Annual Report 2003

Profile
Since its foundation in 1941, Nippon Shokubai has been engaged in R&D
activities in search of original technical solutions in four major fields: catalyst
technology, polymer synthesis, environment preservation systems, and organic
synthesis. Our major products are basic chemicals, including acrylic acid,methacrylic acid and ethylene oxide; fine and specialty chemicals, including
superabsorbent polymers and higher alcohols; synthetic resin, including unsaturated polyester resins; and catalysts/environment preservation systems, including catalysts for cleaning automobile exhaust gases, process catalysts anddioxins decomposition/elimination equipment. Created through our proprietary technology and know-how, these products have made various contributions to our society and people’s daily lives.
In addition, our various chemical product manufacturing technologies havebeen highly appreciated overseas, as well as our diverse line of products.
A wide variety of chemicals manufacturing technologies, including thoserelated to acrylic acid/esters and many other process technologies, have been
exported to Europe, Asia, the USA, and elsewhere.
In recent years, we have been making efforts to develop our business at
global basis by establishing production bases for acrylic acid and acrylic esters
in Southeast Asia and North America and for superabsorbent polymers inNorth America and Europe.
Under our corporate philosophy of “TechnoAmenity,” which seeks to harmonize “Technology” and “Natural Environment,” and focusing on our ultimate objective, “making human life richer and more comfortable throughtechnological innovations,” we are working to meet emerging global changes
and to enhance our potential for commercial competition.

Contents
Financial Highlights .................................................................................. 1
To Our Shareholders ................................................................................. 2
Review of Operations
Chemical Business ................................................................................. 6
Other Businesses .................................................................................... 7
Responsible Care ....................................................................................... 8
Topics ........................................................................................................ 9
Management Indices ............................................................................... 10
Financial Section
Report of Independent Auditors ........................................................... 13
Consolidated Balance Sheets ............................................................... 14
Consolidated Statements of Income ..................................................... 16
Consolidated Statements of Shareholders’ Equity .............................. 17
Consolidated Statements of Cash Flows .............................................. 18
Notes to Consolidated Financial Statements ....................................... 20
Corporate Data ........................................................................................ 31

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

Millions of yen

Thousands of
U.S. dollars

2003

2002

2001

2003

For the YearNet Sales ........................................
Operating Income ..........................
Income before Income Taxes ........
Net Income ....................................

¥163,514
12,757
10,157
5,516¥159,722
8,963
4,987
1,590

¥160,585
5,379
3,178
1,242

$1,360,349
106,13184,50145,890At Year-End
Total Assets ...................................
Total Shareholders’ Equity ...........

¥216,756
121,297¥230,253
120,238¥230,468
117,340$1,803,295
1,009,127

Yen

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

¥27.97
7.00

¥8.16
7.00

150

200

U.S. dollars

¥6.37
7.00

$0.23
0.06

Foreign Exchange Rate: US$1.00 = ¥120.2

Net Sales (Billions of yen)
0

50

100

’03

164

’02

160

’01

161

’00

162

’99

160

Net Income (Billions of yen)
0

1

2

3

4

5

6

’03

5.5

’02

1.6

’01

1.2
2.7

’00
’99

4.5

Shareholders’ Equity (Billions of yen)
0

20

40

60

80

100

120

’03

121.3

’02
’01

120.2
117.3

’00
’99

140

118.8
114.7

| Nippon Shokubai Co., Ltd. | 1 |To Our Shareholders

worsening employment conditions, prolonged
deflation, and a sharp drop in the stock market at theend of the fiscal year.
While the chemical industry overall enjoyedgrowing demand in Asia, under the influence of thewar in Iraq, soaring prices of raw materials, such as
naphtha, made the situation more uncertain.

Hiroshi Yanagida, President

Performance
In fiscal 2002, ended March 31, 2003, Japan’s
economy remained weak despite signs of recovery
in some areas supported by a strong surge in exports
at the beginning of the fiscal year. The businessclimate continued to be harsh, with low levels ofcapital investment in the private and public sectors,

In such surroundings, however, consolidated net
sales increased by ¥3,792 million, or 2.4%, to¥163,514 million, to which higher sales of Fine,
Specialty and Basic Chemicals contributed.
Operating income expanded to ¥12,757 million,rising ¥3,793 million, or 42.3%. With a few
exceptions, sales prices were dull during the fiscal
year and domestic raw materials cost were high dueto the rise in the price of naphtha. Nevertheless,profits grew because the Company reduced the
procurement cost of raw materials in the overseas
market, achieved economies of scale through a large
increase in the sales volumes of Fine, Specialty andBasic Chemicals, and reduced manufacturing cost.
Ordinary income rose to ¥10,971 million, rising¥5,413 million, or 97.4%. Lesser equity losses of
unconsolidated subsidiaries and affiliates and an
improvement in net financial income and expenses(Unit: millions of yen)

Performance
Highlights

Fiscal YearNet sales
Operating income
Ordinary income
Net income
Net income per share
ROA
ROE
Exchange rate
Naphtha price2002
163,514
12,757
10,971
5,516¥27.974.9%
4.6%$=¥121.96
EUR=¥120.98¥24,000/kl

2001
159,722
8,963
5,558
1,590
¥7.72
2.4%
1.3%
$=¥125.04
EUR=¥110.50¥22,100/kl

ChangeAmount
%
3,792
2.4%
3,793
42.3%
5,413
97.4%
3,926
246.9%¥20.25262.3%— 2.5 points— 3.3 points(¥3.08)¥10.48¥1,900/kl(Unit: millions of yen)

Sales by BusinessGroup and Region| 2 | Nippon Shokubai Co., Ltd. |Product Group
Sales
Operating income
Regional
Sales
Operating income

Fiscal Year 2002
Fiscal Year 2001
ChangeChemicals Others Chemicals Others Chemicals Others
161,124
2,390 157,894
1,827
3,229
562
12,201
543
8,369
578
3,831
(34)
Japan
Overseas
Japan
Overseas
Japan Overseas
134,113
29,401 132,285
27,436
1,827
1,964
11,435
963
8,507
(101)
2,927
1,064

contributed to that increase.
Consolidated net income jumped by ¥3,926
million, or 246.9%, to ¥5,516 million. There wereseveral major extraordinary items booked in fiscal
2002, such as Gain on return of substitution
portion of Welfare Pension Fund Plan, Loss ondevaluation of investments in securities andAmortization of excess of cost over net assets
acquired.
Net income per share amounted to ¥27.97.
Return on assets (ROA) was 4.9%, up 2.5
percentage points from the previous fiscal year
while return on equity (ROE) climbed, by 3.3
percentage points, to 4.6%.

Business Plan
(1)Fundamental Business Policies

Outlook

Nippon Shokubai considers shareholder
dividends as one of its top corporate priorities, andour policy is to ensure a payout of continuous, stabledividends to our shareholders. At the same time, theCompany must maintain its competitive edge andcontinue such practices as promote sustainablegrowth, and this requires judicious investment infacilities and research and development. It is thus
vital that we retain some of the profits within the
Company. Consequently, dividends are paid in
consideration of maintaining a balance between
these two factors.

Japan continues to struggle under a falteringstock market, the lack of progress in clearing up
the bad debt problem in the financial sector, andrising unemployment. These and other factors are
placing downward pressure on domestic demand,creating an ambiguous business climate.
Under these circumstances, we anticipate thatthe consolidated net sales of the Group will be¥165 billion (¥80.5 billion in the first half) basedon the increase in sales volume due to the efforts
to expand sales of core products.
Looking at profitability, despite the concernthat raw material prices will remain high, we
forecast that ordinary income will rise ¥2,028
million compared with the previous fiscal year, to¥13.0 billion (¥5.5 billion in the first half). Thisprediction is based on improvements in equity
losses of unconsolidated subsidiaries and affiliates
and in financial income and expenses as well as
the efforts to maintain our product prices and cut
costs. However, there will be no major
extraordinary items. Therefore, the consolidated
net income is expected to increase by ¥1,683
million, to ¥7.2 billion (¥2.7 billion in the firsthalf).
In making these performance forecasts, wehave assumed exchange rates of ¥120 to the U.S.
dollar and ¥125 to the Euro. In addition, the priceof naphtha, which establishes the standard for raw
material prices, is set at ¥24,000 per kiloliter.

Our corporate philosophy of “TechnoAmenity,”
seeks to make human life richer and more
comfortable through technological innovation, withour catalyst technology as a core, we are working tomeet emerging global changes and to enhance ourpotential for commercial competition, based on thefollowing fundamental business policies.
• Respect for humanity.
• Searching for pioneering technologies.
• Business activities with a global view.

