Business
Reportfor the 127th Term2011.4.1−2012.3.31

To Our Shareholders

First of all, thank you very much for your continued patronage. We are very glad to be able topresent our annual report for the 127th financial period, ended on 31st March, 2012.
As you are well aware, the economy in Japan during this period improved little by little due toreconstruction demand and recovery of production which had decreased after the Great East JapanEarthquake. However, it did not become a full-fledged economic recovery as, in addition to theappreciation of the yen and the higher oil prices, Japan experienced electricity shortages throughout
the summer.
Against such a backdrop, in addition to strengthening our overseas bases and pursuing researchand development with an eye to the future, the Parker Group actively sought ways to reduce costs,
strengthen our business organization and improve profitability. As a result, our businessachievements were as described in the later part of this report.
Regarding the dividend, our priority is a consistent and stable dividend payment, and this will be
ten Japanese yen per share, which is the same as the interim dividend.
The environment surrounding the Parker Group is one in which we anticipate a stagnation of theEuropean and U.S. economies due to the increasingly serious debt problems in Europe and anincrease in competition in the Asian markets. However, we will do our utmost to continually build
on our business achievements in response to the expectations of our shareholders, by promoting thedevelopment of new technologies as well as strengthening our business development overseas.
Thank you very much for your unerring support.
June 2012

Chairman & C.E.O .

President & C.O.O.

Shun ONO

Kazuichi SATOMI-1-Parker Group Outlook
Business progress and results
Looking at the global economy during this period, the European economy overall tended
towards stagnation due to the nervousness of financial markets resulting from the worsening ofEuropean debt problems. The Asian economies were comparatively steadfast however lower
exports to Europe and the U.S. dampened economic growth rates.
In Japan, the economy exhibited a significant slump following the Great East Japan
Earthquake, however, from the middle of the period economic activity picked up gradually dueto reconstruction demand and recovery of production that had been stalled due to the disasters.
However, in addition to the appreciation of the yen and the higher oil prices, there was a
shortage of electricity in the summer and all these factors contributed to very tough conditions
for business.
The business environment faced by the Parker Group was a tough one as the automotiveindustry, which is one of our main customers, grappled with the effects on production of boththe Great East Japan Earthquake and the devastating floods in Thailand. Furthermore, in thesteel industry as well, Japanese steel manufacturers faced intense competition from Asian steel
manufacturers, creating difficulties for our customers in maintaining their superior edge in themarket.
Against such a fierce economic backdrop, in addition to working hard to gain new customers
and supply new technologies overseas to ensure that we steadily capture the increasing demandin expanding overseas markets, the Parker Group worked to strengthen our overseas business bypromoting equipment investment particularly in Asia. We also focused on research anddevelopment to create new technologies with a view to the future. Furthermore, we actively
sought to promote cost cutting in a variety of ways, by seeking efficiency in procurement of raw
materials as well as strengthening the ties among our Group members and reorganizing ourbusiness.
As a result of these efforts, our consolidated business achievements are as follows.
Net sales were 84,758 million yen (up 5.3% on the previous period) and operating income
was 11,411 million yen (down 7.4% ditto). Ordinary income was 12,901 million yen (down
5.5% ditto) and pure profit for the period was 6,314 million yen (down 15.3% ditto).

-2-The overview by each business segment is as follows.

(Chemicals Business)
Net sales were 35,822 million yen (down 2.1% on the previous period) and operating income
was 8,659 million yen (down 9.8% ditto). Our chemicals division manufactures and sells
chemicals to form conversion coating on the surface of metals and other substrates to improvetheir functionality by improving corrosion resistance, wear resistance, lubricity and otherperformances, thereby adding value to the substrate material. During this period, income fell
both within Japan and overseas, and the prices of raw materials continued to rise, increasing
manufacturing costs and overall creating a tough environment.

(Equipment Business)
Net sales were 15,250 million yen (up 53.9% on the previous period) and operating income
was 650 million yen (up 54.4% ditto). Our equipment business segment manufactures and sells
pre-treatment equipment, painting equipment and powder coating equipment etc. mainly to thetransportation machinery industry. While domestic orders for pre-treatment equipment remained
stagnant, demand from overseas recovered, particularly from Asia, and profitability improved
particularly in terms of income, recovering almost to the levels seen prior to the financial crisis.

