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 ofTechnoAmenity , which means providing

affluence and comfort to society throughtechnology, 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
Since the establishment in 1941, we have been striving for technicalinnovation and contributing to society through a broad product range.
Our major products are 1) Basic Chemicals, such as acrylic acid,acrylates, ethylene oxide, ethanol amine, and higher alcohol surfactants,

Contents

etc., 2) Functional Chemicals, such as superabsorbent polymers, polymers
for concrete admixture, resins for paints / adhesives and electronic andinformation materials, etc., and 3) Environmental Systems and Catalysts,

Financial Highlights . . . . . . . . . . . . . . . . . . . . . . 1
To Our Shareholders . . . . . . . . . . . . . . . . . . . . 2
Review of Operations . . . . . . . . . . . . . . . . . . . . 4
Medium- and Long-termsuch as catalyst for cleaning automobile exhaust gases, process catalysts,
De-NOx catalysts and dioxin decomposition / elimination equipments,
etc.

Business Plans . . . . . . . . . . . . . . . . . . . . . . . 6

In addition, our technologies for manufacturing chemical products

Corporate Governance . . . . . . . . . . . . . . . . . . . 8

receive recognition in foreign countries as well as our diversified line ofCompliance and Ethics . . . . . . . . . . . . . . . . . 10

products.

Topics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

manufacturing various chemicals such as acrylic acids and esters.

Responsible Care . . . . . . . . . . . . . . . . . . . . . . . . 12
Management Indices . . . . . . . . . . . . . . . . . . . 16
Financial Section
Report of Independent Auditors . . . . 19
Consolidated Balance Sheets . . . . . . . 20
Consolidated Statements ofIncome . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Consolidated Statements of
Changes in Net Assets . . . . . . . . . . 23
Consolidated Statements ofCash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Notes to Consolidated
Financial Statements . . . . . . . . . . . . . 28
Corporate Data . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

We

have

licensedourtechnologies

worldwidefor

We will continue to pursue further potentials of technology, while
supporting people s livelihood and also providing affluence.

Financial Highlights
Nippon Shokubai Co., Ltd. and Consolidated Subsidiaries

Thousands of
U.S. dollars

Millions of Yen

Fiscal YearNet sales . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating Income . . . . . . . . . . . . . . . .
Ordinary Income . . . . . . . . . . . . . . . . .
Net Income . . . . . . . . . . . . . . . . . . . . . . . . .

2007

2006

2007

￥ 302,669
18,37920,745
11,875￥ 266,513
19,42922,754
13,988

US$ 3,020,950
183,442207,057
118,525￥ 352,783
175,634￥ 323,675
179,368

US$ 3,521,140
1,753,009

At Year End
Total Assets . . . . . . . . . . . . . . . . . . . . . . .
Total Net Assets . . . . . . . . . . . . . . . . .

Yen

U.S. dollars

Per Share Amounts
Net Income . . . . . . . . . . . . . . . . . . . . . . . .
Cash Dividends . . . . . . . . . . . . . . . . . . .

￥￥ 74.92
16.00

64.91
16.00

US$

0.65
0.16

Foreign Exchange Rate: US＄ 1.00 = ￥100.19
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 16) for details.

Net Sales (Billions of yen)

350

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

30

18.0

12

303
300

25

267
250
200

10.1

26.1

23.7

20

197

8

17.2

170

14.0
14.0

20.7

9.7

7.4
6

6.1

11.9

12.0
10.0

15

150

16.3

10

22.8
7.9

232

15.7

16.0

8.8

8.0

10

4

5

2

6.0

100
4.0
50

2.0
0

0
'04

'05

'06

'07

'08

0
'04

'05

'06

Ordinary Income
ROA

1

'07

'08

0.0
'04

'05

'06

'07

'08

To Our Shareholders

It gives me great pleasure to report on theperformance of NIPPON SHOKUBAI GROUP(the

Company ) for the fiscal year ended March

31, 2008 (Fiscal 2007).

Overview
During the fiscal year ended March 31, 2008,
the Japanese economy showed signs of falteringin the latter half amid soaring crude oil and otherresource prices, the decelerating U.S. economy,
and significant fluctuations in currency exchange
rates.
Spikes

in

crude

oil

prices,trendsininternational markets, and the appreciation of the
yen also made the outlook for the chemicalindustry murkier, though demand was brisk bothat home and abroad.
Against this backdrop, consolidated net sales
of NIPPON SHOKUBAI GROUP (theCompany )increased by ¥36,156 million (13.6%) to ¥302,669
million over the previous year. This was mainly
due to an increase in sales volume (particularly infunctional chemicals), product price adjustments
in response to price hikes in raw materials, andstrongmarketconditions

for

some

basic

chemicals (ethylene glycol and ethanolamine).
Operating income, however, decreased by¥1,051 million (5.4%) year on year, to ¥18,379
million. Although efforts were intensified toincrease sales volumes and adjust product prices,
however, these measures were not sufficient toabsorb the impact of soaring raw material prices
and increased fixed costs coming from the facility
expansion that has been ongoing since last year.

2

Ordinary income decreased by ¥2,009 million

Taking

into

consideration

thebusiness(8.8%) year on year, to ¥20,745 million, impacted

environment and our performance, we decided tosignificantly by increased interest expenses andhold the year end dividend per share on ¥8.0.

exchange losses due to the yen s appreciation,

Together with the interim dividend, the annual

though equity in earnings of affiliates went up.

dividend per share for the fiscal 2007 amounts¥16.

Net income decreased by ¥2,114 million(15.1%) year on year, to ¥11,875 million, due to

We

would

like

to

express

oursincerelosses from closure of the Ehime Plant andappreciation and ask all of our shareholders for

restructuring of the unsaturated polyester resin

your continued support and guidance as webusiness, though these losses were partly offset

move forward.

by gains on the sale of investment securities.
June 2008
Net income per share came to ¥64.91, while
ROA (ordinary income to total assets) and ROE(net

incometoshareholders

equity)bothdeclined by 1.3 percentage points, to 6.1% and6.9%, respectively, compared with the previous
year.
On

a

non-consolidated

basis,NIPPONSHOKUBAI CO., LTD. reported net sales of¥231,151 million, operating income of ¥16,286
million, ordinary income of ¥19,815 million, andnet income of ¥11,707 million.

Tadao Kondo, President

Performance Highlights(million yen)

Fiscal Year
2007
2006
266,513
Net sales
302,669
19,429Operating income
18,37922,754
Ordinary income
20,745
13,988Net income
11,875
Net income per share¥74.92¥64.91
ROA
7.4%
6.1%
ROE
8.2%
6.9%
$=￥117.00$=￥114.38
Exchanging rate
EUR=￥161.59 EUR=￥150.08
Naphtha price￥50,000/kl￥61,500/kl

3

ChangeAmount%36,156
13.6%(1,051)(5.4%)(2,009)(8.8%)(2,114)(15.1%)(¥10.01)(13.4%)(1.3points)(1.3points)(¥2.62)¥11.51¥11,500/kl

Review of Operations
Performance by Business Segment

Basic Chemicals

Functional Chemicals

Acrylic acid and acrylates sales went up due tothe progress in measures designed to boost sales
volumes and an adjustment of selling prices on theback of brisk domestic demand.
Sales of ethylene oxide, and higher alcohol
products (trade name: SOFTANOL) rose, backed
by brisk demand and selling price s in response to
price hikes in raw materials.
Sales of ethylene glycol and ethanolamine grew,
supported by buoyant market conditions brought
about by increasing demand in China and problems
afflicting plants in the Middle East, though sales
volumes unavoidably underwent a decline due to atight inventory situation.
As a result, the Basic Chemical Business posted
net sales of ¥109,331 million, up 11.9% over theprevious year.
Operating income increased by 24.5% year on
year, to ¥6,721 million, due to an increase in sales
volume and selling price adjustments on the backof the market upswing for some products asmentioned above, though surging raw material
prices and increased fixed costs associated with thefacility expansion in the previous year weighed
down profits.

Superabsorbent polymer sales went up,
reflecting volume growth particularly in the Middle
and Near East, Europe, and Latin America, andselling price adjustments, in the midst of growing
world demand.
Sales of maleic anhydride were up due to theselling price adjustments made in response to theescalation of raw material prices.
Sales of raw materials for detergents and resin
modifiers increased, supported by steady demandat home and abroad.
Sales of polymers for concrete admixtures were
up owing to the constant demand at home andabroad.
Sales of specialty acrylates rose due to growing
demand in both domestic and overseas markets,and selling price s amid a surge in the price of raw
materials.
Sales of electronic and information materials
were up due to volume growth attributable mainly
to newly launched products.
Sales of resins for adhesives/paints, processedadhesive products, and iodine compounds remainedat almost the previous year s level.
The production and marketing of unsaturated
polyester resins were discontinued at the end of
September 2007.
As a result, the Functional Chemicals Businessposted net sales of ¥155,892 million, up 10.3% overthe previous year.
Operating income decreased by 19.1% year on
year, to ¥8,769 million because of the significant
impact of raw material price hikes that were notfully factored into selling price adjustments, though
the impact of increased fixed costs caused by thefacility expansion that has been ongoing since lastyear was offset by growth in sales volume.

Paints (Acrylates)

Synthetic Detergents (SOFTANOL)

Diapers (Superabsorbent polymer)

Flat Panel Display (Electronic Information
associated Materials)

Performance by Business Segment(unit : million of yen)

Fiscal Year 2007

Fiscal Year 2006

ChangeBusiness Segment

Functional Environment
Basic
Functional Environment
Basic
Functional Environment
Basic
Chemicals Chemicals & Catalysts Chemicals Chemicals & Catalysts Chemicals Chemicals & Catalysts

Sales
Operating income

109,331
6,721

155,892
8,769

37,477
2,812

97,6655,399
4141,321
10,83827,526
2,982

11,665
1,322

14,570(2,069)

9,921
(170)

Environment & Catalysts
performance in the previous year.
As a result, the Environment & Catalysts
Business posted net sales of ¥37,447 million, up
36.0% over the previous year.
Operating income decreased by ¥170 million
from the previous year,to ¥2,812 million, due tohigher raw material
prices and changes insales mix (including theabsence of large-sized
equipment projects).

Sales of automotive catalysts went up, reflecting
higher sales volume, and an upswing in selling
prices accompanying the escalation in precious
metal prices.
Sales of process catalysts were up due to thehigh demand for replacements.
Sales of De-NOx catalysts, and equipment andcatalysts for waste gas treatment were up due togrowth in sales volume.
Sales of equipment and catalysts for wastewater
treatment dropped in an absence of large-sized
equipment projects which contributed to the sales

Automotive Catalysts

Performance by Regions

Japan

Asia

Net sales increased by 14.8% over the previous
year, to ¥213,793 million. This was due to steps toadjust overall product prices to cope with pricehikes in raw material costs, and in addition, whilesales of major products such as superabsorbent
polymers, acrylic acid and acrylates remained
strong, the sales of polymers for cocrete admixture,electronic and information materials, and processcatalysts also grew in volume.
Operating income was on a par with theprevious year s level, at ¥17,380 million, due togrowth in sales volume mainly in Functional
Chemicals and overall adjustment of product prices,
despite surging raw material prices, and increased
fixed costs coming from the facility expansion thatstarted in the previous year.

Sales of superabsorbent polymers grew involume and value owing to selling priceadjustments following raw material price hikes.
Net sales, however, declined by 1.3% from theprevious year, to ¥29,816 million because of thesignificant impact of the decline in volume ofacrylic acid and acrylic esters.
Operating income fell by 49.6% year on year, to¥435 million, affected largely by the decline in sales
volume of acrylic acid and acrylic esters, andhigher raw material prices, though the profitabilityof superabsorbent polymers improved.