(2)Dividend Policy(3)Major Business Issues and Medium- andLong-term Business Strategies
We believe that our highest priority is not the
pursuit of continuous growth in quantity but inquality. Recognizing our strengths and weakness,
we have to sift and concentrate our businessresources. Based on this priority, we preparedmedium-term and long-term business plans thatwere implemented in April 2001. The current fiscal
year is the last year of the medium-term business
plan.
Summary of the Long-term Business Plan,“TechnoAmenity NV”
1. Our future vision of the Company is “Nippon
Shokubai: A Global Company Creating New
Values through Unique Technologies.”
2. Guided by the slogan of our long-term| Nippon Shokubai Co., Ltd. | 3 |business plan, “A Shift from Quantitative
Growth to Qualitative Growth—Our
Development in the 21st Century,” we areaiming to establish a powerful businessstructure by sifting and concentrating ourbusiness resources on new product fields, toestablish a business portfolio, to clarify profit
responsibilities in our existing fields, and torevitalize employees and our organization.
3. Performance Targets
Targeting more efficient use of assets andmore profitable products, we have introduced
return on assets (ROA) on a consolidated basis
as our indicator of overall corporate
performance. As performance indicators forbusiness operations, we have introduced cash
flow provided by operating activities and sales
contribution income (our own, originalindicator).
Summary of the Medium-term Business Plan
The first half, or three years, of the long-termbusiness plan, has been termed the “foundation
setting” stage, and we have implemented concretemeasures in each business field to achieve its goals.
Pursuing our goal of an ROA of 5% or greater on
a consolidated basis by the end of the medium-termbusiness plan, we are improving asset efficiency andstrengthening our corporate structure.
As part of those efforts, we have strengthened
our core businesses, particularly our acrylic andsuperabsorbent polymer businesses. In our acrylic
operations, a new acrylic acid plant at American
Acryl, a U.S. joint venture with ATOFINA, ofFrance, began operating commercially in August
2002. Our share of its annual production of acrylicacid is 60 thousand tons. Combined with ourdomestic production capacity of 300 thousand tons
and the 60-thousand-ton annual production capacityof Nippon Shokubai Indonesia, we now have a total
acrylic acid production capacity of 420 thousand
tons per annum, making Nippon Shokubai the 3rdlargest producer of acrylic acid in the world.
In our superabsorbent polymer operations, weare already the No. 1 manufacturer in the world witha total of 230 thousand tons annually comprised of
140 thousand tons domestically, 60 thousand tons in
the United States, and 30 thousand tons in Belgium.
To further solidify our leading position in themarket, we are proceeding with the construction of anew plant at our Himeji Plant that is based on a new,

| 4 | Nippon Shokubai Co., Ltd. |high-efficiency process. The new plant, with annual
capacity of 30 thousand tons, is scheduled to comeon stream early next year. In addition, we are in theplanning stages of setting up a plant in China to help
us meet the anticipated growth in demand. We are
currently targeting completion of the plant in Chinaaround 2004.
We have taken steps to restructure our domestic
unsaturated polyester resin business. Effective April
1, 2003, we formed Japan Composite Co., Ltd., ajoint venture with Mitsui Takeda Chemicals, Inc., tocombine our unsaturated polyester resin operations.
We are in the final stage of preparation leading
up to the scheduled introduction next April of acompany-wide integrated information system. The
system will combine our core information systems
for sales, procurement, production, accounting, andother business processes. The system is expected tocontribute to achieving management goals by
clarifying responsibility for profit and by speedingup business decisions.
Through such strategies, we aim to achieve
quality growth by sifting our corporate resources
and concentrating them.

(4)Basic Stance on Corporate Governance andMeasures•Basic Stance on Corporate Governance

We are working to build a corporate structurethat can respond to the global changes in ourbusiness environment and that will boost ourcompetitiveness. We view corporate governance asa platform for achieving these goals. Through it, we
aim to revitalize our board of directors, strengthen
our auditing system, make our business structure
more efficient, and establish and reinforce ourcompliance system.
•Corporate Governance Measures and Status

Our corporate governance system is comprisedof the following management bodies aimed at
speeding up management decisions, their execution,and monitoring performance. Our Company uses a
corporate auditor system as a corporate complianceorgan.
Board of Directors
At March 31, 2003, the board of directors
had 16 members. Their role is to deliberate anddecide on items related to business operations

and to monitor the performance of directors whoare corporate officers. In principle, the board
meets once a month and is chaired by thepresident. The Company’s four corporate
auditors, including two outside auditors, also
attend board meetings and provide their opinions
when required.
Corporate Management Committee
The corporate management committee is anadvisory body to the president. It deliberates
about items related to fundamental business
policies and strategies and to high-priority
business execution issues of the businessdivisions. After screening, the most important
issues are passed on to the board of directors for
decision-making. The corporate management
committee comprises the president, senior
managing director, managing directors, and otherdirectors appointed by the president. Aiming tospeed up the decision-making process and to
improve operating efficiency, the committee
focuses on dealing with major operating issues.
The Board of Corporate Auditors
There are four auditors on the board ofcorporate auditors, two of which are outside
auditors. In principle, the board meets once amonth to report on, discuss, and make decisions
on important issues. In addition to the board of
directors’ meetings, corporate auditors sit in on
the meetings of the corporate management
committee and other important meetings in aneffort to achieve a comprehensive grasp of theCompany’s processes for making vital decisions
and business execution. In addition, thecorporate auditors receive reports from theindependent auditors, directors and other
employees of the Company on which, after
deliberation, they issue audit opinions.

•Possible Conflicts of Interest Among Outside
Directors and Auditors

The current two outside auditors on the board ofcorporate auditors have no personal or investment
relationships that could create a conflict of interestin the performance of their duties.

•Measures Introduced Over the Past Year toStrengthen Corporate Governance

The Company defines corporate compliance as“compliance with laws and corporate ethics”. To
ensure thorough compliance, the Company issued
its Basic Policy on Compliance in March 2003 to be
used as in-house rules. Furthermore, the Company
introduced an Internal Communication System thatprovides employees with access to the president andto the legal advisor for reporting and advisory
purposes. The system is intended to prevent
problems from occurring by addressing them at an
early stage.
We continue to strengthen our business and its
systems to respond quickly to the dynamic changes
occurring in markets and to position us for future
growth. In facing these challenges, we look forward
to the continued support of our shareholders.
June 2003

Hiroshi Yanagida
President

Third-Party Involvement by Legal Advisorand Independent Auditor
The Company has a legal advisor to provide
council on matters that require a legal opinion.
Certified public accountants, in addition to theirrole as independent auditors, also provide
opinions on accounting matters when required.
Neither the legal advisor nor the independent
auditor has any involvement in actual businessdecisions.

| Nippon Shokubai Co., Ltd. | 5 |

○
○
○

○

○

○

○

○

○

○

○

○

○

○

○

○
○
○
○
○
○
○
○
○
○
○
○

500

1,000

○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○

(100 millions of yen)

2,000
1,611
1,579

’01

1,582

’00

1,599

| 6 | Nippon Shokubai Co., Ltd. |

○
○
○

1,500

’02

’99

Overall, sales of unsaturated
polyester resin (EPOLAC) wereapproximately the same as in theprevious fiscal year, edging up
slightly.
Sales of adhesive resins, paint

○

○
○
○
○

0

Polymers & Resins
Group

Breakdown and component ratio in 2003

Chemicals Business (Change of net sales) (100 millions of yen)

’03○

Expanding world demand forsuperabsorbent polymers pushed up
sales volume again in fiscal 2002.
In addition, the depreciation of theJapanese yen against the Euro
resulted in higher yen-denominatedsales.
Sales of resin performance
improvers rose thanks to expanded
sales volume due to strong overseas
demand.
Sales of higher-alcohol products(SOFTANOL) climbed upward on
the basis of a recovery in demand
overseas.
Despite falling consumption of
concrete and intensifiedcompetition, sales of products used
as concrete admixtures rose,
assisted by the introduction of a
new type of product.
Sales volume of raw materials
for paints and resins increased,
supported by vigorous overseas
demand.

Strong domestic demand fororganic and inorganic particulates
resulted in overall sales growth inthat category.
Sales of iodic and cyanic
compounds and agriculturalchemical-related products werefavorable during the fiscal year
under review.
Sales of other fine chemicals
rose because of the launch of suchnew products as vinyl pyrrolidone
and polymers for lithium metal
batteries.
Consequently, sales of the Fine
& Specialty Chemicals Groupadvanced 8.0%, to ¥73,534 million.

○

○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○

Fine & Specialty
Chemicals Group○

Several factors contributed to
growth in sales of acrylic acid andacrylic esters during the fiscal year.
Prices in the global market began torecover in the second half of the
fiscal year, demand was firm, andsales volume rose as a result of thetransfer of Sumitomo ChemicalCo., Ltd., acrylic acid operations to
Nippon Shokubai. Conversely salesof methacrylic esters dropped
because of the transfer of our
methyl methacrylate (MMA)
monomer operations to Sumitomo
Chemical in exchange for its acrylicacid operations.
A recovery in global market
prices and higher sales volumes
because of robust demand overseas,
boosted sales of ethylene glycols
during the fiscal year under review.
Sales of ethylene oxide and its
derivatives rose on the strength offirm domestic demand.
Phthalic anhydride sales
declined because of continued weakdomestic demand for its use inplasticizers. Despite weak domestic
demand, sales of maleic anhydridewere approximately the same as in
the previous fiscal year due to solid
exports.
Consequently, sales of the Basic
Chemicals Group totaled ¥50,939
million, expanding 4.8% from theprevious fiscal year.

○○

Basic Chemicals Group○

Review of Operations

1,577

Polymers & Resins Group
195 12.1%
Environment
Business &Catalysts Group172 10.7%

Basic
Chemicals
Group
509
31.6%
Fine and Specialty
Chemicals Group
735 45.6%

○
○
○

○

○
○
○

○

○

○

○

○

○
○

○

○

○

○

○

○

○

○

○

○

○

○

○

○

○

○

○

○

Other Businesses
Revenues from thetransportation business advanced
during the fiscal year based onhigher freight volume.
Overall, sales of Other
Businesses jumped ¥562 million, or
30.8%, to ¥2,390 million from theprevious fiscal year. Despite growth
in revenues, operating income
decreased ¥34 million, or 6.0%, to¥543 million because of rising fuelcosts, among other factors.

○

○

○

○

○

○

○

○

○

○

○

○

○

resins, heat-resistant electricalinsulation coatings, and processadhesive products were also about
the same as in fiscal 2002.
Sales of plastic molded products
remained weak, reflecting stagnant
demand.
Consequently, sales of thePolymers & Resins Group declined
4.3%, to ¥19,459 million comparedwith the previous fiscal year.

○
○
○
○
○
○
○
○
○
○
○
○
○

Japan
Supported by favorable sales
volume in the Basic Chemicals
Group, sales in Japan increased
1.4%, to ¥134,113 million.
Reflecting greater efficiency,
operating income rose 34.4%, to¥11,435 million.

