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

A N N UA L R E P O RT
“Making human life and society richer, more comfortable through technological innovations”

Profile

NIPPON SHOKUBAI CO., LTD. and Consolidated Subsidiaries
Years ended March 31

Financial Highlights

Basic Corporate Vision
NIPPON SHOKUBAI CO., LTD. has been undertaking numerous
efforts to build a more solid business structure and gain a sharper
competitive edge to keep pace with rapid changes in the world, under its
corporate philosophy of “TechnoAmenity: Seeking to create a society
where people can enjoy an affluent and comfortable life throughtechnological innovation” 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

Thousands of
U.S. dollars

Millions of Yen

2004

2005

2006

2006

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

¥ 169,733
15,45017,212
8,822¥ 197,222
22,212
23,70915,705¥ 232,441
23,22826,14816,257$1,978,221
197,685
222,536
138,357

At Year End
Total Assets . . . . . . . . . . . . . . . . .
Total Shareholders' Equity. . . . . . .

¥ 220,185
131,685¥ 249,349
144,660¥ 291,564
164,631$2,481,396
1,401,115

Yen

Business Fields

Contents
Financial Highlights . . . . . . . . . 1
To Our Shareholders . . . . . . . . . 2
Medium- and Long-term
Business Plans . . . . . . . . . . . 4
Review of Operations . . . . . . . . 6
Topics . . . . . . . . . . . . . . . . . . . 8
Corporate Governance . . . . . . . 10
Responsible Care . . . . . . . . . . . 12
Management Indices . . . . . . . . 14
Financial Section
Report of Independent Auditors . . 17
Consolidated Balance Sheets . . 18
Consolidated Statements ofIncome . . . . . . . . . . . . . . . 20
Consolidated Statements ofShareholders' Equity . . . . . . 21
Consolidated Statements ofCash Flows . . . . . . . . . . . . 22
Notes to Consolidated Financial
Statements . . . . . . . . . . . . . 24
Corporate Data . . . . . . . . . . . . 36

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

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

¥

¥

45.37
9.00

U.S. dollars

81.37
13.00

¥

85.89
16.00

$

0.73
0.14

Foreign Exchange Rate: US$ 1.00 =¥117.5

Net Sales(Billions of yen)
250

232

Net Income(Billions of yen)

Shareholders' Equity(Billions of yen)

20

200

15.7

197

200
160

164

15

170

164.6

16.3
144.7

150
131.7
120.2 121.3

150
10

100

8.8

100
5.5
5

50

50
1.6
0

0
'02

'03

'04

'05

'06

0
'02

'03

'04

'05

'06

'02

'03

'04

'05

'06

Annual Report 2006

1

Profile

NIPPON SHOKUBAI CO., LTD. and Consolidated Subsidiaries
Years ended March 31

Financial Highlights

Basic Corporate Vision
NIPPON SHOKUBAI CO., LTD. has been undertaking numerous
efforts to build a more solid business structure and gain a sharper
competitive edge to keep pace with rapid changes in the world, under its
corporate philosophy of “TechnoAmenity: Seeking to create a society
where people can enjoy an affluent and comfortable life throughtechnological innovation” 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

Thousands of
U.S. dollars

Millions of Yen

2004

2005

2006

2006

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

¥ 169,733
15,45017,212
8,822¥ 197,222
22,212
23,70915,705¥ 232,441
23,22826,14816,257$1,978,221
197,685
222,536
138,357

At Year End
Total Assets . . . . . . . . . . . . . . . . .
Total Shareholders' Equity. . . . . . .

¥ 220,185
131,685¥ 249,349
144,660¥ 291,564
164,631$2,481,396
1,401,115

Yen

Business Fields

Contents
Financial Highlights . . . . . . . . . 1
To Our Shareholders . . . . . . . . . 2
Medium- and Long-term
Business Plans . . . . . . . . . . . 4
Review of Operations . . . . . . . . 6
Topics . . . . . . . . . . . . . . . . . . . 8
Corporate Governance . . . . . . . 10
Responsible Care . . . . . . . . . . . 12
Management Indices . . . . . . . . 14
Financial Section
Report of Independent Auditors . . 17
Consolidated Balance Sheets . . 18
Consolidated Statements ofIncome . . . . . . . . . . . . . . . 20
Consolidated Statements ofShareholders' Equity . . . . . . 21
Consolidated Statements ofCash Flows . . . . . . . . . . . . 22
Notes to Consolidated Financial
Statements . . . . . . . . . . . . . 24
Corporate Data . . . . . . . . . . . . 36

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

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

¥

¥

45.37
9.00

U.S. dollars

81.37
13.00

¥

85.89
16.00

$

0.73
0.14

Foreign Exchange Rate: US$ 1.00 =¥117.5

Net Sales(Billions of yen)
250

232

Net Income(Billions of yen)

Shareholders' Equity(Billions of yen)

20

200

15.7

197

200
160

164

15

170

164.6

16.3
144.7

150
131.7
120.2 121.3

150
10

100

8.8

100
5.5
5

50

50
1.6
0

0
'02

'03

'04

'05

'06

0
'02

'03

'04

'05

'06

'02

'03

'04

'05

'06

Annual Report 2006

1

To Our Shareholders

It gives me great pleasure to report on theperformance of NIPPON SHOKUBAI CO.,LTD. (the “Company”), for the fiscal year
ended March 31, 2006 (fiscal 2005).

Overview
In fiscal 2005, the Japanese economy got
back on the recovery track, with improved
corporate earnings leading to increased capital
investment and personal consumption.
In the chemicals industry, meanwhile, therise in product prices and the increase inexport to the Asia region, particularly to
China, bolstered corporate profits, even thoughnegative factors existed that gave no grounds
for optimism, such as surging raw material
prices.
In the context given above, consolidated net
sales increased by ¥35,219 million, or 17.9%
year-on-year, to ¥232,441 million, thankslargely to higher market prices in the early partof the fiscal year for such Basic Chemicals as
acrylic acid and acrylic esters and an increasein sales volume of Functional Chemicals,
including super absorbent polymers, andindustrial catalysts through overseas
technology licensing.
Operating income increased by ¥1,016
million, or 4.6% year-on-year, to ¥23,228
million due to higher sales and product pricecorrections, and despite rising raw material
prices.

Ordinary income increased by ¥2,439
million, or 10.3% year-on-year, to ¥26,148
million, due to an improved financial balance
and an increase in equity in earnings ofunconsolidated subsidiaries and affiliates, anddespite higher costs for disposal and removalof fixed assets. Net income also increased by¥552 million, 3.5% year-on-year, to ¥16,257
million.
Net income per share was ¥85.89. ROA(ordinary income to total assets) declined by
0.4 of a percentage point from the previous
year to 9.7%, and ROE (net income toshareholders’ equity) declined by 0.9 of apercentage point from the previous year to
10.5%.

NIPPON SHOKUBAI CO., LTD.

We would like to express our sincere
appreciation and ask all of our shareholders fortheir continued support and guidance as wemove forward.
June 2006

On a non-consolidated basis, net sales were¥170,510 million, operating income, ¥18,915
million, ordinary income, ¥23,008 million, andnet income, ¥14,502 million.

Tadao Kondo, President

Performance Highlights

Net sales
Operating Income
Ordinary Income
Net income
Net income per share
ROA
ROE
Exchange rate
Naphtha price2

Taking into consideration the businessenvironment and our performance, we decided
to increase the year-end dividend per share to¥8.5. Together with the interim dividend, theannual dividend per share for the fiscal year
amounts increased by ¥3 year-on year, to ¥16.

Fiscal Year
2005
2004
232,441
197,222
23,22822,212
26,14823,70916,257
15,705¥85.89¥81.37
9.7%
10.1%
10.5%
11.4%
$= ¥113.35$= ¥107.52
EUR= ¥137.85 EUR= ¥135.20¥42,400/kl¥32,200/kl

ChangeAmount%35,219
17.9%
1,016
4.6%
2,439
10.3%
552
3.5%
¥4.52
5.6%
–
(0.4 points)–(0.9 points)
¥5.83
¥2.65
¥10,200/kl

Annual Report 2006

3

To Our Shareholders

It gives me great pleasure to report on theperformance of NIPPON SHOKUBAI CO.,LTD. (the “Company”), for the fiscal year
ended March 31, 2006 (fiscal 2005).

Overview
In fiscal 2005, the Japanese economy got
back on the recovery track, with improved
corporate earnings leading to increased capital
investment and personal consumption.
In the chemicals industry, meanwhile, therise in product prices and the increase inexport to the Asia region, particularly to
China, bolstered corporate profits, even thoughnegative factors existed that gave no grounds
for optimism, such as surging raw material
prices.
In the context given above, consolidated net
sales increased by ¥35,219 million, or 17.9%
year-on-year, to ¥232,441 million, thankslargely to higher market prices in the early partof the fiscal year for such Basic Chemicals as
acrylic acid and acrylic esters and an increasein sales volume of Functional Chemicals,
including super absorbent polymers, andindustrial catalysts through overseas
technology licensing.
Operating income increased by ¥1,016
million, or 4.6% year-on-year, to ¥23,228
million due to higher sales and product pricecorrections, and despite rising raw material
prices.

Ordinary income increased by ¥2,439
million, or 10.3% year-on-year, to ¥26,148
million, due to an improved financial balance
and an increase in equity in earnings ofunconsolidated subsidiaries and affiliates, anddespite higher costs for disposal and removalof fixed assets. Net income also increased by¥552 million, 3.5% year-on-year, to ¥16,257
million.
Net income per share was ¥85.89. ROA(ordinary income to total assets) declined by
0.4 of a percentage point from the previous
year to 9.7%, and ROE (net income toshareholders’ equity) declined by 0.9 of apercentage point from the previous year to
10.5%.

NIPPON SHOKUBAI CO., LTD.

We would like to express our sincere
appreciation and ask all of our shareholders fortheir continued support and guidance as wemove forward.
June 2006

On a non-consolidated basis, net sales were¥170,510 million, operating income, ¥18,915
million, ordinary income, ¥23,008 million, andnet income, ¥14,502 million.

Tadao Kondo, President

Performance Highlights

Net sales
Operating Income
Ordinary Income
Net income
Net income per share
ROA
ROE
Exchange rate
Naphtha price2

Taking into consideration the businessenvironment and our performance, we decided
to increase the year-end dividend per share to¥8.5. Together with the interim dividend, theannual dividend per share for the fiscal year
amounts increased by ¥3 year-on year, to ¥16.

Fiscal Year
2005
2004
232,441
197,222
23,22822,212
26,14823,70916,257
15,705¥85.89¥81.37
9.7%
10.1%
10.5%
11.4%
$= ¥113.35$= ¥107.52
EUR= ¥137.85 EUR= ¥135.20¥42,400/kl¥32,200/kl

ChangeAmount%35,219
17.9%
1,016
4.6%
2,439
10.3%
552
3.5%
¥4.52
5.6%
–
(0.4 points)–(0.9 points)
¥5.83
¥2.65
¥10,200/kl

Annual Report 20063

Medium– and Long–term Business Plans

The Company formulated a long-term business plan called “TechnoAmenity NV”, aiming for ashift from quantitative growth to qualitative growth, and has been working on its implementation
since April 2001. In fiscal 2005, the Company delivered the results, which almost achieved eachof the fiscal 2006 targets in the “TechnoAmenity NV” for consolidated net sales, ordinary income,and ROA (Return on Assets).
Based on this achievement, the Company drew up a new long-term business plan
“TechnoAmenity V3” which sets out the management vision for the next five years (from fiscal
2006 through 2010), together with a medium-term business plan as its action program, in a bid todeliver further growth.

2) Outline of the Medium-term Business Plan
In order to realize the long-term business plan “TechnoAmenity V3”, the Company developed the
medium-term business plan for fiscal 2006 -2008 as a concrete action plan. Under the new set of businessplans, the Company seeks to enter into growth areas (fields; overseas) out of the domain of its existing
business, and at the same time, continue to pursue innovative production technologies in order to enhance
its cost competitiveness. As for new lines of business, the Company will concentrate its management
resources on the electronic & information materials business as the top priority for the “TechnoAmenity
V3” plan, while searching for next-generation business themes with a sharper focus.
Through the execution of these measures, the Company aims to attain the fiscal 2008 target for net salesof ¥300 billion (including ¥40 billion of new products), ordinary income of ¥30 billion, and ROA of 7.5%
or higher.

1) 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: JPY 350 billion
Ordinary Income: JPY 35 billion
ROA: above 7.5%
Net sales: ¥350 billion
Ordinary income: ¥35 billion
ROA: above 7.5%
TechnoAmenity V3(FY2006~2010)

TechnoAmenity NV(FY2001~2006)- Pursuit, Innovation and Ascent -- A Shift from Quantitative Growth
to Qualitative Growth -concentration on electronic & information materials businessfurther selection and concentration in priority areas

acceleration of new products
development and commercialization
selective advance into growth areas

selection and concentrationof business resources

continuous improvement of production technologies

establishment of the businessportfolios and clarification of
profit responsibilities

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

revitalization of human resources
and business organization

FY2006

4NIPPON SHOKUBAI CO., LTD.

New
Business
Field

Existing
Business
Field

A
Global Company
Creating
New Values
Through
UniqueTechnologies

Themes of
Whole
Company

FY20101. Direction of Existing Business Field

2. Direction of New Business Field

Acrylic Acid Business
The Company aims to keep a firm hold on
the world’s top market share of superabsorbent
polymers, and expand the acrylic monomer
business, in order to maintain and increase thestable source of profits and cash flows.
EO (Ethylene Oxide) Business
The Company seeks to establish a solid
business foundation less susceptible to market
fluctuations, by boosting sales of ethyleneoxide and its derivative products up to the target
ratio of 80% or higher for non-EG (ethylene
glycol) products.
Functional Chemicals Business
The Company seeks to establish a presencein the acrylate polymer market, and reinforce
revenue structure capitalizing on specialty
products (including ethylene imine derivatives,
oxazoline, and polyvinylpyrrolidone).
Fine & Specialty Chemicals Business
The Company seeks to expand the watersoluble polymer business overseas, and enhancecost competitiveness, in a bid to gain position
as the world’s top supplier.
Environment & Catalyst Business
The Company seeks to boost sales in theenvironment & energy market, and enrich its
product lines. It also seeks to improve
profitability by offering high value-added
products of higher quality.

The Company specializes in the electronic &information materials business, and concentrates
its management resources on this.
The Company has constituted the E&I
Materials Business Division in April 2006, which
consolidates the product lines related to electronic& information materials. It cultivates closer ties
with customers who capitalized on the Company’s
original seeds, and makes a full-scale entry into
the field, with the aim of increasing sales from thecurrent ¥5 billion to ¥30 billion in fiscal 2010.
The business division takes in dedicated strategy
planning staff, and operate the business in seedsand market-oriented manner.
The Company will also search for new themes
to aid in leading the next generation, with a focus
on the fields of health & medical care, and newenergy – considered to be prospective growthareas.

Annual Report 2006

5

Medium– and Long–term Business Plans

The Company formulated a long-term business plan called “TechnoAmenity NV”, aiming for ashift from quantitative growth to qualitative growth, and has been working on its implementation
since April 2001. In fiscal 2005, the Company delivered the results, which almost achieved eachof the fiscal 2006 targets in the “TechnoAmenity NV” for consolidated net sales, ordinary income,and ROA (Return on Assets).
Based on this achievement, the Company drew up a new long-term business plan
“TechnoAmenity V3” which sets out the management vision for the next five years (from fiscal
2006 through 2010), together with a medium-term business plan as its action program, in a bid todeliver further growth.

2) Outline of the Medium-term Business Plan
In order to realize the long-term business plan “TechnoAmenity V3”, the Company developed the
medium-term business plan for fiscal 2006 -2008 as a concrete action plan. Under the new set of businessplans, the Company seeks to enter into growth areas (fields; overseas) out of the domain of its existing
business, and at the same time, continue to pursue innovative production technologies in order to enhance
its cost competitiveness. As for new lines of business, the Company will concentrate its management
resources on the electronic & information materials business as the top priority for the “TechnoAmenity
V3” plan, while searching for next-generation business themes with a sharper focus.
Through the execution of these measures, the Company aims to attain the fiscal 2008 target for net salesof ¥300 billion (including ¥40 billion of new products), ordinary income of ¥30 billion, and ROA of 7.5%
or higher.

1) 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: JPY 350 billion
Ordinary Income: JPY 35 billion
ROA: above 7.5%
Net sales: ¥350 billion
Ordinary income: ¥35 billion
ROA: above 7.5%
TechnoAmenity V3(FY2006~2010)

TechnoAmenity NV(FY2001~2006)- Pursuit, Innovation and Ascent -- A Shift from Quantitative Growth
to Qualitative Growth -concentration on electronic & information materials businessfurther selection and concentration in priority areas

acceleration of new products
development and commercialization
selective advance into growth areas

selection and concentrationof business resources

continuous improvement of production technologies

establishment of the businessportfolios and clarification of
profit responsibilities

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

revitalization of human resources
and business organization

FY2006

4NIPPON SHOKUBAI CO., LTD.

New
Business
Field

Existing
Business
Field

A
Global Company
Creating
New Values
Through
UniqueTechnologies

Themes of
Whole
Company

FY20101. Direction of Existing Business Field

2. Direction of New Business Field

Acrylic Acid Business
The Company aims to keep a firm hold on
the world’s top market share of superabsorbent
polymers, and expand the acrylic monomer
business, in order to maintain and increase thestable source of profits and cash flows.
EO (Ethylene Oxide) Business
The Company seeks to establish a solid
business foundation less susceptible to market
fluctuations, by boosting sales of ethyleneoxide and its derivative products up to the target
ratio of 80% or higher for non-EG (ethylene
glycol) products.
Functional Chemicals Business
The Company seeks to establish a presencein the acrylate polymer market, and reinforce
revenue structure capitalizing on specialty
products (including ethylene imine derivatives,
oxazoline, and polyvinylpyrrolidone).
Fine & Specialty Chemicals Business
The Company seeks to expand the watersoluble polymer business overseas, and enhancecost competitiveness, in a bid to gain position
as the world’s top supplier.
Environment & Catalyst Business
The Company seeks to boost sales in theenvironment & energy market, and enrich its
product lines. It also seeks to improve
profitability by offering high value-added
products of higher quality.