Other Regions
Net sales declined by 9.0% year on year, to¥15,930 million, due largely to the volume decline insuperabsorbent polymers and raw materials fordetergents, despite the increase in the sales volumeof polymers for concrete admixtures.
Operating income was down by ¥1,107 million
from the previous year, recording a loss of ¥1,392
million, due to decreased sales volume insuperabsorbent polymers and raw materials fordetergent, and inflated raw material prices that
resulted in reduced profits, though increased salesof polymers for concrete admixtures generated apositive effect.

EuropeNet sales increased by 32.6% year on year, to¥43,130 million, supported by the volume growth insuperabsorbent polymers, and due to selling priceadjustments in response to the raw material pricehikes.
Operating income increased by ¥213 million
from the previous year, to ¥282 million, reflecting
increased sales volume and product priceadjustments, though these gains were partly offset
by rising raw material prices, and increased fixed
costs associated with the facility expansion started
in the previous year.
Performance by Regions(unit : million of yen)

Fiscal Year 2007
RegionFiscal Year 2006

ChangeJapan

EuropeAsia

OtherRegions

Japan

EuropeAsia

OtherRegions

Sales
213,793
Operating income 17,380

43,130282

29,816435

15,930 186,288(1,392) 17,301

32,52170

30,194864

17,510
(285)

5

Japan

EuropeAsia

OtherRegions

27,50579

10,609
213

(378)
(429)

(1,580)(1,107)

Medium- and Long-term Business Plans

The Company drew up a long-term business plan, TechnoAmenity V3, 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
Medium-term Business Plan (for fiscal 2006 to2008), which provides a concrete action plan torealize the long-term business plan.

The Company seeks further growth under the
long-term business plan TechnoAmenity V3(for fiscal 2006 to 2010), which sets out a longterm management vision, coupled with the1) Outline of the Long-term Business Plan

TechnoAmenity V3

1. Vision for the future:

A global company creating new values through unique technologies

2. Slogan:Pursuit to our strength such as key technologies and key materials
Innovation of way of marketing and research
Ascent to be realized through Pursuit and Innovation

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

A
Global Company
Creating
New Values
Through
UniqueTechnologies

Existing
Business
Field

selective advance into growth areas
continuous improvement of production technologies
enhancement of division's roles and responsibilities
creating business synergy with domestic subsidiaries
and developing divisional responsible system
for foreign subsidiaries

FY2006

New
Business
Field

Themes of
Whole
Company

FY20102) Outline of the Medium-term Business Plan
the top priority for the TechnoAmenity V3plan, while searching for more sharply focusednext-generation business themes.
Through the execution of these measures, theCompany aims to attain the fiscal 2008 target fornet sales of ￥300 billions (including ￥40 billionsof new products), ordinary income of ￥30 billions,and ROA of 7.5% or higher.

The Company seeks to enter into growthareas (fields; overseas) outside the domain of its
existing business, and at the same time, continue
to pursue innovative production technologies inorder to enhance its cost competitiveness. As for
new lines of business, the Company willconcentrate its management resources on theelectronic and information materials business as
6

Progress on the Medium-term Business Plan

(1) Existing BusinessFor other business areas, the Company aims
to roll out more of its globally competitive
products into the world market. To this end, theconstruction of a new manufacturing plant withan annual capacity of 10,000 tons for polymers forconcrete admixtures was completed at
NISSHOKU
CHEMICAL
INDUSTRY(ZHANGJIAGANG) CO., LTD. at the end of 2007,
and the plant went into commercial operation.
Facility expansion to add an extra 10,000 tons ofannual capacity for the product was also
completed in the Kawasaki manufacturing site,
and the product has now grown into theCompanyﾕs core business backed by a combined
production capacity of 80,000 tons per year.

For the superabsorbent polymer business, thefacility expansion at the Himeji Plant wascompleted last year, which increased NIPPONSHOKUBAI GROUP S annual production
capacity for superabsorbent polymers to 410,000
tons as of March 31, 2008, allowing the Company
to maintain its leadership position in the global
market.
For the acrylic acid business, the constructionof a manufacturing plant was completed at the
Himeji Plant in December 2006, which has anannual production capacity of 160,000 tons. Then,
under a scrap-and-build plan, the acrylic acidplant operation in the Ehime Plant was halted at
the end of 2007, and the construction of a new
acrylic acid manufacturing plant with an annual
capacity of 80,000 tons started its operation at the
Himeji Plant with completion scheduled for theend of 2009. By taking these measures, theCompany will be better equipped to pursue
efficiency improvements by integrating domestic
production operations while maintaining its
acrylic acid production capacity of 620,000 tons.

(2) New Business
For the electronic and information materials
business, the Company formed the E&I Materials
Business Division in April 2006, and has been
carryingoutthedevelopment
andcommercialization of new products at a steadypace. Among other things, the 2nd production
line for acrylic resins for optical materials(ACRYVIEWA) was completed at the Himeji
Plant at the end of 2007, boosting annual
production capacity to 6,000 tons, and the
products have been delivered for LCD panels,
mobilesandTV
applications.
Businessdevelopment in the areas of fine sphericalparticles and functional pigments has also madesteady progress. Furthermore, in January 2007, a
new office was opened in South Korea, a highpotential overseas market, to drive further
growth of the electronic and informationmaterials business.
Meanwhile, the Company will continue tofocus on development and commercialization
initiatives in fields being considered as the next
growth areas, health & medical care and newenergy, with a view to launching a businessaround 2010.

For the ethylene oxide business, a facility
expansion that will add an extra 70,000 tons ofannual production capacity is underway at the
Ukishima Plant (Kawasaki) with completion
scheduled for the summer of 2009. After thecompletion, the combined ethylene oxide
production capacity provided by the expandedfacilities and the Chidori Plant (Kawasaki) willreach 320,000 tons per year, the largest in Japan.
Also, a new plant site was acquired in the
Kawasaki area, and shares of NIPPONNYUKAZAI Co., Ltd and SINO-JAPANCHEMICAL Co., Ltd. were acquired in February
2008 to turn these corporations into subsidiaries.
Through these measures, the Company seeks toestablish a stable business foundation lesssusceptible to market fluctuations, while boostingsales of ethylene oxide and derivative products
up to the target ratio of 80% or higher for nonEG (ethylene glycol) products.

7

Corporate Governance

We have strived toward reinforcing our staying
power and competitive edge so that we can cope
flexibly with any fluctuation of the world, andregard corporate governance as key for achieving
the goal. We are taking steps to revitalize theboard of directors, strengthen the audit system,
increase the efficiency and effectiveness ofoperation, and ensure tighter compliance.
The diagram below shows the frame of ourcorporate governance system.

Corporate Governance System
General Meeting of Shareholders

Board of Directors

Board of Corporate
Auditors

President
reportaudit

Corporate
Management
Committee

Accounting
Auditoraudit

support

Auditor's Officecooperate

Risk
Management
Committee

CSR Management Committee
Responsible Care Promoting
Committee

Legal
Advisors

communicate

Compliance Committee

cooperate

Internal Control Committee

Administration
Internal
Audit Officeinternal
audit

Responsible
Care OfficeFinance &Accounting

Corporate
Planning
OfficeResearch &Development

Sales

Informational
Technology
Management Office

Production

Corporate Management Committee, as anadvisory organ to the president, deliberates basic
management policies, the matters related to thepolicies, and the execution of important business
operations by individual divisions. Agenda items
that come up to this Committee and are regarded
as important will be forwarded to the Board of
Directors for deliberation.
The member of the Corporate Management
Committee are the president, senior managing
directors managing directors and directors
nominated by the president.

Board of Directors, comprised of 16 directors
as of March 31, 2007, deliberates and resolves thematters relating to the execution of business
operations, and supervises each director s
execution of operation. In principle, the Board of
Directors convenes once a month, chaired by thepresident, at which four corporate auditors,
including two from outside, are in attendance.
The corporate auditors present statements when
deemed necessary.

8Compliance Committee, chaired by thepresident, discusses and decides measures toenhanceourcompany-wide
compliancemanagement.

Board of Corporate Auditors is comprised offour corporate auditors, including two fromoutside. In principle, the Board convenes once amonth to report, discuss and resolve importantmatters. In addition to attending the Board of
Directors, the corporate auditors attend the
Corporate Management Committee and otherimportant meetings to monitor the decisionmaking process, and grasp the execution of directors
operation, receive reports from the accounting
auditors, directors and others, and put forward
an audit opinion following due consultation.
The two current Corporate Auditors fromoutside have no personal or any otherrelationship through investments that could
create a conflict of interest in the performance of
their duties.

The Internal Control Committee concerning
financial reporting, chaired by the president,
discusses and prepares for the highly efficientInternal Control System enforced by Financial
Instruments and Exchange Law as of April 1st
2008, not only aim to ensure the riability of thecompany s financial reporting, but also to ensure
the effectiveness and efficiency of the company sbusiness activities.
Legal Advisers provide their opinions for us
when solicited. None of the Legal Advisors is
involved in the management of the Company.

Risk Management Committee, chaired by thepresident, explores and analyzes the risks
surrounding the Company. On the basis of theanalysis, the Committee discusses the preventive
measures or countermeasures for the risks.

Accounting Auditors perform their services
under the Commercial Code and Securities andExchange Law of Japan, and provide theiropinions when we call for it to make decisions on
accounting issues. None of the Accounting
Auditors is involved in the management of theCompany.

CSR (Corporate Social Responsibility)
Management Committee, chaired by thepresident, discusses and decides the CSR policy
and activities that would make all the
stakeholders beneficial, in cooperation with theother committees such as Risk Management
Committee or the Compliance Committee.

Internal Audit Office carries out internal
audits (verify the adequacy and effectiveness ofthe business process in each division and report
the results to the directors) in cooperation with
the Board of Corporate Auditors and Accounting
Auditors.

Responsible Care Promoting Committee,
chaired by the president, discusses and decides
the policy and plans of activities for Responsible
Care (RC)placing a special emphasis onenvironmental preservation, safety and quality
throughout the entire life cycle of our products
from the development to disposal. In March 2006,
the Committee established the 5th Mediumterm RC promotion Basic Plan to reinforce our
RC more active.
Moreover, Responsible Care Office carries
out concrete policy and internal audits on
responsible care activities in each division.

9Compliance and Ethics

The Compliance Committee has been working
on revisions to the Corporate Philosophy andBasic Corporate Vision, the establishment of
the Nippon Shokubai Corporate Behavior Charter,and the preparation of the Compliance Guidebook,in order to further improve and reinforce

corporate ethical standards and compliancesystems throughout the organization. During
fiscal 2007, various training programs were
implemented to ensure stricter and more faithfuladherence to corporate ethics.

Nippon Shokubai Corporate Behavior Charter
1. Guided by our Corporate Philosophy ofTechnoAmenity, we will conduct all of
our actions as a good corporate citizen.

6. We will conduct business based on fair andopen competition.
7. We will take a firm stance when dealing
with unlawful or antisocial groups.

2. We will comply with relevant laws both
inside and outside of Japan, and act inaccordance with in-house regulations.

8. We will ensure frequent communications
with our shareholders and members ofsociety in general, and guarantee theappropriate disclosure of corporate
information.

3. We will create and nurture a sound,vibrant workplace, where each individual
can hone their professional competence
and find fulfillment in their career.
4. We will develop and market products andservices that are both safe and useful,based upon an accurate understanding ofsocial demands.

9. With respect for the culture and customsof every nation/region we serve, we willcontribute to their development andwellbeing
throughcommunity-based
business undertakings.

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

10. We will ensure the solid and sustainable
development of the company throughbusiness undertakings based soundly upon
the above action guidelines.