(Jobbing Business)
Net sales were 30,868 million yen (down 0.2% on the previous period) and operating income
was 5,887 million yen (down 5.7% ditto). This division provides surface modification jobbing
services such as heat treatment, rust prevention coating and plating. Domestic jobbing businessis suffered by reduced income and profit due to the Great East Japan Earthquake and also due tocustomers moving manufacturing bases to overseas. Looking overseas, the jobbing businesspicked up in the U.S., however, the jobbing business in Asia was weak due to the effects of thefloods in Thailand and also rising labor costs.

(Other Business)
Net sales were 2,817 million yen (down 7.0% on the previous period) and operating income
was 278 million yen (down 31.9% ditto). This segment includes our building maintenance, realestate leasing, financial lease and transportation businesses. The building maintenance businessis suffered by reduced income while at the same time profitability in the logistics businessdeclined and led to lower income and profits.

-3-Sales by Business (Consolidated)

Chemical(JPY Million)

120,000

Equipment

Jobbing

Others103,489
90,807100,000

3,778

80,00084,75869,393

3,720

80,483
3,027

40,27233,544

3,028

2,817
30,86830,94360,00025,71916,76916,38040,00020,0009,911

15,25032,13936,60135,822

2009

2010

2011

8,505
42,66937,162

0
2007

2008

(Fiscal Year)

Status of Capital Expenditure
Equipment investment in this period totaled 4,599 million yen, with the main investments foreach business segment as follows.

Main facilities completed in this period:
Chemicals Division:
Nihon Parkerizing (India) Pvt. Ltd.
New chemical manufacturing plant.
Jobbing Business:
Thai Parkerizing Co., Ltd.:
Construction of new building and installation of equipment at rust preventive and heat
treatment jobbing plant.

-4-Status of financing
Not applicable.
Issues to face
Regarding the economic outlook, it is anticipated that the European and U.S. economies willremain sluggish and therefore a high level of economic growth cannot be expected from thevarious economies of Asia which are highly dependent on exports to the West. In addition, there
is significant concern regarding the impact of financial instability in Europe on the global
economy. Furthermore, in Japan, reconstruction demand after the Great East Japan Earthquake,and the employment and wage environment have recovered moderately and lead to anticipationof a positive economic growth in the short term, however, increasing competition with Asian
countries and the entrenched yen appreciation is dampening exports and leads to a shift
overseas of Japanese manufacturing bases, and it is tough environment for corporations
maintaining a base within Japan.
Against such a difficult backdrop, the Parker Group, under its motto of “back to the basics”,
will pursue the development of surface modification technologies which cannot be beaten interms of its innovation and originality, as well as actively promote equipment investment tostrengthen manufacturing in Japan and overseas. We are urgently working on furbishing ourbusiness base in the Indian market where particularly strong growth is anticipated, as well asactively investing management resources on expanding business in Thailand, Indonesia andChina.

Number of Employees
Consolidated:

3,219 persons

Nihon Parkerizing alone:

802 persons-5-Principal Shareholders
Number of Shares
Held

Name of Shareholders(Thousands ofshares)

Shareholding
Ratio(%)

Nippon Life Insurance Company

3,596

5.67

Meiji Yasuda Life Insurance Company

2,789

4.39

2,664

4.20

The Master Trust Bank of Japan, Ltd. (Trust account)

2,612

4.11

Japan Trustee Services Bank, Ltd. (Trust account)

2,587

4.07

The Chiba Bank, Ltd.

2,382

3.75

Yugen Co., Ltd.

2,354

3.71

The SATOMI Scholarship Foundation

2,316

3.65

Asahi Chiyoda Holding Co., Ltd.

2,292

3.61

1,702

2.68

Trust & Custody Services Bank, Ltd. as trustee for Nippon SteelCorporation Retirement Benefit Trust Account re-entrusted byMizuho Trust and Banking Co., Ltd.

