................
Construction ...................................................
Accrued bonuses to employees ...............................
Accrued bonuses to directors and corporate auditors .....
Reserve for periodic repairs ...................................
Accrued income taxes (Note 9) ...............................
Other current liabilities........................................
Total current liabilities ...........................................
Long-term liabilities:
Long-term debt (Note 7) .......................................
Accrued retirement benefits for employees (Note 8) ......
Deferred income taxes (Note 9) ..............................
Other (Note 10) .................................................
Total long-term liabilities ........................................
Contingent liabilities (Note 14)
Net assets (Note 11):
ShareholdersÕ equity:
Common stock:
Authorized Ð 424,000,000 shares
Issued Ð 194,881,287 shares in 2007 and 2006 ........
Capital surplus ................................................
Retained earnings ............................................
Less treasury stock, at cost .................................
Total shareholdersÕ equity .....................................
Valuation and translation adjustments:
Net unrealized holding gain on securities ................
Translation adjustments .....................................
Total valuation and translation adjustments ................
Minority interests ...............................................
Total net assets ....................................................
Total liabilities and net assets ...................................
See accompanying notes to consolidated financial statements.

19¥ 18,177
5,887
7,403
47,056
18
2,061
130
2,742
4,018
12,29399,78533,668
6,791
2,647
1,416
44,522

16,52913,567140,350(10,079)
160,367
10,6864,000
14,686
4,315
179,368¥ 323,675´ 11,538
5,317
6,207
33,936
262
2,151
139
2,667
5,657
12,83380,70728,363
6,754
5,429
1,607
42,153

16,52913,565
125,684(5,345)150,433
12,2591,939
14,198
4,073
168,704´ 291,564$ 153,977
49,86962,707
398,615152
17,4591,101
23,22834,036104,134
845,278
285,201
57,52622,423
11,995377,145

140,017
114,926
1,188,903(85,379)
1,358,467
90,52133,884
124,405
36,552
1,519,424$2,741,847

Consolidated Statements of Income
Nippon Shokubai Co., Ltd. and Consolidated Subsidiaries

Year ended March 31,

2007

2007

2006

(Thousands of
U.S. dollars)(Note 2)

(Millions of yen)

Net sales (Note 17) ...............................................

¥ 266,513
212,468
54,045´ 232,441

34,616
19,42932,960

1,021(1,014)
916

1,458

961

Other, net .........................................................

1,358
(452)
1,044

212

11,504(3,829)
8,845

Income before income taxes and minority interests ...

22,302

26,148

188,920

10,331

Income before minority interests .........................

6,857
1,279
8,136
14,166

16,411

58,086
10,83468,920120,000

Minority interests in earnings of consolidated subsidiaries ...

(178)

(154)

(1,508)Net income (Note 15) ......................................

¥ 13,988

16,257$ 118,492

Cost of sales (Note 12) ...........................................
Gross profit ..................................................
Selling, general and administrative expenses (Note 12) .....
Operating income (Note 17) ...............................

176,253
56,18823,228$2,257,628
1,799,814
457,814293,232
164,582

Other income (expenses):
Interest and dividend income .................................
Interest expense .................................................
Royalty income .................................................

(733)
1,022

8,649
(8,590)7,759

Equity in earnings of unconsolidated
subsidiaries and affiliates ...................................
Loss on liquidation of an affiliate ............................

Ð

Income taxes (Note 9):
Current ...........................................................
Deferred .........................................................

See accompanying notes to consolidated financial statements.

20

(594)
9,737

´

Consolidated Statements of Changes in Net Assets
Nippon Shokubai Co., Ltd. and Consolidated Subsidiaries

ShareholdersÕ equity

Commonstock

Capitalsurplus

Less
Total
Retained treasury shareholders’earnings stock, at cost equity(Millions of yen)

¥ 16,529¥ 13,565

–
–
–
–

–
–
–
2

(3,092)
13,988––––(4,737)
3(3,092)
13,988(4,737)
5

–

–

3,770

–

3,770

shareholdersÕ equity ...............................

–

–

–

–

–

Total movements during the year ....................

–

2

14,666(4,734)

9,934

Balance at March 31, 2007 ...........................

¥ 16,529¥ 13,567

Balance at March 31, 2006 ...........................

¥ 125,684 ¥(5,345) ¥ 150,433

Movements during the year:
Cash dividends .......................................
Net income ...........................................
Purchases of treasury stock ........................
Disposition of treasury stock ......................
Adjustments due to increase in affiliates
accounted for by the equity method ............
Net changes in items other than

¥ 140,350 ¥ (10,079) ¥ 160,367

Valuation and translation adjustments

Net
Total
unrealized
valuation
holding
andgain on Translation translation Minority
securities adjustments adjustments interests

Total net
assets(Millions of yen)

¥ 12,259¥ 1,939¥ 14,198¥ 4,073¥ 168,704

–
–
–
–

–
–
–
–

–
–
–
–

–
–
–
–

(3,092)
13,988(4,737)
5

–

–

–

–

3,770

shareholdersÕ equity ...............................

(1,573)

2,061

488

242

730

Total movements during the year ....................

(1,573)

2,061

488

242

10,664

Balance at March 31, 2007 ...........................

¥ 10,686¥ 4,000¥ 14,686¥ 4,315¥ 179,368

Balance at March 31, 2006 ...........................
Movements during the year:
Cash dividends .......................................
Net income ...........................................
Purchases of treasury stock ........................
Disposition of treasury stock ......................
Adjustments due to increase in affiliates
accounted for by the equity method ............
Net changes in items other than21

Consolidated Statements of Changes in Net Assets (continued)

ShareholdersÕ equity

Commonstock

Capitalsurplus

Less
Total
Retained treasury shareholders’earnings stock, at cost equity(Millions of yen)

¥ 16,529¥ 13,565¥ 112,496

–
–
–
–
–

–
–
–
–
0

(2,945)(124)
16,257–––––(2,844)
4(2,945)(124)
16,257(2,844)
4

shareholdersÕ equity ...............................

–

–

–

–

–

Total movements during the year ....................

–

0

13,188(2,840)10,348

Balance at March 31, 2006 ...........................

¥ 16,529¥ 13,565¥ 125,684

Balance at March 31, 2005 ...........................

¥ (2,505) ¥ 140,085

Movements during the year:
Cash dividends .......................................
Bonuses to directors and corporate auditors .....
Net income ...........................................
Purchases of treasury stock ........................
Disposition of treasury stock ......................
Net changes in items other than

¥ (5,345) ¥ 150,433

Valuation and translation adjustments

Net
Total
unrealized
valuation
holding
andgain on Translation translation Minority
securities adjustments adjustments interests

Total net
assets(Millions of yen)

¥ 5,632¥ (1,057)¥ 4,575¥ 3,494¥ 148,154

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–

(2,945)(124)
16,257(2,844)
4

shareholdersÕ equity ...............................