Company-wide training in corporate ethics
Training in corporate ethics was provided toleaders and managers across the organization. The
training program consisted of the president s
lecture on compliance with corporate ethicalstandards, and subsequent group discussions on
individual cases related to compliance. In fiscal
2007, a total of 8 training sessions were held mostly
in Himeji and Suita, and 200 or more managers andleaders took part. Training sessions are alsoplanned for fiscal 2008 onwards, and are scheduled
to take place at all operation sites in two years.
Training in applicable laws and regulations
With regard to compliance with relevant laws
and regulations, training was provided on thesubject of the Anti-Monopoly Act, which wasamended in 2006. Two sessions were held, andnearly 40 employees, mostly sales managers andleaders, attended.

10Topics

Acquisition of NIPPON NYUKAZAI and SINO-JAPAN CHEMICAL Shares
In February 2008, we acquired shares of
NIPPON NYUKAZAI Co., Ltd. and SINO-JAPANCHEMICAL Co., Ltd. (Taiwan) to turn thesecompanies into subsidiaries. Both have unique
technology and know-how that they haveaccumulated over many years through theirinvolvement in ethylene oxide and propyleneoxide derivatives including surfactants, and havebeen providing their products for a wide range ofuses including electronic material and automotive
applications. We hope their experience and our
know-how will fuse together to create significant
synergy effects in ethylene oxide and othertechnology innovations.
SINO-JAPAN CHEMICAL is the first
operation base we have secured in Taiwan, andfrom here on, we seek to expand our operations
not only in Taiwan but also into mainland China.

NIPPON NYUKAZAI Co., Ltd., Kawasaki Plant

SINO-JAPAN CHEMICAL Co., Ltd., Linyuan Plant

Participation in the Research Project for Anti-desertification Technology(Xinjiang Uygur Autonomous Region, China)
We are participating in the Research Projectfor Anti-desertification Technology implemented
in the southern arid zone of Takla Makan Desert
in Xinjiang by the Xinjiang Academy of Forestry
Sciences, a Xinjiang branch of China s State
Forestry Administration.
This project aims to develop afforestation
technology for combating desertification. To
support the current afforestation trials using highwater absorption resins, we provide our
superabsorbent polymers as well as financial
assistance.
The project is slated to continue for 3 years
from 2008, and we hope our participation in the
project will contribute to the fight against
desertification.

Taklamakan Desert

Field Test Area of Forestｒｙ

11

Responsible Care
1. Our Fundamental Policy on Environment, Safety and Quality
1. Acknowledging environmental preservation
throughout the entire life cycle of a product,from development 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 associatedservices that meet customer satisfaction andinspire their trust

The Company has set the corporate philosophy
asTechnoAmenity: providing affluence andcomfort to society through technology . Adheringto the philosophy, the Company has defined thefour priorities regarding Environment, Safety andQuality, which will bring our business activities into
harmony with global environmental preservationand conservation:

2. RC Promotion Organization(1) RC Promotion Organization

President

Director responsible for RC

Environment and Safety
Committee
Chairman: Senior Managing Director

Responsible Care
Promotion Committee

Chemical Total Management
Committee

Chairman:President

Chairman: Senior Managing Director

RC Division
Environment &Safety Dept.
Quality Assurance
Dept.

Product Safety Review
Sub-committee

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

ISO 14001(EMS)
Registration of all operations completed in July
2001. Up grading to improved 2004 standards
completed in 2005.

12

3. The 5th Medium-Term RC Promotion Basic Plan (FY2006-FY2008)
Process
Safety &DisasterPrevention Occupational
Safety &HealthEnvironmental
Communications Society
Prevention
Chemical
SafetyQuality

Goals(1) Voluntarily pursuing goals in each of therelated areas within the company(2) Group RC activities in domestic andoverseas

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

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 accidents

Process Safety and Disaster Prevention
・Zero disasters
・Zero accidents3) Occupational Safety and Health・50% reduction of industrial injuries with lost
workdays (vs.FY2004 - FY2005)

Occupational Safety and Health・Zero industrial injuries with lost workdays(including contractors)
・Zero industrial injuries without lost workdays(including contractors)

4) Chemical Safety
・Zero problems on chemical safety(legal or social)5) Quality
・Zero serious claims

Chemical Safety
・Zero problem on chemical safety (legal or social)6) Communication with Society
・Promotion of dialogue to stakeholders andadequate disclosure of the information

Quality・Zero serious claims

7) Management System
・Introduction of ISO14001 and risk assessment of
OHSAS18001.

Communication with Society
・Promotion of dialogue with stake holders andadequate disclosure of the information regarding RC

13

Responsible Care

4. RC Performance in FY 2007
(1) Environmental Preservation① Action to save energy
The Company is taking action to save energy inall divisions, and has managed to reduce its
consumption of energy per unit of production by
14% from the level in FY1990.

② Lower GHG emissions
The Company is committed to curtailing its CO2
emissions by an all-out campaign to save energy. It
has cut its CO2 emissions per unit of production by
20% relative to the 1990 level.

Energy Consumption Rate

CO2 Emissions Rate (CO2 (ton) / production volume (ton) )(crude oil equivalent (L) / production volume (ton))
150

0.600

0.557

128
0.445

110
100

0.400

50

0.200

0

0.00
'90

'01

'02

'03

'04

'05

'06

'07 (FY)'90③ Less chemical emissions
The Company has been making efforts torelease less chemical substances into theenvironment since 1995 before enforcement of legal
regulation. It attained the corresponding 39%
reduction targeted in FY2007, and is determined toattain the FY2008 target as well.

'01

'02

'03

'04

'05

'06

'07 (FY)④ Investment for preserving the environment
Every year, the Company makes extensive
investments in initiatives for preserving theenvironment. The table below presents cumulative
figures for this investment over the period FY1990
to FY2007.

PRTR Total Release Performance (ton)Total Amounts of Investment in Environmental
Preservation since FY1990 (Million of Yen)

300

12,000

200

8,000

95

100

11,525

4,000

0

0
'01

'02

'03

'04

'05

'06

'07 (FY)'90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 (FY)14

(2) Process Safety and Disaster Prevention(6) Communication with Society① 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 emergency

Regional activities such as conserving local
chrysanthemum Noji-Giku in danger of extinction,and inviting children to potato digging in Himeji Plant.

"Noji-Giku" (Himeji Plant)

Potato Digging Party for Children
in Himeji Plant(7) RC activities of the Company in Japan &overseas■Reductionof environmental emission, labor
accident, equipment trouble and quality claim &nonconformity■Information sharing for RC activity① Affiliated companies in Japan:■RC Hearing (the consolidated subsidialies andaffiliates)■RC audit (Nippon Polyester Co., Ltd.
Nihon
Jyoryu Kogyo Co., Ltd.)■ISO 14001 certification (Nihon Jyoryu Kogyo
Co., Ltd.)■Eco-Action 21* (Chugoku Kako Co., Ltd.
Nippon Polyester Co., Ltd.)■ISO 9001 certification (Nisshoku Butsuryu Co.,Ltd.)② Overseas affiliated companies:■RC Hearing (Nippon Shokubai Europe N.V. ,NISSHOKU CHEMICAL INDUSTRY(ZHANGJIAGANG) CO., LTD.)A Fire Drill

Training forTransportation Emergency(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 through REACH*
and GHS*(5) Quality① Prevention of quality complaint by improving
Quality Management System②Disclosing information concerning green
procurement to the customers■ISO 14001 certification (NISSHOKUCHEMICAL INDUSTRY (ZHANGJIAGANG)
CO., LTD. )■ISO 9001 certification (NISSHOKU CHEMICALINDUSTRY (ZHANGJIAGANG) CO., LTD.)
PRTR:Pollutant Release and Transfer Register
A regulatory system which requires reporting of emission
volumes of wastes. Data compiled to the government bodies aredisclosed to the public.
Zero Emission
Less quantity of final off-site landfill than 0.1% of total amountof waste generated.
HAZOP:Hazard and Operability Studies
An execution to estimate the safety of plants.
Management of Changes
Program to ensure that proposed changes to plant operations
are evaluated changes are prevented so as to public, and theenvironmental, etc.
Yellow Card
A card staring the producers to be taken and contact
information for transporters, fire squads, and police in the eventof an accident during the road transport of chemicals.

REACH:Registration, Evaluation, and Authorization of Chemicals
A new EU regulatory framework for the Registration,
Evaluation and Authorization of Chemicals aiming to improve
the protection of human health and the environment throughthe better and earlier identification of the properties ofchemical substances.
GHS:Globally Harmonized System of Classification and Labelingof Chemicals
A system for classification and labeling of chemicals hazard
according to the globally harmonized rule.
Eco-Action 21
Eco-Action 21 is a certificate / registration system that enables
a wide variety of organizations to adopt effective and efficientsystems that promotes environmental activities, to establish
objectives of environmental activities, and to compose, evaluate andreportthe results of these activities based on the guideline
published by the Ministry of the Environment Japan in 2004.

15

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

2004(2003)

2005(2004)

2006(2005)

2007(2006)

2008(2007)(Millions of Yen)

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

169,733
17,212
8,822
220,185
131,685−

197,222
23,70915,705249,349
144,660−

232,441
26,14816,257
291,564
164,631
168,704

266,51322,754
13,988323,675−
179,368

302,669
20,745
11,875352,783−
175,634(Yen)

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

685.2045.37−

757.7281.37−

875.0085.89−

948.3474.92−

947.34
64.91
−

59.8
7.0
18.0

58.0
11.4
11.9

56.5
10.5
16.3

54.1
8.2
17.0

48.6
6.9
10.2
(Millions of Yen)

Cash and Cash Equivalents at Year-end

16,399(9,161)(9,506)
18,654

22,161(16,934)(861)
24,16017,468(20,663)(2,562)
19,856

16,087(23,109)
4,037
16,991

20,219(33,100)
17,495
21,371

Number of Employees

2,658

2,721

2,806

2,841

3,290

Cash Flow from Operating Activities
Cash Flow from Investing Activities
Cash Flow from Financing Activities

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 in the balance sheet and the related implementation guidance. In addition, effective the year ended March 31, 2007, theCompany is required to prepare consolidated statements of changes in net assets instead of consolidated statements ofshareholders' equity. In this connection, the previously reported consolidated balance sheet as of March 31, 2006 andconsolidated statement of shareholders' equity for the year then ended have been restated to conform to the presentationand 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.

16

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

2004(2003)

2005(2004)

2006(2005)

2007(2006)

2008(2007)(Millions of Yen)

Capital132,622
14,228
5,966
16,529146,789
17,795
11,063
16,529170,51023,00814,502
16,529192,177
20,37812,378
16,529231,151
19,815
11,707
16,529Issued and Outstanding Shares

194,881

194,881

194,881

194,881

194,881

Net Sales
Ordinary Income
Net Income(Thousands shares)(Millions of Yen)

Total Assets
Total Shareholders' Equity
Total Net Assets

207,303
133,100−

182,806
124,417−

237,571
148,283
148,283

262,059−
151,266

280,080−
148,553(Yen)

647.41
9.00(4.00)
30.56−

697.1913.00(5.00)
57.20−

788.11
16.00(7.50)
76.61−

819.4716.00(8.00)
66.30−

820.4916.00(8.00)
63.49−

Dividend Payout Ratio(%)

68.1
5.0
26.7
29.5

64.2
8.6
17.0
22.7

62.4
10.3
18.3
20.9

57.7
8.3
19.2
24.1

53.0
7.8
10.3
25.0

Number of Employees

1,774

1,731

1,730

1,742

1,798

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

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 in the balance sheet and the related implementation guidance. In addition, effective the year ended March 31, 2007, theCompany is required to prepare consolidated statements of changes in net assets instead of consolidated statements ofshareholders' equity. In this connection, the previously reported consolidated balance sheet as of March 31, 2006 andconsolidated statement of shareholders' equity for the year then ended have been restated to conform to the presentationand 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.