The Company specializes in the electronic &information materials business, and concentrates
its management resources on this.
The Company has constituted the E&I
Materials Business Division in April 2006, which
consolidates the product lines related to electronic& information materials. It cultivates closer ties
with customers who capitalized on the Company’s
original seeds, and makes a full-scale entry into
the field, with the aim of increasing sales from thecurrent ¥5 billion to ¥30 billion in fiscal 2010.
The business division takes in dedicated strategy
planning staff, and operate the business in seedsand market-oriented manner.
The Company will also search for new themes
to aid in leading the next generation, with a focus
on the fields of health & medical care, and newenergy – considered to be prospective growthareas.

Annual Report 2006

5

Review of Operations

In the early part of the fiscal year, the acrylicacid and acrylic ester market maintained highprices, and demand also remained high. Favorable
market conditions coupled with an increase in sales
volume of overseas subsidiaries brought insignificant revenue growth.
Ethylene oxide and ethanolamine sales
increased, riding on consistent demand andprogress in modification of product prices.
Higher alcohol product sales (trade name:
SOFTANOL®) increased thanks to progress inmodification of product prices, and despite a lower
export sales volume.
Ethylene glycol sales declined due to a decreasein export sales volume, and a downturn in market
conditions.
As a result, the Basic Chemical Business posted
net sales of ¥94,095 million, up 17.6% on theprevious year.
Operating income increased by 12.4% from theprevious year to ¥11,158 million, supported by ahigh demand and high market prices in the earlypart of the fiscal year and positive progress inmodification of product prices, and despite rising
raw material prices.

Superabsorbent polymer sales increased thanks
to the growth in sales volume due to expanding
world demand, and thanks to the progress inmodification of product prices.
Maleic anhydride sales increased thanks toprogress in modification of product prices.
Sales of special esters and polymers forconcrete admixtures increased, backed by firm
demand at home and abroad.
Sales of raw materials for detergents increased
due to a higher sales volume of exports.
Sales of organic/inorganic fine sphere particles,
resins for adhesives/paints and processed adhesive
products, iodine compounds, resin modifiers, andintermediates for pharmaceuticals increased due to
steady demand.
Sales of unsaturated polyester resins and plastic
molded products decreased, reflected by low
demand.
As a result, the Functional Chemicals Businessposted net sales of ¥116,300 million, up 17.1% on
the previous year.
Operating income decreased by 8.2% year-onyear to ¥9,262 million, affected by higher prices ofraw materials, although the negative impact was
partly absorbed by increased sales and progress inmodification of product prices.

Automotive catalysts sales increased, fueled byhigh demand in the domestic and export markets.
Sales of industrial catalysts increased due tooverseas greater replacement demand.
Sales of equipment and catalysts for wastewater
treatment and for waste gas treatment, and sales of
De-NOx catalysts decreased, reflected by low
demand in the domestic market.
As a result, the Environment & Catalysts
Business posted net sales of ¥22,046 million, up
23.6% on the previous fiscal year.

Automotive catalysts / De-NOx catalysts

Japan

Asia

Market prices for Basic Chemicals remained
high in the early part of the fiscal year. Brisk sales
for Functional Chemicals were also enjoyed. In
addition, replacement demand for industrial
catalysts increased. Under such favorable
conditions, net sales increased by 14.8% from theprevious year to ¥168,773 million.
Operating income increased by 20.5% from ayear earlier to ¥20,350 million, thanks to progressin modification of product prices made primarily in
the Basic Chemicals area, and sales expansion in
Functional Chemicals as well as industrial
catalysts, and despite the negative impact of therise in raw material prices.

Net sales increased by 55.6% from the period ayear earlier to ¥27,405 million, because brisk sales
for acrylic acid and acrylic ester were enjoyed, andin addition, a subsidiary was set up in China, whichstarted production of superabsorbent polymers inthe beginning of the fiscal year.
Operating income increased by 15.0% to ¥3,663
million year on year, thanks to higher market prices
for Basic Chemicals during the first six months,
and despite the negative impact of higher raw
material prices.

EuropePolyester fivers (Ethylene glycol)

Disposable Diapers (Superabsorbent Polymers)

LCD (organic and inorganic finesphere particles)

Operating income increased by 46.6% to ¥3,123
million year-on-year, thanks primarily to the sales
growth in highly profitable industrial catalysts.

High demand for superabsorbent polymers
pushed up net sales to ¥23,935 million, up 5.4% on
the previous year.
Operating income decreased by 78.7% year on
year to ¥207 million, affected by higher raw
material prices, and despite the positive impact ofprogress in modification of product prices.

Other Regions
Although the sales performance of superabsorbent polymers remained at the previous year’slevel, the sales volume of raw materials fordetergents and other Functional Chemicals
increased. As a result, net sales increased by 24.7%
from the previous year to ¥12,329 million.
Price increases for raw materials resulted in an
operating loss of ¥1,318 million, a drop in incomeof ¥1,565 million, compared to the previous year.

Performance by Business Group and Region(unit : millions of yen)

Product Group
Sales
Operating income

6

NIPPON SHOKUBAI CO., LTD.

Fiscal Year 2004
Fiscal Year 2005
Functional Environment
Basic
Functional Environment
Basic
Basic
Chemicals Chemicals & Catalysts Chemicals Chemicals & Catalysts Chemicals
80,02799,355
17,84014,06894,095
116,300
22,046
9,931
10,0892,130
1,227
11,1589,262
3,123

ChangeFunctional Environment
Chemicals & Catalysts
16,945
4,206
(827)
993

(unit : millions of yen)

Regional

Japan

Fiscal Year 2005
EuropeAsia

Sales
Operating income

168,773
20,35023,935207

27,405
3,663

OtherRegionsJapan

Fiscal Year 2004
EuropeAsia

12,329(1,318)147,020
16,88422,701970

17,611
3,186

Other
Regions

Japan

ChangeEurope
Asia

9,890
247

21,753
3,467

1,233
(763)

9,794
477

Other
Regions
2,439(1,565)

Annual Report 2006

7

Review of Operations

In the early part of the fiscal year, the acrylicacid and acrylic ester market maintained highprices, and demand also remained high. Favorable
market conditions coupled with an increase in sales
volume of overseas subsidiaries brought insignificant revenue growth.
Ethylene oxide and ethanolamine sales
increased, riding on consistent demand andprogress in modification of product prices.
Higher alcohol product sales (trade name:
SOFTANOL®) increased thanks to progress inmodification of product prices, and despite a lower
export sales volume.
Ethylene glycol sales declined due to a decreasein export sales volume, and a downturn in market
conditions.
As a result, the Basic Chemical Business posted
net sales of ¥94,095 million, up 17.6% on theprevious year.
Operating income increased by 12.4% from theprevious year to ¥11,158 million, supported by ahigh demand and high market prices in the earlypart of the fiscal year and positive progress inmodification of product prices, and despite rising
raw material prices.

Superabsorbent polymer sales increased thanks
to the growth in sales volume due to expanding
world demand, and thanks to the progress inmodification of product prices.
Maleic anhydride sales increased thanks toprogress in modification of product prices.
Sales of special esters and polymers forconcrete admixtures increased, backed by firm
demand at home and abroad.
Sales of raw materials for detergents increased
due to a higher sales volume of exports.
Sales of organic/inorganic fine sphere particles,
resins for adhesives/paints and processed adhesive
products, iodine compounds, resin modifiers, andintermediates for pharmaceuticals increased due to
steady demand.
Sales of unsaturated polyester resins and plastic
molded products decreased, reflected by low
demand.
As a result, the Functional Chemicals Businessposted net sales of ¥116,300 million, up 17.1% on
the previous year.
Operating income decreased by 8.2% year-onyear to ¥9,262 million, affected by higher prices ofraw materials, although the negative impact was
partly absorbed by increased sales and progress inmodification of product prices.

Automotive catalysts sales increased, fueled byhigh demand in the domestic and export markets.
Sales of industrial catalysts increased due tooverseas greater replacement demand.
Sales of equipment and catalysts for wastewater
treatment and for waste gas treatment, and sales of
De-NOx catalysts decreased, reflected by low
demand in the domestic market.
As a result, the Environment & Catalysts
Business posted net sales of ¥22,046 million, up
23.6% on the previous fiscal year.

Automotive catalysts / De-NOx catalysts

Japan

Asia

Market prices for Basic Chemicals remained
high in the early part of the fiscal year. Brisk sales
for Functional Chemicals were also enjoyed. In
addition, replacement demand for industrial
catalysts increased. Under such favorable
conditions, net sales increased by 14.8% from theprevious year to ¥168,773 million.
Operating income increased by 20.5% from ayear earlier to ¥20,350 million, thanks to progressin modification of product prices made primarily in
the Basic Chemicals area, and sales expansion in
Functional Chemicals as well as industrial
catalysts, and despite the negative impact of therise in raw material prices.

Net sales increased by 55.6% from the period ayear earlier to ¥27,405 million, because brisk sales
for acrylic acid and acrylic ester were enjoyed, andin addition, a subsidiary was set up in China, whichstarted production of superabsorbent polymers inthe beginning of the fiscal year.
Operating income increased by 15.0% to ¥3,663
million year on year, thanks to higher market prices
for Basic Chemicals during the first six months,
and despite the negative impact of higher raw
material prices.

EuropePolyester fivers (Ethylene glycol)

Disposable Diapers (Superabsorbent Polymers)

LCD (organic and inorganic finesphere particles)

Operating income increased by 46.6% to ¥3,123
million year-on-year, thanks primarily to the sales
growth in highly profitable industrial catalysts.

High demand for superabsorbent polymers
pushed up net sales to ¥23,935 million, up 5.4% on
the previous year.
Operating income decreased by 78.7% year on
year to ¥207 million, affected by higher raw
material prices, and despite the positive impact ofprogress in modification of product prices.

Other Regions
Although the sales performance of superabsorbent polymers remained at the previous year’slevel, the sales volume of raw materials fordetergents and other Functional Chemicals
increased. As a result, net sales increased by 24.7%
from the previous year to ¥12,329 million.
Price increases for raw materials resulted in an
operating loss of ¥1,318 million, a drop in incomeof ¥1,565 million, compared to the previous year.

Performance by Business Group and Region(unit : millions of yen)

Product Group
Sales
Operating income

6

NIPPON SHOKUBAI CO., LTD.

Fiscal Year 2004
Fiscal Year 2005
Functional Environment
Basic
Functional Environment
Basic
Basic
Chemicals Chemicals & Catalysts Chemicals Chemicals & Catalysts Chemicals
80,02799,355
17,84014,06894,095
116,300
22,046
9,931
10,0892,130
1,227
11,1589,262
3,123

ChangeFunctional Environment
Chemicals & Catalysts
16,945
4,206
(827)
993

(unit : millions of yen)

Regional

Japan

Fiscal Year 2005
EuropeAsia

Sales
Operating income

168,773
20,35023,935207

27,405
3,663

OtherRegionsJapan

Fiscal Year 2004
EuropeAsia

12,329(1,318)147,020
16,88422,701970

17,611
3,186

Other
Regions

Japan

ChangeEurope
Asia

9,890
247

21,753
3,467

1,233
(763)

9,794
477

Other
Regions
2,439(1,565)

Annual Report 2006

7

Topics

In March 2006, the new catalytic process ofDiethanolamine (DEA) was awarded the threeprizes for Technological Achievements from threesocieties: The Chemical Society Japan (CSJ)
Award, The Society of Chemical Engineers Japan(SCEJ) Award and The Catalyst Society Japan(CATSJ) Award.

The awarding ceremony of CSJ Award

There has been a growing demand for DEA fora raw material in herbicide, however, withconventional processes, the efficiency of
production was limited because it was difficult tocontrol generation of the by-product,
Triethanolamine (TEA). Now, however, the newcatalytic process, successfully control thegeneration of TEA, has doubled the volume of
DEA production, and as a result, the DEA
business is making billions of yen in profit.
The new process was achieved by some special
technologies and many catalysts / processes
inventions, creating competitive edge, and whichmight be considered for the three prizes.

An environmental award of recognition in the
Republic of Indonesia, PROPER “GREEN” wasawarded to PT. NIPPON SHOKUBAIINDONESIA (NSI) for its success inenvironmental management for going beyond thelevel of environmental regulation in Indonesia.
On December 16, 2005, the awarding
ceremony was held, at which Mr. Muhammad
Jusuf Kalla, the Vice-President of the Republic ofIndonesia was in attendance, and Mr. Rachmat
Witoelar, the State Minister for the Environment,
awarded the trophy to Mr. Yoshinao Hirano, thepresident of NSI.
At this time, NSI received the prize for thesecond time (for this award, 23 companies wereawarded among 466 companies in Indonesia: 9among 251 last year). As a chemical company of
Nippon Shokubai Group, NSI is willing to keep
being a green company.

PROPER, the Program for Pollution Control,
Evaluation, and Rating is a national-level public environment
reporting initiative of Indonesia. PROPER grades factories’
performance using seven categories: Compliance withregulation on water pollution control, Compliance with air
pollution control, Compliance with regulation on pollution
control of toxic and hazardous (B3) wastes, Compliance with
the Analysis of Environmental Impact (AMDAL),
appropriate system of environmental management, the use

8

NIPPON SHOKUBAI CO., LTD.

Mr. Rachmat Witoelar, the State Minister for the Environment
and Mr. Yoshinao Hirano, the president of NSI

and process of resources, and relation to regional
communities. The results of the review under the PROPER
system are grouped into five categories of color, i.e. gold
(excellent performance in all seven categories stated above),green (going beyond the regulatory standards), blue(compliance with regulatory standards), red (poorperformance level despite some efforts of pollution control)and black (no attempt to control pollution). At present, there
has been no company granted “gold” category.

Annual Report 2006

9

Topics

In March 2006, the new catalytic process ofDiethanolamine (DEA) was awarded the threeprizes for Technological Achievements from threesocieties: The Chemical Society Japan (CSJ)
Award, The Society of Chemical Engineers Japan(SCEJ) Award and The Catalyst Society Japan(CATSJ) Award.

The awarding ceremony of CSJ Award

There has been a growing demand for DEA fora raw material in herbicide, however, withconventional processes, the efficiency of
production was limited because it was difficult tocontrol generation of the by-product,
Triethanolamine (TEA). Now, however, the newcatalytic process, successfully control thegeneration of TEA, has doubled the volume of
DEA production, and as a result, the DEA
business is making billions of yen in profit.
The new process was achieved by some special
technologies and many catalysts / processes
inventions, creating competitive edge, and whichmight be considered for the three prizes.

An environmental award of recognition in the
Republic of Indonesia, PROPER “GREEN” wasawarded to PT. NIPPON SHOKUBAIINDONESIA (NSI) for its success inenvironmental management for going beyond thelevel of environmental regulation in Indonesia.
On December 16, 2005, the awarding
ceremony was held, at which Mr. Muhammad
Jusuf Kalla, the Vice-President of the Republic ofIndonesia was in attendance, and Mr. Rachmat
Witoelar, the State Minister for the Environment,
awarded the trophy to Mr. Yoshinao Hirano, thepresident of NSI.
At this time, NSI received the prize for thesecond time (for this award, 23 companies wereawarded among 466 companies in Indonesia: 9among 251 last year). As a chemical company of
Nippon Shokubai Group, NSI is willing to keep
being a green company.

PROPER, the Program for Pollution Control,
Evaluation, and Rating is a national-level public environment
reporting initiative of Indonesia. PROPER grades factories’
performance using seven categories: Compliance withregulation on water pollution control, Compliance with air
pollution control, Compliance with regulation on pollution
control of toxic and hazardous (B3) wastes, Compliance with
the Analysis of Environmental Impact (AMDAL),
appropriate system of environmental management, the use

8

NIPPON SHOKUBAI CO., LTD.

Mr. Rachmat Witoelar, the State Minister for the Environment
and Mr. Yoshinao Hirano, the president of NSI

and process of resources, and relation to regional
communities. The results of the review under the PROPER
system are grouped into five categories of color, i.e. gold
(excellent performance in all seven categories stated above),green (going beyond the regulatory standards), blue(compliance with regulatory standards), red (poorperformance level despite some efforts of pollution control)and black (no attempt to control pollution). At present, there
has been no company granted “gold” category.

Annual Report 20069

Corporate Governance

We have strived toward reinforcing our staying
power and competitive edge so that we can cope
flexibly with any changes in the world, and regard
corporate governance as the key to achieving thegoal. We are taking steps to revitalize the board of

directors, strengthen the auditing system, increase
the efficiency and effectiveness of operation, andensure tighter compliance.
The diagram below shows the frame of ourcorporate governance system.

Corporate Governance System
General Meeting of Shareholders
Board of Corporate
Auditors

Board of Directors
auditreportAccounting
Auditoraudit

President
Corporate
Management
Committee

Risk Management Committee

CSR Management Committee
supportcooperate

Responsible Care Promoting
Committee

Auditor's OfficeCompliance Committee
consultation

Internal
Audit Office

Administration

Responsible
Care OfficeFinance &Accounting

Corporate
Planning

Sales

The Board of Directors, comprised of 16
directors as of March 31, 2006, deliberates andresolves matters relating to the execution of business
operations, and supervises each director’s executionof operation. In principle, the Board of Directors
convenes once a month, chaired by the president, atwhich four corporate auditors, including two fromoutside, are in attendance. The corporate auditorspresent statements when deemed necessary.

10

NIPPON SHOKUBAI CO., LTD.

Legal Advisors

Informational
Technology
Management Office

Research &Development

Production

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

The Board of Corporate Auditors is comprisedof four 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 decision-making
process, and grasp the execution of the directors’
operation, receive reports from the accounting
auditors, directors and others, and put forward anaudit opinion following due consultation.
The two current Corporate Auditors are externaland have no personal or any other relationshipthrough investments that could create a conflict ofinterest in the performance of their duties.
The Risk Management Committee, chaired by
the president, explores and analyzes the risks
surrounding the Company. On the basis of theanalysis, the Committee discusses preventive
measures or countermeasures for the risks.
The CSR Management Committee, chairedby the president, discusses and decides the CSR(Corporate Social Responsibility) policy andactivities that would enable all the stakeholders tobenfit, in cooperation with the other committees
such as the Risk Management Committee or theCompliance Committee.

The Compliance Committee, chaired by thepresident, discusses and decides measures toenhance our company-wide compliancemanagement.
Legal Advisers provide their opinions for us
when solicited. None of the Legal Advisors is
involved in the management of the Company.
Accounting Auditors perform their services
under the Commercial Code and Securities andExchange Law of Japan, and provide their opinions
when we call for them, to make decisions on
accounting issues. None of the Accounting Auditors
is involved in the management of the Company.
The Internal Audit Office carries out internal
audits (verifies the adequacy and effectiveness of thebusiness process in each division and reports theresults to the directors) in cooperation with theBoard of Corporate Auditors.
The Responsible Care Office carries out
internal audits RC activities in each division.