6,627

2,996

9,623

579

10,202

Total movements during the year ....................

6,627

2,996

9,623

579

20,550

Balance at March 31, 2006 ...........................

¥ 12,259¥ 1,939¥ 14,198¥ 4,073¥ 168,704

Balance at March 31, 2005 ...........................
Movements during the year:
Cash dividends .......................................
Bonuses to directors and corporate auditors .....
Net income ...........................................
Purchases of treasury stock ........................
Disposition of treasury stock ......................
Net changes in items other than22

ShareholdersÕ equity
Common
stock

Less
Total
Retained treasury shareholders’earnings stock, at cost equity

Capitalsurplus(Thousands of U.S. dollars)

Balance at March 31, 2006 ...........................
Movements during the year:
Cash dividends .......................................
Net income ...........................................
Purchases of treasury stock ........................
Disposition of treasury stock ......................
Adjustments due to increase in affiliates
accounted for by the equity method ............
Net changes in items other thanshareholdersÕ equity ...............................
Total movements during the year ....................
Balance at March 31, 2007 ...........................

$ 140,017$ 114,909 $1,064,668 $ (45,277) $1,274,317

–
–
–
–

–
–
–
17

(26,192)
118,492––––(40,127)
25(26,192)
118,492(40,127)42––

31,935–31,935

–

–

–

–

–

–

17

124,235(40,102)

84,150$ 140,017$ 114,926 $1,188,903 $ (85,379) $1,358,467

Valuation and translation adjustments
Net
Total
unrealized
valuation
holding
andgain on Translation translation Minority
securities adjustments adjustments interests

Total net
assets(Thousands of U.S. dollars)

Balance at March 31, 2006 ........................... $ 103,846 $ 16,425
Movements during the year:
Cash dividends .......................................
––Net income ............................................
––
Purchases of treasury stock ........................
––
Disposition of treasury stock ......................
––
Adjustments due to increase in affiliates
accounted for by the equity method ............
––Net changes in items other thanshareholdersÕ equity ............................... (13,325) 17,459
Total movements during the year .................... (13,325) 17,459
Balance at March 31, 2007 ........................... $ 90,521 $ 33,884

23$ 120,271$ 34,502 $1,429,090

–
–
–
–

–
–
–
–

(26,192)
118,492(40,127)42––

31,935

4,134

2,050

6,184

4,134

2,050

90,334$ 124,405$ 36,552 $1,519,424

Consolidated Statements of Cash Flows
Nippon Shokubai Co., Ltd. and Consolidated Subsidiaries

Year ended March 31,

2007

2007

2006

(Thousands of
U.S. dollars)(Note 2)

(Millions of yen)

Operating activities:
Income before income taxes and minority interests .........

¥ 22,302´ 26,148$ 188,920

12,951452
37(1,021)
1,014

9,349

109,708
3,829
313(8,649)8,590

Adjustments to reconcile income before income taxes andminority interests to net cash provided by operating activities:
Depreciation and amortization ...............................
Loss on liquidation of an affiliate ...........................
Increase (decrease) in accrued retirement benefits ........
Interest and dividend income ................................
Interest expense ................................................

Ð(89)(1,458)733

Equity in earnings of unconsolidated subsidiaries
and affiliates ...................................................
Loss on disposal of property, plant and equipment .......
Other, net ........................................................

(1,358)317(4,887)

(961)
315
1,133

(11,504)
2,685(41,397)

Changes in operating assets and liabilities:(13,146)(6,666)
13,492(14)(3,646)

26,203

Income taxes paid .................................................

23,473
1,959(949)(8,396)(9,597)

198,839
16,595(8,039)(71,122)Net cash provided by operating activities .....................

16,087

17,468136,273(22,527)
4(22,105)
11(190,826)
34(1,850)(1,017)(15,672)

176

Other, net ..........................................................

455
(110)
1,191
(272)

1,112

3,854
(932)
10,089(2,303)

Net cash used in investing activities ...........................

(23,109)(20,663)(195,756)

Notes and accounts receivable ............................
Inventories ...................................................
Notes and accounts payable ...............................
Other current liabilities ....................................
Subtotal .................................................
Interest and dividends received .................................
Interest paid ........................................................

(8,012)
2,719
(28)

1,571
(709)

(111,360)(56,468)
114,291(119)

Investing activities:
Purchases of property, plant and equipment ..................
Proceeds from sales of property, plant and equipment ......
Purchases of marketable securities andinvestments in securities .......................................
Proceeds from sales of short-term investments andinvestments in securities .......................................
Increase in loans receivable .....................................
Collection of loans receivable ..................................

24

(215)
1,375

Year ended March 31,

2007

2006

2007
(Thousands of
U.S. dollars)(Note 2)

(Millions of yen)

Financing activities:
Increase in short-term bank loans, net .........................
Proceeds from long-term debt ..................................
Repayment of long-term debt ...................................
Cash dividends paid ..............................................
Purchases of treasury stock ......................................
Other, net ..........................................................
Net cash provided by (used in) financing activities ..........

6,546
10,700(5,370)(3,092)(4,737)(10)
4,037(2,562)55,45190,640(45,489)(26,192)(40,127)(86)
34,1974,448
7,609(8,815)(2,945)(2,844)(15)

Effect of exchange rate changes on cash andcash equivalents ................................................

120

866

1,017

Decrease in cash and cash equivalents ........................

(2,865)19,856(4,891)
24,160(24,269)
168,200

from inclusion of subsidiaries in consolidation ............

–

587

–

Cash and cash equivalents at end of year .....................

¥ 16,991

19,856$ 143,931

Cash and cash equivalents at beginning of year ..............
Increase in cash and cash equivalents resulting

See accompanying notes to consolidated financial statements.

25´

Notes to Consolidated Financial Statements
Nippon Shokubai Co., Ltd. and Consolidated Subsidiaries

1. Summary of Significant Accounting Policies(a) Basis of presentation

March 31, 2007

Investments in an unconsolidated subsidiary and an affiliate notaccounted for by the equity method are carried at cost.

Nippon Shokubai Co., Ltd. (the ÒCompanyÓ) and its domestic
consolidated subsidiaries maintain their accounts and records in

Goodwill and negative goodwill arising from the difference of costaccordance with accounting principles generally accepted in Japan.

and underlying net assets at the date of acquisition are amortizedIts overseas subsidiaries maintain their accounts in conformity withover a period of five years on a straight-line basis, except thatthe requirements of their respective countries of domicile.

immaterial amounts are charged to income as incurred.