17

Nippon Shokubai Co., Ltd.
Consolidated Financial Statements
Years ended March 31, 2008 and 2007

Contents
Consolidated Financial Statements
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 9Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 0
Consolidated Statements of Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2Consolidated Statements of Changes in Net Assets . . . . . . . 2 3
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . 2 6
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . 2 818

Report of Independent Auditors

Report of Independent Auditors

The Board of Directors
Nippon Shokubai Co., Ltd.

We have audited the accompanying consolidated balance sheets of Nippon
Shokubai Co., Ltd. and consolidated subsidiaries as of March 31, 2008 and 2007,
and the related consolidated statements of income, changes in net assets, andcash flows for the years then ended, all expressed in yen. These financial
statements are the responsibility of the Company s management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in Japan. Those standards require that we plan and perform theaudit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in allmaterial respects, the consolidated financial position of Nippon Shokubai Co.,
Ltd. and consolidated subsidiaries at March 31, 2008 and 2007, and theconsolidated results of their operations and their cash flows for the years thenended in conformity with accounting principles generally accepted in Japan.
The U.S. dollar amounts in the accompanying consolidated financial statementswith respect to the year ended March 31, 2008 are presented solely forconvenience. Our audit also included the translation of yen amounts into U.S.
dollar amounts and, in our opinion, such translation has been made on the basis
described in Note 2.

Osaka, Japan
June 19, 200819

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

March 31,
2008

2007

2008
(Thousands of
U.S. dollars)(Note 2)

(Millions of yen)

AssetsCurrent assets:¥ 21,371
215¥ 16,991
165$ 213,305
2,146

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

12,056
69,262(308)
200
54,353
3,874
7,438

11,14759,855(568)−
45,941
3,172
8,742

120,331
691,307(3,074)
1,996
542,499
38,666
74,239Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

168,461

145,445

1,681,415

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

32,05877,009274,929
5,573(265,606)

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

319,972768,630
2,744,076
55,624(2,651,023)

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

123,963

117,647

1,237,279

22,996

31,456

229,524

Other assets (Notes 7 and 10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

20,970
3,521
3,874
8,998

16,507
901
2,997
8,722

209,30235,14338,667
89,810Total investments and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . .

60,35960,583

602,446

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

¥ 352,783¥ 323,675$ 3,521,140

Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Time deposits (Note 7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes and accounts receivable:
Unconsolidated subsidiaries and affiliates . . . . . . . . . . . .
Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for doubtful receivables . . . . . . . . . . . . . . . . . . . .
Short-term investments (Note 4) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories (Note 5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes (Note 9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

Investments and other assets:
Investments in securities (Notes 4 and 7) . . . . . . . . . . . . . . . . .
Investments in and advances to unconsolidated
subsidiaries and affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes (Note 9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid pension cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

20

March 31,
2008

2007

2008
(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:
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) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reserve for loss on shutdown of a plant . . . . . . . . . . . . . . . . .
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 16)
Net assets:
Shareholders equity (Note 11) :Common stock:
Authorized − 424,000,000 shares
Issued − 194,881,287 shares in 2008 and 2007 . . . . .
Capital surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less treasury stock, at cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total shareholders equity
Valuation and translation adjustments:
Net unrealized holding gain on securities . . . . . . . . . . . .
Translation adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net unrealized deferred loss on hedges . . . . . . . . . . . . . .
Total valuation and translation adjustments . . . . . . . . . . .
Minority interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities and net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

See accompanying notes to consolidated financial statements.

21¥ 27,571
6,998¥ 18,177
5,887$ 275,187
69,847

9,141
48,143
38
2,485
157
2,673
2,982
1,236
10,692
112,116

7,403
47,056
18
2,061
130
2,742
4,018
−
12,29399,78591,237
480,517379
24,803
1,567
26,67929,764
12,337
106,717
1,119,034

54,797
8,153
710
1,373
65,033

33,668
6,791
2,647
1,416
44,522546,931
81,375
7,087
13,704
649,097

16,52913,567
148,955(13,552)
165,499

16,52913,567140,350(10,079)
160,367

164,977
135,413
1,486,725(135,263)
1,651,852

2,644
3,368
(22)
5,990
4,145
175,634¥ 352,783

10,6864,000−
14,686
4,315
179,368¥ 323,675

26,39033,616(220)
59,786
41,371
1,753,009$ 3,521,140

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

Year ended March 31,
2008

2007

2008
(Thousands of
U.S. dollars)(Note 2)

(Millions of yen)

¥ 302,669
248,023
54,64636,267
18,379¥ 266,513
212,468
54,04534,616
19,429$ 3,020,950
2,475,526
545,424
361,982
183,442

1,377(1,349)994

1,021(1,014)916

13,744(13,464)
9,921

1,671
(1,390)(1,873)

1,358−−

16,678(13,874)(18,694)

(355)
−
998
(686)
80
17,846

−
(452)
936
−
108
22,302(3,543)−
9,961(6,846)797
178,122

5,945
21

6,857
1,279

59,337
210

5,966

8,136

59,547

11,88014,166

118,575

subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(5)

(178)

(50)

Net income (Note 17) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

¥ 11,875¥ 13,988$ 118,525

Net sales (Note 20) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of sales (Note 12) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expenses (Note 12) . . . .
Operating income (Note 20) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income (expenses) :Interest and dividend income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Royalty income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity in earnings of unconsolidated subsidiaries
and affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign exchange loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on shutdown of a plant................................

Loss on impairment of property, plant andequipment (Note 6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on liquidation of an affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rent from real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income taxes and minority interests . .
Income taxes (Note 9) :Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before minority interests . . . . . . . . . . . . . . . . . . . . . . . .
Minority interests in earnings of consolidated

See accompanying notes to consolidated financial statements.

22

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

Shareholders equity
Commonstock

CapitalsurplusRetainedearnings

Total
Less
treasury shareholders
stock, at costequity(Millions of yen)

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

¥ 16,529¥ 13,565 ¥ 125,684¥ (5,345) ¥ 150,433

Changes during the year:
Cash dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

−
−
−
−

−
−
−
2

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

−

−

3,770

−

3,770

shareholders equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

−

−

−

−

−

Total changes during the year . . . . . . . . . . . . . . . . . . . . .

−2

14,666(4,734)

9,934

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

¥ 16,529

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

¥ 13,567 ¥ 140,350¥ (10,079) ¥ 160,367

Valuation and translation adjustments
Net
Total
unrealized
valuation
holding
andgain onTranslation translation
securities adjustments adjustments

Minority
interests

Total net
assets(Millions of yen)

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

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

−
−
−
−

−
−
−
−

−
−
−
−

−
−
−
−

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

−

−

−

−

3,770

shareholders equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(1,573)

2,061

488

242

730

Total changes during the year . . . . . . . . . . . . . . . . . . . . .

(1,573)

2,061

488

242

10,664

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

¥ 10,686¥ 4,000¥ 14,686

Changes 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 than23

¥ 4,315 ¥ 179,368

Consolidated Statements of Changes in Net Assets (continued)

Shareholders equity
Commonstock

CapitalsurplusRetainedearnings

Total
Less
treasury shareholders
stock, at costequity(Millions of yen)

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

¥ 16,529¥ 13,567 ¥ 140,350 ¥ (10,079) ¥ 160,367

Changes during the year:
Cash dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

−
−
−
−

−
−
−
0

(2,941)
11,875−−−−(3,478)5(2,941)
11,875(3,478)
5

−

−

(329)

−

(329)

shareholders equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

−

−

−

−

−

Total changes during the year . . . . . . . . . . . . . . . . . . . . .

−

0

8,605

(3,473)

5,132

Balance at March 31, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . .

¥ 16,529

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of treasury stock . . . . . . . . . . . . . . . . . . . . . .
Disposition of treasury stock . . . . . . . . . . . . . . . . . . . .
Adjustments due to decrease in affiliates
accounted for by the equity method . . . . . . .
Net changes in items other than

¥ 13,567 ¥ 148,955 ¥ (13,552) ¥ 165,499

Valuation and translation adjustments
Net
Net
Total
unrealized
unrealized valuation
holdingdeferredandgain onTranslation
loss
translation
securities adjustments on hedges adjustments

Minority
interests

Total net
assets(Millions of yen)

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

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

−
−
−
−

−
−
−
−

−
−
−
−

−
−
−
−

−
−
−
−

(2,941)
11,875(3,478)
5

−

−

−

−

−

(329)

shareholders equity . . . . . . . . . . . .

(8,042)

(632)

(22)

(8,696)(170)(8,866)

Total changes during the year . . . . .

(8,042)

(632)

(22)

(8,696)(170)(3,734)

Balance at March 31, 2008 . . . . . . . . . . .

¥ 2,644¥ 3,368¥ (22)¥ 5,990

Changes during the year:
Cash dividends . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of treasury stock . . . . . .
Disposition of treasury stock . . . .
Adjustments due to decreasein affiliates accounted forby the equity method . . . . . . . . . . .
Net changes in items other thanSee accompanying notes to consolidated financial statements.

24¥ 4,145 ¥ 175,634

Shareholders equity
Commonstock

CapitalsurplusRetainedearnings

Total
Less
treasury shareholders
stock, at costequity(Thousands of U.S. dollars) (Note 2)

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

$ 164,977 $ 135,413 $1,400,838 $(100,599) $1,600,629

Changes during the year:
Cash dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

−
−
−
−

−
−
−
0

(29,354)
118,525−−−−(34,714)50(29,354)
118,525(34,714)50−−(3,284)−(3,284)

shareholders equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

−

−

−

−

−

Total changes during the year . . . . . . . . . . . . . . . . . . . . .

−085,887(34,664)

51,223

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of treasury stock . . . . . . . . . . . . . . . . . . . . . .
Disposition of treasury stock . . . . . . . . . . . . . . . . . . . .
Adjustments due to decrease in affiliates
accounted for by the equity method . . . . . . .
Net changes in items other than

Balance at March 31, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 164,977 $ 135,413 $1,486,725$(135,263) $1,651,852

Valuation and translation adjustments
Net
Net
Total
unrealized
unrealized valuation
holdingdeferredandgain onTranslation gain or loss translation
securities adjustments on hedges adjustments

Minority
interests

Total net
assets(Thousands of U.S. dollars) (Note 2)

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

$ 106,657$ 39,924$− $ 146,581$ 43,068 $1,790,278

−
−
−
−

−
−
−
−

−
−
−
−

−
−
−
−

−
−
−
−

(29,354)
118,525(34,714)
50

−

−

−

−

−

(3,284)

shareholders equity . . . . . . . . . . . .

(80,267)(6,308)(220)(86,795)(1,697)(88,492)

Total changes during the year . . . . .

(80,267)(6,308)(220)(86,795)(1,697)(37,269)

Balance at March 31, 2008 . . . . . . . . . . .

$ 26,390$ 33,616$ (220)$ 59,786

Changes during the year:
Cash dividends . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of treasury stock . . . . . .
Disposition of treasury stock . . . .
Adjustments due to decreasein affiliates accounted forby the equity method . . . . . . . . . . .
Net changes in items other thanSee accompanying notes to consolidated financial statements.