○
○
○
○
○
○
○
○
○
○

○
○
○
○
○
○
○

Overseas
Despite intensified competition,
Nippon Shokubai expanded its
share of sales for its main products
overseas, especially in Europe.
Overseas sales, therefore, rose
7.2%, to ¥29,401 million. Thanks to
low-cost sourcing of raw materials
and cost benefits from higher sales
and production volume, operating
income moved back into the black,to ¥963 million, compared with anoperating loss of ¥101 million in
the previous fiscal year.

○

○

○

○

○

○

○

○

○

○

○

○

○

○

○

○

○

○

○

○

○

○

○

○

○

○

○

○

○

○

○

○

○

○

○

○

○

○

○

○

○

○

○

○

Regional Information

○

○

○

○

○

○

Other Businesses (Change of net sales) (100 millions of yen)

5

10

15

20

25

30

24

’02

18

’01

18
23

’00
’99

26
25

○

○

○

○

○

○

○

○

○

○

○

0
’03

○

Sales of industrial catalysts
through technology licensing
decreased because of weak
replacement demand domesticallyand overseas.
A slump in demand fromelectric power plants resulted in a
decline in sales of De-NOx
catalysts. Although demand was
firm for automotive catalysts, sales
fell because of deterioration in sales
prices.
Sales of dioxin decomposition
equipment and catalysts sunk due tolow demand. However, sales ofwaste water treatment plant
equipment and catalysts rose,
supported by robust demand.
Consequently, sales of theEnvironment Business & Catalysts
Group totaled ¥17,190 million,
declining 17.6% from the previous
fiscal year.

○○

Environment Business& Catalysts Group

Overall, total sales of thechemicals business edged forward¥3,229 million, or 2.0%, to¥161,124 million compared withthe previous fiscal year.
Operating income climbed¥3,831 million, or 45.8%, to¥12,201 million despite downward
pressure on profits from lower
product prices and other factors.
Sourcing of low-cost raw materials
overseas, cost benefits fromexpanded sales volume, and efforts
to reduce manufacturing costs wereprimarily responsible for improved
operating income performance.

| Nippon Shokubai Co., Ltd. | 7 |Responsible Care Activities
Nippon Shokubai’s Fundamental Policy
Regarding Environmental Preservation and Safety
As a member of the business community and society
at large, we are committed to be a good corporate citizen
not only of local communities also of the world. In our
activities, we place great emphasis on the environmental
preservation, health and safety throughout the entire life
cycle of chemical substances, from development todisposal. Based on the principle of sustainable development, our fundamental policy is to harmonize our activities with environmental preservation on a global basis.

Five themes of activities● Environmental preservation● Process safety and disaster prevention● Occupational safety and health● Product stewardship● Communications (Publication of performance, dialogue with the public)

International Aspect of Responsible Care (RC)

Major RC Activities

Nippon Shokubai is a participant in the Responsible
Care activities of the International Chemical Council
Association (ICCA). Through these RC activities, theCompany is contributing to the environmental preservation.

(1) Reduction of emissions based on Pollutant Release andTransfer Register (PRTR)(2) Promotion of energy conservation(3) Reduction of industrial waste(4) Preparation of Material Safety Data Sheet (MSDS) anddistribution to customers(5) Preparation of Yellow Card
(6) Environmental management system (ISO14001 certification)(7) Participation in Communication Dialogue Meetingssponsored by the JRCC
(8) Participation in the ICCA’s initiative on high production volume (HPV)(9) Participation in the ICCA’s long-range research
initiative (LRI)RC Participation History
1993 Established fundamental policy and committed tothe pursuit of RC.
1995 The Japan Responsible Care Council (JRCC) wasestablished, with 74 companies participating.
* As of 2003, 114 companies are participating in the JRCC.

Direction of RC Program
Activities undertaken by the chemical industry bywhich manufacturers and handlers of chemical substances, under the principle of self-determination andindividual responsibility, conduct self-management ofenvironmental and safety issues surrounding aspects ofchemical substances, from development to disposal.
(1)PRTR (Pollutant Release andTransfer Register)A regulatory system which
requires reporting of emission
volumes of chemical substances
into the air, water and soil andtransferred volumes of wastes.
Data compiled to thegovernment bodies aredisclosed to the public.
(4)MSDS (Material Safety Data
Sheet)
A document that describes thehealth, safety andenvironmental hazards of amaterial and provides
information on how the material
can be safely handled, used anddisposed.
| 8 | Nippon Shokubai Co., Ltd. |(5)Yellow Card
A card stating the procedures tobe taken and contact
information for transporters, firesquads, and police in the eventof an accident during the roadtransport of chemical
substances.
(7)JRCC (Japan Responsible
Care Council)
An organization establishedwithin JCIA in 1995 for thepromotion of RC in Japan.

(8)HPV(High Production
Volume)Preexisting Chemical
Substances
An OECD program forcollecting and evaluating safety
data on chemical substanceswith production volumes
exceeding 1,000 tons per
country.
(9)LRI (Long-range Research
Initiative)
A voluntary long-term plan to
study the effects of chemical
substances on health, safety, andthe environment, one of ICCA’s
most crucial agendas.

(9)ICCA (International
Chemical Council
Association)
An organization of the world’s
chemical industry groups,
which, as of its establishment in
1990, has included the Japan
Chemical Industry Association.

○
○
○
○

Unsaturated Polyester
Resin Joint Venture
Established

○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○

○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○

○

○

○

○

○

○

○

○

○

○

○

○

○

○

from China, the Group has decided
to set up a fourth production base
there. The new company wasformed to select the location for thebase and investigate the process ofstarting up business in China.
The company is moving
forward with the various
procedures involved in obtaining
approval for the construction of aplant and expects to start buildingin the second half of the current
fiscal year. Completion isscheduled for sometime in thefollowing fiscal year.
When the new plant comes on
stream, the Nippon Shokubai Groupwill have established a fourpronged global production network,
further solidifying its position as
the world’s top superabsorbent
polymer manufacturer.

Nippon Shokubai, Mitsui
Takeda Chemicals, Inc., and Mitsui
Chemicals, Inc., have established ajoint venture company to combine
their unsaturated polyester resin
operations. Operations of Japan
Composite Co., Ltd., got under way
on April 1, 2003.
Unsaturated polyester resin isprimarily used as raw material for
fiberglass-reinforced plastic. In
recent years, however, the market
has weakened under the impact ofseveral factors. In addition tofalling demand in the wake ofdecline in housing starts, low levelsof public works expenditures andslumps in other major application
areas have contributed to the dropin the market. Moreover there isexcess domestic production
capacity and the volume of
inexpensive imports is steadily
growing in the market.
In response to these changes inoperating conditions, the joint
venture partners decided toestablish Japan Composite toachieve more efficient operations
and build a stronger business base.

○
○
○
○
○
○
○
○
○
○

Zhou Wei Qiang, Deputy Mayor of
Zhangjiagang, and Hiroshi Yanagida,
President of Nippon Shokubai, sign
letter of intent regarding the newcompany.

○

○

○

○

○

○

○

○

○

○

○

○

○

○

○

○

○

○

○

○

○

○

○

○

○

○

○

On April 24, 2003, Nippon
Shokubai formed a new company,
Nisshoku Chemical Industry(Zhangjiagang) Co., Ltd., in
Zhangjiagang, Jiangsu, China, forthe purpose of establishing a
superabsorbent polymer business in
China.
The Nippon Shokubai Group has
positioned superabsorbent polymer
as one of its core businesses, andplans to expand operations globallyto capture a more than 25% share of
the global market. Currently, theGroup has production bases in thethree major markets of Japan, theUnited States, and Europe, with a
total global annual production
capacity of 230 thousand tons. In
anticipation of a surge in demand

○

○

○

○

○

○

○

○

○

○

○

Company Formed to
Establish
Superabsorbent
Polymer Business in
China

○

Topics| Nippon Shokubai Co., Ltd. | 9 |Management Indices(1) Consolidated Management Indices
PeriodFiscal Year End

87th
March
1999

88th
March
2000

89th
March
2001

90th
March
2002

91st
March
2003
(Millions of yen)

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

160,190
8,231
4,450
114,658
231,081

162,461
5,088
2,659
118,820
216,896

160,585
4,303
1,242
117,340
230,468

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

163,514
10,971
5,516
121,297
216,756(yen)

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

582.3922.61—

609.72
13.54—

602.116.37—

617.058.16—

631.12
27.97
—

49.6
3.9
29.7

54.8
2.3
33.2

50.9
1.1
70.6

52.2
1.3
62.0

56.0
4.6
20.4
(Millions of yen)

Cash Flow from Operating Activities
Cash Flow from Investing Activities
Cash Flow from Financing Activities
Cash and Cash Equivalents at Year-end
Number of Employees———
23,76718,285(5,709)(13,463)
22,827

9,757(12,961)(6,584)
14,806

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

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

—

3,050

3,189

3,077

2,967

Note 1: Net Sales do not include consumption taxes.
Note 2: Starting with the fiscal year ended March 2003, under review, net assets and net income per share have been prepared in accordance withFinancial 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,” which were issued by the Accounting Standards
Board of Japan.
Note 3: Fully diluted Net Income per Share is not recorded because no dilutive shares exist.

| 10 | Nippon Shokubai Co., Ltd. |(2) Non-consolidated Management Indices
PeriodFiscal Year End

87th
March
1999

88th
March
2000

89th
March
2001

90th
March
2002

91st
March
2003
(Millions of yen)

Net Sales
Ordinary Income
Net Income
Capital128,998
6,870
4,115
16,529128,086
4,616
3,097
16,529129,712
5,205
2,539
16,529123,706
8,054
1,744
16,529126,612
10,8793,094
16,529Issued and Outstanding Shares(Thousands shares)

196,881

194,881

194,881

194,881

194,881(Millions of yen)

Total Shareholders’ Equity
Total Assets

109,533
203,537

113,470
189,999

114,568
189,236

115,578
188,821

115,593
176,155(yen)