The

accompanying

consolidated

financialstatementsof(c) Foreign currency translation

theCompany and consolidated subsidiaries are prepared on the basis of

The financial statements of the overseas consolidated subsidiaries

accounting principles generally accepted in Japan, which areare translated into yen at the rates of exchange in effect at thedifferent in certain respects as to the application and disclosurebalance sheet date except that the components of net assets

requirements of International Financial Reporting Standards, and are

excluding minority interests (shareholdersÕ equity 2006) which arecompiled from the consolidated financial statements prepared by thetranslated at their historical exchange rates.

Company as required by the Securities and Exchange Law of Japan.

from translating the financial statements of the overseas consolidated

Differences resulting

subsidiaries are not included in the determination of net income but
In preparing the accompanying consolidated financial statements,

are reported as translation adjustments and minority interests incertain reclassifications and rearrangements have been made to theseparate components of net assets in the consolidated balance sheets

consolidated financial statements issued domestically in order to

at March 31, 2007 and 2006.

present them in a format which is more familiar to readers outside
Japan.

Revenue and expense items arising from transactions denominated inforeign currencies are generally translated into yen at the rates in

Effective the year ended March 31, 2007, the Company has adopted

effect at the respective transaction dates.

a new accounting standard for the presentation of net assets in thebalance sheet and the related implementation guidance. In addition,

All monetary assets and liabilities denominated in foreign currencies

effective the year ended March 31, 2007, the Company is required to

are translated into yen at the rates of exchange in effect at the

prepare consolidated statements of changes in net assets instead ofbalance sheet date and the gain or loss on each translation is credited

consolidated statements of shareholdersÕ equity. In this connection,or charged to income.

the previously reported consolidated balance sheet as of March 31,
2006 and consolidated statement of shareholdersÕ equity for the year(d) Cash and cash equivalents

then ended have been restated to conform to the presentation andCash and cash equivalents include cash on hand and in banks anddisclosure of the consolidated financial statements for the year ended

other highly liquid investments with maturities of three months orMarch 31, 2007.

less when purchased.

Certain reclassifications of previously reported amounts have been(e) Inventories

made to conform the consolidated financial statements for the year

Inventories of the Company and its consolidated subsidiaries are

endedstated principally at the lower of cost or market, cost being

March

31,

2006

to

the

2007

presentation.

Such

reclassifications had no effect on consolidated net income or net

determined by the moving average method.

assets.

(f) Property, plant and equipment(b) Basis of consolidation

Property, plant and equipment are stated on the basis of cost.

The accompanying consolidated financial statements include theDepreciation is computed principally by the declining-balanceaccounts of the Company and its significant subsidiaries.

method over the estimated useful lives of the respective assets,

significant

intercompany

items

have

been

eliminatedAll

except

in

that

the

overseas

consolidated

subsidiaries

computedepreciation by the straight-line method over the estimated usefulconsolidation.

lives of the respective assets.
The overseas consolidated subsidiaries are consolidated on the basisof fiscal periods ending December 31, which differs from the(g) Leases

balance sheet date of the Company. As a result, adjustments haveNon-cancelable leases of the Company and its domestic consolidated

been made for any significant intercompany transactions which took

subsidiaries are accounted for as operating leases (whether suchplace during the period between the year ends of these overseas

leases are classified as operating or finance leases), except that leases

consolidated subsidiaries and the year end of the Company.

which stipulate the transfer of ownership of the leased assets to thelessee are accounted for as finance leases.

However, leases of theInvestments in significant affiliates are accounted for by the equity

overseas consolidated subsidiaries are generally classified andmethod.

accounted for as either finance or operating leases.

26

unfunded employeesÕ retirement benefit plans and/or pension plans
which are noncontributory and funded and which cover substantially
all their employees. These plans provide for lump-sum payments
and/or annuity payments payable upon termination of employment.

(h) Investments in securities
Securities are classified into three categories: trading securities, heldto-maturity debt securities and other securities. Trading securities,
consisting of debt and marketable equity securities, are carried at fairvalue. Gain and loss, both realized and unrealized, are charged toincome. Held-to-maturity debt securities are carried at amortizedcost. Marketable securities classified as other securities are carriedat fair value, with any changes in unrealized holding gain or loss, netof the applicable income taxes, reported as a separate component of
net assets. Non-marketable securities classified as other securities
are carried at cost. Cost of securities sold is determined by themoving average method.

Accrued retirement benefits for employees have been provided, ingeneral, based on the retirement benefit obligation and the fair valueof the pension plan assets as adjusted for unrecognized actuarial gainor loss and unrecognized prior service cost.
Prior service cost is amortized principally by the straight-line method
over 5 years, which is within the estimated average remaining yearsof service of the eligible employees.

(i) Research and development costs and computer
softwareActuarial gain or loss is amortized in the year following the year inwhich the gain or loss is recognized principally by the straight-line
method over 10 years, which is within the estimated averageremaining years of service of the eligible employees.

Research and development costs are charged to income whenincurred.
Expenditures relating to the development of computer software
intended for internal use are charged to income as incurred, except if
these are deemed to contribute to the generation of future income or
cost savings. Such expenditures are capitalized as assets andamortized by the straight-line method over their respective useful
lives, generally a period of 5 years.

(o) Appropriation of retained earnings
Under the new Corporation Law of Japan, the appropriation ofretained earnings with respect to a given financial period is made byresolution of the shareholders at a general meeting held subsequent
to the close of the financial period. The accounts for that period donot, therefore, reflect such appropriations (see Note 19).

(j) Income taxes
Income taxes are calculated based on taxable income and charged toincome on an accrual basis. Deferred income tax assets andliabilities are computed based on the temporary differences between
financial reporting and the tax bases of the assets and liabilities
which will result in taxable or deductible amounts in the future. The
calculation of deferred income tax assets and liabilities is based on
the enacted tax laws.

2. U.S. Dollar Amounts
The translation of yen amounts into U.S. dollar amounts is included
solely for convenience, as a matter of arithmetic computation only, at´118.05 = U.S.$1.00, the approximate rate of exchange in effect on
March 31, 2007. This translation should not be construed as arepresentation that yen have been, could have been, or could in the
future be, converted into U.S. dollars at the above or any other rate.

(k) Accrued bonuses to employees
Accrued bonuses to employees are provided based on estimatedbonuses to be paid to employees which are charged to income in thecurrent year.

3. Accounting Change
Effective the year ended March 31, 2007, the Company and its
domestic consolidated subsidiaries have adopted ÒAccountingStandard for Presentation of Net Assets in the Balance SheetÓ
(Accounting Standards Board of Japan (ASBJ) Statement No. 5
issued on December 9, 2005) and ÒGuidance on AccountingStandard for Presentation of Net Assets in the Balance SheetÓ (ASBJ
Guidance No. 8 issued on December 9, 2005).

(l) Accrued bonuses to directors and corporate
auditors
Accrued bonuses to directors and corporate auditors are provided at
an estimate of the amount to be paid in the following year which has
been allocated to the current fiscal year.

(m) Reserve for periodic repairs
The Company provides a reserve for the costs of periodic repairs of
production facilities at plants.

