エステーAR-表1-4 06.8.10 14:02 ページ 2

Annual Report 2006

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For the Year Ended March 31, 2006

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S.T. CORPORATION ANNUAL REPORT 2006

“Refreshing the

Air”

Guided by our corporate motto, “Doing things no other company in the world does,”
S.T. Corporation aims to become the world’s No. 1 company in the global niche market
represented by mothproofing and dehumidifier agents, chemical warmers, home-care products,
and especially deodorizers and air fresheners. As the Company celebrates the 60th anniversaryof its founding in 2006, we have adopted the “Refreshing the Air” message as our new motto.
We vow to “refresh the air” by taking on even more creative, innovative approaches that willbring a breath of fresh air to all our business activities.

Unlocked Value of S.T. CORPORATION
CORPO
OR
R&D,, D
DesignnMarketingrke g
Manufacufacturing
Practicin
cing CSR

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エステーAR_再校戻し_0802 06.8.10 13:32 ページ 1

Strong Points of S.T. Corporation
Strength of balanced management
MARKET SHARE

36.6%

Air Carree Group:
p Source of Growth

57.1%

Th core Ai
The
Air C
Care Group business boasts a high market share
thankshanks to its range of differendifferentiated products.
Air Care (Air fresheners)

Air Care (Deodorizers for Refregirators)

Str
StrongProduct Brand Creation
P
Enhanced brrranding
anding has given
give rise to products such as Shoshu Rikid d ideodorizers
aand the MushudMush da mothproofing agents.

SoounddF
Financial BaseSS.T.
T CorporC
rationi maintains a solid financial base tosu
upp
port a raapid development framework and "selection andfocu
fous"" strategies.
t t

Shareholders’equity ratio

73.5%

RaisinR
ngg Brand Awareness throughT ission Commercials
Telev
Raises bran
nd awareness by developing distinctive
disti
televisioncommercia
ciaalls.

DynamD
mic Product Planning thatm
M s Markets
Makes
Creating mmarkets by product development that reflects an understandingof our custcustomers.

SALES COMPOSITION

31%

Corporp rarate Structure Transformation
Regenerated business toward high-growth with the Air Care
Group as its mainstay by "selection and focus" strategies.
G

43%

44%
22%

2000

2006
Air Care
Cloth CareV
Vigoroou
us Alliances
CollaboratiCll b
ion with Reckitt Benckiser plc. and Sumitomo 3M arecontributing greatly to the revenue base.

1

エステーAR_再校戻し_0802 06.8.10 13:32 ページ 2

We are confident
that S.T. Corporationis on track to
becoming a sturdy
and dynamic
corporate entity.