Net Assets per ShareDividend per Share(Interim Dividend per Share)
Net Income per Share
Fully Diluted Net Income per Share556.347.00(3.50)
20.90—

582.257.00(3.50)
15.77—

587.897.00(3.50)
13.03—

593.147.00(3.50)
8.95—

601.487.00(3.50)
15.55—

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

53.8
3.8
32.1
33.5
2,258

59.7
2.8
28.5
44.3
2,127

60.5
2.2
34.5
53.7
2,004

61.2
1.5
56.5
78.2
1,937

65.6
2.7
36.7
45.0
1,881

Note 1: Net Sales do not include consumption taxes.
Note 2: Issued and Outstanding Shares were reduced by 2,000 thousands shares in the fiscal year ended March 2000 due to retirement of treasury
stock out of profit.
Note 3: Starting with the fiscal year ended March 2002, treasury stock has been eliminated from capital and also eliminated from issued and outstanding shares in the calculation of net assets and net income per share.
Note 4: Starting with the fiscal year ended March 2003, under review, net assets and net income per share have been prepared in accordance withFinancial 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,” which were issued by the Accounting Standards
Board of Japan.
Note 5: Fully diluted Net Income per Share is not recorded because no dilutive shares exist.
Note 6: Starting with the fiscal year ended March 2000, the Number of Employees has been revised to include the number of people actually engaged
in work.

| Nippon Shokubai Co., Ltd. | 11 |Consolidated Financial Statements
Years ended March 31, 2003 and 2002

Report of Independent Auditors .............................................. 13
Consolidated Balance Sheets .................................................. 14
Consolidated Statements of Income ........................................ 16
Consolidated Statements of Shareholders’ Equity ................. 17
Consolidated Statements of Cash Flows ................................. 18
Notes to Consolidated Financial Statements .......................... 20| 12 | Nippon Shokubai Co., Ltd. |Report of Independent Auditors

The Board of Directors
Nippon Shokubai Co., Ltd.

We have audited the accompanying consolidated balance sheets of Nippon Shokubai Co., Ltd.
and consolidated subsidiaries as of March 31, 2003 and 2002, and the related consolidated
statements of income, shareholders’ equity, and cash flows for the years then ended, all expressed inyen. These financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion independently on these financial statements based on our
audits.
We conducted our audits in accordance with auditing standards, procedures and practices
generally accepted and applied in Japan. Those standards, procedures and practices require that weplan and perform the audit to obtain reasonable assurance about whether the financial statements arefree of material misstatement. An audit includes examining, on a test basis, evidence supporting theamounts and disclosures in the financial statements. An audit also includes assessing theaccounting principles used and significant estimates made by management, as well as evaluating theoverall financial statement presentation. We believe that our audits provide a reasonable basis forour opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects,
the consolidated financial position of Nippon Shokubai Co., Ltd. and consolidated subsidiaries at
March 31, 2003 and 2002, and the consolidated results of their operations and their cash flows forthe years then ended in conformity with accounting principles and practices generally accepted inJapan.
The U.S. dollar amounts in the accompanying consolidated financial statements with respect tothe year ended March 31, 2003 are presented solely for convenience. Our audit also included thetranslation of yen amounts into U.S. dollar amounts and, in our opinion, such translation has been
made on the basis described in Note 2 to the consolidated financial statements.

Shin Nihon & Co.
June 24, 2003

See Note 1(a) to the consolidated financial statements which explains the basis of presentation of the consolidated
financial statements of Nippon Shokubai Co., Ltd. and consolidated subsidiaries under Japanese accounting principles
and practices.

| Nippon Shokubai Co., Ltd. | 13 |Consolidated Balance Sheets
Nippon Shokubai Co., Ltd. and Consolidated Subsidiaries

2003

March 31,
2002

2003
(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 5) .................................................................
Deferred income taxes (Note 8) ...............................................
Other current assets ..................................................................

¥ 21,21738¥ 23,151
118$ 176,514
316

4,055
37,805(103)
23,768
2,461
4,620

4,733
41,973(164)
25,0742,359
4,190

33,736
314,517(857)
197,737
20,47438,437

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

93,861

101,434

780,874

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

28,24258,417211,153824(214,705)

28,63958,669215,870
136(211,387)

234,958
485,998
1,756,681
6,855(1,786,231)

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

83,931

91,927698,261

Investments and other assets:
Investments in securities (Notes 4 and 6) ................................
Investments in and advances tounconsolidated subsidiaries and affiliates ............................
Deferred income taxes (Note 8) ...............................................
Prepaid pension cost .................................................................
Other assets (Note 6) ................................................................

10,896

13,04090,64910,9483,800
2,073
11,247

9,337
3,192
—
11,32391,082
31,614
17,246
93,569Total investments and other assets .............................................

38,96436,892

324,160

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

¥ 216,756¥ 230,253$1,803,295| 14 | Nippon Shokubai Co., Ltd. |March 31,
2002

2003

2003
(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 ...............................................................

¥ 11,786
8,493¥ 12,354
14,101

2,745
25,651
299
2,871
7,920
59,7652,664
24,476
473
2,636
8,289
64,993

22,837
213,403
2,488
23,88565,890497,213

24,377
7,111

32,6238,181

202,804
59,160

427
466
1,485
33,866739
678
130
42,351

3,552
3,877
12,354
281,747

1,828

2,671

15,208

Shareholders’ equity:
Common stock:
Authorized –424,000,000 shares
Issued –194,881,287 shares in 2003
and 2002 ...................................................................
Additional paid-in capital (Note 9) ..........................................
Retained earnings (Note 9) ......................................................
Net unrealized holding gain on securities ................................
Translation adjustments ...........................................................
Less treasury stock, at cost .......................................................
Total shareholders’ equity ..........................................................

16,52913,56291,652539
468(1,453)
121,297

16,52913,562
87,686
744
1,727
(10)
120,238

137,512
112,829
762,496
4,484
3,894(12,088)
1,009,127

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

¥ 216,756¥ 230,253$ 1,803,295

Long-term liabilities:
Long-term debt (Note 6) ..........................................................
Accrued retirement benefits for employees (Note 7) ..............
Accrued retirement benefits for directors andcorporate auditors .................................................................
Deferred income taxes (Note 8) ...............................................
Other .........................................................................................
Total long-term liabilities ...........................................................
Minority interests .......................................................................

$

98,05370,657

Contingent liabilities (Note 12)

See accompanying notes to consolidated financial statements.

| Nippon Shokubai Co., Ltd. | 15 |Consolidated Statements of Income
Nippon Shokubai Co., Ltd. and Consolidated Subsidiaries

Year ended March 31,
2002

2003

2003
(Thousands of
U.S. dollars)( Note 2)(Millions of yen)

Net sales (Note 15) .....................................................................
Cost of sales (Note 10) .............................................................

¥ 163,514
121,666¥ 159,722
121,819$ 1,360,349
1,012,196

Gross profit ...........................................................................

41,84837,903

348,153

Selling, general and administrative expenses (Note 10) ............

29,091

28,940242,022

Operating income (Note 15) .................................................

12,757

8,963

106,131590(1,020)622(2,496)403(1,622)621(3,033)

4,908(8,486)
5,175(20,765)

(828)
241

(1,492)—(6,889)
2,005

2,834
(930)
—
(1,613)——
2,543(1,396)23,577(7,737)—(13,418)

10,157

4,987

84,501

5,365
(726)
4,639

4,040
(703)
3,337

44,634(6,040)38,594

5,518
(2)
5,516

1,650
(60)
1,590

45,907(17)45,890

Other income (expenses):
Interest and dividend income ...................................................
Interest expense ........................................................................
Royalty income ........................................................................
Loss on devaluation of investments in securities ....................
Equity in losses of unconsolidated
subsidiaries and affiliates ......................................................
Gain on sales of property, plant and equipment ......................
Gain on return of substitution portion of Welfare
Pension Fund Plan (Note 7) ..................................................
Amortization of excess of cost over net assets acquired ..........
Gain on divestitures (Note 3) ...................................................
Other, net ..................................................................................
Income before income taxes and minority interests .............
Income taxes (Note 8):
Current ......................................................................................
Deferred ....................................................................................
Income before minority interests ..........................................
Minority interests in earnings of consolidated subsidiaries .........
Net income (Note 13) ...........................................................
See accompanying notes to consolidated financial statements.

| 16 | Nippon Shokubai Co., Ltd. |

¥

¥

$

Consolidated Statements of Shareholders’ Equity
Nippon Shokubai Co., Ltd. and Consolidated Subsidiaries

2003

Year ended March 31,
2002

2003
(Thousands of
U.S. dollars)( Note 2)(Millions of yen)

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

¥ 16,529¥ 16,529$ 137,512

Additional paid-in capital:
Balance at beginning and end of year ......................................

¥ 13,562¥ 13,562$ 112,829¥ 87,686
5,516(1,364)(87)¥ 88,168
1,590(1,364)(86)$ 729,501
45,890(11,348)
(724)

(99)

(622)

(823)

Balance at end of year ................................................................

¥ 91,652¥ 87,686$ 762,496

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

¥

¥

$

Balance at end of year ................................................................

¥

Retained earnings:
Balance at beginning of year ....................................................
Net income ...............................................................................
Cash dividends .........................................................................
Bonuses to directors and corporate auditors ............................
Decrease in retained earnings resulting fromexclusion of in a consolidated subsidiary .............................