(n) Retirement benefits

4. Notes Receivable and Notes Payable

The CompanyÕs employees are covered by an employeesÕ retirement
benefit plan and an employeesÕ pension plan. The employeesÕ
retirement benefit plan provides for lump-sum payments determinedby reference to their basic salary, years of service and certain otherfactors. The domestic consolidated subsidiaries have either

The balance sheet date of the year ended March 31, 2007 fell on abank holiday. Consequently notes receivable, trade of ´570 million($4,828 thousand) and notes payable, trade of ´372 million ($3,151
thousand) with a maturity date of March 31, 2007 were included in
the respective balances and were settled on the next business day.

27

Notes to Consolidated Financial Statements (continued)

5. Investments in Securities
Marketable securities classified as other securities at March 31, 2007 and 2006 are summarized as follows:

2007(Millions of yen)

Cost

(Thousands of U.S. dollars)Book value(Fair market Unrealized
value)
gain (loss)

Cost

Book value(Fair market Unrealized
value)
gain (loss)

Securities whose fair market value
exceeds their cost:
Equity securities ...............
Subtotal ................................

¥ 14,158
14,158¥ 29,422
29,422¥ 15,264
15,264$119,932
119,932$ 249,233
249,233$129,301
129,301

693
693¥ 14,851

588
588¥ 30,010

(105)
(105)
¥ 15,159

5,870
5,870
$125,802

4,981
4,981
$ 254,214

(889)
(889)
$128,412

Securities whose cost exceeds
their fair market value:
Equity securities ...............
Subtotal ................................
Total ....................................

2006(Millions of yen)

Cost

Book value(Fair market Unrealized
value)
gain (loss)

Securities whose fair market value
exceeds their cost:
Equity securities ...............

´ 13,164´ 33,882´ 20,718

Subtotal ................................

13,16433,882

20,718(8)

Securities whose cost exceeds
their fair market value:
Equity securities ...............

593

585

Subtotal ................................

593

585

(8)

Total ....................................

´ 13,757´ 34,467´ 20,710

The proceeds and gross realized gain and loss on sales of securities classified as other securities for the years
ended March 31, 2007 and 2006 were as follows:

2007

2007

2006

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

Proceeds

Grossrealized
gain

Gross
realized
loss

Proceeds

Grossrealized
gain

¥ 121

¥ 83

¥ –

´ 176

´ 56

28

Gross
realizedloss´

ÐProceeds

Grossrealized
gain

Gross
realizedloss$ 1,025$ 703$–

A breakdown of other securities whose market
value was not determinable at March 31, 2007 and2006 were as follows:
2007

2006

(Millions of yen)Held-to-maturity 
bonds ................. ¥ 200
Other securities ........ 1,246

´ Ð
1,143

7. Short-Term Bank Loans and Long-Term Debt

Short-term bank loans consisted mainly of
unsecured loans. The average interest rates on
short-term bank loans outstanding at March 31,
2007 and 2006 were 1.95% and 2.65%, respectively.
Long-term debt at March 31, 2007 and 2006
consisted of the following:
2007
2006 2007

2007(Thousands of
U.S. dollars)(Millions of yen)

$ 1,694
10,555

0.81% unsecured bonds
due October 2009 ...... ¥ 5,000 ´ 5,000 $ 42,355
Unsecured loans frombanks and insurancecompanies, payable inyen, at rates from 0.49%
to 5.60%, due through2013 .................... 24,930 17,459 211,182
Unsecured loans frombanks, payable in U.S.
dollars, at rates from
1.03% to 5.83%, due
through 2011 ........... 4,455 5,663 37,738
Unsecured loans frombanks, payable in Euro,at rates from 2.55% to3.17%, due through2009 .................... 4,225 3,775 35,790
Secured loans from banks
and insurancecompanies, payable inyen, at rates from 1.14%
to 4.84%, due through2010 ....................
1,783 8,005
945
Subtotal ............ 39,555 33,680 335,070
Less current portion ..... (5,887) (5,317) (49,869)
Total ..................... ¥ 33,668 ´ 28,363 $285,021

6. Inventories

Inventories at March 31, 2007 and 2006 were as
follows:
2007

2006

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

2007(Thousands of
U.S. dollars)

Merchandise and 
finished goods ....... ¥ 22,152 ´ 19,505 $ 187,649
Raw materials .......... 11,959 9,255 101,305
Work in process ........ 8,649 7,657 73,266
Supplies ................. 3,181 2,288 26,946¥ 45,941 ´ 38,705 $ 389,166

The aggregate annual maturities of long-term debt
subsequent to March 31, 2007 are summarized below:
Year ending March 31, (Millions of yen)2008 ..................... ¥ 5,887
2009 .....................
6,370
2010 .....................
16,7182011 .....................
1,919
2012 and thereafter ....
8,661
¥ 39,555

29(Thousands of
U.S. dollars)$ 49,869
53,960141,618
16,25673,367$ 335,070

Notes to Consolidated Financial Statements (continued)

Assets pledged as collateral for short-term bankloans, long-term debt, including the current portion
thereof, and notes and accounts payable at March
31, 2007 and 2006 were as follows:
2007
2006 2007(Millions of yen)Time deposits .......... ¥ 8 ´ 8Land ....................
293
293
Buildings and structures ..
183
197
Machinery and equipment ..
345
250
Investments in securities ..
61,179¥ 835 ´ 1,927

The assumptions used in accounting for thedefined benefit plans for the years ended March 31,
2007 and 2006 were as follows:
2007
2006
Discount rate .......... Principally 1.9% Principally 1.9%
Expected rate of returnon plan assets ......... Principally 3.0% Principally 3.0%

(Thousands of
U.S. dollars)

$

68
2,482
1,550
2,922
51
$ 7,073

9. Income Taxes

Income taxes applicable to the Company and its
domestic consolidated subsidiaries consist of
corporation, inhabitantsÕ and enterprise taxes. The
statutory tax rate in Japan for the years ended March
31, 2007 and 2006 was, in the aggregate,approximately 40.6%. The effective tax rates
reflected in the consolidated statements of income
for the years ended March 31, 2007 and 2006
differed from the above statutory tax rate for thefollowing reasons:
2007
2006
Statutory tax rate .................. 40.6 % 40.6 %Effect of:Valuation allowance .............
4.0
3.9
Tax credit for research and
development costs .............. (3.9)(3.9)
Equity in earnings of an
unconsolidated subsidiary
and affiliates ..................... (2.5)(1.5)
Other, net........................... (1.6)(2.0)
Effective tax rates ................. 36.5 % 37.2 %8. Retirement Benefits

The following table sets forth the funded andaccrued status of the pension plans and the amounts
recognized in the consolidated balance sheets at
March 31, 2007 and 2006 for the CompanyÕs and theconsolidated subsidiariesÕ defined benefit plans:
2007
2006 2007(Millions of yen)(Thousands of
U.S. dollars)