The Responsible Care Promoting Committee,
chaired by the president, discusses and decides thepolicy and plans of activities for “Responsible Care(RC)” placing a special emphasis on environmental
preservation, safety and quality throughout the entire
life cycle of our products from the development todisposal. In March 2006, the Committee establishedthe “5th Medium-term RC promotion Basic Plan” tomake our RC more active.

Annual Report 200611

Corporate Governance

We have strived toward reinforcing our staying
power and competitive edge so that we can cope
flexibly with any changes in the world, and regard
corporate governance as the key to achieving thegoal. We are taking steps to revitalize the board of

directors, strengthen the auditing system, increase
the efficiency and effectiveness of operation, andensure tighter compliance.
The diagram below shows the frame of ourcorporate governance system.

Corporate Governance System
General Meeting of Shareholders
Board of Corporate
Auditors

Board of Directors
auditreportAccounting
Auditoraudit

President
Corporate
Management
Committee

Risk Management Committee

CSR Management Committee
supportcooperate

Responsible Care Promoting
Committee

Auditor's OfficeCompliance Committee
consultation

Internal
Audit Office

Administration

Responsible
Care OfficeFinance &Accounting

Corporate
Planning

Sales

The Board of Directors, comprised of 16
directors as of March 31, 2006, deliberates andresolves matters relating to the execution of business
operations, and supervises each director’s executionof operation. In principle, the Board of Directors
convenes once a month, chaired by the president, atwhich four corporate auditors, including two fromoutside, are in attendance. The corporate auditorspresent statements when deemed necessary.

10

NIPPON SHOKUBAI CO., LTD.

Legal Advisors

Informational
Technology
Management Office

Research &Development

Production

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

The Board of Corporate Auditors is comprisedof four 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 decision-making
process, and grasp the execution of the directors’
operation, receive reports from the accounting
auditors, directors and others, and put forward anaudit opinion following due consultation.
The two current Corporate Auditors are externaland have no personal or any other relationshipthrough investments that could create a conflict ofinterest in the performance of their duties.
The Risk Management Committee, chaired by
the president, explores and analyzes the risks
surrounding the Company. On the basis of theanalysis, the Committee discusses preventive
measures or countermeasures for the risks.
The CSR Management Committee, chairedby the president, discusses and decides the CSR(Corporate Social Responsibility) policy andactivities that would enable all the stakeholders tobenfit, in cooperation with the other committees
such as the Risk Management Committee or theCompliance Committee.

The Compliance Committee, chaired by thepresident, discusses and decides measures toenhance our company-wide compliancemanagement.
Legal Advisers provide their opinions for us
when solicited. None of the Legal Advisors is
involved in the management of the Company.
Accounting Auditors perform their services
under the Commercial Code and Securities andExchange Law of Japan, and provide their opinions
when we call for them, to make decisions on
accounting issues. None of the Accounting Auditors
is involved in the management of the Company.
The Internal Audit Office carries out internal
audits (verifies the adequacy and effectiveness of thebusiness process in each division and reports theresults to the directors) in cooperation with theBoard of Corporate Auditors.
The Responsible Care Office carries out
internal audits RC activities in each division.

The Responsible Care Promoting Committee,
chaired by the president, discusses and decides thepolicy and plans of activities for “Responsible Care(RC)” placing a special emphasis on environmental
preservation, safety and quality throughout the entire
life cycle of our products from the development todisposal. In March 2006, the Committee establishedthe “5th Medium-term RC promotion Basic Plan” tomake our RC more active.

Annual Report 200611

Responsible Care
1. Our Fundamental Policy on Environment,
Safety and Quality
The Company has set the corporate philosophy
as “TechnoAmenity: Seeking to create a society
where people can enjoy an affluent and comfortable
life through technological innovation”. Adhering to
the philosophy, the Company has defined the fourpriorities regarding Environment, Safety andQuality, which will bring our business activities into
harmony with global environmental preservation andconservation:
1. Acknowledging environmental preservation
throughout the entire life cycle of a product, fromdevelopment to disposal
2. Aiming for zero accidents and disasters andkeeping society, including our employees, safe
3. Confirming the safety of chemical materials,
intermediates and products, and considering thehealth of respective people such as our customers,
employees of logistics, and our employees, etc.
4. Stably supplying products and associated services
that meet customer satisfaction and inspire theirtrust.

Director responsible for RC
Environment and Safety
Committee

QualityCommunications

Society

Chemical
SafetyGoals(1)Voluntarily pursuing goals in each of the related areas
within the company
Environmental Preservation.6% reduction of energy per unit of production on FY2008 (vs.FY2005)(3% reduction of CO2 emission per unit of production on
FY2008 (vs.FY2005)).Accession to zero emission* and its maintenance.40% reduction of emission of PRTR* chemical substances (vs.FY2005).Establishment of eco-friendly product design system*:Zero emission is defined as less quantity of final off-site
landfill than 0.1% of total amount of waste generated.
Process Safety and Disaster Prevention.Zero disasters .Zero accidents

RC Division
Environment &Safety Dept.

Chairman: Senior Managing Director

Quality Assurance
Dept.

Responsible Care
Promotion Committee

Chemical Total Management
Committee

Product Safety Review
Sub-committee

Chairman:President

Chairman: Senior Managing Director

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

NIPPON SHOKUBAI CO., LTD.

Environmental
Prevention

Occupational
Safety &HealthChemical Safety.Zero problem on chemical safety (legal or social)

Quality Committee

12

Process
Safety &DisasterPrevention

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

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

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

Quality.Zero serious claims

4. RC Performance in FY 2005
(1) Environmental Preservation① Energy saving② Reduction of emission of PRTR* chemical
substances③ Reduction of industrial wastes④ Kanagawa Global
Environment Award(Kawasaki Plant)(2) Process Safety and Disaster Prevention① Implementation of safety assessment by
HAZOP*② Reduction of change risk through Managementof Changes*③ Training for emergency④ Logistic safety using Yellow Card* system andtraining for transportation emergency.Attainment of common targets to all Nippon Shokubai Group<Group common targets>
1)Environmental preservation.Promotion of energy saving activities.Reduction of emission of PRTR chemical substances.Reduction of amount of waste generated2)Process Safety and Disaster Prevention.Zero disasters .Zero accidents3)Occupational Safety and Health.50% reduction of industrial injuries with lost workdays(vs.FY2004-FY2005)
4)Chemical Safety.Zero problems on chemical safety(legal or social)5)Quality.Zero serious claims6)Communication with Society.Promotion of dialogue to stake holders and adequate disclosureof the information
7)Management System.Introduction of ISO14001 and risk assessment of OHSAS18001.

(6) Communication with Society① Regional activities such as conserving local
chrysanthemum “Noji-Giku” in danger ofextinction, and inviting children to potato
digging in Himeji Plant② Reception of trainees from ASEAN in
Kawasaki Plant“Noji-Giku” and Himeji Plant

Potato digging(Himeji Plant)(4) Chemical Safety① Safety assessment of new products throughStage Gate System② Global Product Stewardship for REACH* andGHS*(7) RC activities of Nippon Shokubai Group in
Japan & overseas■Reduction of environmental emission, labor
accident, equipment trouble and quality claim& nonconformity■Information sharing for RC activity① Affiliated companies in Japan:■RC audit and case study workshop about
quality carried out by the Group companies■ISO 9001 certification (Tokyo Fine ChemicalCo., Ltd.)② Overseas affiliated companies:■ISO 9001 certification (NA Industries, Inc.)■OHSAS 18001 certification (Nippon ShokubaiEurope N.V.)■Environment award (“Green” level in
PROPER*) and Zero Accident Award (PT.
NIPPON SHOKUBAI INDONESIA)PRTR:Pollutant Release and Transfer Register
A regulatory system which requires reporting of emission volumes ofwastes. Data compiled to the government bodies are disclosed to the
public.
HAZOP:Hazard and Operability Studies
An execution to estimate the safety of plants.
Management of Changes:
Program to ensure that proposed changes to plant operations areevaluated changes are prevented so as to public, and the environmental,
etc.
Yellow Card:
A card staring the producers to be taken and contact information fortransporters, fire squads, and police in the event of an accident during theroad transport of chemicals.
REACH:Registration, Evaluation, and Authorization of Chemicals
A new EU regulatory framework for the Registration, Evaluation andAuthorization of Chemicals aiming to improve the protection of humanhealth and the environment through the better and earlier identificationof the properties of chemical substances.
GHS:Globally Harmonized System of Classification and Labeling ofChemicals
A system for classification and labeling of chemicals hazard according
to the globally harmonized rule.
PROPER:See page 9.

(3) Occupational Safety and Health① Reduction of risk in workspace throughOccupational Safety and Health Management
System② Prevention of injuries caused by unsafe action③ Zero industrial injuries
with lost workdays
for more than 5000
days (Kawasaki Plant)

Communication with Society.Promotion of dialogue with stake holders and adequate
disclosure of the information regarding RC(2)Group RC activities in domestic and overseas(5) Quality① Prevention of quality complaint by improving
Quality Management System② Disclosing information concerning green
procurement to the customers

Annual Report 200613

Responsible Care
1. Our Fundamental Policy on Environment,
Safety and Quality
The Company has set the corporate philosophy
as “TechnoAmenity: Seeking to create a society
where people can enjoy an affluent and comfortable
life through technological innovation”. Adhering to
the philosophy, the Company has defined the fourpriorities regarding Environment, Safety andQuality, which will bring our business activities into
harmony with global environmental preservation andconservation:
1. Acknowledging environmental preservation
throughout the entire life cycle of a product, fromdevelopment to disposal
2. Aiming for zero accidents and disasters andkeeping society, including our employees, safe
3. Confirming the safety of chemical materials,
intermediates and products, and considering thehealth of respective people such as our customers,
employees of logistics, and our employees, etc.
4. Stably supplying products and associated services
that meet customer satisfaction and inspire theirtrust.

Director responsible for RC
Environment and Safety
Committee

QualityCommunications

Society

Chemical
SafetyGoals(1)Voluntarily pursuing goals in each of the related areas
within the company
Environmental Preservation.6% reduction of energy per unit of production on FY2008 (vs.FY2005)(3% reduction of CO2 emission per unit of production on
FY2008 (vs.FY2005)).Accession to zero emission* and its maintenance.40% reduction of emission of PRTR* chemical substances (vs.FY2005).Establishment of eco-friendly product design system*:Zero emission is defined as less quantity of final off-site
landfill than 0.1% of total amount of waste generated.
Process Safety and Disaster Prevention.Zero disasters .Zero accidents

RC Division
Environment &Safety Dept.

Chairman: Senior Managing Director

Quality Assurance
Dept.

Responsible Care
Promotion Committee

Chemical Total Management
Committee

Product Safety Review
Sub-committee

Chairman:President

Chairman: Senior Managing Director

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

NIPPON SHOKUBAI CO., LTD.

Environmental
Prevention

Occupational
Safety &HealthChemical Safety.Zero problem on chemical safety (legal or social)

Quality Committee

12

Process
Safety &DisasterPrevention

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

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

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

Quality.Zero serious claims

4. RC Performance in FY 2005
(1) Environmental Preservation① Energy saving② Reduction of emission of PRTR* chemical
substances③ Reduction of industrial wastes④ Kanagawa Global
Environment Award(Kawasaki Plant)(2) Process Safety and Disaster Prevention① Implementation of safety assessment by
HAZOP*② Reduction of change risk through Managementof Changes*③ Training for emergency④ Logistic safety using Yellow Card* system andtraining for transportation emergency.Attainment of common targets to all Nippon Shokubai Group<Group common targets>
1)Environmental preservation.Promotion of energy saving activities.Reduction of emission of PRTR chemical substances.Reduction of amount of waste generated2)Process Safety and Disaster Prevention.Zero disasters .Zero accidents3)Occupational Safety and Health.50% reduction of industrial injuries with lost workdays(vs.FY2004-FY2005)
4)Chemical Safety.Zero problems on chemical safety(legal or social)5)Quality.Zero serious claims6)Communication with Society.Promotion of dialogue to stake holders and adequate disclosureof the information
7)Management System.Introduction of ISO14001 and risk assessment of OHSAS18001.

(6) Communication with Society① Regional activities such as conserving local
chrysanthemum “Noji-Giku” in danger ofextinction, and inviting children to potato
digging in Himeji Plant② Reception of trainees from ASEAN in
Kawasaki Plant“Noji-Giku” and Himeji Plant

Potato digging(Himeji Plant)(4) Chemical Safety① Safety assessment of new products throughStage Gate System② Global Product Stewardship for REACH* andGHS*(7) RC activities of Nippon Shokubai Group in
Japan & overseas■Reduction of environmental emission, labor
accident, equipment trouble and quality claim& nonconformity■Information sharing for RC activity① Affiliated companies in Japan:■RC audit and case study workshop about
quality carried out by the Group companies■ISO 9001 certification (Tokyo Fine ChemicalCo., Ltd.)② Overseas affiliated companies:■ISO 9001 certification (NA Industries, Inc.)■OHSAS 18001 certification (Nippon ShokubaiEurope N.V.)■Environment award (“Green” level in
PROPER*) and Zero Accident Award (PT.
NIPPON SHOKUBAI INDONESIA)PRTR:Pollutant Release and Transfer Register
A regulatory system which requires reporting of emission volumes ofwastes. Data compiled to the government bodies are disclosed to the
public.
HAZOP:Hazard and Operability Studies
An execution to estimate the safety of plants.
Management of Changes:
Program to ensure that proposed changes to plant operations areevaluated changes are prevented so as to public, and the environmental,
etc.
Yellow Card:
A card staring the producers to be taken and contact information fortransporters, fire squads, and police in the event of an accident during theroad transport of chemicals.
REACH:Registration, Evaluation, and Authorization of Chemicals
A new EU regulatory framework for the Registration, Evaluation andAuthorization of Chemicals aiming to improve the protection of humanhealth and the environment through the better and earlier identificationof the properties of chemical substances.
GHS:Globally Harmonized System of Classification and Labeling ofChemicals
A system for classification and labeling of chemicals hazard according
to the globally harmonized rule.
PROPER:See page 9.

(3) Occupational Safety and Health① Reduction of risk in workspace throughOccupational Safety and Health Management
System② Prevention of injuries caused by unsafe action③ Zero industrial injuries
with lost workdays
for more than 5000
days (Kawasaki Plant)

Communication with Society.Promotion of dialogue with stake holders and adequate
disclosure of the information regarding RC(2)Group RC activities in domestic and overseas(5) Quality① Prevention of quality complaint by improving
Quality Management System② Disclosing information concerning green
procurement to the customers

Annual Report 2006

13

Management Indices(1) Consolidated Management IndicesYear ended March 31st
(Fiscal Year)(2) Non-consolidated Management Indices2002(2001)

2003(2002)

2004(2003)

2005(2004)

2006(2005)

Year ended March 31st
(Fiscal Year)

2002(2001)

2003(2002)

2004(2003)

2005(2004)(Millions of Yen)

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

159,7225,558
1,590
120,238
230,253

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

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

197,222
23,70915,705
144,660
249,349

232,441
26,14816,257
164,631291,564(Yen)

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

617.058.16-

631.1227.97-

685.2045.37-

757.7281.37-

875.00
85.89
-

52.2
1.3
62.0

56.0
4.6
20.4

59.8
7.0
18.0

58.0
11.4
11.9

56.5
10.5
16.3
(Millions of Yen)

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

17,268(8,178)(1,579)23,151

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

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

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

Number of Employees

3,077

2,967

2,658

2,721

2,806

Note 1: Net Sales do not include consumption taxes.
Note 2: Starting with the fiscal year ended March 2003,net assets and net income per share have been perpared in accordance with financial
Accounting Standard No.2,"Accounting Standards for Earnings per Share,"and Financial Accounting Standard Implementation
Guidance No.4,"Implementation Guidance for Accounting Standard for Earnings per Share."Note 3: Fully diluted Net Income per Share is not recorded because no dilutive shares exist.

14

NIPPON SHOKUBAI CO., LTD.

2006(2005)(Millions of Yen)

Net Sales
Ordinary Income
Net Income
Capital123,706
8,054
1,744
16,529126,612
10,8793,094
16,529132,622
14,228
5,966
16,529146,789
17,795
11,063
16,529170,51023,00814,502
16,529Issued and Outstanding Shares(Thousands shares)

194,881

194,881

194,881

194,881

194,881(Millions of Yen)

Total Shareholders' Equity
Total Assets

115,578
188,821

115,593
176,155

124,417
182,806

133,100
207,303148,283
237,571(Yen)

593.14Net Income per Share
Fully Diluted Net Income per Share

7.00(3.50)
8.95-

601.487.00(3.50)
15.55-

647.41
9.00(4.00)
30.56-

697.1913.00(5.00)
57.20-

788.11
16.00(7.50)
76.61-

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

61.2
1.5
56.5
78.2

65.6
2.7
36.7
45.0

68.1
5.0
26.7
29.5

64.2
8.6
17.0
22.7

62.4
10.3
18.3
20.9

Number of Employees

1,937

1,881

1,774

1,731

1,730

Net Assets per ShareDividend per Share(Interim Dividend per Share)

Note 1: Net Sales do not include consumption taxes.
Note 2: Starting with the fiscal year ended March 2003,net assets and net income per share have been perpared in accordance with financial
Accounting Standard No.2,"Accounting Standards for Earnings per Share,"and Financial Accounting Standard Implementation
Guidance No.4,"Implementation Guidance for Accounting Standard for Earnings per Share."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.