25$ 41,371 $1,753,009

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

Year ended March 31,
2008

2007

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

(Millions of yen)

Operating activities:
Income before income taxes and minority interests . . . . . . . .
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on sales of investments in securities . . . . . . . . . . . . . . . . . .
Loss on shutdown of a plant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on impairment of property, plant and equipment . . . . .
Casualty loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on disposal of inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase in accrued retirement benefits for employees . . . . .
Interest and dividend income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity in earnings of unconsolidated subsidiaries and affiliates . . .
Loss on disposal of property, plant and equipment . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in operating assets and liabilities:
Notes and accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes and accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest and dividends received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payment related to shutdown of a plant . . . . . . . . . . . . . . . . . . . . . . .
Payment related to discontinued operations . . . . . . . . . . . . . . . . . .
Payment related to casualty loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payment related to disposal of inventories . . . . . . . . . . . . . . . . . . . .
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . .
Investing activities:
Purchases of property, plant and equipment . . . . . . . . . . . . . . . . .
Proceeds from sales of property, plant and equipment . . . . . . . .
Purchases of short-term investments and investments
in securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sales of short-term investments andinvestments in securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition of investments in subsidiaries resulting
in change in scope of consolidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments for purchases of shares of affiliates . . . . . . . . . . . . . . . .
Increase in loans receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Collection of loans receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
See accompanying notes to consolidated financial statements.

26

2008

¥ 17,846¥ 22,302$ 178,122

18,230
−
(328)
1,873
686
355
185
128
134
(1,377)
1,349(1,671)
116
216

12,951
452
−
−
−
−
−
−
37
(1,021)
1,014(1,358)317(4,887)

181,954−(3,274)
18,694
6,847
3,543
1,846
1,278
1,337
(13,744)
13,464(16,678)
1,158
2,158

(3,229)(4,969)(2,471)
106
27,1792,125(1,332)
(333)
(190)
(185)
(128)
(7,007)
20,129(13,146)(6,666)
13,492(14)
23,473
1,959
(949)
−
−
−
−
(8,396)
16,087(32,229)(49,596)(24,663)
1,058
271,275
21,210(13,295)(3,324)(1,896)(1,846)(1,278)(69,938)
200,908(20,478)
86(22,527)4(204,392)
858(4,370)(1,850)(43,617)

785

455

7,835

(5,793)(4,025)
−
1,069
(374)
¥ (33,100)

−
−
(110)
1,191
(272)
¥ (23,109)(57,820)(40,174)−
10,670(3,732)$ (330,372)

Year ended March 31,
2008

2007

(Millions of yen)

2008
(Thousands of
U.S. dollars)(Note 2)Financing activities:
Increase in short-term bank loans, net . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayment of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by financing activities . . . . . . . . . . . . . . . . . . . . .

¥ 4,746
10,167(5,994)15,000(2,941)(3,472)(11)
17,495¥ 6,546
10,700(5,370)−(3,092)(4,737)(10)
4,037$ 47,370
101,477(59,826)
149,716(29,354)(34,654)(111)
174,618

Effect of exchange rate changes on cash andcash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase (decrease) in cash and cash equivalents . . . . . . . . . . .
Cash and cash equivalents at beginning of year . . . . . . . . . . . . .
Cash and cash equivalents at end of year . . . . . . . . . . . . . . . . . . . . .

(144)
4,380
16,991¥ 21,371

120(2,865)19,856¥ 16,991(1,437)43,717
169,588$ 213,305

See accompanying notes to consolidated financial statements.

27

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

March 31, 2008

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

into yen at the rates of exchange in effect at the respective
transaction dates.

Nippon Shokubai Co., Ltd. (the Company ) and its domestic
subsidiaries maintain their accounts and records inaccordance with accounting principles generally accepted inJapan. Its overseas subsidiaries maintain their accounts andrecords in conformity with the requirements of theirrespective countries of domicile.

All monetary assets and liabilities denominated in foreign
currencies are translated into yen at the rates of exchange in
effect at the balance sheet date and gain or loss on eachtranslation is credited or charged to income.

(d) Cash and cash equivalents
The accompanying consolidated financial statements of theCompany and consolidated subsidiaries are prepared on thebasis of accounting principles generally accepted in Japan,
which are different in certain respects as to the applicationand disclosure requirements of International Financial
Reporting Standards, and are compiled from the consolidated
financial statements prepared by the Company as required by
the Financial Instruments and Exchange Law of Japan.

Cash and cash equivalents include cash on hand and in banks
and other highly liquid investments with maturities of threemonths or less when purchased.

(e) Allowance for doubtful receivables
The Company and its consolidated subsidiaries provide anallowance for doubtful receivables at an amount calculated
based on their historical experience of bad debts on ordinary
receivables plus an additional estimate of probable specificbad debts from customers experiencing financial difficulties.

In preparing the accompanying consolidated financial
statements, certain reclassifications and rearrangements havebeen made to the consolidated financial statements issued
domestically in order to present them in a format which ismore familiar to readers outside Japan.

(f) Inventories
Inventories of the Company and its consolidated subsidiaries
are stated principally at the lower of cost or market, cost
being determined by the moving average method.

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

The accompanying consolidated financial statements include
the accounts of the Company and its significant subsidiaries.
All significant intercompany items have been eliminated inconsolidation.

Property, plant and equipment are stated on the basis of cost.
Depreciation is computed principally by the declining-balancemethod over the estimated useful lives of the respective
assets, except that the overseas consolidated subsidiaries
compute depreciation by the straight-line method over theestimated useful lives of the respective assets.

The overseas consolidated subsidiaries are consolidated on
the basis of fiscal periods ending December 31, a date which
differs from the balance sheet date of the Company. As aresult, adjustments have been made for any significant
intercompany transactions which took place during the period
between the year ends of these overseas consolidated
subsidiaries and the year end of the Company.

(h) Leases
Non-cancelable leases of the Company and its domestic
consolidated subsidiaries are accounted for as operating leases(whether such leases are classified as operating or financeleases), except that leases which stipulate the transfer ofownership of the leased assets to the lessee are accounted for
as finance leases.
However, leases of the overseas
consolidated subsidiaries are generally classified andaccounted for as either finance or operating leases.

Investments in significant affiliates are accounted for by theequity method.
Investments in an unconsolidated subsidiary and an affiliate
not accounted for by the equity method are carried at cost.

(i) Investments in securities
Goodwill and negative goodwill arising from the difference of
cost and underlying net assets at the date of acquisition areamortized over a period of five years on a straight-line basis,
except that immaterial amounts are charged or credited toincome as incurred.

Securities are classified into three categories: trading
securities, held-to-maturity debt securities and othersecurities.
Trading securities, consisting of debt andmarketable equity securities, are carried at fair value. Gain
and loss, both realized and unrealized, are credited andcharged to income. Held-to-maturity debt securities arecarried at amortized cost. Marketable securities classified asother securities are carried at fair value, with any changes in
unrealized holding gain or loss, net of the applicable income
taxes, reported as a separate component of net assets. Nonmarketable securities classified as other securities are carriedat cost. Cost of securities sold is determined by the moving
average method.

(c) Foreign currency translation
The financial statements of the overseas consolidated
subsidiaries are translated into yen at the rates of exchange
in effect at the balance sheet date, except that thecomponents of net assets excluding minority interests aretranslated at their historical exchange rates. Differences
resulting from translating the financial statements of theoverseas consolidated subsidiaries are not included in thedetermination of net income but are reported as translation
adjustments and minority interests the accompanying
consolidated balance sheets at March 31, 2008 and 2007.

(j) Research and development costs and computer
softwareResearch and development costs are charged to income whenincurred.

Revenue and expense items arising from transactions
denominated in foreign currencies are generally translatedExpenditures relating to the development of computer
software intended for internal use are charged to income as28

obligation and the fair value of the pension plan assets as
adjusted for unrecognized actuarial gain or loss andunrecognized prior service cost.

incurred, except if these are deemed to contribute to thegeneration of future income or cost savings.
Suchexpenditures are capitalized as assets and amortized by thestraight-line method over their respective estimated useful
lives, generally a period of 5 years.

Prior service cost is amortized principally by the straight-line
method over a period of 5 years, which is within theestimated average remaining years of service of the eligible
employees.

(k) Income taxes
Income taxes are calculated based on taxable income andcharged to income on an accrual basis. Deferred income tax
assets and liabilities 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 taxdeductible amounts in the future. The calculation of deferredincome tax assets and liabilities is based on the enacted tax
laws.

Actuarial gain or loss is amortized in the year following theyear in which the gain or loss is recognized principally by thestraight-line method over a period of 10 years, which is within
the estimated average remaining years of service of theeligible employees.

(r) Distribution of retained earnings(l) Hedge accounting

Under the Corporation Law of Japan, the distribution ofretained earnings with respect to a given financial period is
made by resolution of the shareholders at a general meeting
held subsequent to the close of the financial period. The
accounts for that period do not, therefore, reflect such
distributions (see Note 22).

Gain or loss on derivatives positions designated as hedges isdeferred until the loss or gain on the respective underlying
hedged items is recognized. Interest-rate swaps which meetcertain conditions are accounted for as if the interest rates
applied to the swaps had originally applied to the underlying
debt.

2. U.S. Dollar Amounts
Forward foreign exchange contracts which meet certain
criteria are accounted for by the allocation method which
requires that recognized foreign currency receivables orpayables be translated at the corresponding contract rates.

The translation of yen amounts into U.S. dollar amounts is
included solely for convenience, as a matter of arithmetic
computation only, at ¥100.19 = U.S.$1.00, the approximate
rate of exchange in effect on March 31, 2008. This translation
should not be construed as a representation that yen havebeen, could have been, or could in the future be, converted
into U.S. dollars at the above or any other rate.

(m) Accrued bonuses to employees
Accrued bonuses to employees are provided based on theestimated amount of bonuses to be paid to employees which
are charged to income in the current year.

3. Change in Method of Accounting
Effective the year ended March 31, 2008, the Company and its
domestic consolidated subsidiaries have changed their methodof accounting for depreciation of property, plant andequipment acquired on or after April 1, 2007 in accordancewith an amendment to the Corporation Tax Law.

(n) Accrued bonuses to directors and corporate
auditors
Accrued bonuses to directors and corporate auditors areprovided at an estimate of the amount to be paid in thefollowing year which has been allocated to the current fiscal
year.

As a result of this change, operating income decreased by¥539 million ($5,380 thousand), and income before income
taxes and minority interests decreased by ¥541 million ($5,400
thousand) for the year ended March 31, 2008 from thecorresponding amounts which would have been recorded
under the previous method.
The impact on segment
information is outlined in Note 20.

(o) Reserve for periodic repairs
The Company provides a reserve for the cost of periodic
repairs to production facilities at plants based on theirestimates of the future cost of such repairs.

(p) Reserve for loss on shutdown of a plant(Supplementary information)

The reserve for loss on shutdown of a plant is stated at theestimated amount of removal cost and so forth to be incurred
as a result of the closure of Ehime factory of Himeji plant.

In addition, effective the year ended March 31, 2008,
depreciation expense for property, plant and equipment
acquired before April 1, 2007 is computed based on thesalvage value of 5% of acquisition cost, and the amountbetween the salvage value (5% of acquisition cost) andmemorandum value is depreciated from the year following
the year in which the book value of an asset reaches 5% of its
acquisition cost by the straight-line method over a period of 5
years. This change was made based on an amendment to the
Corporation Tax Law.

(q) Retirement benefits
The Company s employees are covered by an employees
retirement benefit plan and an employees pension plan. The
employees retirement benefit plan provides for lump-sum
payments determined by reference to their basic salary, yearsof service and certain other factors.
The domestic
consolidated subsidiaries have either unfunded employees
retirement benefit plans and/or pension plans which arenoncontributory and funded and which cover substantially all
their employees.
These plans provide for lump-sum
payments and/or annuity payments payable upon terminationof employment.