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

744
(205)
539

¥

—
744
744

6,189
(1,705)$ 4,484¥ 1,727(1,259)
¥
468

¥

(919)
2,646
¥ 1,727$ 14,368(10,474)$ 3,894

¥

¥

$

(10)
(1,443)¥ (1,453)

¥

—
(10)
(10)

(83)
(12,005)$ (12,088)

See accompanying notes to consolidated financial statements.

| Nippon Shokubai Co., Ltd. | 17 |Consolidated Statements of Cash Flows
Nippon Shokubai Co., Ltd. and Consolidated Subsidiaries

Year ended March 31,
2003
2002
(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 ..................................................
Increase (decrease) in accrued retirement benefits ...................
Interest and dividend income ....................................................
Interest expense .........................................................................
Equity in losses of unconsolidated subsidiaries
and affiliates ........................................................................
Gain on divestitures ..................................................................
Gain on return of substitution portion of Welfare
Pension Fund Plan ...............................................................
Loss on devaluation of investments in securities .....................
Loss on disposal of property, plant and equipment ..................
Other, net ...................................................................................
Changes in operating assets and liabilities:
Notes and accounts receivable ............................................
Inventories ...........................................................................
Notes and accounts payable ................................................
Other current liabilities ........................................................
Subtotal ............................................................................
Interest and dividends received .....................................................
Interest paid ...................................................................................
Other, net .....................................................................................
Income taxes paid ..........................................................................
Net cash provided by operating activities .....................................
Investing activities:
Proceeds from sales of short-term investments andinvestments in securities ...........................................................
Purchases of marketable securities and investments in securities ..........
Purchases of property, plant and equipment .................................
Proceeds from sales of property, plant and equipment .................
Increase in loans receivable ..........................................................
Collection of loans receivable .......................................................
Other, net .....................................................................................
Net cash used in investing activities .............................................

| 18 | Nippon Shokubai Co., Ltd. |2003(Thousands of
U.S. dollars)(Note 2)

¥ 10,157¥ 4,987$ 84,501

9,310
1,795
(590)
1,020

10,063
(834)
(403)
1,622

77,454
14,933(4,908)
8,486

828
—

1,492
(2,543)

6,889—(2,834)
2,496
317
(155)

—
3,033
477
1,111

(23,577)
20,765
2,637(1,290)

2,620
605
3,729
(159)
29,139617(1,129)(297)(5,213)
23,1173,387
5,916(7,052)
152
21,408449(1,886)—(2,703)
17,26821,797
5,033
31,023(1,323)
242,420
5,133(9,393)(2,471)(43,369)
192,320

191(3,814)(2,858)375(2,361)544(828)(8,751)

3,617(2,476)(4,211)31(5,140)668(667)(8,178)

1,589(31,730)(23,777)
3,120(19,642)4,526(6,889)(72,803)

Year ended March 31,
2003
2002
(Millions of yen)

Financing activities:(Decrease) increase in short-term bank loans, net ........................
Proceeds from long-term debt .......................................................
Repayment of long-term debt .......................................................
Repayment of bonds ......................................................................
Cash dividends paid ......................................................................
Purchases of treasury stock ...........................................................
Other, net .....................................................................................
Net cash used in financing activities .............................................
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 ...........................
Decrease in cash and cash equivalents resulting
from changes in number of consolidated subsidiaries ..............
Cash and cash equivalents at end of year ......................................

2003(Thousands of
U.S. dollars)(Note 2)

(568)
2,050
(9,620)(5,000)(1,363)(1,442)(13)(15,956)

2,799
13,672(16,797)—(1,364)(18)
129(1,579)(4,725)
17,055(80,033)(41,597)(11,339)(11,997)(108)(132,744)(274)(1,864)
23,151882
8,393
14,806

2,280(15,507)
192,604(70)¥ 21,217(48)¥ 23,151(583)$ 176,514

See accompanying notes to consolidated financial statements.

| Nippon Shokubai Co., Ltd. | 19 |Notes to Consolidated Financial Statements
Nippon Shokubai Co., Ltd. and Consolidated Subsidiaries
March 31, 2003

1. Summary of Significant Accounting Policies
(a)

(b)

Basis of Presentation
Nippon Shokubai Co., Ltd. (the “Company”) and its
domestic consolidated subsidiaries maintain theiraccounts and records in accordance with accounting
principles and practices generally accepted and appliedin Japan. Its foreign subsidiaries maintain their accounts
in conformity with the requirements of their countries of
domicile. The accompanying consolidated financial
statements have been compiled from the consolidated
financial statements prepared by the Company as requiredby the Securities and Exchange Law of Japan, which may
differ in certain material respects from accounting
principles and practices generally accepted in countries
and jurisdictions other than Japan.
Certain reclassifications of previously reported
amounts have been made to conform the consolidated
financial statements for the year ended March 31, 2002
to the 2003 presentation. Such reclassifications had noeffect on consolidated net income or shareholders’ equity.
Basis of Consolidation
The accompanying consolidated financial statements
include the accounts of the Company and its significant
subsidiaries. All significant intercompany items havebeen eliminated in consolidation.
The foreign consolidated subsidiaries are consolidated
on the basis of fiscal periods ending December 31, which
differs from the balance sheet date of the Company. As
a result, adjustments have been made for any significant
intercompany transactions which took place during theperiod between the year ends of these foreign
consolidated subsidiaries and the year end of theCompany.
Investments in an unconsolidated subsidiary andsignificant affiliates are stated at cost plus equity in their
undistributed earnings or losses. Consolidated net income
includes the Company’s equity in the current net income
or loss of such companies after the elimination of
unrealized intercompany profits.
Investments in unconsolidated subsidiaries andaffiliates not accounted for by the equity method are
carried at cost.
The excess of cost over underlying net assets at thedate of acquisition is amortized over a period of five years
on a straight-line basis, except that immaterial amounts
are charged to income as incurred.

| 20 | Nippon Shokubai Co., Ltd. |(c)Foreign Currency Translation
The financial statements of the foreign consolidated
subsidiaries are translated into yen at the rates of exchange
in effect at the balance sheet date except that thecomponents of shareholders’ equity are translated at their
historical exchange rates. Translation differences
resulting from translating the financial statements of theforeign consolidated subsidiaries are not included in thedetermination of net income but are reported as translation
adjustments in a separate component of shareholders’equity and minority interests in the consolidated balance
sheets at March 31, 2003 and 2002.
Revenue and expense items arising from transactions
denominated in foreign currencies are generally translated
into yen at the rates in effect at the respective transaction
dates.

(d)Cash and Cash Equivalents
Cash and cash equivalents include cash on handand in banks and other highly liquid investments withmaturities of three 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 averagemethod.

(f)

Property, Plant and Equipment
Property, plant and equipment is stated on the basisof cost. Depreciation is computed principally by the
declining-balance method over the estimated useful livesof the respective assets, except that the foreign
consolidated subsidiaries compute depreciation by thestraight-line method over the estimated useful lives of
the respective assets.

(g)

LeasesNon-cancelable leases of the Company and its
domestic consolidated subsidiaries are accounted for as
operating leases (whether such leases are classified as
operating or finance leases), except that leases which
stipulate the transfer of ownership of the leased assets
to the lessee are accounted for as finance leases.
However, leases of the foreign consolidated
subsidiaries are generally classified and accounted foras 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 and marketable
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 amortizedcost. Marketable securities classified as other securities
are carried at fair value, with any changes in unrealized
holding gain or loss, net of the applicable income taxes,
reported as a separate component of shareholders’ equity.
Non-marketable securities classified as other securities
are carried at cost. Cost of securities sold is determinedby the moving average method.

(i)

Research and Development Costs and Computer
SoftwareResearch and development costs are charged toincome 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
the generation of future income or cost savings. Suchexpenditures are capitalized as assets and amortized by
the straight-line method over their useful lives, generally
a period of 5 years.

(j)

(k)

Income Taxes
Income taxes are calculated based on taxable
income and charged to income on an accrual basis.
Deferred income tax assets and liabilities are computed
based on the temporary differences between thefinancial reporting and tax bases of the assets andliabilities which will result in taxable or deductible
amounts in the future. The calculation of deferredincome tax assets and liabilities is based on the enacted
tax laws.
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, years of service and certain otherfactors. The domestic consolidated subsidiaries have
either unfunded employees’ retirement benefit plans and/or pension plans which are noncontributory and funded
and which cover substantially all their employees. These

plans provide for lump-sum payments and/or annuity
payments payable upon termination of employment
Accrued retirement benefits for employees at March
31, 2003 and 2002 have been provided mainly at amounts
calculated based on the retirement benefit obligation andthe fair value of the pension plan assets as adjusted for
unrecognized actuarial gain or loss and unrecognizedprior service cost.
Prior service cost is amortized principally by thestraight-line method over 5 years, which is within theestimated average remaining years of service of theeligible employees.
Actuarial gain or loss is amortized in the year
following the year in which the gain or loss is recognizedprincipally by the straight-line method over 10 years,
which is within the estimated average remaining yearsof service of the eligible employees.
In addition, directors and corporate auditors of theCompany and certain consolidated subsidiaries arecustomarily entitled to lump-sum payments under theirrespective unfunded retirement benefit plans. The
provision for retirement benefits for these officers has
been made at an estimated amount.
(l)Accounting Standard for Treasury Stock andReduction of Legal Reserves
Effective April 1, 2002, the Company adopted“Accounting Standard for Treasury Stock andReduction of Legal Reserves” (Accounting Standard
No. 1). The effect of the adoption of this new standard
was to increase income before income taxes andminority interests for the year ended March 31, 2003
by ¥152 million ($1,265 thousand) from the amountwhich would have been recorded under the method
applied in the previous year.

(m)

Appropriation of Retained Earnings
Under the Commercial Code of Japan, theappropriation of retained earnings with respect to agiven financial period is made by resolution of theshareholders at a general meeting held subsequent tothe close of the financial period. The accounts for that
period do not, therefore, reflect such appropriations(see Note 16).

| Nippon Shokubai Co., Ltd. | 21 |

2.

U.S. Dollar Amounts

3.

The translation of yen amounts into U.S. dollar
amounts is included solely for convenience, as amatter of arithmetic computation only, at the rate of¥120.2 = U.S.$1.00, the approximate rate of exchange
in effect on March 31, 2003. 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.