Annual Report 200615

Management Indices(1) Consolidated Management IndicesYear ended March 31st
(Fiscal Year)(2) Non-consolidated Management Indices2002(2001)

2003(2002)

2004(2003)

2005(2004)

2006(2005)

Year ended March 31st
(Fiscal Year)

2002(2001)

2003(2002)

2004(2003)

2005(2004)(Millions of Yen)

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

159,7225,558
1,590
120,238
230,253

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

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

197,222
23,70915,705
144,660
249,349

232,441
26,14816,257
164,631291,564(Yen)

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

617.058.16-

631.1227.97-

685.2045.37-

757.7281.37-

875.00
85.89
-

52.2
1.3
62.0

56.0
4.6
20.4

59.8
7.0
18.0

58.0
11.4
11.9

56.5
10.5
16.3
(Millions of Yen)

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

17,268(8,178)(1,579)23,151

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

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

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

Number of Employees

3,077

2,967

2,658

2,721

2,806

Note 1: Net Sales do not include consumption taxes.
Note 2: Starting with the fiscal year ended March 2003,net assets and net income per share have been perpared in accordance with financial
Accounting Standard No.2,"Accounting Standards for Earnings per Share,"and Financial Accounting Standard Implementation
Guidance No.4,"Implementation Guidance for Accounting Standard for Earnings per Share."Note 3: Fully diluted Net Income per Share is not recorded because no dilutive shares exist.

14

NIPPON SHOKUBAI CO., LTD.

2006(2005)(Millions of Yen)

Net Sales
Ordinary Income
Net Income
Capital123,706
8,054
1,744
16,529126,612
10,8793,094
16,529132,622
14,228
5,966
16,529146,789
17,795
11,063
16,529170,51023,00814,502
16,529Issued and Outstanding Shares(Thousands shares)

194,881

194,881

194,881

194,881

194,881(Millions of Yen)

Total Shareholders' Equity
Total Assets

115,578
188,821

115,593
176,155

124,417
182,806

133,100
207,303148,283
237,571(Yen)

593.14Net Income per Share
Fully Diluted Net Income per Share

7.00(3.50)
8.95-

601.487.00(3.50)
15.55-

647.41
9.00(4.00)
30.56-

697.1913.00(5.00)
57.20-

788.11
16.00(7.50)
76.61-

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

61.2
1.5
56.5
78.2

65.6
2.7
36.7
45.0

68.1
5.0
26.7
29.5

64.2
8.6
17.0
22.7

62.4
10.3
18.3
20.9

Number of Employees

1,937

1,881

1,774

1,731

1,730

Net Assets per ShareDividend per Share(Interim Dividend per Share)

Note 1: Net Sales do not include consumption taxes.
Note 2: Starting with the fiscal year ended March 2003,net assets and net income per share have been perpared in accordance with financial
Accounting Standard No.2,"Accounting Standards for Earnings per Share,"and Financial Accounting Standard Implementation
Guidance No.4,"Implementation Guidance for Accounting Standard for Earnings per Share."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.

Annual Report 2006

15

Report of Independent Auditors

Nippon Shokubai Co., Ltd.
Consolidated Financial Statements
Years ended March 31, 2006 and 2005

Contents
Consolidated Financial Statements
Report of Independent Auditors ...................................17
Consolidated Balance Sheets ......................................18
Consolidated Statements of Income ..............................20
Consolidated Statements of Shareholders’ Equity ............21
Consolidated Statements of Cash Flows ........................22
Notes to Consolidated Financial Statements ...................24

16

NIPPON SHOKUBAI CO., LTD.

Annual Report 2006

17

Report of Independent Auditors

Nippon Shokubai Co., Ltd.
Consolidated Financial Statements
Years ended March 31, 2006 and 2005

Contents
Consolidated Financial Statements
Report of Independent Auditors ...................................17
Consolidated Balance Sheets ......................................18
Consolidated Statements of Income ..............................20
Consolidated Statements of Shareholders’ Equity ............21
Consolidated Statements of Cash Flows ........................22
Notes to Consolidated Financial Statements ...................24

16

NIPPON SHOKUBAI CO., LTD.

Annual Report 200617

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

March 31,
2006

2005

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

2006

2006

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

(Millions of yen)

AssetsCurrent assets:
Cash and cash equivalents .....................................
Time deposits (Note 6) .........................................
Notes and accounts receivable:
Unconsolidated subsidiaries and affiliates ................
Trade ...........................................................
Allowance for doubtful receivables ........................
Inventories (Note 4) ............................................
Deferred income taxes (Note 8) ..............................
Other current assets .............................................

March 31,

¥ 19,856223¥ 24,160
33$ 168,987
1,898

7,091
50,353(94)
38,705
3,368
6,412

6,537
46,459(87)
29,702
2,606
5,438

60,349428,536(799)
329,404
28,66454,570125,914

114,848

2005(Thousands of
U.S. dollars)(Note 2)

(Millions of yen)

Liabilities and shareholders’ equity
Current liabilities:
Short-term bank loans (Note 6) ...............................
Current portion of long-term debt (Note 6) .................
Notes and accounts payable:
Unconsolidated subsidiaries and affiliates ................
Trade ...........................................................
Construction ...................................................
Accrued income taxes (Note 8) ...............................
Other current liabilities ........................................
Total current liabilities ...........................................

¥ 11,538
5,317

¥

2006

6,951
5,653

$

98,19645,251

6,207
33,936262
5,657
17,790

5,313
31,313275
5,029
10,54552,826
288,8142,230
48,145
151,406

80,70765,079686,868

28,363
6,754

26,541
6,756

241,387
57,481

–
5,429
1,607

390
1,157
1,272

–
46,204
13,677

1,071,609

Property, plant and equipment (Notes 5 and 6):
Land ..............................................................
Buildings and structures .......................................
Machinery and equipment .....................................
Construction in progress .......................................
Accumulated depreciation .....................................

25,636
63,972
227,941
16,958(229,418)

24,83959,568
209,787
9,315(217,099)

218,179
544,443
1,939,923
144,323(1,952,494)

Long-term liabilities:
Long-term debt (Note 6) .......................................
Accrued retirement benefits for employees (Note 7) ......
Accrued retirement benefits for directors
and corporate auditors ........................................
Deferred income taxes (Note 8) ..............................
Other ..............................................................

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

105,089

86,410894,374

Total long-term liabilities ........................................

42,15336,116

358,749

Minority interests .................................................

4,073

3,494

34,664

Shareholders’ equity (Note 9):
Common stock:
Authorized – 424,000,000 shares
Issued – 194,881,287 shares in 2006 and 2005 ..........
Additional paid-in capital ......................................
Retained earnings ...............................................
Net unrealized holding gain on securities ...................
Translation adjustments ........................................
Less treasury stock, at cost ....................................

16,52913,565
125,684
12,2591,939(5,345)

16,52913,565
112,496
5,632(1,057)(2,505)

140,672
115,447
1,069,651
104,332
16,502(45,489)

Total shareholders’ equity ........................................

164,631

144,660

1,401,115

Total liabilities and shareholders’ equity.......................

¥ 291,564¥ 249,349$2,481,396

Investments and other assets:
Investments in securities (Notes 3 and 6) ...................
Investments in and advances tounconsolidated subsidiaries and affiliates .................
Deferred income taxes (Note 8) ..............................
Prepaid pension cost ............................................
Other assets ......................................................
Total investments and other assets ..............................

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

35,61024,109303,064

11,138925
2,730
10,15811,001
1,494
2,348
9,139

94,791
7,872
23,23486,45260,561

48,091

515,413¥ 291,564¥ 249,349$2,481,396

Contingent liabilities (Note 12)

See accompanying notes to consolidated financial statements.

18

NIPPON SHOKUBAI CO., LTD.

Annual Report 2006

19

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

March 31,
2006

2005

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

2006

2006

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

(Millions of yen)

AssetsCurrent assets:
Cash and cash equivalents .....................................
Time deposits (Note 6) .........................................
Notes and accounts receivable:
Unconsolidated subsidiaries and affiliates ................
Trade ...........................................................
Allowance for doubtful receivables ........................
Inventories (Note 4) ............................................
Deferred income taxes (Note 8) ..............................
Other current assets .............................................

March 31,

¥ 19,856223¥ 24,160
33$ 168,987
1,898

7,091
50,353(94)
38,705
3,368
6,412

6,537
46,459(87)
29,702
2,606
5,438

60,349428,536(799)
329,404
28,66454,570125,914

114,848

2005(Thousands of
U.S. dollars)(Note 2)

(Millions of yen)

Liabilities and shareholders’ equity
Current liabilities:
Short-term bank loans (Note 6) ...............................
Current portion of long-term debt (Note 6) .................
Notes and accounts payable:
Unconsolidated subsidiaries and affiliates ................
Trade ...........................................................
Construction ...................................................
Accrued income taxes (Note 8) ...............................
Other current liabilities ........................................
Total current liabilities ...........................................

¥ 11,538
5,317

¥

2006

6,951
5,653

$

98,19645,251

6,207
33,936262
5,657
17,790

5,313
31,313275
5,029
10,54552,826
288,8142,230
48,145
151,406

80,70765,079686,868

28,363
6,754

26,541
6,756

241,387
57,481

–
5,429
1,607

390
1,157
1,272

–
46,204
13,677

1,071,609

Property, plant and equipment (Notes 5 and 6):
Land ..............................................................
Buildings and structures .......................................
Machinery and equipment .....................................
Construction in progress .......................................
Accumulated depreciation .....................................

25,636
63,972
227,941
16,958(229,418)

24,83959,568
209,787
9,315(217,099)

218,179
544,443
1,939,923
144,323(1,952,494)

Long-term liabilities:
Long-term debt (Note 6) .......................................
Accrued retirement benefits for employees (Note 7) ......
Accrued retirement benefits for directors
and corporate auditors ........................................
Deferred income taxes (Note 8) ..............................
Other ..............................................................

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

105,089

86,410894,374

Total long-term liabilities ........................................

42,15336,116

358,749

Minority interests .................................................

4,073

3,494

34,664

Shareholders’ equity (Note 9):
Common stock:
Authorized – 424,000,000 shares
Issued – 194,881,287 shares in 2006 and 2005 ..........
Additional paid-in capital ......................................
Retained earnings ...............................................
Net unrealized holding gain on securities ...................
Translation adjustments ........................................
Less treasury stock, at cost ....................................

16,52913,565
125,684
12,2591,939(5,345)

16,52913,565
112,496
5,632(1,057)(2,505)

140,672
115,447
1,069,651
104,332
16,502(45,489)

Total shareholders’ equity ........................................

164,631

144,660

1,401,115

Total liabilities and shareholders’ equity.......................

¥ 291,564¥ 249,349$2,481,396

Investments and other assets:
Investments in securities (Notes 3 and 6) ...................
Investments in and advances tounconsolidated subsidiaries and affiliates .................
Deferred income taxes (Note 8) ..............................
Prepaid pension cost ............................................
Other assets ......................................................
Total investments and other assets ..............................

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

35,61024,109303,064

11,138925
2,730
10,15811,001
1,494
2,348
9,139

94,791
7,872
23,23486,45260,561

48,091

515,413¥ 291,564¥ 249,349$2,481,396

Contingent liabilities (Note 12)

See accompanying notes to consolidated financial statements.

18

NIPPON SHOKUBAI CO., LTD.

Annual Report 2006

19

Consolidated Statements of Income

Consolidated Statements of Shareholders’ Equity

Nippon Shokubai Co., Ltd. and Consolidated Subsidiaries

Nippon Shokubai Co., Ltd. and Consolidated Subsidiaries

Year ended March 31,
2006

2005

Year ended March 31,
2006

2006

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

(Millions of yen)

¥ 232,441
176,253
56,188¥ 197,222
145,019
52,203$1,978,221
1,500,025
478,196

Selling, general and administrative expenses (Note 10) .....
Operating income (Note 16) ...............................

32,96023,22829,991
22,212

280,511
197,685

1,458
(733)
1,022

972
(480)
1,006

12,409(6,238)
8,698

961
–
212

572
(479)
(573)

8,179
–
1,803

26,14823,230222,536

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

10,331(594)
9,737
16,411

7,422
(173)
7,249
15,981

87,923(5,055)82,868
139,668

Net unrealized holding gain on securities:
Balance at beginning of year ..................................
Net change during the year ....................................
Balance at end of year ..........................................

Minority interests in earnings of consolidated subsidiaries ...

(154)

(276)

(1,311)

Net income (Note 13) .......................................

¥ 16,257¥ 15,705$ 138,357

Income before income taxes and minority interests....
Income taxes (Note 8):
Current ...........................................................
Deferred ..........................................................

See accompanying notes to consolidated financial statements.

2006(Thousands of
U.S. dollars)(Note 2)

(Millions of yen)

Net sales (Note 16) ...............................................
Cost of sales (Note 10) ...........................................
Gross profit ..................................................

Other income (expenses):
Interest and dividend income .................................
Interest expense .................................................
Royalty income .................................................
Equity in earnings of unconsolidated
subsidiaries and affiliates ....................................
Impairment loss on fixed assets (Note 5) ....................
Other, net .........................................................

2005

Common stock:
Balance at beginning and end of year ........................

¥ 16,529¥ 16,529$ 140,672

Additional paid-in capital:
Balance at beginning of year ..................................
Gain on sale of treasury stock .................................
Balance at end of year ..........................................

¥ 13,5650¥ 13,565¥ 13,563
2¥ 13,565$ 115,447
0$ 115,447¥ 112,496
16,257(2,945)(124)¥ 98,947
15,705(1,920)(110)$ 957,413
138,357(25,064)(1,055)–¥ 125,684(126)¥ 112,496–$1,069,651

¥

5,632
6,627
¥ 12,259

¥

4,961
671
5,632

$

Translation adjustments:
Balance at beginning of year ..................................
Net change during the year ....................................
Balance at end of year ..........................................

¥ (1,057)
2,996¥ 1,939

¥

(839)
(218)
¥ (1,057)$

Less treasury stock, at cost:
Balance at beginning of year ..................................
Net change during the year ....................................
Balance at end of year ..........................................

¥ (2,505)(2,840)¥ (5,345)¥ (1,476)(1,029)¥ (2,505)$ (21,319)(24,170)$ (45,489)

Retained earnings:
Balance at beginning of year ..................................
Net income .......................................................
Cash dividends ..................................................
Bonuses to directors and corporate auditors ................
Decrease in retained earnings resulting from exclusion ofaffiliate accounted for by equity method ..................
Balance at end of year ..........................................

¥

47,93256,400$ 104,332$(8,996)25,49816,502

See accompanying notes to consolidated financial statements.

20

NIPPON SHOKUBAI CO., LTD.

Annual Report 200621

Consolidated Statements of Income

Consolidated Statements of Shareholders’ Equity

Nippon Shokubai Co., Ltd. and Consolidated Subsidiaries

Nippon Shokubai Co., Ltd. and Consolidated Subsidiaries

Year ended March 31,
2006

2005

Year ended March 31,
2006

2006

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

(Millions of yen)

¥ 232,441
176,253
56,188¥ 197,222
145,019
52,203$1,978,221
1,500,025
478,196

Selling, general and administrative expenses (Note 10) .....
Operating income (Note 16) ...............................

32,96023,22829,991
22,212

280,511
197,685

1,458
(733)
1,022

972
(480)
1,006

12,409(6,238)
8,698

961
–
212

572
(479)
(573)

8,179
–
1,803

26,14823,230222,536

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

10,331(594)
9,737
16,411

7,422
(173)
7,249
15,981

87,923(5,055)82,868
139,668

Net unrealized holding gain on securities:
Balance at beginning of year ..................................
Net change during the year ....................................
Balance at end of year ..........................................

Minority interests in earnings of consolidated subsidiaries ...

(154)

(276)

(1,311)

Net income (Note 13) .......................................

¥ 16,257¥ 15,705$ 138,357

Income before income taxes and minority interests....
Income taxes (Note 8):
Current ...........................................................
Deferred ..........................................................

See accompanying notes to consolidated financial statements.

2006(Thousands of
U.S. dollars)(Note 2)

(Millions of yen)

Net sales (Note 16) ...............................................
Cost of sales (Note 10) ...........................................
Gross profit ..................................................

Other income (expenses):
Interest and dividend income .................................
Interest expense .................................................
Royalty income .................................................
Equity in earnings of unconsolidated
subsidiaries and affiliates ....................................
Impairment loss on fixed assets (Note 5) ....................
Other, net .........................................................

2005

Common stock:
Balance at beginning and end of year ........................

¥ 16,529¥ 16,529$ 140,672

Additional paid-in capital:
Balance at beginning of year ..................................
Gain on sale of treasury stock .................................
Balance at end of year ..........................................

¥ 13,5650¥ 13,565¥ 13,563
2¥ 13,565$ 115,447
0$ 115,447¥ 112,496
16,257(2,945)(124)¥ 98,947
15,705(1,920)(110)$ 957,413
138,357(25,064)(1,055)–¥ 125,684(126)¥ 112,496–$1,069,651

¥

5,632
6,627
¥ 12,259

¥

4,961
671
5,632

$

Translation adjustments:
Balance at beginning of year ..................................
Net change during the year ....................................
Balance at end of year ..........................................

¥ (1,057)
2,996¥ 1,939

¥

(839)
(218)
¥ (1,057)$

Less treasury stock, at cost:
Balance at beginning of year ..................................
Net change during the year ....................................
Balance at end of year ..........................................

¥ (2,505)(2,840)¥ (5,345)¥ (1,476)(1,029)¥ (2,505)$ (21,319)(24,170)$ (45,489)

Retained earnings:
Balance at beginning of year ..................................
Net income .......................................................
Cash dividends ..................................................
Bonuses to directors and corporate auditors ................
Decrease in retained earnings resulting from exclusion ofaffiliate accounted for by equity method ..................
Balance at end of year ..........................................

¥

47,93256,400$ 104,332$(8,996)25,49816,502

See accompanying notes to consolidated financial statements.

20

NIPPON SHOKUBAI CO., LTD.

Annual Report 200621

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

Year ended March 31,
2006

2005

2006

2006

(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 ...............................
Impairment loss on fixed assets ..............................
(Decrease) increase in accrued retirement benefits .......
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 .....................................

Year ended March 31,¥ 26,148¥ 23,230$ 222,536

9,349
–
(89)
(1,458)
733

8,028
479
148
(972)
480

79,566–(757)(12,409)
6,238

(961)
315
1,133

(572)
340
2,513

(8,179)
2,681
9,643

(3,646)(8,012)2,719(28)(7,913)(5,140)
7,052
(169)

(31,030)(68,187)
23,140(238)

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

26,20327,504

223,004

Interest and dividends received .................................
Interest paid ........................................................
Income taxes paid .................................................
Net cash provided by operating activities .....................

1,571
(709)
(9,597)
17,468957(470)(5,830)22,161

13,370(6,034)(81,676)
148,664

176

1,498(8,655)

2005(Thousands of
U.S. dollars)(Note 2)

(Millions of yen)

Financing activities:
Increase (decrease) in short-term bank loans, net ............
Proceeds from long-term debt ...................................
Repayment of long-term debt ...................................
Proceeds from issuance of bonds ...............................
Redemption of bonds .............................................
Cash dividends paid ..............................................
Purchases of treasury stock ......................................
Other, net ...........................................................