The effect of this change was to decrease operating incomeby ¥1,482 million ($14,805 thousand), and income before
income taxes and minority interests by ¥1,506 million ($15,045
thousand) from the corresponding amounts which would havebeen recorded under the previous method. The impact on
segment information is outlined in Note 20.

Accrued retirement benefits for employees have been
provided, in general, based on the retirement benefit

29

Notes to Consolidated Financial Statements (continued)

4. Short-Term Investments and Investments in Securities
Marketable securities classified as other securities at March 31, 2008 and 2007 are summarized as follows:

2008

2007
(Millions of yen)Book value(fair market Unrealized
value)
gain (loss)

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

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

Cost¥ 6,612
6,612¥ 13,472
13,472¥ 6,860
6,860¥ 14,158
14,158¥ 29,422
29,422¥ 15,264
15,26412,081
12,081¥ 18,693

8,070
8,070
¥ 21,542(4,011)(4,011)¥ 2,849693
693¥ 14,851

588
588¥ 30,010

(105)
(105)
¥ 15,159

2008(Thousands of U.S. dollars)

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

Book value(Fair market Unrealized
gain (loss)
value)$ 65,995 $ 134,465
65,995
134,465$ 68,470
68,470120,581
80,547
120,581
80,547$ 186,576 $ 215,012(40,034)(40,034)$ 28,436

The proceeds from and gross realized gain on, sales of securities classified as other securities for the years
ended March 31, 2008 and 2007 were as follows:

2008

2008

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

Proceeds

Gross realized gain

Proceeds

Gross realized gain

Proceeds

Gross realized gain

¥ 528

¥ 407

¥ 121

¥ 83

$ 5,270$ 4,062A breakdown of other securities whose market value was not determinable at March 31, 2008 and 2007 ispresented as follows:

2008

2007

(Millions of yen)Held-to-maturity bonds .............................................................
Other securities ............................................................................
30

¥

400
1,254

¥

2008
(Thousands of U.S. dollars)

200
1,246

$

3,992
12,516

The redemption schedule for other securities with maturity dates at March 31, 2008 is summarized asfollows:

2008(Millions of yen)(Thousands of U.S. dollars)

after one Due in one Due after one
Due in one Due
year
year throughyear or less fivethroughyears year or less five years
Held-to-maturity bonds .............................................................

¥ 200

¥ 200

$ 1,996$ 1,996

5. Inventories
Inventories at March 31, 2008 and 2007 were as follows:
2008

2007

(Millions of yen)

Merchandise and finished goods .........................................
Raw materials ...............................................................................
Work in process ...........................................................................
Supplies ...........................................................................................
Total ...................................................................................................

¥ 28,740
13,574
8,885
3,154¥ 54,353¥ 22,152
11,9598,649
3,181¥ 45,941

2008(Thousands of U.S. dollars)$ 286,855
135,483
88,681
31,480$ 542,499

6. Loss on Impairment of Property, Plant and Equipment
Property, plant and equipment are primarily grouped based on the business segment categories designatedfor management control purposes. In addition, idle assets for which no immediate use is foreseen are groupedindividually.
The carrying value of assets which are expected to record a loss has been reduced to their respective net
recoverable amounts and the resulting aggregate loss on impairment has been recognized in theaccompanying consolidated statement of income for the year ended March 31, 2008. The recoverable amountsof the assets were determined based on their respective estimated sales prices or value in use which was
calculated as the sum of the anticipated future cash flows discounted at an annual discount rate of 2.8%.
Details of the loss on impairment of property, plant and equipment for the year ended March 31, 2008 aresummarized as follows:

Company

Application

Classification

NA Industries,
Manufacturing machines for
Machinery and structures
Inc.
acrylic acid built detergents
Nippon Shokubai Catalyst manufacturing
Buildings and structures,Co., Ltd.
machines for NOx removal
machinery and equipment
catalysts and dioxins
and automotive equipment
Total（Millions of yen）

¥ 208

147
¥ 355

No loss on impairment of property, plant and equipment was recognized for the year ended
March 31, 200731

Notes to Consolidated Financial Statements (continued)

The aggregate annual maturities of long-term debt
subsequent to March 31, 2008 are summarized
below:

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,
2008 and 2007 were 2.06% and 1.95%, respectively.
Long-term debt at March 31, 2008 and 2007
consisted of the following:

2008

2007

(Millions of yen)

2008
(Thousands of
U.S. dollars)

Unsecured bonds
payable in yen, at
rates from 0.81%
to 1.66%, due
through 2014 ............. ¥ 20,000 ¥ 5,000 $ 199,621
Unsecured loans frombanks and insurancecompanies, payablein yen, at rates from
0.49% to 2.03%, due
through 2014 ................ 33,479
24,930 334,155
Unsecured loans frombanks, payable in
U.S. dollars, at rates
from 5.63% to 5.71%,
due through 2012 ........
3,310
4,455
33,037
Unsecured loans frombanks, payable inEuro, at rates from
2.55% to 3.17%, due
through 2009 ................
2,700
4,225
26,949Secured loans frombanks and insurancecompanies, payablein yen, at rates from
0.95% to 4.84%, due
through 2013 ................
1,850
945
18,465
Secured loans frombanks, payable in
U.S. dollars, at rates
from 3.60% to 5.83%,
due through 2009 ........
456
−
4,551
Subtotal ......................... 61,795
39,555 616,778
Less current
portion .......................... (6,998)(5,887) (69,847)
Total ................................ ¥ 54,797 ¥ 33,668 $ 546,931

Year ending March 31, (Millions of yen)(Thousands of
U.S. dollars)

2009 ................................. ¥ 6,998
2010 .................................
17,7572011 .................................
6,490
2012 .................................
3,347
2013 and
thereafter .................
27,203¥ 61,795$ 69,847
177,233
64,77733,407
271,514$ 616,778

Assets pledged as collateral for short-term bankloans, long-term debt, including the current portion
thereof, and notes and accounts payable at March
31, 2008 and 2007 were as follows:

2008

2007

(Millions of yen)Time deposits .......... ¥Land....................
Buildings andstructures .................
Machinery andequipment .................
Investments insecurities ...................
Other assets ...............
Total ............................... ¥

32

8
293

¥

8
293

2008
(Thousands of
U.S. dollars)

$

80
2,924

166

183

1,657

291

345

2,905

−
6
−
5
763 ¥ 835−50
$ 7,616

8. Retirement Benefits
The following table sets forth the funded andaccrued status of the pension plans and theamounts recognized in the accompanying
consolidated balance sheets at March 31, 2008 and2007 for the Company s and the consolidated
subsidiaries defined benefit pension plans:

2008

2007

(Millions of yen)

The following table sets forth the status of themulti-employer pension plan at March 31, 2007, themost recent date on which such data was available.
(Millions of yen) (Thousands ofU.S. dollars)

Plan assets at fairvalue ..................
Benefit obligation
used in thecalculation ofpension financing..
Difference .............

2008(Thousands of
U.S. dollars)

Retirement benefit
obligation at endof year .......................... ¥ (31,493) ￥(30,108) $ (314,333)
Fair value of plan
assets at end of year ... 22,389
26,159223,466
Unfunded retirement
benefit obligation ........ (9,104)(3,949)(90,867)
Unrecognizedactuarial gain .............
726
5,210
52,001
Unrecognized priorservice cost ................
(571)
(385)
(3,843)
Net retirement
benefit obligation ..... (4,279)(3,794)(42,709)
Prepaid pension cost ....
2,997
3,874
38,666
Accrued retirement
benefits ........................ ¥ (8,153) ￥ (6,791) $ (81,375)

2007(Millions of yen)

469,730¥ (7,869)$

4,687,680(78,528)

9. Income Taxes
Income taxes applicable to the Company and its
domestic consolidated subsidiaries consist of
corporation, inhabitants and enterprise taxes. The
statutory tax rate in Japan for the years ended
March 31, 2008 and 2007 was, in the aggregate,approximately 40.6%.
The effective tax rates reflected in theaccompanying consolidated statements of income
for the years ended March 31, 2008 and 2007
differed from the above statutory tax rate for the following
reasons:

2008(Thousands of
U.S. dollars)Service cost ................. ¥ 1,410 ￥ 1,080 $ 14,073
Interest cost .................
542
539
5,410
Expected returnon plan assets ...........
(625)(560) (6,238)
Amortization:
Prior service cost ....
(186)(180) (1,857)
Actuarial loss ...........
485
487
4,841
Retirement benefit
expenses ..................... ¥ 1,626 ￥ 1,366 $ 16,229

Statutory tax rate ..............
Effect of:Valuation allowance ..........
Tax credit for researchand development costs ....
Equity in earnings of an
unconsolidated subsidiary
and affiliates ................
Other, net ........................
Effective tax rates .............

The assumptions used in accounting for thedefined benefit pension plans for the years ended
March 31, 2008 and 2007 were as follows:2008$ 4,609,152(Additional information)
Effective the year ended March 31, 2008, theCompany has adopted Partial Amendments to
Accounting Standard for Retirement Benefits (Part2)(Accounting Standards Board of Japan
Statement No.14 issued on May 15, 2007).

The components of retirement benefit expenses
for the years ended March 31, 2008 and 2007 areoutlined as follows:2008¥ 461,861

2007

Discount rate.......... Principally 1.9% Principally 1.9%
Expected rate of returnon plan assets ......... Principally 3.0% Principally 3.0%

33

2008

2007

40.6%

40.6%

2.4

3.9

(5.2)

(3.9)

(3.8)
(0.6)
33.4%

(2.5)
(1.6)
36.5%

Notes to Consolidated Financial Statements (continued)

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
and liabilities of the Company and its consolidated
subsidiaries at March 31, 2008 and 2007 aresummarized as follows:

2008

2007

(Millions of yen)

10. Goodwill and negative goodwill
Goodwill and negative goodwill are netted
against each other. If goodwill, net is recorded, it isincluded in other assets and if negative goodwill,
net is recorded, it is included in long-term liabilities,
other in the accompanying consolidated balance
sheets. Goodwill, net and negative goodwill, net asof March 31, 2008 and 2007, respectively, aresummarized as follows:

2008

2008

(Thousands of
U.S. dollars)

2007(Millions of yen)

Deferred tax assets:
Accrued retirement
benefits for employees .. ¥1,856 ¥1,641 $18,525
Intercompany profit
on inventories andproperty, plant andequipment ..................... 1,060
1,166 10,580
Tax loss carryforwards .. 2,040
1,512 20,361
Reserve for periodic repairs .. 1,078
1,104 10,760
Depreciation andamortization .................
827
816
8,254
Loss on impairmentof property, plantand equipment ............ 1,530
1,461 15,271
Accrued bonuses to
employees .....................
970
769
9,682
Impairment of investments
in securities and other ......... 1,868
1,870 18,645
Reserve for loss on
shutdown of a plant ..
502
−
5,010
Accrued enterprise tax ..
286
351
2,855
Other ................................ 1,546
1,067 15,430
Gross deferred tax assets .. 13,563 11,757 135,373
Less: Valuation allowance .. (4,024) (3,025) (40,164)
Total deferred tax assets ... 9,539
8,732 95,209
Deferred tax liabilities:
Equity in earnings ofan overseas affiliate ..... 1,472
1,297 14,692
Net unrealized holding
gain on securities ..........
−
4,426
−
Depreciation andamortization..................
634
848
6,328
Deferred capitalgain on property .........
385
393
3,843
Reserve for depreciation
for tax purposes ...............
114
165
1,138
Other..................................
249
177
2,486
Total deferred tax liabilities .... 2,854
7,306 28,487
Net deferred tax assets .... ¥6,685 ¥1,426 $66,722

Goodwill .............................. ¥2,658
Negative goodwill ............. (340)
Goodwill, net (negative
goodwill, net) ................... ¥2,318

2008(Thousands of
U.S. dollars)¥ 540 $26,530(549) (3,394)¥ (9) $23,136

11. Shareholders Equity
The Corporation Law of Japan (the Law )provides that an amount equal to 10% of theamount to be disbursed as distributions of capitalsurplus (other than the capital reserve) andretained earnings (other than the legal reserve) betransferred to the capital reserve and the legal
reserve, respectively, until the sum of the capitalreserve and the legal reserve equals 25% of thecapital stock account. Such distributions can bemade at any time by resolution of the shareholders,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($39,126 thousand) and ¥3,920 million at March 31,
2008 and 2007, respectively.