Divestitures and Acquisition
In November 2001, the Company sold its Methyl
Methacrylete Monomer Business (“MMA Monomer
Business”) to Sumitomo Chemical Co., Ltd.
(“Sumitomo Chemical”) under the terms of a basic
agreement to integrate each company’s acrylic acidand MMA Monomer Business into the Company and
Sumitomo Chemical, respectively. As a result of thistransaction, the Company recorded gain of ¥2,543
million. The components of the sale of the MMA
Monomer Business consisted of the sale of a certain
portion of the Company’s interest in Nihon Methacryl
Monomer Co., Ltd. and the sale of all shares of theCompany’s interest in Singapore MMA Monomer Pte
Ltd. (“Singapore MMA”) as well as the MMA
Monomer Businesses.

4. Investments in Securities
Marketable securities classified as other securities at March 31, 2003 and 2002 are summarized as follows:
2003(Millions of yen)

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

(Thousands of U.S. dollars)

CostBook value(Fair market
value)

Unrealized
gain (loss)

Cost

Book value(Fair market
value)

Unrealized
gain (loss)¥ 4,280
4,280¥ 6,308
6,308¥ 2,028
2,028$ 35,607
35,607$ 52,479
52,479$ 16,872
16,872

4,082
4,082¥ 8,362

2,992
2,992
¥ 9,300(1,090)(1,090)¥ 938

33,96033,960$ 69,567

24,892
24,892$ 77,371(9,068)(9,068)$ 7,804

2002(Millions of yen)

...
...
...
Securities whose fairmarket value exceeds their cost:... Equity securities ..............
Subtotal ...................................
Securities whose costexceeds their fair market value:... Equity securities ..............
Subtotal ...................................
Total ............................................
| 22 | Nippon Shokubai Co., Ltd. |(Thousands of U.S. dollars)

CostBook value(Fair market
value)

Unrealized
gain (loss)

Cost

Book value(Fair market
value)

Unrealized
gain (loss)¥ 3,135
3,135¥ 6,060
6,060¥ 2,925
2,925$ 26,082
26,082$ 50,416
50,416$ 24,334
24,3348,004
8,004¥ 11,139

6,384
6,384
¥ 12,444(1,620)(1,620)¥ 1,305

66,58966,589$ 92,671

53,111
53,111$ 103,527(13,478)(13,478)$ 10,856

The proceeds and gross realized gains and losses onsales of securities classified as other securities at
March 31, 2003 are as follows:
2003(Millions of yen)

Proceeds
¥ 209

Gross
realizedgains¥3(Thousands of U.S. dollars)Grossrealized
losses¥ 88

Proceeds$ 1,739Grossrealized
gains
$ 25

Gross
realized
losses$732

A breakdown of other securities whose market value
was not determinable at March 31, 2003 and 2002 is asfollows:

2003

2002

(Millions of yen)Preferred subscription
certificates
Other securities

¥ 500
1,094

¥ —
596

2003
(Thousands of
U.S. dollars)$ 4,160
9,101

5. Inventories
Inventories at March 31, 2003 and 2002 were as
follows:
2003

2002

(Millions of yen)

Merchandise andfinished goods .......
Raw materials .............
Work in process ..........
Supplies ......................

¥ 10,525
6,801
4,795
1,647
¥ 23,768¥ 11,186
6,496
5,715
1,677
¥ 25,074

2003(Thousands of
U.S. dollars)$ 87,562
56,581
39,892
13,702$ 197,737

6. Short-Term Bank Loans and Long-Term Debt
Short-term bank loans consisted mainly of
unsecured loans. The average interest rates on the
short-term bank loans outstanding at March 31, 2003
and 2002 were 0.72%and 0.60%, respectively.
Long-term debt at March 31, 2003 and 2002
consisted of the following:
2003

2002

2003

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

1.425% unsecured bonds
due November 2002 ................ ¥— ¥ 5,000 $—
1.85% unsecured bonds due
November 2004 ....................... 5,000
5,000
41,597
Unsecured loans from banks
and insurance companies,
payable in yen, at rates
from 1.02% to2.60%, due through 2006 ........ 6,423 10,838
53,436
Unsecured loans from banks,
payable in U.S. dollars,
at rates from 2.10% to
3.75%, due through 2009 ........ 16,957 17,930 141,074
Unsecured loans from banks,
payable in Euro, at rates
from 3.30% to 4.83%,
due through 2007 ..................... 1,653
4,336
13,752
Secured loans from banks andinsurance companies,
payable in yen, at rates
from 1.10% to5.60%,
due through 2008 ..................... 2,837
3,620
23,602Sub total .............................. 32,870 46,724 273,461
Less current portion .................... (8,493) (14,101) (70,657)
Total .................................... ¥24,377 ¥32,623 $202,804

The aggregate annual maturities of long-term debt
subsequent to March 31, 2003 are summarized below:
Year ending March 31,(Millions of yen)(Thousands of
U.S. dollars)

2004 ..........................
2005 ..........................
2006 ..........................
2007 ..........................
2008 and thereafter ...

¥ 8,493
10,820
4,128
3,676
5,753
¥ 32,870$ 70,657
90,01734,34330,58247,862$ 273,461| Nippon Shokubai Co., Ltd. | 23 |Assets pledged as collateral for long-term debt,
including the current portion thereof, and accounts andnotes payable at March 31, 2003 and 2002 were as
follows:
2003

2002

(Millions of yen)Time deposits .....................
Land ....................................
Buildings and structures .....
Machinery and equipment ..
Investments in securities ....
Other assets ........................

¥

38
745
714
—
2,357
—
¥ 3,854

¥

85
1,015
877
865
2,316
2
¥ 5,160

2003(Thousands of
U.S. dollars)

$

316
6,198
5,940
—
19,609—$32,063

7. Retirement Benefits
The following table sets forth the funded andaccrued status of the plans and the amounts recognizedin the consolidated balance sheets at March 31, 2003
and 2002 for the Company’s and the consolidated
subsidiaries’ defined benefit plans:
2003

2002

2003

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

Retirement benefit
obligation at end of year .......... ¥(29,827)
Fair value of plan assets
at end of year ............................
15,590Unfunded retirement
benefit obligation ..................... (14,237)
Unrecognized actuarial loss ........
9,925
Unrecognized past service cost ....
(726)
Net retirement benefit obligation(5,038)Prepaid pension cost ...................
2,073
Accrued retirement benefits ....... ¥ (7,111)¥(41,224)$(248,145)

25,203

129,700(16,021)9,885(2,038)(8,174)7¥ (8,181)(118,445)
82,571(6,040)(41,914)
17,246$ (59,160)

Service cost ...........................
Interest cost ...........................
Expected return on plan assets ...
Amortization:
Past service cost ..................
Actuarial loss ......................
Retirement benefit expenses ...
| 24 | Nippon Shokubai Co., Ltd. |2003
Discount rate .................... Principally 2.6%
Expected rate of return onplan assets ...................... Principally 4.5%

2002
Principally 2.6%
Principally 4.5%

On February 17, 2003, the Company received
approval from the Minister of Health, Labor andWelfare with respect to its application for exemption
from the obligation for benefits related to future
employee services under the substitutional portion of
Welfare Pension Fund Plan (WPFP). In accordancewith the transitional provision stipulated in “Practical
Guidelines for Accounting for Retirement Benefits,”
the Company accounted for the separation of thesubstitutional portion of the benefit obligation fromthe corporate portion of the benefit obligation under its
WPFP as of the date of approval of its exemption
assuming that the transfer to the Japanese governmentof the substitutional portion of the benefit obligation
and related pension plan assets had been completed asof that date. As a result, they recognized a gain of¥2,834 million ($23,577 thousand) for the year ended
March 31, 2003. The pension assets which are to betransferred were calculated at ¥6,596 million ($54,875
thousand) at March 31, 2003.

8. Income Taxes

The components of retirement benefit expenses
for the years ended March 31, 2003 and 2002 areoutlined as follows:
2003

The assumptions used in accounting for the defined
benefit plans for the years ended March 31, 2003 and2002 were as follows:

2002

2003

(Millions of yen)(Thousands of
U.S. dollars)¥ 1,947994(912)¥ 1,635
1,192
(939)

$ 16,198
8,269(7,587)(500)997¥ 2,526(372)
276¥ 1,792(4,160)8,295$ 21,015

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, 2003 and 2002 was, in the aggregate,approximately 42.0%. The effective tax rates reflectedin the consolidated statements of income for the years
ended March 31, 2003 and 2002 differed from theabove statutory tax rate for the following reasons:Statutory tax rate .................................
Effect of:Loss on amortization of excess of
cost over net assets acquired ..........
Equity in losses of an unconsolidated subsidiary and affiliates ......
Permanently nondeductible
expenses ........................................
Permanently nontaxable
dividends received ........................
Valuation allowance .........................
Decrease in valuation allowance ......
Gain on sale of investment in a
subsidiary accounted for by theequity method ...............................
Enacted change in tax rate ................
Other, net ..........................................
Effective tax rates ...............................