¥ 4,448
7,609(8,815)––(2,945)(2,844)(15)

Net cash used in financing activities ...........................

2006

¥

(453)
10,700(8,148)5,000(5,000)(1,920)(1,031)(9)$ 37,855
64,757(75,021)––(25,064)(24,204)(127)(2,562)(861)(21,804)

Effect of exchange rate changes on cash and cash equivalents ...
(Decrease) increase in cash and cash equivalents ............
Cash and cash equivalents at beginning of year ..............
Increase in cash and cash equivalents resulting from
inclusion of subsidiaries in consolidation ...................

866(4,891)
24,16080
4,446
18,654

7,369(41,626)
205,617

587

1,060

4,996

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

¥ 19,856¥ 24,160$ 168,987

See accompanying notes to consolidated financial statements.

Investing activities:

22

Proceeds from sales of short-term investments and investments
in securities ......................................................
Purchases of marketable securities and investments in securities..
Acquisition of investments in subsidiaries resulting in inclusion
in consolidation ..................................................
Purchases of property, plant and equipment ..................
Proceeds from sales of property, plant and equipment ......
Increase in loans receivable .....................................
Collection of loans receivable ...................................
Other, net ...........................................................

(1,017)

3(3,351)–(22,105)
11
(215)
1,375
1,112

(2,130)(12,033)
29
(334)
1,126
(244)

–
(188,128)

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

(20,663)(16,934)(175,855)

NIPPON SHOKUBAI CO., LTD.

94
(1,830)11,702
9,464

Annual Report 2006

23

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

Year ended March 31,
2006

2005

2006

2006

(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 ...............................
Impairment loss on fixed assets ..............................
(Decrease) increase in accrued retirement benefits .......
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 .....................................

Year ended March 31,¥ 26,148¥ 23,230$ 222,536

9,349
–
(89)
(1,458)
733

8,028
479
148
(972)
480

79,566–(757)(12,409)
6,238

(961)
315
1,133

(572)
340
2,513

(8,179)
2,681
9,643

(3,646)(8,012)2,719(28)(7,913)(5,140)
7,052
(169)

(31,030)(68,187)
23,140(238)

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

26,20327,504

223,004

Interest and dividends received .................................
Interest paid ........................................................
Income taxes paid .................................................
Net cash provided by operating activities .....................

1,571
(709)
(9,597)
17,468957(470)(5,830)22,161

13,370(6,034)(81,676)
148,664

176

1,498(8,655)

2005(Thousands of
U.S. dollars)(Note 2)

(Millions of yen)

Financing activities:
Increase (decrease) in short-term bank loans, net ............
Proceeds from long-term debt ...................................
Repayment of long-term debt ...................................
Proceeds from issuance of bonds ...............................
Redemption of bonds .............................................
Cash dividends paid ..............................................
Purchases of treasury stock ......................................
Other, net ...........................................................

¥ 4,448
7,609(8,815)––(2,945)(2,844)(15)

Net cash used in financing activities ...........................

2006

¥

(453)
10,700(8,148)5,000(5,000)(1,920)(1,031)(9)$ 37,855
64,757(75,021)––(25,064)(24,204)(127)(2,562)(861)(21,804)

Effect of exchange rate changes on cash and cash equivalents ...
(Decrease) increase in cash and cash equivalents ............
Cash and cash equivalents at beginning of year ..............
Increase in cash and cash equivalents resulting from
inclusion of subsidiaries in consolidation ...................

866(4,891)
24,16080
4,446
18,654

7,369(41,626)
205,617

587

1,060

4,996

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

¥ 19,856¥ 24,160$ 168,987

See accompanying notes to consolidated financial statements.

Investing activities:

22

Proceeds from sales of short-term investments and investments
in securities ......................................................
Purchases of marketable securities and investments in securities..
Acquisition of investments in subsidiaries resulting in inclusion
in consolidation ..................................................
Purchases of property, plant and equipment ..................
Proceeds from sales of property, plant and equipment ......
Increase in loans receivable .....................................
Collection of loans receivable ...................................
Other, net ...........................................................

(1,017)

3(3,351)–(22,105)
11
(215)
1,375
1,112

(2,130)(12,033)
29
(334)
1,126
(244)

–
(188,128)

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

(20,663)(16,934)(175,855)

NIPPON SHOKUBAI CO., LTD.

94
(1,830)11,702
9,464

Annual Report 200623

Notes to Consolidated Financial Statements
Nippon Shokubai Co., Ltd. and Consolidated Subsidiaries
March 31, 2006

1. Summary of Significant Accounting Policies(a) Basis of presentation
Nippon Shokubai Co., Ltd. (the “Company”) and its
domestic consolidated subsidiaries maintain their accounts
and records in accordance with accounting principles
generally accepted in Japan. Its overseas subsidiaries
maintain their accounts in conformity with the requirementsof their countries of domicile. The accompanying
consolidated financial statements have been compiled fromthe consolidated financial statements prepared by theCompany as required by the Securities and Exchange Law ofJapan, which are different in certain respects as to theapplication and disclosure requirements of International
Financial Reporting Standards.

(d) Cash and cash equivalents
Cash and cash equivalents include cash on hand and inbanks and other highly liquid investments with maturities ofthree months or less when purchased.

(e) 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(f) 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 in consolidation.
The overseas consolidated subsidiaries are consolidated
on the basis of fiscal periods ending December 31, 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.
Investments in an unconsolidated subsidiary andsignificant affiliates are accounted for by the equity method.
Investments in unconsolidated subsidiaries and affiliates
not accounted for by the equity method are carried at cost.
The excess of cost over underlying net assets at the dateof acquisition is amortized over a period of five years on astraight-line basis, except that immaterial amounts arecharged to income as incurred.

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

(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 the components ofshareholders’ equity are translated at their historical exchange
rates. Differences resulting from translating the financial
statements of the overseas consolidated subsidiaries are notincluded in the determination of net income but are reported
as translation adjustments in a separate component ofshareholders’ equity and minority interests in the consolidatedbalance sheets at March 31, 2006 and 2005.
Revenue and expense items arising from transactions
denominated in overseas currencies are generally translated
into yen at the rates in effect at the respective transaction
dates.

24

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 the gain or loss on eachtranslation is credited or charged to income.

NIPPON SHOKUBAI CO., LTD.

(g) 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.

(h) Investments in securities
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 charged to income.
Held-to-maturity debt securities are carried at amortized cost.
Marketable securities classified as other securities are carriedat fair value, with any changes in unrealized holding gain or
loss, net of the applicable income taxes, reported as a separate
component of shareholders’ equity. Non-marketablesecurities classified as other securities are carried at cost.
Cost of securities sold is determined by the moving averagemethod.

(i)Research and development costs and computer
softwareResearch and development costs are charged to income
when incurred.
Expenditures relating to the development of computer
software intended for internal use are charged to income as
incurred, except if these are deemed to contribute to thegeneration of future income or cost savings. Suchexpenditures are capitalized as assets and amortized by thestraight-line method over their useful lives, generally a periodof 5 years.

(j) 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 ordeductible amounts in the future. The calculation of deferredincome tax assets and liabilities is based on the enacted tax
laws.

(k) Accrued bonuses to directors and corporate
auditors
Accrued bonuses for 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.
Supplemental information
Until the year ended March 31, 2005, accrued bonuses for
directors and corporate auditors was accounted for as an
appropriation of retained earnings as approved by resolutionof the shareholders at the annual general meeting held
subsequent to each fiscal year end.
Effective April 1, 2005, the Company adopted “Practical
Solution on Tentative Treatment of Accounting for Accrued
Bonuses to Directors and Corporate Auditors (AccountingStandards Board of Japan Practical Solution Report No. 13 on
March 9, 2004)” and commenced accounting for theseaccrued bonuses as an expense item. As a result of thisadoption, operating income and income before income taxes
and minority interests for the year ended March 31, 2006
decreased by ¥139 million ($1,183 thousand) from theamount which would have been recorded if the method
applied in previous years had been followed.

(l) 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 termination of
employment.
Accrued retirement benefits for employees have been
provided, in general, based on the retirement benefit
obligation and the fair value of the pension plan assets as
adjusted for unrecognized actuarial gain or loss andunrecognized prior service cost.
Prior service cost is amortized principally by the straightline method over 5 years, which falls within the estimatedaverage remaining years of service of the eligible employees.
Actuarial gain or loss is amortized in the year following
the year in which the gain or loss is recognized principally by
the straight-line method over 10 years, which falls within theestimated average remaining years of service of the eligible
employees.
The Company abolished its retirement benefit plan for
directors and corporate auditors of the Company as of theannual general meeting of the shareholders held on June 22,2005. As a result, the outstanding balance of the provision for
retirement benefits for directors and corporate auditors of theCompany at June 22, 2005 was reclassified to “long-term
liability – other” in the consolidated balance sheet at March
31, 2006.

(m) Appropriation of retained earnings
Under the Commercial Code of Japan, the appropriationof retained 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 suchappropriations (see Note 17).

2. U.S. Dollar Amounts
The translation of yen amounts into U.S. dollar
amounts is included solely for convenience, as amatter of arithmetic computation only, at ¥117.5 =U.S.$1.00, the approximate rate of exchange in
effect on March 31, 2006. 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 otherrate.

Annual Report 200625

Notes to Consolidated Financial Statements
Nippon Shokubai Co., Ltd. and Consolidated Subsidiaries
March 31, 2006

1. Summary of Significant Accounting Policies(a) Basis of presentation
Nippon Shokubai Co., Ltd. (the “Company”) and its
domestic consolidated subsidiaries maintain their accounts
and records in accordance with accounting principles
generally accepted in Japan. Its overseas subsidiaries
maintain their accounts in conformity with the requirementsof their countries of domicile. The accompanying
consolidated financial statements have been compiled fromthe consolidated financial statements prepared by theCompany as required by the Securities and Exchange Law ofJapan, which are different in certain respects as to theapplication and disclosure requirements of International
Financial Reporting Standards.

(d) Cash and cash equivalents
Cash and cash equivalents include cash on hand and inbanks and other highly liquid investments with maturities ofthree months or less when purchased.

(e) 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(f) 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 in consolidation.
The overseas consolidated subsidiaries are consolidated
on the basis of fiscal periods ending December 31, 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.
Investments in an unconsolidated subsidiary andsignificant affiliates are accounted for by the equity method.
Investments in unconsolidated subsidiaries and affiliates
not accounted for by the equity method are carried at cost.
The excess of cost over underlying net assets at the dateof acquisition is amortized over a period of five years on astraight-line basis, except that immaterial amounts arecharged to income as incurred.

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

(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 the components ofshareholders’ equity are translated at their historical exchange
rates. Differences resulting from translating the financial
statements of the overseas consolidated subsidiaries are notincluded in the determination of net income but are reported
as translation adjustments in a separate component ofshareholders’ equity and minority interests in the consolidatedbalance sheets at March 31, 2006 and 2005.
Revenue and expense items arising from transactions
denominated in overseas currencies are generally translated
into yen at the rates in effect at the respective transaction
dates.

24

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 the gain or loss on eachtranslation is credited or charged to income.

NIPPON SHOKUBAI CO., LTD.

(g) 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.

(h) Investments in securities
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 charged to income.
Held-to-maturity debt securities are carried at amortized cost.
Marketable securities classified as other securities are carriedat fair value, with any changes in unrealized holding gain or
loss, net of the applicable income taxes, reported as a separate
component of shareholders’ equity. Non-marketablesecurities classified as other securities are carried at cost.
Cost of securities sold is determined by the moving averagemethod.

(i)Research and development costs and computer
softwareResearch and development costs are charged to income
when incurred.
Expenditures relating to the development of computer
software intended for internal use are charged to income as
incurred, except if these are deemed to contribute to thegeneration of future income or cost savings. Suchexpenditures are capitalized as assets and amortized by thestraight-line method over their useful lives, generally a periodof 5 years.

(j) 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 ordeductible amounts in the future. The calculation of deferredincome tax assets and liabilities is based on the enacted tax
laws.

(k) Accrued bonuses to directors and corporate
auditors
Accrued bonuses for 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.
Supplemental information
Until the year ended March 31, 2005, accrued bonuses for
directors and corporate auditors was accounted for as an
appropriation of retained earnings as approved by resolutionof the shareholders at the annual general meeting held
subsequent to each fiscal year end.
Effective April 1, 2005, the Company adopted “Practical
Solution on Tentative Treatment of Accounting for Accrued
Bonuses to Directors and Corporate Auditors (AccountingStandards Board of Japan Practical Solution Report No. 13 on
March 9, 2004)” and commenced accounting for theseaccrued bonuses as an expense item. As a result of thisadoption, operating income and income before income taxes
and minority interests for the year ended March 31, 2006
decreased by ¥139 million ($1,183 thousand) from theamount which would have been recorded if the method
applied in previous years had been followed.

(l) 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 termination of
employment.
Accrued retirement benefits for employees have been
provided, in general, based on the retirement benefit
obligation and the fair value of the pension plan assets as
adjusted for unrecognized actuarial gain or loss andunrecognized prior service cost.
Prior service cost is amortized principally by the straightline method over 5 years, which falls within the estimatedaverage remaining years of service of the eligible employees.
Actuarial gain or loss is amortized in the year following
the year in which the gain or loss is recognized principally by
the straight-line method over 10 years, which falls within theestimated average remaining years of service of the eligible
employees.
The Company abolished its retirement benefit plan for
directors and corporate auditors of the Company as of theannual general meeting of the shareholders held on June 22,2005. As a result, the outstanding balance of the provision for
retirement benefits for directors and corporate auditors of theCompany at June 22, 2005 was reclassified to “long-term
liability – other” in the consolidated balance sheet at March
31, 2006.

(m) Appropriation of retained earnings
Under the Commercial Code of Japan, the appropriationof retained 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 suchappropriations (see Note 17).

2. U.S. Dollar Amounts
The translation of yen amounts into U.S. dollar
amounts is included solely for convenience, as amatter of arithmetic computation only, at ¥117.5 =U.S.$1.00, the approximate rate of exchange in
effect on March 31, 2006. 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 otherrate.

Annual Report 200625

Notes to Consolidated Financial Statements (continued)

3. Investments in Securities
Marketable securities classified as other securities at March 31, 2006 and 2005 are summarized as follows:
2006(Millions of yen)

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

¥ 13,164
13,164593
593¥ 13,757(Thousands of U.S. dollars)Book value(Fair market Unrealized
value)
gain (loss)¥ 33,882
33,882585
585¥ 34,467¥ 20,718
20,718(8)(8)¥ 20,710

Cost$ 112,034
112,034

5,047
5,047
$ 117,081

Book value(Fair market Unrealized
value)
gain (loss)$ 288,357
288,357

4,979
4,979
$ 293,336$ 176,323
176,323(68)(68)$ 176,255

A breakdown of other securities whose market
value was not determinable at March 31, 2006 and2005 is as follows:
2006

2005

(Millions of yen)Preferred subscription
certificates ........... ¥ –Other securities ........ 1,143

¥ 500
1,166

2006
(Thousands of
U.S. dollars)

$ –
9,728

4. Inventories
Inventories at March 31, 2006 and 2005 were as
follows:
2006

2005

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

Merchandise andfinished goods ....... ¥ 19,505 ¥ 13,996 $ 166,000
Raw materials ..........
9,255
7,626
78,766Work in process ........
7,657
6,301
65,165
Supplies .................
2,288
1,779
19,473¥ 38,705 ¥ 29,702 $ 329,404

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

Book value(Fair market Unrealized
value)
gain (loss)¥ 12,350
12,350¥ 21,892
21,892¥ 9,542
9,542

578
578
¥ 12,928

551
551¥ 22,443(27)(27)¥ 9,515

2005(Millions of yen)

Rental properties:
Land .......................................
Building ...................................
Structure ...................................

2006

2005
(Millions of yen)

5. Impairment Loss on Fixed Assets
The impairment loss on fixed assets for the year
ended March 31, 2005 related primarily to thesignificant decrease in the market value of theCompany’s land as well as to an overall deteriorationin its business environment.
Impairment loss on fixed assets for the year
ended March 31, 2005 consisted of the following:

Production facilities forpolyvinylpyrrolidone:
Machinery .................................
Structure ..................................
Building ...................................
Total ............................................

¥ 333
37
1
371

101
4
3
108
¥ 479

An impairment loss on rental properties andproduction facilities for polyvinylpyrrolidone for theyear ended March 31, 2005 was recorded at theamount at which the acquisition cost of each asset
exceeded an estimate of its future cash flows,
discounted at 1.7%.

The proceeds and gross realized gain and loss on sales of securities classified as other securities for the years
ended March 31, 2006 and 2005 were as follows:
2006

2005

2006

(Millions of yen)

26

Proceeds

Grossrealized
gain

Gross
realized
loss

¥ 176

¥ 56

¥ –

NIPPON SHOKUBAI CO., LTD.

(Thousands of U.S. dollars)

Proceeds

Grossrealized
gain

Gross
realized
loss

¥ 2

¥ 1

¥ –

Proceeds

Grossrealized
gain

Gross
realizedloss$ 1,498$ 477$–

Annual Report 200627

Notes to Consolidated Financial Statements (continued)

3. Investments in Securities
Marketable securities classified as other securities at March 31, 2006 and 2005 are summarized as follows:
2006(Millions of yen)

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

¥ 13,164
13,164593
593¥ 13,757(Thousands of U.S. dollars)Book value(Fair market Unrealized
value)
gain (loss)¥ 33,882
33,882585
585¥ 34,467¥ 20,718
20,718(8)(8)¥ 20,710

Cost$ 112,034
112,034

5,047
5,047
$ 117,081

Book value(Fair market Unrealized
value)
gain (loss)$ 288,357
288,357

4,979
4,979
$ 293,336$ 176,323
176,323(68)(68)$ 176,255

A breakdown of other securities whose market
value was not determinable at March 31, 2006 and2005 is as follows:
2006

2005

(Millions of yen)Preferred subscription
certificates ........... ¥ –Other securities ........ 1,143

¥ 500
1,166

2006
(Thousands of
U.S. dollars)

$ –
9,728

4. Inventories
Inventories at March 31, 2006 and 2005 were as
follows:
2006

2005

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

Merchandise andfinished goods ....... ¥ 19,505 ¥ 13,996 $ 166,000
Raw materials ..........
9,255
7,626
78,766Work in process ........
7,657
6,301
65,165
Supplies .................
2,288
1,779
19,473¥ 38,705 ¥ 29,702 $ 329,404

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

Book value(Fair market Unrealized
value)
gain (loss)¥ 12,350
12,350¥ 21,892
21,892¥ 9,542
9,542

578
578
¥ 12,928

551
551¥ 22,443(27)(27)¥ 9,515

2005(Millions of yen)

Rental properties:
Land .......................................
Building ...................................
Structure ...................................