34

Lease payments relating to finance leases
accounted for as operating leases amounted to ¥71
million ($709 thousand) and ¥77 million for theyears ended March 31, 2008 and 2007, respectively.
Depreciation/amortization of the leased assets
calculated by the straight-line method over therespective lease terms amounted to ¥71 million($709 thousand) and ¥77 million for the years ended
March 31, 2008 and 2007, respectively.
Future minimum lease payments (including theinterest portion thereon) subsequent to March 31,
2008 for finance leases accounted for as operatingleases are summarized as follows:

Common stock and treasury stock
Movements in shares of common stock in issue
and treasury stock during the years ended March
31, 2008 and 2007 are summarized as follows:

2008
Number of shares(Thousands)

March
March
31, 2007 Increase Decrease 31, 2008
Common stock .. 194,881
Treasury stock .. 10,291

−
3,574

−
6

194,881
13,859Year ending March 31,
2009 ..................................................
2010 and thereafter ...................

2007
Number of shares(Millions (Thousands ofof yen)U.S. dollars)

¥ 179
705
¥ 884

(Thousands)$ 1,787
7,036$ 8,823

March
March
31, 2006 Increase Decrease 31, 2007
Common stock .. 194,881
Treasury stock ..
6,732

–
3,563

–
4

14. Loss on shutdown of a plant
For the year ended March 31, 2008, theCompany and consolidated subsidiaries recorded aloss on shutdown of Ehime factory of Himeji plant
which consisted of the following:

194,881
10,291

12. Research and Development Costs
Research and development costs included incost of sales and selling, general and administrative
expenses for the years ended March 31, 2008 and2007 totaled ¥11,179 million ($111,578 thousand) and¥11,123 million, respectively.

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

Dismantlement costof a plant .................................... ¥1,269
Loss on disposal of a plant
304
Other .................................................
300
Total ................................................. ¥1,873

13. Leases
The following pro forma amounts represent theacquisition costs (including the interest portion),
accumulated depreciation/amortization and net
book value of the leased assets at March 31, 2008
and 2007, which would have been reflected in theaccompanying consolidated balance sheets if
finance lease accounting had been applied to thefinance leases currently accounted for as operatingleases:

2008

2007

(Millions of yen)

2008
(Thousands of
U.S. dollars)

Machinery and equipment and software:
Acquisition costs .... ￥1,272 ¥ 357 $12,696
Accumulated
depreciation/amortization ....
(388)
(238)
(3,873)
Net book value ........... ¥ 884 ¥ 119 $ 8,823
35$12,6643,034
2,994$18,692

Notes to Consolidated Financial Statements (continued)

15. Loss on discontinued operations
For the year ended March 31, 2008, theCompany and consolidated subsidiaries recorded
loss on discontinued operations of the unsaturated
polyester business which consisted of the following:

17. Amounts per Share

2008
(Yen)

¥ 339

$ 3,383

233
115
¥ 687

2,325
1,148
$ 6,856

2008(U.S. dollars)

Net income .................... ¥ 64.91 ¥ 74.92
16.00
Cash dividends ........... 16.00
948.34
Net assets ...................... 947.34(Millions (Thousands ofof yen)U.S. dollars)

Dismantlement cost ofa business ...................................
Loss on disposal ofa business ...................................
Other .................................................
Total .................................................

2007$ 0.650.16
9.46

Net income per share has been computed basedon the net income available for distribution toshareholders of common stock and the weightedaverage number of shares of common stock
outstanding during the year. Diluted net income
per share has not been presented for the years
ended March 31, 2008 and 2007 since neither theCompany nor any of the consolidated subsidiaries
had any potentially dilutive shares at March 31,
2008 and 2007.
The amounts per share of net assets have been
computed based on the number of shares ofcommon stock outstanding at 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, 2008 and 2007 is summarized as follows:

16. Contingent Liabilities
At March 31, 2008, the Company and one
consolidated subsidiary were contingently liable asguarantors of indebtedness of affiliates in theaggregate amount of ¥2,247 million ($22,427
thousand).
In addition, at March 31, 2008, two consolidated
subsidiaries had contingent liabilities arising fromnotes discounted with banks and notes endorsed in
the aggregate amount of ¥1,141 million ($11,388
thousand).

2008

2007

(Millions of yen)

2008
(Thousands of
U.S. dollars)

Net income ................... ¥ 11,875 ¥ 13,988 $118,525
Deductions from−−−net income ................
Adjusted net income
available for
distribution toshareholders ofcommon stock ......... ¥ 11,875 ¥ 13,988 $118,525
Weighted-average
number of sharesof common stock
outstanding during
the year(thousands of shares) ... 182,948 186,703 182,948

36

18. Derivatives
Derivative financial instruments are utilized by
the Company and its consolidated subsidiaries
principally to reduce the risk arising fromfluctuation in interest rates and foreign exchange
rates. The Company has established a control
environment which includes policies andprocedures for risk assessment and for theapproval, reporting and monitoring 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 interestrate swaps. The Company and its consolidated
subsidiaries are also exposed to the risk of credit
loss in the event of nonperformance by thecounterparties to these forward foreign exchange
contracts and interest-rate swap contracts;
however, the Company and its consolidated
subsidiaries do not anticipate nonperformance byany of the counterparties, all of whom are financial
institutions with high credit ratings.

19. Supplementary information on statements ofcash flows
During the year ended March 31, 2008, theCompany purchased shares of Nippon NyukazaiCo., Ltd. and initially consolidated its accounts forthe year ended March 31, 2008. The following totalsummarizes the assets and liabilities included inconsolidation and presents information on therelated acquisition cost and cash disbursement:(Millions (Thousands ofof yen)U.S. dollars)

Current assets .............................. ¥12,109 $120,860
Non-current assets .....................
8,739
87,224
Goodwill ...........................................
2,342
23,376
Current liabilities ......................... (12,158) (121,349)
Non-current liabilities ................ (3,859) (38,517)
Other ...........................................
7
70
Acquisition cost ............................
7,180
71,664
Cash and cash equivalents of
Nippon Nyukazai Co., Ltd. ..
1,387
13,844
Cash disbursement ..................... ¥ 5,793 $ 57,820

37

Notes to Consolidated Financial Statements (continued)

20. Segment Information
The Company and its consolidated subsidiaries are primarily engaged in the manufacture and sale ofproducts in Japan and overseas.

Business Segments
The business segment information of the Company and its consolidated subsidiaries for the years ended
March 31, 2008 and 2007 is outlined as follows:Year ended March 31, 2008
Basic
Functional
chemicals chemicals
I. Sales and operating income:Sales to third parties ..........................
Intragroup sales and transfers ..........
Net sales ...............................................
Operating expenses .............................
Operating income ................................
II. Total assets, depreciation and amortization,
los on impairment of property, plant andequipment and capital expenditures:
Total assets .........................................
Depreciation and amortization ..........
Loss on impairment of property, plant and equipment ..
Capital expenditures ..........................

Total

Eliminations or
corporate

Consolidated(Millions of yen)

¥ 109,330
34,188
143,518
136,797¥ 6,721¥ 155,892
1,357
157,249
148,480¥ 8,769¥ 37,447
718
38,16535,352¥ 2,813¥ 302,669
36,263338,932
320,629¥ 18,303¥−(36,263)(36,263)(36,339)¥76¥ 302,669−
302,669
284,290¥ 18,379¥ 133,265
8,236
−
5,809

¥ 164,435
10,762
208
11,484¥ 30,194
456
147
331

¥ 327,894
19,454355
17,624¥ 24,889−−−¥ 352,783
19,454355
17,624

Year ended March 31, 2007
Environment
Eliminaand
tions or
Basic
Functional
corporatechemicals chemicals catalysts
Total

Consolidated

I. Sales and operating income:Sales to third parties ...........................
¥ 97,665
Intragroup sales and transfers ..........
21,672
Net sales ...............................................
119,337
Operating expenses .............................
113,938
Operating income ................................
¥ 5,399
II. Total assets, depreciation andamortization and capital expenditures:
Total assets ..........................................
¥ 104,262
Depreciation and amortization ...........
5,304
Capital expenditures ...........................
9,309

I. Sales and operating income:Sales to third parties ..........................
Intragroup sales and transfers ..........
Net sales ...............................................
Operating expenses .............................
Operating income ................................
II. Total assets, depreciation and amortization,
loss on impairment of property, plant andequipment and capital expenditures:
Total assets .........................................
Depreciation and amortization ..........
Loss on impairment of property, plant and equipment ..
Capital expenditures ..........................

Environment
andcatalysts(Millions of yen)

¥ 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)
266,513(24,326)
247,084(24,536)¥210 ¥ 19,429¥ 156,625
8,163
15,118¥ 28,160
421
371¥ 289,047
13,88824,798¥ 34,628−−¥ 323,675
13,88824,798Year ended March 31, 2008
Environment
Eliminaand
tions or
Basic
Functional
corporatechemicals chemicals catalysts
Total

Consolidated¥(Thousands of U.S. dollars)$1,091,226 $1,555,964
13,544341,232
1,569,508
1,432,458
1,481,984
1,365,376$ 67,082 $ 87,524$ 373,760
7,166
380,926
352,850$ 28,076$3,020,950
361,942
3,382,892
3,200,210$ 182,682$− $3,020,950−(361,942)(361,942) 3,020,950(362,702) 2,837,508$
760 $ 183,442$1,330,123 $1,641,232
107,416
82,204
2,076−
114,62257,980$ 301,367
4,551
1,467
3,304

$3,272,722
194,171
3,543
175,906$248,418 $3,521,140
194,171−
3,543−
175,906−38

As mentioned in Note 3, the Company and its domestic consolidated subsidiaries have changed their
method of accounting for depreciation of property, plant and equipment acquired on or after April 1, 2007 to
the procedure stipulated in the revised law. As a result, operating expenses in the basic chemicals businesssegment decreased by ¥104 million ($1,039 thousand), the functional chemicals business segment decreased by¥412 million ($4,114 thousand) and the environment and catalysts business segment decreased by ¥22 million($220 thousand) as compared to the corresponding amounts which would have been recorded under theprevious method.
As mentioned in Note 3, the Company and its domestic consolidated subsidiaries have changed their
method of accounting for property, plant and equipment acquired before April 1, 2007. As a result, operating
expenses in the basic chemicals business segment increased by ¥695 million ($6,940 thousand), the functional
chemicals business segment increased by ¥715 million ($7,140 thousand) and the environment and catalysts
business segment increased by ¥72 million ($719 thousand), and operating expenses decreased by the sameamounts as compared to the corresponding amounts which would have been recorded under the previous
method.