2003
42.0%

2002
42.0%

4.5

—

—

12.6

1.2

2.5

(1.7)
—
(3.3)

(4.3)
31.0
—

—
0.7
2.3
45.7%

(19.9)—
3.0
66.9%

On March 31, 2003, Cabinet Order No. 9 entitled“Reform of a Portion of Local Tax Law” was issued
and this reform will apply to fiscal years beginning
after April 1, 2004. As a result of this reform, thestatutory tax rate to be used for the calculation ofdeferred income taxes concerning temporary differences which are expected to be realized or settled after
April 1, 2004 will be changed. The effect of thischange in rate decreased deferred tax assets by ¥66
million ($549 thousand), net of deferred tax liabilities,
and increased income taxes – deferred and unrealized
holding gain on securities by ¥70 million ($582
thousand) and ¥3 million ($25 thousand), respectively,
as compared with the corresponding amounts calculated at the statutory tax rate used in effect at March
31, 2003 and for the year ended March 31, 2003.
Deferred income taxes reflect the net tax effect of
the temporary differences between the carrying amountsof the assets and liabilities calculated for financial
reporting purposes and the corresponding tax bases
reported for income tax purposes. The significant
components of the deferred tax assets and liabilities of
the Company and its consolidated subsidiaries at March
31, 2003 and 2002 are summarized as follows:

2003

2002

(Millions of yen)

Deferred tax assets:
Accrued retirement benefits ...... ¥1,098
Intercompany profit oninventories and property,
plant and equipment ............. 1,018
Tax loss carryforwards ............
894
Reserve for repairs ...................
804
Depreciation andamortization .........................
495
Accrued employees’ bonuses ..
658
Impairment of investments
in securities and other .......... 2,449
Accrued enterprise tax .............
302
Other ........................................ 1,084
Subtotal ...................................... 8,802
Less: Valuation allowance ...... (710)
Total deferred tax assets ............ 8,092
Deferred tax liabilities:
Equity in earnings of a foreign
affiliates .............................. (729)
Net unrealized holding gain
on securities ......................... (390)
Depreciation andamortization ......................... (569)
Deferred capital gainon property ........................... (355)Reserve for depreciation fortax purposes ....................... (182)
Other ........................................
(75)
Total deferred tax liabilities ....... (2,300)
Net deferred tax assets ............... ¥5,792

2003(Thousands of
U.S. dollars))¥2,160$ 9,135

792
—
1,160

8,469
7,438
6,689

502
508

4,118
5,474

1,491
243
919
7,775
(1,055)
6,720

20,3742,512
9,019
73,228(5,907)67,321—(6,065)(546)(3,245)(546)(4,734)(362)(2,953)

(228)
(170)
(1,852)¥4,868(1,514)(624)(19,135)$48,186

9. Additional Paid-in Capital and Retained
Earnings
On October 1, 2001, an amendment (the“Amendment”) to the Commercial Code of Japan (the“Code”) went into effect. The Amendment eliminates
the stated par value of the Company’s outstanding
shares, which resulted in all outstanding shares having
no par value as of October 1, 2001. The Amendment
also provides that all share issuances after September
30, 2001 will be of shares without par value. Prior to
the date on which the Amendment went into effect, theCompany’s shares had a par value of ¥50.
The Code provides that an amount equal to at least
10% of the amounts to be disbursed as distributions ofearnings be appropriated to the legal reserve until thesum of the legal reserve and additional paid-in capitalequals 25% of the common stock account. The Codealso stipulates that, to the extent that the sum of theadditional paid-in capital account and the legal reserve| Nippon Shokubai Co., Ltd. | 25 |exceeds 25% of the common stock account, the amountof any such excess is available for appropriation by
resolution of the shareholders.

Years ending March 31,

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

2004 ............................................
2005 and thereafter ....................

¥116
179
¥295

$ 965
1,489
$2,454

10. Research and Development Costs
Research and development costs included in cost of
sales and selling, general and administrative expenses
for the years ended March 31, 2003 and 2002 totaled¥9,233 million ($76,814 thousand) and ¥9,173 million,
respectively.

11. Leases
The following pro forma amounts represent theacquisition costs (including the interest portion),
accumulated depreciation and net book value of theleased assets as of March 31, 2003 and 2002, which
would have been reflected in the balance sheets if
finance lease accounting had been applied to thefinance leases currently accounted for as operatingleases:2003

2002(Millions of yen)

Machinery, equipment and software:
Acquisition costs .............. ¥607
Accumulated depreciation ... (312)Net book value ................. ¥295

¥871
(521)
¥350

2003
(Thousands of
U.S. dollars)$5,050(2,596)$2,454

Lease payments relating to finance leases accounted for as operating leases amounted to ¥179
million ($1,489 thousand) and ¥188 million for theyears ended March 31, 2003 and 2002, respectively.
Depreciation of the leased assets calculated by thestraight-line method over the respective lease terms
amounted to ¥179 million ($1,489 thousand) and ¥188
million for the years ended March 31, 2003 and 2002,
respectively.
Future minimum lease payments (including theinterest portion thereon) subsequent to March 31, 2003
for finance leases accounted for as operating leases are
summarized as follows:| 26 | Nippon Shokubai Co., Ltd. |12. Contingent Liabilities
At March 31, 2003, the Company and one consolidated subsidiary were contingently liable as guarantors
of indebtedness of affiliates, the Company’s employees
and other in the aggregate amount of ¥2,381 million($19,808 thousand).
In addition, at March 31, 2003, the Company and its
consolidated subsidiaries had contingent liabilities arisingfrom notes discounted by banks and notes endorsed in
the aggregate amount of ¥873 million ($7,263 thousand).

13. Amounts Per Share
2003

2002
(yen)

Net income ..................
Cash dividends ............
Net assets .....................

¥ 27.977.00
631.12

2003(U.S. dollars)¥ 8.167.00
617.05

$0.23
0.06
5.25

The computation of net income per share is basedon the weighted average number of shares of common
stock outstanding during each year.
Cash dividends per share represent the cash
dividends declared as applicable to the respective years
together with the interim cash dividends paid.
Net assets per share are based on the number ofshares outstanding at the respective balance sheet
dates.
Effective April 1, 2002, the Company adopted
Financial Accounting Standard No. 2, “AccountingStandards for Earnings per Share”, and Financial
Accounting Standard Implementation Guidance No. 4,“Implementation Guidance for Accounting Standard
for Earnings per Share,” which were issued by the
Accounting Standards Board of Japan.
The basic financial data for the computation ofbasic net income per share based on the above a
standard for the year ended March 31, 2003 is asfollows:

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

Net income ............................................ ¥ 5,516$ 45,890
Deduction from net income:
Bonuses to directors andcorporate auditors ..........................
(87)
(724)
Adjusted net income attributed tocommon stock .................................. ¥ 5,428$ 45,166
Weighted average number of sharesof common stock outstanding forthe current year ........................... 194,091 thousand shares
If the Company had adopted the new standard forthe year ended March 31, 2002, the per share amountof net assets at March 31, 2002 and the basic net
income for the year ended March 31, 2002 would havebeen ¥616.61 and ¥7.72, respectively.

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 are also
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, 2003, one consolidated subsidiary
had open interest-rate swap positions. The total valueof these positions, however, was immaterial.

15. Segment Information
The Company and its consolidated subsidiaries areprimarily engaged in the manufacture and sales of
products in Japan and overseas in the following
business segment: business in the chemicals segments
conducted principally by the Company.

Business Segments
The business segment information for the Company
and its consolidated subsidiaries for the years ended
March 31, 2003 and 2002 is outlined as follows:

ChemicalsYear ended March 31, 2003
Other
Total
Eliminations or
corporate

Consolidated(Millions of yen)

I. Sales and operating income
Sales to third parties ..................................................
Intergroup sales and transfers ....................................
Total sales ..................................................................
Operating expenses ....................................................
Operating income ......................................................
II. Assets, depreciation and capital expenditures
Total assets ................................................................
Depreciation and amortization ..................................
Capital expenditures ..................................................

¥161,124—
161,124
148,922¥ 12,202¥2,3908,407
10,797
10,254¥ 543¥163,514
8,407
171,921
159,176¥ 12,745¥—(8,407)(8,407)(8,419)¥12¥163,514—
163,514150,757¥ 12,757¥191,951
9,664
4,544

¥4,782
185
104¥196,733
9,849
4,648

¥20,023
47—¥216,756
9,896
4,648

| Nippon Shokubai Co., Ltd. | 27 |

Chemicals

I. Sales and operating income
Sales to third parties .............................................
Intergroup sales and transfers ...............................
Total sales .............................................................
Operating expenses ...............................................
Operating income .................................................
II. Assets, depreciation and capital expenditures
Total assets ............................................................
Depreciation and amortization .............................
Capital expenditures .............................................

Year ended March 31, 2002
Other
Total
Eliminations or
corporate

Consolidated(Millions of yen)

¥157,894—
157,894
149,525¥ 8,369¥1,828
8,298
10,1269,548¥ 578¥159,722
8,298
168,020
159,073¥ 8,947¥—(8,298)(8,298)(8,314)¥16¥159,722—
159,722150,759¥ 8,963¥194,773
10,3405,189¥5,388179
59¥200,161
10,5195,248¥30,092
49—¥230,253
10,5685,248

ChemicalsYear ended March 31, 2003
Other
Total
Eliminations or
corporate

Consolidated(Thousands of U.S. dollars)

I. Sales and operating income
Sales to third parties .................................................. $1,340,466
Intergroup sales and transfers ....................................
—
Total sales .................................................................. 1,340,466
Operating expenses .................................................... 1,238,952
Operating income ...................................................... $ 101,514
II. Assets, depreciation and capital expenditures
Total assets ................................................................ $1,596,930
Depreciation ...............................................................
80,399
Capital expenditures ..................................................
37,804| 28 | Nippon Shokubai Co., Ltd. |$19,883
69,942
89,82585,308$ 4,517$1,360,349
69,942
1,430,291
1,324,260$ 106,031$— $1,360,349(69,942)—(69,942) 1,360,349(70,042) 1,254,218$
100 $ 106,131$39,784
1,539
865$1,636,714
81,93838,669$166,581 $1,803,295
391
82,329—38,669

Geographical Areas
The geographical segment information for the Company and its consolidated subsidiaries for the years ended March 31,
2003 and 2002 is outlined as follows:Japan

Year ended March 31, 2003
Overseas
Total
Eliminations or
corporate

Consolidated(Millions of yen)

I. Sales and operating income
Sales to third parties ..................................................
Intergroup sales and transfers ....................................
Total sales ..................................................................
Operating expenses ....................................................
Operating income ......................................................
II. Total assets ................................................................