2006

2005
(Millions of yen)

5. Impairment Loss on Fixed Assets
The impairment loss on fixed assets for the year
ended March 31, 2005 related primarily to thesignificant decrease in the market value of theCompany’s land as well as to an overall deteriorationin its business environment.
Impairment loss on fixed assets for the year
ended March 31, 2005 consisted of the following:

Production facilities forpolyvinylpyrrolidone:
Machinery .................................
Structure ..................................
Building ...................................
Total ............................................

¥ 333
37
1
371

101
4
3
108
¥ 479

An impairment loss on rental properties andproduction facilities for polyvinylpyrrolidone for theyear ended March 31, 2005 was recorded at theamount at which the acquisition cost of each asset
exceeded an estimate of its future cash flows,
discounted at 1.7%.

The proceeds and gross realized gain and loss on sales of securities classified as other securities for the years
ended March 31, 2006 and 2005 were as follows:
2006

2005

2006

(Millions of yen)

26

Proceeds

Grossrealized
gain

Gross
realized
loss

¥ 176

¥ 56

¥ –

NIPPON SHOKUBAI CO., LTD.

(Thousands of U.S. dollars)

Proceeds

Grossrealized
gain

Gross
realized
loss

¥ 2

¥ 1

¥ –

Proceeds

Grossrealized
gain

Gross
realizedloss$ 1,498$ 477$–

Annual Report 200627

Notes to Consolidated Financial Statements (continued)

6. Short-Term Bank Loans and Long-Term Debt
Short-term bank loans consisted mainly of
unsecured loans. The average interest rates on shortterm bank loans outstanding at March 31, 2006 and2005 were 2.65% and 0.95%, respectively.
Long-term debt at March 31, 2006 and 2005
consisted of the following:

Assets pledged as collateral for short-term bankloans, long-term debt, including the current portion
thereof, and accounts and notes payable at March
31, 2006 and 2005 were as follows:

2006

Time deposits .......... ¥
8 ¥
8 $
68
Land ....................
293
55
2,493
Buildings and structures ..
197
30
1,677
Machinery and equipment ..
250
–
2,128
1,179
2,517 10,034
Investments in securities ..
¥ 1,927 ¥ 2,610 $ 16,400

2005(Millions of yen)

2006
(Thousands of
U.S. dollars)

0.81% unsecured bonds
due November 2009 ... ¥ 5,000 ¥ 5,000 $ 42,553
Unsecured loans frombanks and insurancecompanies, payable inyen, at rates from 0.49%
to 1.38%, due through2011 .................... 17,459 16,221 148,587
Unsecured loans frombanks, payable in U.S.
dollars, at rates from
2.74% to 3.60%, due
through 2010 .......... 5,663
9,274 48,196
Unsecured loans frombanks, payable in Euro,at rates from 2.55% to3.17%, due through2009 ................... 3,775
347 32,128
Secured loans from banks
and insurancecompanies, payable inyen, at rates from 1.20%
to 5.60%, due through2010 .................... 1,783
1,352 15,174
Subtotal .......... 33,680 32,194 286,638
Less current portion(5,317) (5,653) (45,251)
Total ...................... ¥ 28,363 ¥ 26,541 $ 241,387
The aggregate annual maturities of long-term debt
subsequent to March 31, 2006 are summarized below:

28

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

2007 .....................
2008 .....................
2009 .....................
2010 .....................
2011 and thereafter ....

¥ 5,317
5,293
4,510
9,961
8,599
¥ 33,680$ 45,251
45,04738,38384,77473,183$ 286,638

NIPPON SHOKUBAI CO., LTD.

2006

2005

(Millions of yen)

2006
(Thousands of
U.S. dollars)

7. Retirement Benefits
The following table sets forth the funded andaccrued status of the pension plans and the amounts
recognized in the consolidated balance sheets at
March 31, 2006 and 2005 for the Company’s and theconsolidated subsidiaries’ defined benefit plans:
2006

2005

(Millions of yen)

2006
(Thousands of
U.S. dollars)

Retirement benefit
obligation at end of year .. ¥ (29,937) ¥ (30,610) $ (254,783)
Fair value of plan
assets at end of year .... 25,406 19,643 216,221
Unfunded retirement
benefit obligation ...... (4,531) (10,967) (38,562)
Unrecognized actuarial loss ..
1,269
6,667 10,800
Unrecognized past
service cost .............
(762)(108) (6,485)
Net retirement benefit
obligation .............. (4,024) (4,408) (34,247)
Prepaid pension cost ....
2,730
2,348 23,234
Accrued retirement
benefits ................. ¥ (6,754) ¥ (6,756) $ (57,481)
The components of retirement benefit expenses for theyears ended March 31, 2006 and 2005 are outlined as follows:
2006

2005

(Millions of yen)

2006

The assumptions used in accounting for thedefined benefit plans for the years ended March 31,
2006 and 2005 were as follows:
2006

2005

Discount rate .......... Principally 1.9% Principally 1.9%
Expected rate of returnon plan assets ........ Principally 3.0% Principally 3.0%
8. 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, 2006 and 2005 was, in the aggregate,approximately 40.6%. The effective tax rate
reflected in the consolidated statements of income
for the years ended March 31, 2006 and 2005
differed from the above statutory tax rate for thefollowing reasons:
2006
Statutory tax rate ............................... 40.6 %Effect of:Valuation allowance ..........................
4.0
Tax credit for research anddevelopment costs ...........................
(3.9)
Equity in earnings of an unconsolidated
subsidiary and affiliates .....................
(1.5)
Other, net .......................................
(2.0)
Effective tax rates ............................... 37.2 %2005
Statutory tax rate ............................... 40.6 %Effect of:Tax credit for research and ...................
(4.3)
development costs
Tax loss carryforward .........................
(3.7)
Equity in earnings of an unconsolidated
subsidiary and affiliates .....................
(1.0)
Other, net .......................................
(0.4)
Effective tax rates ............................... 31.2 %(Thousands of
U.S. dollars)Service cost .............. ¥ 1,007¥ 950 $ 8,570
Interest cost ..............
537
677
4,570
Expected return on plan assets ..
(458)(435) (3,898)
Amortization:
Past service cost .......
(322)(273) (2,740)
Actuarial loss ..........
936
621
7,966
Retirement benefit expenses .. ¥ 1,700 ¥ 1,540 $ 14,468

Deferred income taxes reflect the net tax effectof the temporary differences between the carrying
amounts of the assets and liabilities calculated forfinancial reporting purposes and the corresponding
tax bases reported for income tax purposes. The
significant components of the deferred tax assets andliabilities of the Company and its consolidated
subsidiaries at March 31, 2006 and 2005 aresummarized as follows:

2006

2005

(Millions of yen)

2006
(Thousands of
U.S. dollars)

Deferred tax assets:
Accrued retirement benefits .. ¥ 1,989 ¥ 1,519 $ 16,928
Intercompany profit oninventories and property,
plant and equipment ...... 1,215
926 10,340
Tax loss carryforwards .. 1,152
647
9,804
Reserve for repairs ........ 1,081
902
9,200
Depreciation andamortization .............
693
715
5,898
Impairment loss of fixed
assets .................... 1,507
1,562 12,826
Accrued employees’ bonuses ..
819
759
6,970
Impairment of investments
in securities and other ..... 1,866
1,888 15,881
Accrued enterprise tax ....
481
444
4,094
Other ...................... 1,477
772 12,570
Gross deferred tax assets ... 12,280 10,134 104,511
Less: Valuation allowance .. (2,211) (1,064) (18,817)
Total deferred tax assets ... 10,069
9,070 85,694
Deferred tax liabilities:
Equity in earnings of aforeign affiliate .......... (1,152)(909) (9,804)
Net unrealized holding
gain on securities ........ (8,407) (3,862) (71,549)
Depreciation and amortization .. (852)(822) (7,251)
Deferred capital gain on property .. (340)(340) (2,894)
Reserve for depreciation
for tax purposes ......... (293)(110) (2,494)
Other ...................... (161)(84) (1,370)
Total deferred tax liabilities .. (11,205) (6,127) (95,362)
Net deferred tax assets ..... ¥ (1,136) ¥ 2,943 $ (9,668)
9. Shareholders’ Equity
The Commercial Code of Japan (the “Code”) provides
that an amount equal to at least 10% of the amounts to be
disbursed as distributions of earnings be appropriated to thelegal reserve until the sum of the legal reserve and additional
paid-in capital equals 25% of the common stock account. The
Code also stipulates that, to the extent that the sum of theadditional paid-in capital account and the legal reserve
exceeds 25% of the common stock account, the amount of
any such excess is available for appropriation by resolution of
the shareholders.
Retained earnings include the legal reserve provided inaccordance with the Code. The legal reserve of the Company
included in retained earnings amounted to ¥3,920 million($33,362 thousand) at March 31, 2006 and 2005.
The new Corporation Law of Japan (the “Law”), which
superseded most of the provisions of the Commercial Code ofJapan, went into effect on May 1, 2006. The Law stipulates
similar requirements on distribution of earnings to those of
the Code. Under the Law, however, such distributions can bemade at any time by resolution of the shareholders, or by the
Board of Directors if certain conditions are met.
Annual Report 2006

29

Notes to Consolidated Financial Statements (continued)

6. Short-Term Bank Loans and Long-Term Debt
Short-term bank loans consisted mainly of
unsecured loans. The average interest rates on shortterm bank loans outstanding at March 31, 2006 and2005 were 2.65% and 0.95%, respectively.
Long-term debt at March 31, 2006 and 2005
consisted of the following:

Assets pledged as collateral for short-term bankloans, long-term debt, including the current portion
thereof, and accounts and notes payable at March
31, 2006 and 2005 were as follows:

2006

Time deposits .......... ¥
8 ¥
8 $
68
Land ....................
293
55
2,493
Buildings and structures ..
197
30
1,677
Machinery and equipment ..
250
–
2,128
1,179
2,517 10,034
Investments in securities ..
¥ 1,927 ¥ 2,610 $ 16,400

2005(Millions of yen)

2006
(Thousands of
U.S. dollars)

0.81% unsecured bonds
due November 2009 ... ¥ 5,000 ¥ 5,000 $ 42,553
Unsecured loans frombanks and insurancecompanies, payable inyen, at rates from 0.49%
to 1.38%, due through2011 .................... 17,459 16,221 148,587
Unsecured loans frombanks, payable in U.S.
dollars, at rates from
2.74% to 3.60%, due
through 2010 .......... 5,663
9,274 48,196
Unsecured loans frombanks, payable in Euro,at rates from 2.55% to3.17%, due through2009 ................... 3,775
347 32,128
Secured loans from banks
and insurancecompanies, payable inyen, at rates from 1.20%
to 5.60%, due through2010 .................... 1,783
1,352 15,174
Subtotal .......... 33,680 32,194 286,638
Less current portion(5,317) (5,653) (45,251)
Total ...................... ¥ 28,363 ¥ 26,541 $ 241,387
The aggregate annual maturities of long-term debt
subsequent to March 31, 2006 are summarized below:

28

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

2007 .....................
2008 .....................
2009 .....................
2010 .....................
2011 and thereafter ....

¥ 5,317
5,293
4,510
9,961
8,599
¥ 33,680$ 45,251
45,04738,38384,77473,183$ 286,638

NIPPON SHOKUBAI CO., LTD.

2006

2005

(Millions of yen)

2006
(Thousands of
U.S. dollars)

7. Retirement Benefits
The following table sets forth the funded andaccrued status of the pension plans and the amounts
recognized in the consolidated balance sheets at
March 31, 2006 and 2005 for the Company’s and theconsolidated subsidiaries’ defined benefit plans:
2006

2005

(Millions of yen)

2006
(Thousands of
U.S. dollars)

Retirement benefit
obligation at end of year .. ¥ (29,937) ¥ (30,610) $ (254,783)
Fair value of plan
assets at end of year .... 25,406 19,643 216,221
Unfunded retirement
benefit obligation ...... (4,531) (10,967) (38,562)
Unrecognized actuarial loss ..
1,269
6,667 10,800
Unrecognized past
service cost .............
(762)(108) (6,485)
Net retirement benefit
obligation .............. (4,024) (4,408) (34,247)
Prepaid pension cost ....
2,730
2,348 23,234
Accrued retirement
benefits ................. ¥ (6,754) ¥ (6,756) $ (57,481)
The components of retirement benefit expenses for theyears ended March 31, 2006 and 2005 are outlined as follows:
2006

2005

(Millions of yen)

2006

The assumptions used in accounting for thedefined benefit plans for the years ended March 31,
2006 and 2005 were as follows:
2006

2005

Discount rate .......... Principally 1.9% Principally 1.9%
Expected rate of returnon plan assets ........ Principally 3.0% Principally 3.0%
8. 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, 2006 and 2005 was, in the aggregate,approximately 40.6%. The effective tax rate
reflected in the consolidated statements of income
for the years ended March 31, 2006 and 2005
differed from the above statutory tax rate for thefollowing reasons:
2006
Statutory tax rate ............................... 40.6 %Effect of:Valuation allowance ..........................
4.0
Tax credit for research anddevelopment costs ...........................
(3.9)
Equity in earnings of an unconsolidated
subsidiary and affiliates .....................
(1.5)
Other, net .......................................
(2.0)
Effective tax rates ............................... 37.2 %2005
Statutory tax rate ............................... 40.6 %Effect of:Tax credit for research and ...................
(4.3)
development costs
Tax loss carryforward .........................
(3.7)
Equity in earnings of an unconsolidated
subsidiary and affiliates .....................
(1.0)
Other, net .......................................
(0.4)
Effective tax rates ............................... 31.2 %(Thousands of
U.S. dollars)Service cost .............. ¥ 1,007¥ 950 $ 8,570
Interest cost ..............
537
677
4,570
Expected return on plan assets ..
(458)(435) (3,898)
Amortization:
Past service cost .......
(322)(273) (2,740)
Actuarial loss ..........
936
621
7,966
Retirement benefit expenses .. ¥ 1,700 ¥ 1,540 $ 14,468

Deferred income taxes reflect the net tax effectof the temporary differences between the carrying
amounts of the assets and liabilities calculated forfinancial reporting purposes and the corresponding
tax bases reported for income tax purposes. The
significant components of the deferred tax assets andliabilities of the Company and its consolidated
subsidiaries at March 31, 2006 and 2005 aresummarized as follows:

2006

2005

(Millions of yen)

2006
(Thousands of
U.S. dollars)

Deferred tax assets:
Accrued retirement benefits .. ¥ 1,989 ¥ 1,519 $ 16,928
Intercompany profit oninventories and property,
plant and equipment ...... 1,215
926 10,340
Tax loss carryforwards .. 1,152
647
9,804
Reserve for repairs ........ 1,081
902
9,200
Depreciation andamortization .............
693
715
5,898
Impairment loss of fixed
assets .................... 1,507
1,562 12,826
Accrued employees’ bonuses ..
819
759
6,970
Impairment of investments
in securities and other ..... 1,866
1,888 15,881
Accrued enterprise tax ....
481
444
4,094
Other ...................... 1,477
772 12,570
Gross deferred tax assets ... 12,280 10,134 104,511
Less: Valuation allowance .. (2,211) (1,064) (18,817)
Total deferred tax assets ... 10,069
9,070 85,694
Deferred tax liabilities:
Equity in earnings of aforeign affiliate .......... (1,152)(909) (9,804)
Net unrealized holding
gain on securities ........ (8,407) (3,862) (71,549)
Depreciation and amortization .. (852)(822) (7,251)
Deferred capital gain on property .. (340)(340) (2,894)
Reserve for depreciation
for tax purposes ......... (293)(110) (2,494)
Other ...................... (161)(84) (1,370)
Total deferred tax liabilities .. (11,205) (6,127) (95,362)
Net deferred tax assets ..... ¥ (1,136) ¥ 2,943 $ (9,668)
9. Shareholders’ Equity
The Commercial Code of Japan (the “Code”) provides
that an amount equal to at least 10% of the amounts to be
disbursed as distributions of earnings be appropriated to thelegal reserve until the sum of the legal reserve and additional
paid-in capital equals 25% of the common stock account. The
Code also stipulates that, to the extent that the sum of theadditional paid-in capital account and the legal reserve
exceeds 25% of the common stock account, the amount of
any such excess is available for appropriation by resolution of
the shareholders.
Retained earnings include the legal reserve provided inaccordance with the Code. The legal reserve of the Company
included in retained earnings amounted to ¥3,920 million($33,362 thousand) at March 31, 2006 and 2005.
The new Corporation Law of Japan (the “Law”), which
superseded most of the provisions of the Commercial Code ofJapan, went into effect on May 1, 2006. The Law stipulates
similar requirements on distribution of earnings to those of
the Code. Under the Law, however, such distributions can bemade at any time by resolution of the shareholders, or by the
Board of Directors if certain conditions are met.
Annual Report 2006

29

Notes to Consolidated Financial Statements (continued)

10. Research and Development Costs
Research and development costs included in cost of
sales and selling, general and administrative expenses for theyears ended March 31, 2006 and 2005 totaled ¥10,120
million ($86,128 thousand) and ¥9,529 million, respectively.

notes discounted by banks and notes endorsed in theaggregate amount of ¥917 million ($7,804
thousand).

11. Leases
The following pro forma amounts represent theacquisition costs (including the interest portion), accumulated
depreciation and net book value of the leased assets at March
31, 2006 and 2005, which would have been reflected in thebalance sheets if finance lease accounting had been applied to
the finance leases currently accounted for as operating leases:

2006

2006

2005

(Millions of yen)

Machinery and equipment and software:
Acquisition costs .... ¥ 536¥ 490
Accumulated
depreciation ........ (388)(292)
Net book value ...... ¥ 148
¥ 198

2006
(Thousands of
U.S. dollars)$ 4,562(3,302)$ 1,260

Lease payments relating to finance leases accounted
for as operating leases amounted to ¥110 million ($936
thousand) and ¥125 million for the years ended March
31, 2006 and 2005, respectively. Depreciation of theleased assets calculated by the straight-line method
over the respective lease terms amounted to ¥110
million ($936 thousand) and ¥125 million for the years
ended March 31, 2006 and 2005, respectively.
Future minimum lease payments (including theinterest portion thereon) subsequent to March 31, 2006
for finance leases accounted for as operating leases are
summarized as follows:Year ending March 31,
2006.................................
2007 and thereafter ...............