Takashi Suzuki
President and Chief Executive Officer
Chairman of the Board

エステーAR_再校戻し_0802 06.8.10 13:33 ページ 3

A MESSAGE FROM MANAGEMENT〈SPEED EXECUTIONINSIGHT〉

D

espite lower earnings on increased revenues, S.T. Corporation views fiscal 2006, ended
March 31, 2006, as a year of substance and measured achievement. Although facing intensified competition, the Air Care Group increased its relative market share as its deodorizers
and air fresheners narrowed the gap on the Japanese market leader by half. The Cloth Care Group’s
mothproofing agents emerged from a prolonged period in the doldrums and enjoyed growth in market
share and an improvement in sales. Looking back at the management reforms and product development, marketing and advertising innovations initiated over the past few years, we are confident that
S.T. Corporation is on track to becoming a sturdy and dynamic corporate entity.
Performance
In the fiscal year under review, consolidated net sales rose 4.6% compared with the previous fiscal yearto ¥46.1 billion. On the earnings front, however, operating income declined 16.4% to ¥3.1 billion
while ordinary income fell 19.0% to ¥2.6 billion. This was attributed to additional advertising expenditure in response to intense competition in the Air Care market and the threat posed by the entry into
the Japanese market of a major overseas manufacturer. Furthermore, the Company incurred an impairment loss of approximately ¥0.7 billion including the amortization of goodwill of a Thermal Care (disposable warmer) business following the introduction of impairment accounting. As a result, net income
decreased 45.8% year on year to ¥1.0 billion.
Highlights
1. Advancing toward the Top Position in the Air Care Field
In the Air Care field, S.T. Corporation continued to adopt a selective approach toward business
investment with the aim of developing and marketing high-value-added products. In the fiscal year
under review, the Company enjoyed strong growth with core brand Shoshu Riki, which is approaching annual sales of ¥10.0 billion, and Air Wash, a product that is in keeping with the new“Refreshing the Air” slogan, and Shoshu Plug, a plug-type electric room deodorizer.
Competition in the Japanese market was intensified by a new market entrant from overseas and by
new products launched by other competitors. The Company launched a stand-alone Air Wash product that was already under development, reinforced its manufacturing structure, invested in television
advertising and conducted in-store promotions. While placing temporary downward pressure on segment profits, these initiatives helped to raise awareness of the Air Wash brand, boosted sales and took
us one step closer to achieving the number-one slot in the Air Care market.
Guided by the concept “competition breeds progress,” S.T. Corporation will continue to leverage
its ability to anticipate customer needs and provide unique products as it strives to secure the top
position.
2. Securing a Full Recovery in the Cloth Care Field
S.T. Corporation has engaged in the development and sales of mothproofing agents since its foundation and is the world’s leading supplier. In recent years, this segment has suffered from a prolonged
decline in retail prices. At the same time, the market has continued to contract as users shift from a
six-month cycle to products that remain effective for a period of one year. In the fiscal year underreview, signs began to emerge indicating that the shift to products with one-year life cycles was now
complete and that the decline in retail prices had bottomed out. While mothproofing agents are considered more essential when compared with air care products, their future is dependent upon the abil-

46,13445,082

44,10904

05

06

Net Sales (millions of yen)
Consolidated net sales rose 4.6% compared with theprevious fiscal year to ¥46.1 billion.

3,748
3,419
3,133

04

05

06

Operating Income (millions of yen)
Operating income declined 16.4% to ¥3.1 billion.
This was attributed to additional advertising expenditure
in response to intense competition in the Air Caremarket.

3

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S.T. CORPORATION ANNUAL REPORT 2006

ity to develop high-value-added products that fully address emerging needs such as walk-in-wardrobes
and open closets.
3. Responding to Sharp Increases in Crude Oil Prices
Petroleum is a core material in the manufacture of the Company’s products and for its packaging inparticular. The recent sharp rise in crude oil prices has therefore caused significant problems for S.T.
Corporation. In an effort to address these concerns, the Company established the Cost Management
and Control Committee, a cross-sectional committee that cuts across Group lines, in May 2005, withthe aim of further reining in production costs. Comprised of representatives from manufacturing,development, sales and other divisions, the Committee is reviewing every aspect of the Company’sbusiness, from the number of components required to manufacture existing products, right throughto the design and production processes of new products in an effort to reduce raw material and component procurement costs.
Corporate Governance
In June 2004, in accordance with its emphasis on corporate governance in management, S.T.
Corporation shifted to a company-with-committees structure. In an effort to further improve management transparency and fairness, external directors were appointed to the Company’s Board at the general shareholders’ meeting in June 2006. As a result, five of the eight-member Board of Directors are
external appointees.
Shareholder Returns
S.T. Corporation’s shareholder return policy is linked to its performance. Over the past few years,
the Company has increased dividends each fiscal year, from ¥8 in the fiscal year ended March 31,
2002, to ¥22 in the fiscal year ended March 31, 2005. Following an increase in revenues and a decreasein earnings in the fiscal year under review, S.T. Corporation has decided to pay an annual dividend of¥22, unchanged from the previous fiscal year. In the area of treasury stock acquisition, the Company
will continue to adopt a flexible approach based on investment efficacy considerations with the aim of
maximizing shareholder value.

1,823

1,451

988

Strategies in Fiscal 2007 “Selection and Focus”

A04

gainst the backdrop of increased competition in the Air Care market and expectations of a risein manufacturing costs reflecting the sharp jump in crude oil prices, S.T. Corporation will
adopt the following “Selection and Focus” strategies to ensure profit-oriented management.