¥ 134,113
11,198145,311
133,876¥11,435¥ 155,156¥ 29,401
3,809
33,21032,247¥963¥ 45,723¥ 163,514
15,007
178,521
166,123¥ 12,398¥ 200,879¥—(15,007)(15,007)(15,366)¥359¥ 15,877

Japan

Year ended March 31, 2002
Overseas
Total
Eliminations or
corporate¥163,514—
163,514150,757¥ 12,757¥216,756

Consolidated(Millions of yen)

I. Sales and operating income
Sales to third parties ..................................................
Intergroup sales and transfers ....................................
Total sales ..................................................................
Operating expenses ....................................................
Operating income ......................................................
II. Total assets ................................................................

¥ 132,285
9,827
142,112
133,605¥ 8,507¥ 153,872¥27,437
3,699
31,136
31,237¥ (101)¥49,340¥159,722
13,526173,248
164,842¥ 8,406¥203,212¥—(13,526)(13,526)(14,083)¥ 557¥27,041¥159,722—
159,722150,759¥ 8,963¥230,253

Japan

Year ended March 31, 2003
Overseas
Total
Eliminations or
corporate

Consolidated(Thousands of U.S. dollars)

I. Sales and operating income
Sales to third parties ..................................................
Intergroup sales and transfers ....................................
Total sales ..................................................................
Operating expenses ....................................................
Operating income ......................................................
II. Total assets ................................................................

$1,115,749
93,161
1,208,910
1,113,777$ 95,133$1,290,816$244,600
31,689276,289
268,277$ 8,012$380,391$1,360,349
124,850
1,485,199
1,382,054$ 103,145$1,671,207$— $1,360,349(124,850)—(124,850) 1,360,349(127,836) 1,254,218$ 2,986 $ 106,131$132,088 $1,803,295| Nippon Shokubai Co., Ltd. | 29 |Overseas Sales
Overseas sales, which include export sales of the Company and the domestic consolidated subsidiaries and sales (otherthan exports to Japan) of the foreign consolidated subsidiaries, for the years ended March 31, 2003 and 2002 are summarized as follows:

Asia

Year ended March 31, 2003
EuropeAmericaOther¥25,212¥23,567¥15,053¥3,374¥67,206

15.4%

14.4%

9.2%

2.1%

41.1%

Total

(Millions of yen)Overseas sales .................................................................
Overseas sales as a percentage of consolidated
net sales ................................................................

Asia

Year ended March 31, 2002
EuropeAmerica
Other

Total

(Millions of yen)Overseas sales .................................................................
Overseas sales as a percentage of consolidated
net sales ................................................................

¥20,774¥18,669¥17,214¥4,046¥60,703

13.0%

11.7%

10.8%

2.5%

38.0%

Asia

Year ended March 31, 2003
EuropeAmericaOther$209,750$196,065

Total(Thousands of U.S. dollars)

Overseas sales .................................................................

$125,233$28,070

16. Subsequent Event
The following appropriations of retained earnings of
the Company, which have not been reflected in theaccompanying consolidated financial statements for theyear ended March 31, 2003, were approved at a shareholders’ meeting held on June 24, 2003:| 30 | Nippon Shokubai Co., Ltd. |Cash dividends (¥3.50 = $ 0.03
per share) ...................................
Bonuses to directors and corporate
auditors ......................................

$559,118(Millionsof yen)(Thousands of
U.S. dollars)¥672$5,591

77
¥749

640
$6,231

Corporate Data
NIPPON SHOKUBAI CO., LTD.
Incorporated
August 21, 1941

Stock Listings
First Section, Tokyo Stock ExchangeFirst Section, Osaka Securities Exchange
Transfer Agent
UFJ Trust Bank Limited
1-4-3 Marunouchi, Chiyoda-ku
Tokyo 100-0005, Japan

Common Stock
Authorized:
424,000,000 shares
Issued:194,881,287 shares
Capital¥16,529,413,238(as of March 31, 2003)

Number of Employees
1,881

Organization
DivisionInternal Audit Office
ERP Development
Information System Office
Corporate Planning
Administration
Board of Directors

President

Finance & Accounting
Production

Corporate
Management Committee

New Business PlanningResearch & Development
Ethylene Oxide BusinessAcrylic Business
Fine & Specialty Chemicals Business
Environment Business & Catalysts
Resins Business Office
Logistics Center
Kawasaki Plant
Himeji Plant

Board of Corporate Auditors

Suita Plant

Corporate Auditor

Auditor’s Office| Nippon Shokubai Co., Ltd. | 31 |

Consolidated Subsidiaries and Affiliates
Name

Paid-in
Capital(millions)

EquityOwnership Principal Business(%)

President

Nippoh Chemicals Co., Ltd.*

¥517

67.9

Manufacture and sale of iodine,
iodic compounds, and natural gas

Tatsuhito Matsuda

Nippon Polyester Co., Ltd.*

¥400

97.3

Manufacture and sale of synthetic
resins and related additives

Yoshizumi Ozawa

Nisshoku Butsuryu Co., Ltd.*

¥100

100

Transport

Wataru Makii

Tokyo Fine Chemical Co., Ltd.*

¥80

66.9

Manufacture and sale of stabilizerof vinyl chloride resin andanti-freeze

Kazumi Fukuyasu

Chugoku Kako Co., Ltd.*

¥75

74.7

Manufacture and sale of adhesive tape
Fukio Ogawa
and heat insulator

Shinritsu Co., Ltd.*

¥40

73.1

Sale of chemical products

Masayoshi Sugimoto

US$1.525**

100.0

Manufacture and sale of superabsorbent polymers
Technical liaison and businessdevelopment

Katsumi Uchida

Nippon Shokubai (Asia) Pte. Ltd.*

S$0.3

100.0

Sale of chemical products

Takeshi Sano

Nippon Shokubai Europe N.V.*

EUR27

100.0

Manufacture and sale ofsuperabsorbent polymers

Keishi Tsuboi

PT. Nippon Shokubai Indonesia*

US$12093.7

Manufacture and sale of acrylicacid and acrylic esters

Takashi Onishi

Nihon Jyoryu Kogyo Co., Ltd.

¥90

46.5

Manufacture and sale ofanthraquinone, carbozole, andtheir derivatives

Takakiyo Goto

ICT Co., Ltd.

¥320

50.0

Sale of automobile exhaust catalyst

Yojiro Takahashi

Nihon Polymer Ind. Co., Ltd.

¥100

50.0

Manufacture and sale of acrylic
emulsionsTadahiro Yoneda

Nisshoku Schenectady Kagaku, Inc.

¥40

45.0

Manufacture and sale of insulating
varnish and enamel

Norio Matsui

International Catalyst Technology, Inc.

US$7.450.0

Manufacture and sale of automobile exhaust catalyst

W. Staron

NA Industries, Inc.*(as of June 30, 2003)*

Included in consolidation
American Acryl NA LLC, and American Acryl L.P., are consolidated into NA Industries, Inc. by the equity method.
** The unit of this item only is thousands of dollars.

| 32 | Nippon Shokubai Co., Ltd. |Directory
HEAD OFFICESLABORATORIESOsaka Office
Kogin Bldg.
4-1-1 Koraibashi, Chuo-ku
Osaka 541-0043, Japan
Telephone: 81-6-6223-9111
Facsimile: 81-6-6201-3716

Strategic Technology Research Center
5-8 Nishi Otabi-cho, Suita
Osaka 564-8512, JapanTokyo Office
Hibiya Dai Bldg.
1-2-2 Uchisaiwai-cho, Chiyoda-ku
Tokyo 100-0011, Japan
Telephone: 81-3-3506-7475
Facsimile: 81-3-3506-7598
PLANTS
Kawasaki Chidori Plant
14-1 Chidori-cho, Kawasaki-ku
Kawasaki, Kanagawa 210-0865, Japan
Kawasaki Ukishima Plant
10-12 Ukishima-cho, Kawasaki-ku
Kawasaki, Kanagawa 210-0862, Japan
Himeji Plant
992-1 Aza Nishioki Okihama, Aboshi-ku
Himeji, Hyogo 671-1282, Japan
Ehime Plant
5-1 Soubiraki-cho, Niihama, Ehime
792-8521, Japan
Suita Plant
5-8 Nishi Otabi-cho, Suita
Osaka 564-0034, Japan

Performance Chemicals & Materials ResearchCenter
5-8 Nishi Otabi-cho, Suita
Osaka 564-8512, Japan
Polymers Research Center
5-8 Nishi Otabi-cho, Suita
Osaka 564-8512, Japan
Catalysts Research Center
992-1 Aza Nishioki Okihama, Aboshi-ku
Himeji, Hyogo 671-1292, Japan
Process Technology Center
992-1 Aza Nishioki Okihama, Aboshi-ku
Himeji, Hyogo 671-1292, Japan
Environmental Engineering and Research Center
992-1 Aza Nishioki Okihama, Aboshi-ku
Himeji, Hyogo 671-1292, Japan
Superabsorbent Polymers Research Center
992-1 Aza Nishioki Okihama, Aboshi-ku
Himeji, Hyogo 671-1292, JapanOVERSEAS COMPANIESNA Industries, Inc.
2651 Riverport Road
Chattanooga, TN 37406, U.S.A.
(P.O. Box 5407)
Telephone: 1-423-624-6496
Facsimile: 1-423-629-0531
NIPPON SHOKUBAI (ASIA) PTE LTD
138 Cecil Street, #05-04
Cecil Court, Singapore 069538
Telephone: 65-6-225-6313
Facsimile: 65-6-225-0969
NIPPON SHOKUBAI EUROPE N.V.
Haven 1053, Nieuwe Weg 1, B-2070
Zwijndrecht, Belgium
Telephone: 32-3-250-3705
Facsimile: 32-3-250-3712
PT. NIPPON SHOKUBAI INDONESIA
Kawasan Industri Panca Pun
Jl.Raya Anyer Km.122
Ciwandan Cilegon 42447 Bantan, Indonesia
Telephone: 62-254-600660
Facsimile: 62-254-600657

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’03 Aug., 1500
Printed in Japan