The Chase Manhattan Bank, N.A. London S.L. Omnibus
Account-6-Financial Highlights (Consolidated)(JPY Million)
2004

2005

2006

2007

2008

2009

2010

2011

Net sales

78,65384,73997,115 103,489

90,807

69,39380,48384,758

Ordinary profit

10,483

12,705

14,247

15,464

9,828

9,055

13,64912,901

Net profit

5,341

6,816

6,983

8,088

4,439

4,1317,454

6,314

Total assets

104,244 122,775 131,348 132,595 111,088 119,101 124,925 130,517

Net sales(JPY Million)

120,000
97,115100,000
80,00078,653

103,489
90,80784,73980,48384,75869,39360,00040,00020,000
0
2004

2005

2006

2007

2008

2009

2010

2011

(Fiscal Year)

Ordinary profit(JPY Million)

15,46416,00014,247

14,00012,00013,64912,705
10,483

9,828

10,00012,901

9,055

8,000
6,000
4,000
2,000
0
2004

2005

2006

2007

2008

(Fiscal Year)-7-2009

2010

2011

Net profit(JPY Million)

9,000
8,000

8,088

7,000
6,000

7,454

6,983

6,816

6,314

5,341

5,000

4,439

4,131

2008

2009

4,000
3,000
2,000
1,000
0
2004

2005

2006

2007

2010

2011

(Fiscal Year)

Total assets(JPY Million)

131,348 132,595

140,000
122,775

120,000

111,088

104,244

119,101

124,925

130,517

100,000
80,00060,00040,00020,000
0
2004

2005

2006

2007

2008

(Fiscal Year)-8-2009

2010

2011

Consolidated Balance Sheets
Fiscal year ended March 312012

2011(JPY Million)
AssetsCurrent assets

64,67961,590Cash and deposits

23,632

25,683

Notes and accounts receivable-trade27,431

25,035Inventories

7,464

6,726Deferred tax assets

1,468

1,583

Others

4,820

2,670

Allowance for doubtful accounts

△137

△108

Fixed assets

65,837

63,335

Tangible assets

35,31135,304

Buildings and fixtures, net

12,004

11,904

Machinery, equipment and vehicles, net

7,045

6,331

Land

14,554

14,545Construction in progress

747

1,346

Others, net

958

1,177

Intangible assets

1,846

1,866

199

296

Other

1,647

1,570

Investments and other assets

28,67926,164

Investments in securities

18,503

18,231Long-term loans receivable

248

28

Deferred tax assets

2,121

2,851Others

7,963

5,233

Allowance for doubtful accounts

△158

△180

130,517

124,925

Goodwill

Total assets-9-Liabilities
Current liabilities

28,042

28,821

Notes and accounts payable-trade

12,861

11,992

Short-term loans payable

2,731

3,268

560

556

Corporate Income taxes payable

2,202

2,981

Provision for bonuses

2,281

2,316

―

238

Others

7,406

7,467

Fixed liabilities

15,20114,800Long-term loans payable

3,223

3,138

Provision for retirement benefits

9,876

9,538

924

941

Others

1,177

1,183

Total liabilities

43,243

43,622Shareholders' equity

75,67670,362Paid-in capital

4,560

4,560

Capital surplus

3,913

3,913

Retained earnings

70,82465,508Treasury stock△3,622△3,619

Accumulated other comprehensive profit△2,030△1,929Valuation difference on available-for-sale securities

3,056

2,163

Deferred gains or losses on hedges

△34

△50

Foreign currency translation adjustment△5,052△4,041

Minority interests

13,62812,869Total net assets

87,27381,303

Total liabilities and net assets

130,517

124,925

Current portion of long-term loans payableProvision for loss on disaster

Provision for directors' retirement benefits

Net assets- 10 -Consolidated Statements of income
Fiscal year ended March 312012

2011(JPY Million)
Net sales

84,75880,483

Cost of sales

53,93749,094Gross profit

30,821

31,389Selling, general and administrative expenses

19,40919,061

Operating income

11,411

12,327

Non-operating profit

1,998

1,999

Interest income

133

79

Dividends income

264

243

Rent income

301

320

Technical support fee

318

271

Equity in earnings of affiliates

679

724

Other301

358

Non-operating expenses

509

677Interest expenses

102

135

Foreign exchange losses

199

357

Other207

184

12,901

13,649Extraordinary income

140

34

Extraordinary loss

589

408

Income before income taxes and minority interests

12,452

13,275

Income taxes-current

4,357

4,906

Income taxes-deferred

587

△422

Income before minority interests

7,507

8,791

Minority interests in income

1,193

1,336

Net profit for the period

6,314

7,454

Ordinary income- 11 -