1. Product “Selection and Focus” and Innovation
The S.T. Corporation Group will rationalize its existing product line from 364 to a total of 300
products. Our goal is to develop unique products that deliver new value to customers.
2. Marketing Innovation
We will redouble marketing efforts for mainstay brands in a bid to gain the top position in each category. Through S.T. Business Support Co., Ltd., a wholly owned subsidiary incorporated in
December 2005, we will enhance area support and revitalize promotional activities at retail stores.
4

05

06

Net Income (millions of yen)
Due to an impairment loss including the amortization of
goodwill of the Thermal Care (disposal warmer)
business, net income decreased 45.8% year on year to¥1.0 billion.

エステーAR_再校戻し_0802 06.8.10 13:33 ページ 5

3. Production Innovation
By leveraging the scale merits of further product selection and focus and review under the guidance of
the Cost Management and Control Committee established in 2005, S.T. Corporation is committed
to securing overall cost reductions in excess of the rise in raw material prices.
4. Global Development
From March 2006, sales of Dasshutan and the DryPet series will commence in the United States
through Wal-Mart and Kroger outlets. In addition, sales of the Company’s products are making
steady market inroads in Europe and South East Asia. Looking ahead, S.T. Corporation will extend
beyond Japan and spread its innovation across the globe.
5. Reinforcing Group Management
Utilizing S.T. Trading Co., Ltd., a consolidated subsidiary mainly engaged in the sale of wholesale
goods for business use, we will cultivate new distribution channels and create synergy effects.
Furthermore, in centralizing the logistics function through S.T. Business Support Co., Ltd., wewill integrate indirect operations common throughout the Group to ensure increased efficiency.

Medium- and Long-Term Vision
1. Air Care as Core BusinessIn line with continued advances in the Air Care market both in Japan and overseas, S.T. Corporation
recognizes that future growth rests on its Air Care operations and on innovative ideas. It is said that
individuals inhale approximately 20 kg of air daily. Our goal is to “refresh” this vital resource and tobring health and happiness to our customers. To this end, we will develop unique products ahead of
our competitors with the aim of securing the top position in the market in Japan, while focusing on
increasing sales in global markets.
2. Developing Businesses that Relax and Soothe
S.T. Corporation is endeavoring to develop and deliver products offering innovative benefits thattranscend their basic functions. We are working to cultivate relaxing and soothing business lines thatsatisfy the user’s inner self and leave lasting impressions. In consistently expanding its businessdomain, S.T. Corporation is seeking to secure perpetual growth.
3. Strategic Alliance and M&A
S.T. Corporation has positioned business alliances and M&A as important strategies in securing sustainable growth. While our alliances with Sumitomo 3M and Fumakilla Indonesia (PT) are proceeding smoothly, we will seek future strategic alliances based on clearly defined objectives and results.

2006 marks the 60th anniversary of the Company’s foundation. Buoyed by this remarkable event, wehave renewed out commitment under the slogan “Refreshing the Air.” In again clarifying our stance andvision, we will strive to become the preferred partner of our customers around the world and to unite
within the group to achieve our goals.
Under this “Refreshing the Air” slogan and our motto, “Doing things no other company in theworld does,” we will pursue a path of continuous innovation with the aim of becoming the world’s No. 1
company in a global niche market. Promoting profit-oriented management, we will also work toward
an operating income margin of 10%.
I ask for your continued support and understanding as we move ahead in our efforts to achieve ourobjectives.
August 2006

Takashi Suzuki
President and Chief Executive Officer
Chairman of the Board

5

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S.T. CORPORATION ANNUAL REPORT 2006

S.T. CORPORATION’S UNLOCKED VALUE〈R&D, DESIGNMARKETING

MANUFACTURING

CSR〉

1

Searching for a product with whichcustomers will feel content...
R&D AND DESIGN

Q

What would you say are S.T. Corporation’s
strengths in product development?