Retirement benefit
obligation at end of year .. ¥ (30,108) ´ (29,937) $ (255,044)
Fair value of plan assets
at end of year ............ 26,159 25,406 221,592
Unfunded retirement
benefit obligation ........ (3,949) (4,531) (33,452)
Unrecognized actuarial loss ..
726
1,269
6,150
Unrecognized past
service cost .............. (571) (762) (4,837)
Net retirement benefit
obligation ............... (3,794) (4,024) (32,139)
Prepaid pension cost ...... 2,997 2,730 25,387
Accrued retirementbenefits .................. ¥ (6,791) ´ (6,754) $ (57,526)
The components of retirement benefit expenses for theyears ended March 31, 2007 and 2006 are outlined as follows:
2007
2006 2007(Millions of yen)(Thousands of
U.S. dollars)Service cost .............. ¥ 1,080 ´ 1,007 $ 9,149
Interest cost ..............
539
537 4,566
Expected return on plan assets .. (560) (458) (4,744)
Amortization:
Past service cost ....... (180) (322) (1,525)
Actuarial loss .......... 487
936 4,125
Retirement benefit expenses .. ¥ 1,366 ´ 1,700 $ 11,571
30

Deferred income taxes reflect the net tax effectof the temporary differences between the carrying
amounts of the assets and liabilities calculated forfinancial reporting purposes and the corresponding
tax bases reported for income tax purposes. The
significant components of the deferred tax assets andliabilities of the Company and its consolidated
subsidiaries at March 31, 2007 and 2006 aresummarized as follows:
2007
2006 2007(Millions of yen)

10. Negative goodwill

Negative goodwill included in long-term
liabilities-other, at March 31, 2007 was computed asfollows:
2007(Millions (Thousands ofof yen) U.S. dollars)

Goodwill ............................
Negative goodwill .................
Total ..................................

¥ 540 $ 4,574(549) (4,651)¥ (9) $ (77)(Thousands of
U.S. dollars)

Deferred tax assets:
Accrued retirement benefits .. ¥ 1,641 ´ 1,989 $ 13,901
Intercompany profit oninventories and property,
plant and equipment ...... 1,166 1,215 9,877
Tax loss carryforwards .. 1,512 1,152 12,808
Reserve for repairs ..... 1,104 1,081 9,352
Depreciation andamortization ............ 816
693 6,912
Impairment loss on
fixed assets ............. 1,461 1,507 12,376
Accrued employeesÕbonuses .. 769
819 6,514
Impairment of
investments insecurities and other ... 1,870 1,866 15,841
Accrued enterprise tax .. 351
481 2,973
Other ..................... 1,067 1,477 9,039
Gross deferred tax assets .. 11,757 12,280 99,593
Less: Valuation allowance .. (3,025) (2,211) (25,624)
Total deferred tax assets .. 8,732 10,069 73,969
Deferred tax liabilities:
Equity in earnings ofan overseasÕ affiliate .. 1,297 1,152 10,987
Net unrealized holding
gain on securities ....... 4,426 8,407 37,493
Depreciation andamortization ............ 848
852 7,183
Deferred capital gain 
on property ............. 393
340 3,329
Reserve for depreciation
for tax purposes ......... 165
293 1,398
Other ...................... 177
161 1,500
Total deferred tax
liabilities ................ 7,306 11,205 61,890
Net deferred tax assets (liabilities) .............. ¥ 1,426 ´(1,136) $ 12,079

11. Shareholders’ Equity

The new Corporation Law of Japan (the ÒLawÓ),which superseded most of the provisions of theCommercial Code of Japan (the ÒCodeÓ), went into
effect on May 1, 2006. The Law provides that an
amount equal to 10% of the amount to be disbursed
as distributions of capital surplus (other than thecapital reserve) and retained earnings (other than thelegal reserve) be transferred to the capital reserveand the legal reserve, respectively, until the sum of
the capital reserve and the legal reserve equals 25%of the capital stock account. Such distributions canbe made at any time by resolution of theshareholders, or by the Board of Directors if certain
conditions are met.
Retained earnings include the legal reserve
provided in accordance with the provisions of theLaw. The legal reserve of the Company included inretained earnings amounted to ´3,920 million($33,206 thousand) at March 31, 2007 and 2006.
Common stock and treasury stock

Movements in issued common stock and treasury
stock during the year ended March 31, 2007 aresummarized as follows:
Number of shares(Thousands)

March
March
31, 2006 Increase Decrease 31, 2007

Common 
stock ..... 194,811
Treasury 
stock ..... 6,732

31

–

–

194,8813,563

4

10,291

Notes to Consolidated Financial Statements (continued)

12. Research and Development Costs

14. Contingent Liabilities

Research and development costs included in cost of sales
and selling, general and administrative expenses for the years
ended March 31, 2007 and 2006 totaled ´11,123 million($94,223 thousand) and ´10,120 million, respectively.

At March 31, 2007, the Company and one
consolidated subsidiary were contingently liable asguarantors of indebtedness of affiliates in theaggregate amount of ´2,673 million ($22,643
thousand).
In addition, at March 31, 2007, two consolidated
subsidiaries had contingent liabilities arising fromnotes discounted with banks and notes endorsed in
the aggregate amount of ´933 million ($7,903
thousand).

13. Leases

The following pro forma amounts represent the acquisition
costs (including the interest portion), accumulated
depreciation/amortization and net book value of the leased assets
at March 31, 2007 and 2006, which would have been reflected in
the balance sheets if finance lease accounting had been applied to
the finance leases currently accounted for as operating leases:
2007

2006

(Millions of yen)

Machinery and equipment and software:
Acquisition costs ..... ¥ 357 ´ 536
Accumulated 
depreciation/amortization .. (238)(388)
Net book value ........ ¥ 119 ´ 148

2007(Thousands of
U.S. dollars)$ 3,024(2,016)$ 1,008

Lease payments relating to finance leases accounted
for as operating leases amounted to ´77 million ($652
thousand) and ´110 million for the years ended March 31,
2007 and 2006, respectively. Depreciation/amortizationof the leased assets calculated by the straight-line method
over the respective lease terms amounted to ´77 million($652 thousand) and ´110 million for the years ended
March 31, 2007 and 2006, respectively.
Future minimum lease payments (including theinterest portion thereon) subsequent to March 31, 2007
for finance leases accounted for as operating leases are
summarized as follows:Year ending March 31,
2008.................................
2009 and thereafter ...............