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

¥ 71
77
¥ 148

$

604
656
$ 1,260

12. Contingent Liabilities
At March 31, 2006, the Company and one
consolidated subsidiary were contingently liable asguarantors of indebtedness of affiliates, theCompany’s employees and others in the aggregate
amount of ¥2,664 million ($22,672 thousand).
In addition, at March 31, 2006, two consolidated
subsidiaries had contingent liabilities arising from30

NIPPON SHOKUBAI CO., LTD.

13. Amounts per Share
2005
(Yen)

2006
(U.S. dollars)

Net income ............. ¥ 85.89 ¥ 81.37
Cash dividends ......... 16.00
13.00
Net assets ............... 875.00 757.72$ 0.730.14
7.45

Net income per share has been computed basedon the net income attributable to shareholders ofcommon stock and the weighted-average number ofshares of common stock outstanding during the year.
Diluted net income per share has not been presented
for the years ended March 31, 2006 and 2005 sinceneither the Company nor any of the consolidated
subsidiaries had any potentially dilutive shares at
March 31, 2006 and 2005.
The amounts per share of net assets have been
computed based on the net assets available for
distribution to shareholders of common stock andthe number of shares of common stock outstandingat the year end.
Cash dividends per share represent the cash
dividends declared as applicable to the respective
years together with the interim cash dividends paid.
The financial data used in the computation of net
income per share for the years ended March 31,
2006 and 2005 is summarized as follows:
2006

2005

(Millions of yen)

2006
(Thousands of
U.S. dollars)

Net income ............. ¥ 16,257 ¥ 15,705 $138,357
Deductions from net income:
Bonuses to directors
and corporate auditors ..
–
(125)
–
Adjusted net income
attributable toshareholders ofcommon stock ....... ¥ 16,257 ¥ 15,580 $138,357
Weighted-average
number of sharesof common stock
outstanding forthe year(Thousands of shares) .. 189,287 191,486 189,287

14. Derivatives
Derivative financial instruments are utilized by theCompany and its consolidated subsidiaries principally
to reduce the risk of fluctuation in interest rates andforeign exchange rates. The Company has establisheda control environment which includes policies andprocedures for risk assessment and for the approval,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 risks arising from forward
foreign exchange contracts and interest-rate swaps.
The Company and its consolidated subsidiaries arealso exposed to the risk of credit loss in the event of
nonperformance by the counterparties to these forward
foreign exchange contracts and interest-rate swap
contracts; however, the Company and its consolidated
subsidiaries do not anticipate nonperformance by anyof the counterparties, all of whom are financial
institutions with high credit ratings.
At March 31, 2006, two consolidated subsidiaries
had open interest-rate swap positions. The total valueof these positions, however, was immaterial.

15. Supplemental Information on Consolidated
Statements of Cash FlowsIn July 2004, the Company purchased shares ofSingapore Acrylic Pte Ltd. and Singapore Glacial
Acrylic Pte Ltd. and initially consolidated theaccounts of these companies for the year ended
March 31, 2005. The following summarizes theassets and liabilities included in consolidation andpresents the acquisition costs and cash disbursements:
2005(Millions of yen)

Current assets .................................
Non-current assets ............................
Excess of investment cost overunderlying net assets of aconsolidated subsidiary ...................
Current liabilities .............................
Non-current liabilities .......................
Minority interests .............................
Acquisition costs .............................
Cash and cash equivalents ofthe two companies .........................
Cash disbursements ..........................

¥ 1,671
3,355

280(1,299)(42)(1,545)2,420(290)¥ 2,130

16. Segment Information
The Company and its consolidated subsidiaries are primarily engaged in the manufacture and sales of
products in Japan and overseas.
Business Segments
The business segment information of the Company and its consolidated subsidiaries for the years ended
March 31, 2006 and 2005 is outlined as follows:Year ended March 31, 2006
Basic
Functional
chemicals chemicals
I. Sales and operating income
Sales to third parties ...............
¥ 94,095 ¥ 116,300
Intergroup sales and transfers ....
17,063460
Total sales ...........................
111,158
116,760
Operating expenses ................
100,000
107,498
Operating income ..................
¥ 11,158 ¥ 9,262
II. Assets, depreciation and capital expenditures
Total assets ..........................
¥ 94,753 ¥ 133,032
Depreciation and amortization ...
3,448
6,693
Capital expenditures ..............
11,923
13,617

Environment
andcatalysts

Total

Eliminations or
corporate

Consolidated(Millions of yen)

¥ 22,046
1,302
23,34820,226¥ 3,122¥ 232,441
18,825251,266
227,724¥ 23,542¥– ¥ 232,441(18,825)–(18,825) 232,441(18,511) 209,213¥ (314) ¥ 23,228¥ 23,309
504
394¥ 251,094
10,64525,934¥ 40,470––¥ 291,564
10,64525,934
Annual Report 200631

Notes to Consolidated Financial Statements (continued)

10. Research and Development Costs
Research and development costs included in cost of
sales and selling, general and administrative expenses for theyears ended March 31, 2006 and 2005 totaled ¥10,120
million ($86,128 thousand) and ¥9,529 million, respectively.

notes discounted by banks and notes endorsed in theaggregate amount of ¥917 million ($7,804
thousand).

11. Leases
The following pro forma amounts represent theacquisition costs (including the interest portion), accumulated
depreciation and net book value of the leased assets at March
31, 2006 and 2005, which would have been reflected in thebalance sheets if finance lease accounting had been applied to
the finance leases currently accounted for as operating leases:

2006

2006

2005

(Millions of yen)

Machinery and equipment and software:
Acquisition costs .... ¥ 536¥ 490
Accumulated
depreciation ........ (388)(292)
Net book value ...... ¥ 148
¥ 198

2006
(Thousands of
U.S. dollars)$ 4,562(3,302)$ 1,260

Lease payments relating to finance leases accounted
for as operating leases amounted to ¥110 million ($936
thousand) and ¥125 million for the years ended March
31, 2006 and 2005, respectively. Depreciation of theleased assets calculated by the straight-line method
over the respective lease terms amounted to ¥110
million ($936 thousand) and ¥125 million for the years
ended March 31, 2006 and 2005, respectively.
Future minimum lease payments (including theinterest portion thereon) subsequent to March 31, 2006
for finance leases accounted for as operating leases are
summarized as follows:Year ending March 31,
2006.................................
2007 and thereafter ...............

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

¥ 71
77
¥ 148

$

604
656
$ 1,260

12. Contingent Liabilities
At March 31, 2006, the Company and one
consolidated subsidiary were contingently liable asguarantors of indebtedness of affiliates, theCompany’s employees and others in the aggregate
amount of ¥2,664 million ($22,672 thousand).
In addition, at March 31, 2006, two consolidated
subsidiaries had contingent liabilities arising from30

NIPPON SHOKUBAI CO., LTD.

13. Amounts per Share
2005
(Yen)

2006
(U.S. dollars)

Net income ............. ¥ 85.89 ¥ 81.37
Cash dividends ......... 16.00
13.00
Net assets ............... 875.00 757.72$ 0.730.14
7.45

Net income per share has been computed basedon the net income attributable to shareholders ofcommon stock and the weighted-average number ofshares of common stock outstanding during the year.
Diluted net income per share has not been presented
for the years ended March 31, 2006 and 2005 sinceneither the Company nor any of the consolidated
subsidiaries had any potentially dilutive shares at
March 31, 2006 and 2005.
The amounts per share of net assets have been
computed based on the net assets available for
distribution to shareholders of common stock andthe number of shares of common stock outstandingat the year end.
Cash dividends per share represent the cash
dividends declared as applicable to the respective
years together with the interim cash dividends paid.
The financial data used in the computation of net
income per share for the years ended March 31,
2006 and 2005 is summarized as follows:
2006

2005

(Millions of yen)

2006
(Thousands of
U.S. dollars)

Net income ............. ¥ 16,257 ¥ 15,705 $138,357
Deductions from net income:
Bonuses to directors
and corporate auditors ..
–
(125)
–
Adjusted net income
attributable toshareholders ofcommon stock ....... ¥ 16,257 ¥ 15,580 $138,357
Weighted-average
number of sharesof common stock
outstanding forthe year(Thousands of shares) .. 189,287 191,486 189,287

14. Derivatives
Derivative financial instruments are utilized by theCompany and its consolidated subsidiaries principally
to reduce the risk of fluctuation in interest rates andforeign exchange rates. The Company has establisheda control environment which includes policies andprocedures for risk assessment and for the approval,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 risks arising from forward
foreign exchange contracts and interest-rate swaps.
The Company and its consolidated subsidiaries arealso exposed to the risk of credit loss in the event of
nonperformance by the counterparties to these forward
foreign exchange contracts and interest-rate swap
contracts; however, the Company and its consolidated
subsidiaries do not anticipate nonperformance by anyof the counterparties, all of whom are financial
institutions with high credit ratings.
At March 31, 2006, two consolidated subsidiaries
had open interest-rate swap positions. The total valueof these positions, however, was immaterial.

15. Supplemental Information on Consolidated
Statements of Cash FlowsIn July 2004, the Company purchased shares ofSingapore Acrylic Pte Ltd. and Singapore Glacial
Acrylic Pte Ltd. and initially consolidated theaccounts of these companies for the year ended
March 31, 2005. The following summarizes theassets and liabilities included in consolidation andpresents the acquisition costs and cash disbursements:
2005(Millions of yen)

Current assets .................................
Non-current assets ............................
Excess of investment cost overunderlying net assets of aconsolidated subsidiary ...................
Current liabilities .............................
Non-current liabilities .......................
Minority interests .............................
Acquisition costs .............................
Cash and cash equivalents ofthe two companies .........................
Cash disbursements ..........................

¥ 1,671
3,355

280(1,299)(42)(1,545)2,420(290)¥ 2,130

16. Segment Information
The Company and its consolidated subsidiaries are primarily engaged in the manufacture and sales of
products in Japan and overseas.
Business Segments
The business segment information of the Company and its consolidated subsidiaries for the years ended
March 31, 2006 and 2005 is outlined as follows:Year ended March 31, 2006
Basic
Functional
chemicals chemicals
I. Sales and operating income
Sales to third parties ...............
¥ 94,095 ¥ 116,300
Intergroup sales and transfers ....
17,063460
Total sales ...........................
111,158
116,760
Operating expenses ................
100,000
107,498
Operating income ..................
¥ 11,158 ¥ 9,262
II. Assets, depreciation and capital expenditures
Total assets ..........................
¥ 94,753 ¥ 133,032
Depreciation and amortization ...
3,448
6,693
Capital expenditures ..............
11,923
13,617

Environment
andcatalysts

Total

Eliminations or
corporate

Consolidated(Millions of yen)

¥ 22,046
1,302
23,34820,226¥ 3,122¥ 232,441
18,825251,266
227,724¥ 23,542¥– ¥ 232,441(18,825)–(18,825) 232,441(18,511) 209,213¥ (314) ¥ 23,228¥ 23,309
504
394¥ 251,094
10,64525,934¥ 40,470––¥ 291,564
10,64525,934
Annual Report 200631

Notes to Consolidated Financial Statements (continued)

Year ended March 31, 2005
Environment
EliminaBasic
Functionalandtions orchemicals chemicals catalysts
Total
corporate
I. Sales and operating income
Sales to third parties ...............
¥ 80,027
Intergroup sales and transfers ....
12,330Total sales ...........................
92,357
Operating expenses ................
82,426
Operating income ..................
¥ 9,931
II. Assets, depreciation, impairment loss
and capital expenditures
Total assets ..........................
¥ 81,919
Depreciation and amortization ...
2,963
Impairment loss ....................
–
Capital expenditures ..............
5,090

Consolidated

Geographical Segments
The geographical segment information of the Company and its consolidated subsidiaries for the years ended
March 31, 2006 and 2005 is outlined as follows:(Millions of yen)

Year ended March 31, 2006

¥ 99,355
441
99,79689,707¥ 10,089¥ 17,840
200
18,04015,910¥ 2,130¥ 197,222
12,971
210,193
188,043¥ 22,150¥¥ 113,542
5,624
479
7,537

¥ 22,409
407–
375¥ 217,870
8,994
479
13,002¥ 31,479–––– ¥ 197,222(12,971)–(12,971) 197,222(13,033) 175,010¥
62¥ 22,212

Year ended March 31, 2006
Environment
EliminaBasic
Functionalandtions orchemicals chemicals catalysts
Total
corporate
I. Sales and operating income
Sales to third parties ...............
$ 800,809 $ 989,787
Intergroup sales and transfers ....
145,217
3,915
Total sales ...........................
946,026
993,702
Operating expenses ................
851,064
914,876
Operating income ..................
$ 94,962$ 78,826
II. Assets, depreciation, impairment loss
and capital expenditures
Total assets ..........................
$ 806,409 $ 1,132,187
Depreciation and amortization ...
29,34556,962
Capital expenditures ..............
101,472
115,889¥ 249,349
8,994
479
13,002Japan
I. Sales and operating income
Sales to third parties .. ¥ 168,773
Intergroup sales andtransfers ...............
19,061
Total sales .............. 187,834
Operating expenses ... 167,484
Operating income ..... ¥ 20,350
II. Total assets ........... ¥ 192,113

Europe

Asia

Other

Total

Eliminations or
corporate

Consolidated¥ 232,441(Millions of yen)

¥ 23,935¥ 27,405¥ 12,328¥ 232,441¥–

61
23,99623,789¥207¥ 18,995

934
28,33924,676¥ 3,663¥ 31,8188112,40913,727¥ (1,318)¥ 14,919

20,137
252,578
229,676¥ 22,902¥ 257,845(20,137)–(20,137) 232,441(20,463) 209,213¥
326 ¥ 23,228¥ 33,719 ¥ 291,564

Year ended March 31, 2005
Consolidated(Thousands of U.S.dollars)$ 187,625 $ 1,978,221
11,081
160,213
198,706 2,138,434
172,136 1,938,076$ 26,570 $ 200,358$– $ 1,978,221(160,213)–(160,213) 1,978,221(157,540) 1,780,536$ (2,673) $ 197,685$ 198,374 $ 2,136,970
4,289
90,596
3,354
220,715$ 344,426 $ 2,481,396–
90,596–
220,715

Japan
I. Sales and operating income
Sales to third parties .. ¥ 147,020
Intergroup sales andtransfers ...............
15,096
Total sales .............. 162,116
Operating expenses ... 145,232
Operating income ..... ¥ 16,884
II. Total assets ........... ¥ 170,752

Europe

Asia

Other

Total

Eliminations or
corporate

Consolidated¥ 197,222(Millions of yen)

¥ 22,701¥ 17,611¥ 9,890¥ 197,222¥–

52
22,753
21,783¥970¥ 13,428

176
17,787
14,601¥ 3,186¥ 27,355

603
10,493
10,247¥246¥ 12,634

15,927
213,149
191,863¥ 21,286¥ 224,169(15,927)–(15,927) 197,222(16,853) 175,010¥
926 ¥ 22,212¥ 25,180 ¥ 249,349

Year ended March 31, 2006

Japan
I. Sales and operating income
Sales to third parties .. $ 1,436,366
Intergroup sales andtransfers ...............
162,221
Total sales .............. 1,598,587
Operating expenses ... 1,425,396
Operating income ..... $ 173,191
II. Total assets ........... $ 1,635,004

32

NIPPON SHOKUBAI CO., LTD.

Europe

Asia

Other

Total

Eliminations or
corporate

Consolidated(Thousands of U.S.dollars)$ 203,702$ 233,234$ 104,919$ 1,978,221

519
204,221202,459$ 1,762$ 161,660

7,949
241,183
210,008$ 31,175$ 270,791

690
171,379
105,6092,149,600
116,826
1,954,689$ (11,217) $ 194,911$ 126,971 $ 2,194,426$– $ 1,978,221(171,379)–(171,379) 1,978,221(174,153) 1,780,536$ 2,774 $ 197,685$ 286,970 $ 2,481,396

Annual Report 200633

Notes to Consolidated Financial Statements (continued)

Year ended March 31, 2005
Environment
EliminaBasic
Functionalandtions orchemicals chemicals catalysts
Total
corporate
I. Sales and operating income
Sales to third parties ...............
¥ 80,027
Intergroup sales and transfers ....
12,330Total sales ...........................
92,357
Operating expenses ................
82,426
Operating income ..................
¥ 9,931
II. Assets, depreciation, impairment loss
and capital expenditures
Total assets ..........................
¥ 81,919
Depreciation and amortization ...
2,963
Impairment loss ....................
–
Capital expenditures ..............
5,090

Consolidated

Geographical Segments
The geographical segment information of the Company and its consolidated subsidiaries for the years ended
March 31, 2006 and 2005 is outlined as follows:(Millions of yen)

Year ended March 31, 2006

¥ 99,355
441
99,79689,707¥ 10,089¥ 17,840
200
18,04015,910¥ 2,130¥ 197,222
12,971
210,193
188,043¥ 22,150¥¥ 113,542
5,624
479
7,537

¥ 22,409
407–
375¥ 217,870
8,994
479
13,002¥ 31,479–––– ¥ 197,222(12,971)–(12,971) 197,222(13,033) 175,010¥
62¥ 22,212

Year ended March 31, 2006
Environment
EliminaBasic
Functionalandtions orchemicals chemicals catalysts
Total
corporate
I. Sales and operating income
Sales to third parties ...............
$ 800,809 $ 989,787
Intergroup sales and transfers ....
145,217
3,915
Total sales ...........................
946,026
993,702
Operating expenses ................
851,064
914,876
Operating income ..................
$ 94,962$ 78,826
II. Assets, depreciation, impairment loss
and capital expenditures
Total assets ..........................
$ 806,409 $ 1,132,187
Depreciation and amortization ...
29,34556,962
Capital expenditures ..............
101,472
115,889¥ 249,349
8,994
479
13,002Japan
I. Sales and operating income
Sales to third parties .. ¥ 168,773
Intergroup sales andtransfers ...............
19,061
Total sales .............. 187,834
Operating expenses ... 167,484
Operating income ..... ¥ 20,350
II. Total assets ........... ¥ 192,113

Europe

Asia

Other

Total

Eliminations or
corporate

Consolidated¥ 232,441(Millions of yen)

¥ 23,935¥ 27,405¥ 12,328¥ 232,441¥–

61
23,99623,789¥207¥ 18,995

934
28,33924,676¥ 3,663¥ 31,8188112,40913,727¥ (1,318)¥ 14,919

20,137
252,578
229,676¥ 22,902¥ 257,845(20,137)–(20,137) 232,441(20,463) 209,213¥
326 ¥ 23,228¥ 33,719 ¥ 291,564

Year ended March 31, 2005
Consolidated(Thousands of U.S.dollars)$ 187,625 $ 1,978,221
11,081
160,213
198,706 2,138,434
172,136 1,938,076$ 26,570 $ 200,358$– $ 1,978,221(160,213)–(160,213) 1,978,221(157,540) 1,780,536$ (2,673) $ 197,685$ 198,374 $ 2,136,970
4,289
90,596
3,354
220,715$ 344,426 $ 2,481,396–
90,596–
220,715

Japan
I. Sales and operating income
Sales to third parties .. ¥ 147,020
Intergroup sales andtransfers ...............
15,096
Total sales .............. 162,116
Operating expenses ... 145,232
Operating income ..... ¥ 16,884
II. Total assets ........... ¥ 170,752

Europe

Asia

Other

Total

Eliminations or
corporate

Consolidated¥ 197,222(Millions of yen)

¥ 22,701¥ 17,611¥ 9,890¥ 197,222¥–

52
22,753
21,783¥970¥ 13,428

176
17,787
14,601¥ 3,186¥ 27,355

603
10,493
10,247¥246¥ 12,634

15,927
213,149
191,863¥ 21,286¥ 224,169(15,927)–(15,927) 197,222(16,853) 175,010¥
926 ¥ 22,212¥ 25,180 ¥ 249,349

Year ended March 31, 2006

Japan
I. Sales and operating income
Sales to third parties .. $ 1,436,366
Intergroup sales andtransfers ...............
162,221
Total sales .............. 1,598,587
Operating expenses ... 1,425,396
Operating income ..... $ 173,191
II. Total assets ........... $ 1,635,004

32

NIPPON SHOKUBAI CO., LTD.