Geographical Segments
The geographical segment information of the Company and its consolidated subsidiaries for the years
ended March 31, 2008 and 2007 is outlined as follows:Year ended March 31, 2008

Japan
I. Sales and operating income (loss):
Sales to third parties ....... ¥ 213,793
Intragroup sales and transfers ..
33,718Net sales ............................
247,511
Operating expenses .........
230,131
Operating income (loss) ... ¥ 17,380
II. Total assets ..................... ¥ 263,558

Europe

Asia

Other

Total

Eliminations or
corporate

Consolidated(Millions of yen)

¥ 43,13078
43,20842,925¥283¥ 23,090¥ 29,816
3,721
33,537
33,103¥434¥ 36,922¥ 15,930
244
16,174
17,566¥ (1,392)¥ 13,984¥ 302,669
37,761
340,430
323,725¥ 16,705¥ 337,554– ¥ 302,669–(37,761)
302,669(37,761)
284,290(39,435)¥ 1,674 ¥ 18,379¥ 15,229 ¥ 352,783¥

Year ended March 31, 2007

Japan
I. Sales and operating income (loss):
Sales to third parties ....... ¥ 186,288
Intragroup sales and transfers ..
21,979Net 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(Millions of yen)

¥ 32,521
71
32,59232,522¥70¥ 20,547¥ 30,194
1,219
31,41330,549¥864¥ 38,112¥ 17,510
492
18,002
18,288¥ (286)¥ 13,760¥ 266,513
23,761
290,274
272,325¥ 17,949¥ 294,533− ¥ 266,513−(23,761)
266,513(23,761)
247,084(25,241)¥ 1,480 ¥ 19,429¥ 29,142 ¥ 323,675¥

Year ended March 31, 2008

Japan
I. Sales and operating income (loss):
Sales to third parties ....... $ 2,133,875
Intragroup sales and transfers ..
336,541
Net sales ............................ 2,470,416
Operating expenses ......... 2,296,946
Operating income (loss) ... $ 173,470
II. Total assets ..................... $ 2,630,582

Europe

Asia

Other

Total

Eliminations or
corporate

Consolidated(Thousands of U.S.dollars)$ 430,482
779
431,261
428,436$ 2,825$ 230,462$ 297,595
37,139334,734
330,402$ 4,332$ 368,520
39$ 158,998 $ 3,020,950
376,894
2,435
3,397,844
161,433
3,231,111
175,327$ (13,894) $ 166,733$ 139,575 $ 3,369,139– $ 3,020,950–(376,894)(376,894) 3,020,950(393,603) 2,837,508$ 16,709 $ 183,442$ 152,001 $ 3,521,140$

Notes to Consolidated Financial Statements (continued)

As mentioned in Note 3, the Company and its domestic consolidated subsidiaries have changed their
method of accounting for depreciation of property, plant and equipment acquired on or after April 1, 2007 to
the procedure stipulated in the revised law. As a result, operating income in the Japan segment decreased by¥539 million ($5,382 thousand) from the corresponding amount which would have been recorded under theprevious method.
As mentioned in Note 3, the Company and its domestic consolidated subsidiaries have changed their
method of accounting for property, plant and equipment acquired before April 1, 2007. As a result, operating
income in the Japan segment decreased by ¥1,482 million ($14,799 thousand) from the corresponding amountwhich would have been recorded under the previous method.
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,
2008 and 2007 are summarized as follows:Year ended March 31, 2008
Asia

EuropeAmerica

Other

Total

(Millions of yen)Overseas sales .................................................................. ¥ 57,458
Overseas sales as a percentage ofconsolidated net sales ...............................................
19.0%¥ 48,683¥ 23,667

16.1%

7.8%

¥ 15,434 ¥ 145,242
5.1%

48.0%

Year ended March 31, 2007
Asia

EuropeAmerica

Other

Total

(Millions of yen)Overseas sales .................................................................. ¥ 51,847
Overseas sales as a percentage ofconsolidated net sales ...............................................
19.5%¥ 41,654¥ 23,184

15.6%

8.7%

¥ 9,628 ¥ 126,313
3.6%

47.4%

Year ended March 31, 2008
Asia

EuropeAmerica

Other

Total

(Thousands of U.S. dollars)

Overseas sales .................................................................. $573,490

40$485,907$236,221$154,047 $1,449,665

21. Related Party Transactions
Principal transactions between the Company and its related companies for the years ended March 31, 2008
and 2007 are summarized as follows:

2008

2008

2007

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

Yatagai Real Estate Co., Ltd.:
Rental expense of buildings ..................................................
Nippon Petrochemicals Co., Ltd.:
Rental expense of land and equipment ............................
ICT Co., Ltd.:Sales of finished goods ............................................................
Purchases of raw materials ...................................................

¥

18

¥

18

$

180

99

73

988

26,561
25,631

18,813
18,561

265,106
255,824

The prices for the above related party transactions were determined in reference to market value.
The balances due from and to its related companies at March 31, 2008 and 2007 were as follows:

2008

2008

2007

(Thousands of
U.S. dollars)(Millions of yen)Due from:
ICT Co., Ltd. ..............................................................................
Due to:ICT Co., Ltd. ..............................................................................
Nippon Petrochemicals Co., Ltd. .......................................

¥ 10,321¥8,580$ 103,014¥ 6,464
24¥5,29527$ 64,517
240

22. Subsequent Events(a) Distribution of retained earnings
The following distribution of retained earnings of the Company, which has not been reflected in theaccompanying consolidated financial statements for the year ended March 31, 2008, was approved at ashareholders’ meeting held on June 19, 2008:(Millionsof yen)Cash dividends (¥8.00 = $0.08 per share) ..................................................................................... ¥ 1,448(Thousands of
U.S. dollars)$ 14,453(b) Retirement of shares of common stock held in treasury
At a meeting of the Board of Directors of the Company held on May 8, 2008, in accordance with theCompany s Articles of Incorporation applied under Article 178 of the Law, a resolution for the retirement of
7,881,287 shares of common stock held in treasury for an aggregate retirement cost of ¥7,668 million ($76,511
thousand) on May 13, 2008 was approved.
(c) Acquisition of the Company s own shares of common stock
At a meeting of the Board of Directors of the Company held on May 8, 2008, in accordance with theCompany s Articles of Incorporation applied under Article 165, Section 2 of the Law, a resolution for thepurchase of 980,000 of the Company s own shares of common stock for an aggregate acquisition cost of ¥800
million ($7,989 thousand) during the period from May 19, 2008 through May 30, 2008 was approved.

41

Corporate Data
NIPPON SHOKUBAI CO., LTD.
Incorporated

August 21, 1941

Transfer Agent

Common Stock

Authorized: 424,000,000

Mitsubishi UFJ Trust & Banking Corporation

Issued:4-5, Marunouchi, 1-chome, Chiyoda-ku

194,881,287

Capital￥16,529,413,238

Number of Employees

Consolidated:Tokyo , 100-8212, Japan
3,290

Non-consolitated: 1,798
Stock Listings

First Section, Tokyo Stock ExchangeFirst Section, Osaka Stock Exchange

Organization(as of March 31, 2008)

Division / Department
Internal Audit Office
Corporate Planning
Informational Technology Management Office

Board of Directors

Administration

President

Finance & Accounting
Responsible Care

Corporate
Management
Committee

Production
Engineering
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
Board of Corporate Auditors

Auditors Office

Corporate Auditors* E & I : Electronic & Information

42

Offices, Plants, Consolidated Subsidiaries and Affiliates

Osaka OfficeSuita Plant
NIPPON NYUKAZAI CO., LTD.
Advanced Materials Research Center
Strategic Technology Research Center
E&I Materials Research Center
Performance Chemicals Research Center

Himeji Plant

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

Superabsorbents Research Center
Catalysts Research Center
Process Technology Research Center

Strategic Technology Research Center
E&I Materials Research Center

Chugoku Kako Co., Ltd.
Nihon Jyoryu Kogyo Co., Ltd.

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.

43

NA Industries, Inc.

Corporate Data

Consolidated Subsidiaries and Affiliates
Name
Nippoh Chemicals Co., Ltd. *Principle Business
Manufacture and sale of iodine, natural gas,intermediates for API and agro-chemicals andphoto/electro chemicals

President
Shinichi Nagase

Nippon Polyester Co., Ltd. *Manufacture and sale of synthetic resins andrelated 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 andfine 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

NIPPON NYUKAZAI CO., LTD. *Manufacture and sale of organic chemicals
such as surfactant

Tsukasa Tanihara

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

Hidetaka Yatagai

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

Kenjiro Komoda

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

Hideki Sogabe

PT. NIPPON SHOKUBAIINDONESIA *Manufacture and sale of acrylic acid andacrylic 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 Nishimura

Japan Composite Co., Ltd.

Manufacture and sale of unsaturated polyeters resinand plastic molded materials

Tetsuyuki Matsubara

LGMMA Corp.

Manufacture and sale of MMA and PMMA

Dae Hyun Jun

SINO-JAPAN CHEMICAL CO., LTD.

Manufacture and sale of organic chemicals
such as surfactant

Hajime Uchida* Included in consolidation** American Acryl NA LLC and American Acryl L.P. are consolidated into NA industries, Inc. by the equity method.

44(as of June 30 2008)

Directory
HEAD OFFICES
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

PLANTS
Kawasaki Chidori Plant
14-1 Chidori-cho, Kawasaki-ku
Kawasaki, Kanagawa
210-0865, Japan
Kawasaki Ukishima Plant
10-12 Ukishima-cho, Kawasaki-ku
Kawasaki, Kanagawa
210-0862, Japan
Himeji Plant
992-1 Aza-Nishioki Okihama,
Aboshi-ku, Himeji, Hyogo
671-1282, Japan
Suita Plant
5-8 Nishi Otabi-cho, Suita, Osaka
564-0034, JapanLABORATORIESAdvanced Materials Research Center
5-8, Nishi Otabi-cho, Suita, Osaka
564-0034, Japan
Strategic Technology Research Center
5-8, Nishi Otabi-cho, Suita, Osaka
564-0034, Japan
Superabsorbents Research Center
992-1 Aza-Nishioki Okihama,
Aboshi-ku, Himeji, Hyogo
671-1282, Japan
Performance Chemicals Research Center
5-8, Nishi Otabi-cho, Suita, Osaka
564-0034, Japan
E&I Materials Research Center
5-8, Nishi Otabi-cho, Suita, Osaka
564-0034, Japan
Catalysts Research Center
992-1 Aza-Nishioki Okihama,
Aboshi-ku, Himeji, Hyogo
671-1282, JapanOVERSEAS OFFICES
Shanghai Office
R/No.414, No.473 Fute No.1 Road (W)Waigaoqiao Free Trade Zone Shanghai
China, 200031
Telephone: 86-21-5407-5959
Facsimile : 86-21-5407-5673
Korea Office
4F Turbotek Building, 16-6 Sunae-Dong,
Bungdang-Gu, Sungnamu-Si, Gyeonggi-Do,
Korea 463-825
Telephone: 82-31-718-9111
Facsimile : 82-31-718-9693
Taipei Office
14Fl, 99, Sec. 2, JenAiRd.
Taipei, Taiwan
Telephone: 886-2-2396-6223 ext 215
Facsimile : 886-2-2396-9076

45

OVERSEAS COMPANIESNA Industries, Inc.
2651 Riverport Road Chattanooga,
Tennessee 37406, U.S.A.
(P.O. Box 5407)
Telephone: 1-423-624-6469
Facsimile : 1-423-629-0531
Nippon Shokubai Europe N.V.
Haven 1053, Nieuwe Weg 1, B-2070
Zwijindrecht, Belgium
Telephone: 32-3-250-3705
Facsimile : 32-3-250-3712
NIPPON SHOKUBAI (ASIA) PTE LTD
80 Robinson Road #18-02
Singapore 068898
Telephone: 65-6532-0078
Facsimile : 65-6532-0079
Nisshoku Trading (Shanghai) Co., Ltd.
R/No.414, No.473 Fute No.1 Road (W)Waigaoqiao Free Trade Zone Shanghai
China, 200031
Telephone: 86-021-54075959
Facsimile : 86-021-54075673

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