(Millions (Thousands ofof yen)U.S. dollars)

¥ 48
71
¥ 119

$ 407
601
$1,00832

15. Amounts per Share

16. Derivatives

2006

2007
(Yen)

Derivative financial instruments are utilized by
the Company and its consolidated subsidiaries
principally to reduce the risk arising from fluctuation
in interest rates and foreign exchange rates. The
Company has established a control environment
which includes policies and procedures for risk
assessment and for the approval, reporting andmonitoring of transactions involving derivatives.
The Company and its consolidated subsidiaries do
not hold or issue derivatives for speculative trading
purposes.
The Company and its consolidated subsidiaries
are exposed to certain market risk arising fromforward foreign exchange contracts and interest-rate
swaps. The Company and its consolidated
subsidiaries are also exposed to the risk of credit loss
in the event of nonperformance by the counterparties
to these forward foreign exchange contracts andinterest-rate swap contracts; however, the Company
and its consolidated subsidiaries do not anticipate
nonperformance by any of the counterparties, all ofwhom are financial institutions with high credit
ratings.

2007(U.S. dollars)

Net income ............. ¥ 74.92 ´ 85.89
Cash dividends ......... 16.00 16.00
Net assets ............... 948.34 875.00

$0.63
0.14
8.03

Net income per share has been computed basedon the net income available to shareholders ofcommon stock and the weighted-average number ofshares of common stock outstanding during the year.
Diluted net income per share has not been presented
for the years ended March 31, 2007 and 2006 sinceneither the Company nor any of the consolidated
subsidiaries had any potentially dilutive shares at
March 31, 2007 and 2006.
The amounts per share of net assets have been
computed based on the net assets available for
distribution to shareholders of common stock andthe number of shares of common stock outstandingat the year end.
Cash dividends per share represent the cash
dividends declared as applicable to the respective
years together with the interim cash dividends paid.
The financial data used in the computation of net
income per share for the years ended March 31,
2007 and 2006 is summarized as follows:
2007

2006

(Millions of yen)

2007
(Thousands of
U.S. dollars)

Net income ............. ¥ 13,988 ´ 16,257 $118,492
Deductions from 
net income ...........
–
Ð–
Adjusted net income available to shareholders of common stock........ ¥ 13,988 ´ 16,257 $118,492
Weighted-average number of shares of common 
stock outstanding during the year(Thousands of shares) .. 186,703 189,287 186,703

33

Notes to Consolidated Financial Statements (continued)

17. Segment Information

The Company and its consolidated subsidiaries are primarily engaged in the manufacture and sale of products
in Japan and overseas.
Business Segments

The business segment information of the Company and its consolidated subsidiaries for the years ended
March 31, 2007 and 2006 is outlined as follows:Year ended March 31, 2007
Basic
Functional
chemicals chemicals

Total

Eliminations or
corporate

Consolidated(Millions of yen)

I. Sales and operating income

Sales to third parties ..............
Intergroup sales and transfers ...
Total sales ..........................
Operating expenses ...............
Operating income .................

Environment
andcatalysts¥ 97,665
21,672
119,337
113,938¥ 5,399¥ 141,321
854
142,175
131,337¥ 10,838¥ 27,527
1,800
29,327
26,345¥ 2,982¥ 266,513
24,326
290,839
271,620¥ 19,219¥– ¥ 266,513(24,326)–(24,326)
266,513(24,536)
247,084¥
210 ¥ 19,429¥ 104,262
5,304
9,309

¥ 156,625
8,163
15,118¥ 28,160
421
371¥ 289,047
13,88824,798¥ 34,628––¥ 323,675
13,88824,798Eliminations or
corporate

Consolidated

II. Total assets, depreciation andamortization, and capital expenditures

Total assets .........................
Depreciation and amortization ..
Capital expenditures ..............

Year ended March 31, 2006
Basic
Functional
chemicals chemicals
I. Sales and operating income

Environment
andcatalysts

Total(Millions of yen)

Sales to third parties ..............
Intergroup sales and transfers ....
Total sales ..........................
Operating expenses ................
Operating income ..................

´ 94,095 ´ 116,300 ´ 22,046 ´ 232,441 ´Ð ´ 232,441
17,063460
1,302
18,825 (18,825)
Ð
111,158 116,760
23,348251,266 (18,825) 232,441
100,000 107,498
20,226
227,724 (18,511) 209,213´ 11,158 ´ 9,262 ´ 3,122 ´ 23,542 ´ (314) ´ 23,228

II. Total assets, depreciation andamortization, and capital expenditures´ 94,753 ´ 133,032 ´ 23,309 ´ 251,094 ´ 40,470 ´ 291,564
3,448
6,693
504
10,645
Ð
10,645
11,923
13,617394
25,934
Ð
25,934

Total assets .........................
Depreciation and amortization ..
Capital expenditures ..............

Year ended March 31, 2007
Environment
EliminaBasic
Functionalandtions orchemicals chemicals
catalysts
Total
corporate(Thousands of U.S. dollars)

I. Sales and operating income

Sales to third parties ..............
Intergroup sales and transfers ....
Total sales ...........................
Operating expenses ................
Operating income ..................

Consolidated$ 827,319 $1,197,128
183,583
7,235
1,010,902 1,204,363
965,167 1,112,554$ 45,735 $ 91,809$ 233,181 $2,257,628
15,247206,065
248,428 2,463,693
223,168 2,300,889$ 25,260 $ 162,804$– $2,257,628(206,065)–(206,065) 2,257,628(207,843) 2,093,046$ 1,778 $ 164,582$ 883,202 $1,326,768
44,93069,14978,856
128,064$ 238,543 $2,448,513
3,566
117,645
3,144
210,064$ 293,334 $2,741,847–
117,645–
210,064

II. Total assets, depreciation andamortization, and capital expenditures

Total assets .........................
Depreciation and amortization ..
Capital expenditures ..............

34

Geographical Segments

The geographical segment information of the Company and its consolidated subsidiaries for the years ended
March 31, 2007 and 2006 is outlined as follows:Year ended March 31, 2007

Japan
I. Sales and operating income
Sales to third parties .. ¥ 186,288

Intergroup sales and transfers ............... 21,979
Total sales .............. 208,267
Operating expenses ... 190,966
Operating income  (loss) ................... ¥ 17,301

II. Total assets ........... ¥ 222,114

Europe

Asia

Other

Total

Eliminations or
corporate

Consolidated¥–¥ 266,513(Millions of yen)

¥ 32,521¥ 30,194¥ 17,510¥ 266,513

71
32,59232,522

1,219
31,41330,549492
18,002
18,28823,761
290,274
272,325(23,761)(23,761)(25,241)–
266,513
247,084¥70¥ 20,547¥
864¥ 38,112¥ (286)¥ 13,760¥ 17,949¥ 294,533¥ 1,480¥ 29,142¥ 19,429¥ 323,675

Eliminations or
corporate

Consolidated

Year ended March 31, 2006
Japan
I. Sales and operating income

Sales to third parties .. ´ 168,773
Intergroup sales and transfers ............... 19,061
Total sales .............. 187,834
Operating expenses ... 167,484
Operating income  (loss) ................... ´ 20,350
II. Total assets ........... ´ 192,113