Europe

Asia

Other

Total

Eliminations or
corporate

Consolidated(Thousands of U.S.dollars)$ 203,702$ 233,234$ 104,919$ 1,978,221

519
204,221202,459$ 1,762$ 161,660

7,949
241,183
210,008$ 31,175$ 270,791

690
171,379
105,6092,149,600
116,826
1,954,689$ (11,217) $ 194,911$ 126,971 $ 2,194,426$– $ 1,978,221(171,379)–(171,379) 1,978,221(174,153) 1,780,536$ 2,774 $ 197,685$ 286,970 $ 2,481,396

Annual Report 200633

Notes to Consolidated Financial Statements (continued)

Overseas Sales
Overseas sales, which include export sales of the Company and its domestic consolidated subsidiaries andsales (other than exports to Japan) of the overseas consolidated subsidiaries, for the years ended March 31, 2006
and 2005 are summarized as follows:

17. Subsequent Event
The following appropriations of retained earnings of the Company, which have not been reflected in theaccompanying consolidated financial statements for the year ended March 31, 2006, were approved at ashareholders’ meeting held on June 21, 2006:

Year ended March 31, 2006
Asia

EuropeNorth
America

Other

Total

(Millionsof yen)(Thousands of
U.S. dollars)¥ 1,599$ 13,609(Millions of yen)Overseas sales ............................................ ¥ 48,385
Overseas sales as a percentage ofconsolidated net sales ................................
20.8%¥ 32,788¥ 18,623¥ 6,958¥ 106,754

14.1%

8.0%

3.0%

45.9%

Cash dividends (¥8.50 = $0.07 per share) ..........................................................

Year ended March 31, 2005
Asia

EuropeNorth
America

Other

Total

(Millions of yen)Overseas sales ............................................ ¥ 36,309
Overseas sales as a percentage of
18.4%
consolidated net sales ................................

¥ 28,688¥ 15,975¥ 4,079¥ 85,051

14.5%

8.1%

2.1%

43.1%

Year ended March 31, 2006
Asia

EuropeNorth
America

Other

Total

(Thousands of U.S. dollars)

Overseas sales ............................................ $ 411,787

34

NIPPON SHOKUBAI CO., LTD.

$ 279,047$ 158,494$ 59,217$ 908,545

Annual Report 200635

Notes to Consolidated Financial Statements (continued)

Overseas Sales
Overseas sales, which include export sales of the Company and its domestic consolidated subsidiaries andsales (other than exports to Japan) of the overseas consolidated subsidiaries, for the years ended March 31, 2006
and 2005 are summarized as follows:

17. Subsequent Event
The following appropriations of retained earnings of the Company, which have not been reflected in theaccompanying consolidated financial statements for the year ended March 31, 2006, were approved at ashareholders’ meeting held on June 21, 2006:

Year ended March 31, 2006
Asia

EuropeNorth
America

Other

Total

(Millionsof yen)(Thousands of
U.S. dollars)¥ 1,599$ 13,609(Millions of yen)Overseas sales ............................................ ¥ 48,385
Overseas sales as a percentage ofconsolidated net sales ................................
20.8%¥ 32,788¥ 18,623¥ 6,958¥ 106,754

14.1%

8.0%

3.0%

45.9%

Cash dividends (¥8.50 = $0.07 per share) ..........................................................

Year ended March 31, 2005
Asia

EuropeNorth
America

Other

Total

(Millions of yen)Overseas sales ............................................ ¥ 36,309
Overseas sales as a percentage of
18.4%
consolidated net sales ................................

¥ 28,688¥ 15,975¥ 4,079¥ 85,051

14.5%

8.1%

2.1%

43.1%

Year ended March 31, 2006
Asia

EuropeNorth
America

Other

Total

(Thousands of U.S. dollars)

Overseas sales ............................................ $ 411,787

34

NIPPON SHOKUBAI CO., LTD.

$ 279,047$ 158,494$ 59,217$ 908,545

Annual Report 2006

35

Corporate Data (as of March 31, 2006)
Organization

NIPPON SHOKUBAI CO., LTD.
Incorporated
Capital
Number of Employees
WebsiteDivision / Department

Stock Listings
First Section, Tokyo Stock ExchangeFirst Section, Osaka Securities Exchange
Transfer Agent
Mitsubishi UFJ Trust and Banking Corporation
4-5, Marunouchi, 1-chome, Chiyoda-ku,
Tokyo, 100-8212, Japan

August 21, 1941
¥16,529,413,238
Consolidated: 2,806
Non-consolidated: 1,730
http://www.shokubai.co.jp

Common Stock
Authorized: 424,000,000 shares
Issued:194,881,287 sharesInternal Audit Office
Corporate Planning
Informational Technology Management Office
Administration
Board of Directors

President
Finance & Accounting

Osaka OfficeSuita Plant

Himeji Plant
Advanced Materials Research Center
Strategic Technology Research Center
Superabsorbents Research Center
Catalysts Research Center
Process Technology Center

Advanced Technology Research Center
Strategic Technology Research Center
E&I Materials Research Center
Fine & Specialty Chemicals Research Center

Corporate
Management
Committee

Nippoh Chemicals Co., Ltd.

Responsible Care

Production

Tokyo Fine Chemical Co., Ltd.

Business PlanningShinritsu Co., Ltd.
E&I Materials Research Center

Research & Development

Nihon Jyoryu Kogyo Co., Ltd.

Chugoku Kako Co., Ltd.

Ethylene Oxide Business

Ehime Plant

Acrylic BusinessTokyo Office
Kawasaki Plant

Fine & Specialty Chemicals BusinessNippon Polyester Co., Ltd.

Performance Chemicals Business

Nisshoku Butsuryu Co., Ltd.

E&I Materials Business*

Environment & Catalysts BusinessNippon Shokubai Europe N.V.
NISSHOKU CHEMICAL INDUSTRY(ZHANGJIAGANG) CO., LTD.
Shanghai Office

Shanghai Office
NA Industries, Inc.

Kawasaki Plant

Himeji Plant
NIPPON SHOKUBAI (ASIA) PTE LTD
Singapore Acrylic Pte Ltd.
Singapore Glacial Acrylic Pte Ltd.

Suita Plant

PT. NIPPON SHOKUBAI INDONESIA

Board of Corporate Auditors
Corporate Auditors

36

NIPPON SHOKUBAI CO., LTD.

Auditors’ Office* E&I : Electronic & Information(See Page 5)

Annual Report 200637

Corporate Data (as of March 31, 2006)
Organization

NIPPON SHOKUBAI CO., LTD.
Incorporated
Capital
Number of Employees
WebsiteDivision / Department

Stock Listings
First Section, Tokyo Stock ExchangeFirst Section, Osaka Securities Exchange
Transfer Agent
Mitsubishi UFJ Trust and Banking Corporation
4-5, Marunouchi, 1-chome, Chiyoda-ku,
Tokyo, 100-8212, Japan

August 21, 1941
¥16,529,413,238
Consolidated: 2,806
Non-consolidated: 1,730
http://www.shokubai.co.jp

Common Stock
Authorized: 424,000,000 shares
Issued:194,881,287 sharesInternal Audit Office
Corporate Planning
Informational Technology Management Office
Administration
Board of Directors

President
Finance & Accounting

Osaka OfficeSuita Plant

Himeji Plant
Advanced Materials Research Center
Strategic Technology Research Center
Superabsorbents Research Center
Catalysts Research Center
Process Technology Center

Advanced Technology Research Center
Strategic Technology Research Center
E&I Materials Research Center
Fine & Specialty Chemicals Research Center

Corporate
Management
Committee

Nippoh Chemicals Co., Ltd.

Responsible Care

Production

Tokyo Fine Chemical Co., Ltd.

Business PlanningShinritsu Co., Ltd.
E&I Materials Research Center

Research & Development

Nihon Jyoryu Kogyo Co., Ltd.

Chugoku Kako Co., Ltd.

Ethylene Oxide Business

Ehime Plant

Acrylic BusinessTokyo Office
Kawasaki Plant

Fine & Specialty Chemicals BusinessNippon Polyester Co., Ltd.

Performance Chemicals Business

Nisshoku Butsuryu Co., Ltd.

E&I Materials Business*

Environment & Catalysts BusinessNippon Shokubai Europe N.V.
NISSHOKU CHEMICAL INDUSTRY(ZHANGJIAGANG) CO., LTD.
Shanghai Office

Shanghai Office
NA Industries, Inc.

Kawasaki Plant

Himeji Plant
NIPPON SHOKUBAI (ASIA) PTE LTD
Singapore Acrylic Pte Ltd.
Singapore Glacial Acrylic Pte Ltd.

Suita Plant

PT. NIPPON SHOKUBAI INDONESIA

Board of Corporate Auditors
Corporate Auditors

36

NIPPON SHOKUBAI CO., LTD.

Auditors’ Office* E&I : Electronic & Information(See Page 5)

Annual Report 200637

Corporate Data

Consolidated Subsidiaries and Affiliates
Name

Principal BusinessPresident

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

Tatsuhito Matsuda

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

Fukio Ogawa

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

Yoshinori Yokoyama

Shinritsu Co., Ltd. *Sale of chemical products

Masayoshi Sugimoto

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

Hidetaka Yatagai

Sale of chemical products

Kenjiro Komoda

NIPPON SHOKUBAI (ASIA)
PTE LTD *38

Manufacture and sale of superabsorbent polymers

Keishi Tsuboi

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 acrylic acidKenji Ozeki

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

Taizo Maruo

ICT Co., Ltd.

Sale of automobile exhaust catalyst

Yojiro Takahashi

Nihon Polymer Industries Co., Ltd.

Manufacture and sale of acrylic emulsions

Shigehiro NishimuraInternational Catalyst Technology, Inc.

Manufacture and sale of automobile exhaust catalyst

William Staron

Japan Composite Co., Ltd.

Manufacture and sale of unsaturated polyesters resinand plastic molded materials

Tadayoshi Kishimoto

NIPPON SHOKUBAI CO., LTD.

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

PLANTS

Nippon Shokubai Europe N.V. ** Included in consolidation

Directory
HEAD OFFICES

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
Ehime Plant
5-1 Soubiraki-cho, Niihama, Ehime
792-8521, Japan
Suita Plant
5-8 Nishi Otabi-cho, Suita, Osaka
564-0034, JapanOVERSEAS OFFICE** American Acryl NA LLC, and American Acryl L.P., are consolidated into NA Industries, Inc. by the equity method.

Shanghai Office
R/No.3604, The Center, 989
Changle Road Shanghai, China,
200031
Telephone: 86-21-5407-5959
Facsimile : 86-21-5407-5673

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

Strategic Technology ResearchCenter
5-8, Nishi Otabi-cho, Suita, Osaka
564-8512, Japan
E & I Materials ResearchCenter
5-8, Nishi Otabi-cho, Suita, Osaka
564-8512, Japan
Superabsorbents ResearchCenter992-1 Aza-Nishioki Okihama,
Aboshi-ku,Himeji, Hyogo 671-1292,
Japan
Fine & Specialty Chemicals ResearchCenter
5-8, Nishi Otabi-cho, Suita, Osaka
564-8512, Japan
Catalyst Research Center
992-1 Aza-Nishioki Okihama,
Aboshi-ku, Himeji, Hyogo 671-1292,
Japan

PT. NIPPON SHOKUBAIINDONESIA
Kawasan Industri Panca Puri
Jl.Raya Anyer Km.122,
Ciwandan Cilegon 42447
Banten, Indonesia
Telephone: 62-254-600-660
Facsimile : 62-254-600-657
NIPPON SHOKUBAI (ASIA) PTE
LTD
1 Raffles Place OUB Centre #31-01
Singapore 048616
Telephone: 65-6532-0078
Facsimile : 65-6532-0079
Singapore Acrylic Pte Ltd.
17 Sakra Road #01-01 Singapore
627886Singapore Glacial Acrylic Pte Ltd.
17 Sakra Road #01-01 Singapore
627886
Nippon Shokubai Europe N.V.
Haven 1053, Nieuwe Weg 1, B-2070
Zwijndrecht, Belgium
Telephone: 32-3-250-3705
Facsimile : 32-3-250-3712
NISSHOKU CHEMICAL INDUSTRY(ZHANGJIAGANG) CO., LTD.
No.19 Changjiagang Road(E),Yangtze River International Chemical
Industrial Park, Zhangjiagang, Jiangsu,
China, 215635
Telephone: 86-512-5893-7910
Facsimile : 86-512-5893-7912(as of June 30, 2006)

Annual Report 2006

39

Corporate Data

Consolidated Subsidiaries and Affiliates
Name

Principal BusinessPresident

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

Tatsuhito Matsuda

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

Fukio Ogawa

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

Yoshinori Yokoyama

Shinritsu Co., Ltd. *Sale of chemical products

Masayoshi Sugimoto

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

Hidetaka Yatagai

Sale of chemical products

Kenjiro Komoda

NIPPON SHOKUBAI (ASIA)
PTE LTD *38

Manufacture and sale of superabsorbent polymers

Keishi Tsuboi

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 acrylic acidKenji Ozeki

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

Taizo Maruo

ICT Co., Ltd.

Sale of automobile exhaust catalyst

Yojiro Takahashi

Nihon Polymer Industries Co., Ltd.

Manufacture and sale of acrylic emulsions

Shigehiro NishimuraInternational Catalyst Technology, Inc.

Manufacture and sale of automobile exhaust catalyst

William Staron

Japan Composite Co., Ltd.

Manufacture and sale of unsaturated polyesters resinand plastic molded materials

Tadayoshi Kishimoto

NIPPON SHOKUBAI CO., LTD.

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

PLANTS

Nippon Shokubai Europe N.V. ** Included in consolidation

Directory
HEAD OFFICES

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
Ehime Plant
5-1 Soubiraki-cho, Niihama, Ehime
792-8521, Japan
Suita Plant
5-8 Nishi Otabi-cho, Suita, Osaka
564-0034, JapanOVERSEAS OFFICE** American Acryl NA LLC, and American Acryl L.P., are consolidated into NA Industries, Inc. by the equity method.

Shanghai Office
R/No.3604, The Center, 989
Changle Road Shanghai, China,
200031
Telephone: 86-21-5407-5959
Facsimile : 86-21-5407-5673

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

Strategic Technology ResearchCenter
5-8, Nishi Otabi-cho, Suita, Osaka
564-8512, Japan
E & I Materials ResearchCenter
5-8, Nishi Otabi-cho, Suita, Osaka
564-8512, Japan
Superabsorbents ResearchCenter992-1 Aza-Nishioki Okihama,
Aboshi-ku,Himeji, Hyogo 671-1292,
Japan
Fine & Specialty Chemicals ResearchCenter
5-8, Nishi Otabi-cho, Suita, Osaka
564-8512, Japan
Catalyst Research Center
992-1 Aza-Nishioki Okihama,
Aboshi-ku, Himeji, Hyogo 671-1292,
Japan

PT. NIPPON SHOKUBAIINDONESIA
Kawasan Industri Panca Puri
Jl.Raya Anyer Km.122,
Ciwandan Cilegon 42447
Banten, Indonesia
Telephone: 62-254-600-660
Facsimile : 62-254-600-657
NIPPON SHOKUBAI (ASIA) PTE
LTD
1 Raffles Place OUB Centre #31-01
Singapore 048616
Telephone: 65-6532-0078
Facsimile : 65-6532-0079
Singapore Acrylic Pte Ltd.
17 Sakra Road #01-01 Singapore
627886Singapore Glacial Acrylic Pte Ltd.
17 Sakra Road #01-01 Singapore
627886
Nippon Shokubai Europe N.V.
Haven 1053, Nieuwe Weg 1, B-2070
Zwijndrecht, Belgium
Telephone: 32-3-250-3705
Facsimile : 32-3-250-3712
NISSHOKU CHEMICAL INDUSTRY(ZHANGJIAGANG) CO., LTD.
No.19 Changjiagang Road(E),Yangtze River International Chemical
Industrial Park, Zhangjiagang, Jiangsu,
China, 215635
Telephone: 86-512-5893-7910
Facsimile : 86-512-5893-7912(as of June 30, 2006)

Annual Report 2006

39

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

A N N UA L R E P O RT
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