Europe

Asia

Other

Total

(Millions of yen)

´ 23,935´ 27,405´ 12,328 ´ 232,441´

61
23,99623,789934
28,33924,67681
12,40913,727(20,137)(20,137)(20,463)´ 207´ 18,995´ 3,663 ´ (1,318) ´ 22,902´ 31,818 ´ 14,919 ´ 257,845

20,137
252,578
229,676

Ð ´ 232,441
Ð
232,441
209,213´ 326 ´ 23,228´ 33,719 ´ 291,564

Year ended March 31, 2007

Japan
I. Sales and operating income
Sales to third parties .. $ 1,578,043

Intergroup sales and transfers ............... 186,184
Total sales .............. 1,764,227
Operating expenses ... 1,617,670
Operating income  (loss) ................... $ 146,557

II. Total assets ........... $ 1,881,525

Europe

Asia

Other

Total

Eliminations or
corporate

Consolidated(Thousands of U.S.dollars)$ 275,485
601
276,086
275,493$593$ 174,053$ 255,773 $ 148,327
10,326
266,099
258,780

4,168
152,495
154,918$ 2,257,628$

201,279
2,458,907
2,306,861(201,279)(201,279)(213,815)$ 7,319 $ (2,423) $ 152,046$ 322,846 $ 116,561 $ 2,494,98535– $ 2,257,628–
2,257,628
2,093,046$ 12,536 $ 164,582$ 246,862 $ 2,741,847

Notes to Consolidated Financial Statements (continued)

Overseas Sales

Overseas sales, which include export sales of the Company and its domestic consolidated subsidiaries andsales (other than exports to Japan) of the overseas consolidated subsidiaries, for the years ended March 31, 2007
and 2006 are summarized as follows:Year ended March 31, 2007
Asia

EuropeAmerica

Other

Total

(Millions of yen)Overseas sales ............................................ ¥ 51,847
Overseas sales as a percentage of 
consolidated net sales ................................ 19.5%¥ 41,654¥ 23,184¥ 9,628¥ 126,313

15.6%

8.7%

3.6%

47.4%

Year ended March 31, 2006
Asia

EuropeAmerica

Other

Total

(Millions of yen)Overseas sales ........................................... ´ 48,385
Overseas sales as a percentage of 
consolidated net sales ................................ 20.8%´ 32,788´ 18,623

14.1%

8.0%

´ 6,958 ´ 106,754
3.0%

45.9%

Year ended March 31, 2007
Asia

EuropeAmerica

Other

Total

(Thousands of U.S. dollars)

Overseas sales ........................................... $ 439,195

36$ 352,850$ 196,391$ 81,560 $1,069,996

18. Related Party Transactions

Principal transactions between the Company and its related companies for the years ended March 31, 2007
and 2006 are summarized as follows:
2007
2006
2007
(Thousands of
U.S. dollars)(Millions of yen)

Yatagai Real Estate Co., Ltd.:

Rental expense of buildings .................................


Rental expense of land and equipment .....................

13

$ 152

73

Ð

618

18,813
18,561

12,753
11,018159,365
157,230¥18´

Nippon Petrochemicals Co., Ltd.:ICT Co., Ltd.:Sales of the CompanyÕs finished goods ....................
Purchases of raw materials ...................................

The transaction price was determined based of fair market value.
The balances due from and due to its related companies at March 31, 2007 and 2006 were as follows:
2007
2006
2007
(Thousands of
U.S. dollars)(Millions of yen)Due from

ICT Co., Ltd. ...................................................

Due toICT Co., Ltd. ...................................................
Nippon Petrochemicals Co., Ltd. ...........................

¥ 8,580´ 4,884$ 72,681¥ 5,29527´ 2,825Ð$ 44,854
229

19. Subsequent Event

The following appropriation of retained earnings of the Company, which has not been reflected in theaccompanying consolidated financial statements for the year ended March 31, 2007, was approved at ashareholdersÕ meeting held on June 20, 2007:

Cash dividends (´8.00 = $0.07 per share) .........................................................

37(Millionsof yen)(Thousands of
U.S. dollars)¥ 1,477$ 12,512

Corporate Data (as of March 31, 2007)
NIPPON SHOKUBAI CO., LTD.
Transfer Agent
August 21, 1941
Mitsubishi UFJ Trust & Banking Corporation
Authorized: 424,000,000
4-5, Marunouchi, 1-chome, Chiyoda-ku
Issued: 194,881,287
CapitalTokyo , 100-8212, Japan´16,529,413,238
Number of Employees Consolidated:
2,841
Non-consolitated: 1,742
Stock Listings
First Section, Tokyo Stock ExchangeFirst Section, Osaka Stock Exchange
Incorporated
Common Stock

Osaka OfficeSuita Plant

Himeji Plant

Advanced Materials Research Center
Strategic Technology Research Center
E&I Materials Research Center
Performance Chemicals Research Center

Superabsorbents Research Center
Catalysts Research Center
Process Technology Research Center

Nippoh Chemicals Co., Ltd.
Tokyo Fine Chemical Co., Ltd.
Shinritsu Co., Ltd.

Strategic Technology Research Center
E&I Materials Research Center

Chugoku Kako Co., Ltd.

Nihon Jyoryu Kogyo Co., Ltd.

Ehime Plant

Tokyo Office

Kawasaki Plant
Nippon Polyester Co., Ltd.
Nisshoku Butsuryu Co., Ltd.

Nippon Shokubai Europe N.V.
NISSHOKU CHEMICAL INDUSTRY(ZHANGJIAGANG) CO., LTD.

Korea Office
Shanghai Office
NIPPON SHOKUBAI (ASIA) PTE LTD
Singapore Acrylic Pte Ltd.

PT. NIPPON SHOKUBAI INDONESIA

Singapore Glacial Acrylic Pte Ltd.

38

NA Industries, Inc.

Division / Department
Internal Audit Office

Organization

Corporate Planning
Informational Technology Management Office
Administration
Board of Directors

President

Finance & Accounting
Responsible Care

Corporate
Management
Committee

Production
Research & Development
Ethylene Oxide BusinessAcrylic Business
Fine & Specialty Chemicals Business
Performance Chemicals Business
E&I Materials Business*

Environment & Catalysts BusinessShanghai Office
Kawasaki Plant
Himeji Plant
Suita Plant
AuditorsÕ Office

Board of Corporate Auditors
Corporate Auditors* E&I : Electronic & Information

39

Corporate Data

Consolidated Subsidiaries and Affiliates
Name

Principle BusinessPresident

Nippoh Chemicals Co., Ltd. *Manufacture and sale of iodine, natural gas, intermediates for API and agro-chemicals and 
photo/electro chemicals

Shinichi Nagase

Nippon Polyester Co., Ltd. *Manufacture and sale of synthetic resins and 
related additives

Tamotsu Okamura

Nisshoku Butsuryu Co., Ltd. *Logistics

Masao Kitano

Tokyo Fine Chemical Co., Ltd. *Manufacture and sale of stabilizer of vinyl chloride 
resin and anti-freeze

Tadayoshi Honda

Chugoku Kako Co., Ltd. *Manufacture and sale of adhesive tape and 
fine sphere particle

Tadashi Kawai

Nihon Jyoryu Kogyo Co., Ltd. *Manufacture and sale of authraquinone, carbozole, and their derivatives

Yoshinori Yokoyama

Shinritsu Co., Ltd. *Sale of chemical products

Masayoshi Sugimoto

NA Industries, Inc. **Manufacture and sale of superabsorbent polymers, polymers for concrete admixture, water soluble polymers,  Hidetaka Yatagai
Technical Liaison and business development

NIPPON SHOKUBAI (ASIA)
PTE LTD *Sale of chemical products

Kenjiro Komoda

Nippon Shokubai Europe N.V. *Manufacture and sale of superabsorbent polymers

Keishi Tsuboi

PT. NIPPON SHOKUBAIINDONESIA *Manufacture and sale of acrylic acid and 
acrylic esters

Yoshinao Hirano

Singapore Acrylic Pte Ltd. *Manufacture and sale of crude acrylic acidKenji Ozeki

Singapore Glacial Acrylic Pte Ltd. *Manufacture and sale of glacial acrylic acidKenji Ozeki

NISSHOKU CHEMICAL INDUSTRY(ZHANGJIAGANG) CO., LTD. *Manufacture and sale of superabsorbent polymers

Taizo Maruo

ICT Co., Ltd.

Sale of automobile exhaust catalyst

Yojiro Takahashi

Nihon Polymer Industries Co., Ltd.

Manufacture and sale of acrylic emulsions

Shigehiro NishimuraInternational Catalyst Technology, Inc.

Manufacture and sale of automobile exhaust catalyst

William Staron

Japan Composite Co., Ltd.

Manufacture and sale of unsaturated polyeters resin and plastic molded materials

Tetsuyuki Matsubara

LGMMA Corp.

Manufacture and sale of MMA and PMMA

Han-seob KIM* Included in consolidation** American Acryl NA LLC and American Acryl L.P. are consolidated into NA industries, Inc. by the equity method.
40(as of June 30 2007)

Directory
HEAD OFFICESLABORATORIESOVERSEAS COMPANIESOsaka Office
Kogin Bldg.
4-1-1 Koraibashi, Chuo-ku, Osaka
541-0043, Japan
Telephone: 81-6-6223-9111
Facsimile : 81-6-6201-3716

Advanced Materials Research Center
5-8, Nishi Otabi-cho, Suita, Osaka
564-8512, JapanNA Industries, Inc.
2651 Riverport Road Chattanooga,
Tennessee 37406,
U.S.A. (P.O. Box 5407)
Telephone: 1-423-624-6496
Facsimile : 1-423-629-0531

Tokyo Office
Hibiya Dai Bldg.
1-2-2 Uchisaiwai-cho, Chiyoda-ku,
Tokyo 100-0011, Japan
Telephone: 81-3-3506-7475
Facsimile : 81-3-3506-7598

Strategic Technology Research Center
5-8, Nishi Otabi-cho, Suita, Osaka
564-8512, Japan
E & I Materials Research Center
5-8, Nishi Otabi-cho, Suita, Osaka
564-8512, Japan

PLANTS

Superabsorbents Research Center
992-1 Aza-Nishioki Okihama,
Aboshi-ku, Himeji, Hyogo
671-1292, Japan

Kawasaki Chidori Plant
14-1 Chidori-cho, Kawasaki-ku
Kawasaki, Kanagawa
210-0865, Japan

Performance Chemicals
Research Center
5-8, Nishi Otabi-cho, Suita, Osaka
564-8512, Japan

Kawasaki Ukishima Plant
10-12 Ukishima-cho, Kawasaki-ku
Kawasaki, Kanagawa
210-0862, Japan

Catalysts Research Center
992-1 Aza-Nishioki Okihama,
Aboshi-ku, Himeji, Hyogo
671-1292, Japan

PT. NIPPON SHOKUBAIINDONESIA
Kawasan Industri Panca Puri
Jl.Raya Anyer Km.122,
Ciwandan Cilegon 42447
Banten, Indonesia
Telephone: 62-254-600-660
Facsimile : 62-254-600-657
NIPPON SHOKUBAI (ASIA) PTE
LTD
80 Robinson Road #18-02
Singapore 068898
Telephone: 65-6532-0078
Facsimile : 65-6532-0079
Singapore Acrylic Pte Ltd.
17 Sakra Road #01-01 Singapore
627886

Himeji Plant
992-1 Aza-Nishioki Okihama,
Aboshi-ku, Himeji, Hyogo
671-1282, Japan

Singapore Glacial Acrylic Pte Ltd.
17 Sakra Road #01-01 Singapore
627886

Ehime Plant
5-1 Soubiraki-cho, Niihama, Ehime
792-8521, Japan

Nippon Shokubai Europe N.V.
Haven 1053, Nieuwe Weg 1, B-2070
Zwijndrecht, Belgium
Telephone: 32-3-250-3705
Facsimile : 32-3-250-3712

Suita Plant
5-8 Nishi Otabi-cho, Suita, Osaka
564-0034, Japan

NISSHOKU CHEMICAL INDUSTRY(ZHANGJIAGANG) CO., LTD.
No.19 Changjiagang Road(E),Yangtze River International Chemical
Industrial Park, Zhangjiagang, Jiangsu,
China, 215635
Telephone: 86-512-5893-7910
Facsimile : 86-512-5893-7912

OVERSEAS OFFICE
Shanghai Office
R/No.3604, The Center, 989 Changle Road
Shanghai, China, 200031
Telephone: 86-21-5407-5959
Facsimile : 86-21-5407-5673
Korea Office
4F Turbotek Building, 16-6 Sunae-Dong,
Bungdang-Gu, Sungnam-Si, Gyeonggi-Do,
Korea 463-825
Telephone: 82-31-718-9111
Facsimile : 82-31-718-9693

41

NIPPON SHOKUBAI CO.,LTD.

Osaka Office
Kogin Bldg.
4-1-1 Koraibashi, Chuo-ku,
Osaka 541-0043,Japan
Telephone:+81-6-6223-9111
Facsimile: +81-6-6201-3716
Tokyo Office
Hibiya Dai Bldg.
1-2-2 Uchisaiwai-cho, Chiyoda-ku,
Tokyo 100-0011,Japan
Telephone:+81-3-3506-7475
Facsimile: +81-3-3506-7598
URL:http://www.shokubai.co.jp