Kaneko: That would have to be our painstaking customer orientation. There are things that customers look for in a product, and allof S.T. Corporation’s employees, from the executives on down, arethinking about how these qualities can be incorporated into products. For some time now I’ve been unwavering in my efforts to see
things from the customer’s (consumer’s) perspective, to find out
our customers’ genuine needs and to reflect them in our products.
Tanaka: That’s right. When designing products, I even base themon the opinions of the closest relatives and friends. There aremany opportunities in a year for all S.T. Corporation employees
to conduct in-store promotional activities. Gauging customer
views while working on a product with direct relevance to customer feedback is part and parcel of my everyday duties.
Kaneko: Our mission is product development, using the conceptof searching for products with which customers will feel content
and including that concept in creating the product. Furthermore,
hit products do not come about if you don’t make products thatemphasize the value of “understanding through listening, seeing,
and using,” and don’t risk “doing things no other company in theworld does.”
Tanaka: On that subject, in the field of design, shops represent
the first point of contact with our customers. To my way of
thinking, it’s essential for a product’s design to attract
customers to it, for a customer to want to handle itand to think about trying it out. The design has
to be something that has never been seen before,

Toshihiko Kaneko
Product Development
FellowUsing “customers are unaware of
their essential needs” as the crux of
his development policy, Kaneko has
had a hand in the development ofseveral products that “no othercompany in the world does,”including Dasshutan.

and the packaging should
convey its contents, function
and the passion that we have
put into it.
Kaneko: Dasshutan provides a perfect example of the balance
between all those requirements. First of all, there was the increasein popularity of binchotan, a special charcoal. Then there were thecalls from the market for a deodorizer product that enabled customers to see if the product was full or empty, so a deodorizer
that enabled this was developed. Directly connected with thisproduct’s success was the emphasis we placed on those elements
to customer understanding, through listening—Dasshutan literally means “deodorizing charcoal”—through seeing its black charcoal jelly and through using its deodorizing effect.

Q

Where do the ideas for making unique products
come from?

Tanaka: I go out as often as possible, see and feel various thingsand incorporate them into my own work. At S.T. Corporation
there are events such as “round-the-world training” and brainstorming sessions to fine tune our ideas, combined with a cultureof using each other as sounding boards, which helps.
Kaneko: Differentiated products aren’t completely different. They
perhaps have a half-length lead over other products, but that canbe a decisive factor when they are evenly
matched. I find it stimulating to communicate with people from other industries, tolearn what that half-length lead is.

Shoko Tanaka
Chief Designer, DesignGroup
Creative and with a typicallyfeminine sense of design, Tanaka
has played a part in the design ofmajor Air Care products such as
Shoshu Riki and received the Good
Design Award for Air Wash Mist.

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2

Bringing together product concept planning anddesign, advertising and marketing divisions
MARKETING

Q What role does marketing play at S.T. Corporation?

A

First and foremost, when planning a product, it’s a case of offering ideas that add newvalue and meet consumer needs. Then marketing takes the role of producer by generating single products and brands by bringing together the product concept planningand design, advertising and marketing divisions. For example, in the development of
Air Wash, our starting point was making a new brand, going to great lengths to findout the needs of people who don’t normally use deodorizers and air fresheners. We
believe that everyone wants to live in a clean-air environment and came up with the“Refreshing the Air” concept that gave rise to deodorizers and air fresheners that surpass current products in terms of value. I personally believe great strides have been
made in lodging the Air Wash brand in the minds of consumer by linking activities
such as in-store sales promotions with television commercials and enlarging the product line. These activities have contributed to a broadening of the base of the air caremarket.

Q What do you place the most marketing emphasis on?
A

That would be constantly reinforcing consumer awareness. As far as it is possible, S.T.
Corporation wants to meet consumers face to face and hear their views, so we place
great importance on market surveys. For instance, when a product is launched onto themarket, members of our team stand in stores to find out for themselves how consumers
regard our products. By so doing, we can create products derived genuinely from theconsumer’s perspective, not from mere deskbound theorizing.

Enhancing Brand Power by Television Commercial Development
S.T. Corporation has developed unique television commercials, including that for Shoshu Pot in
which a sales branch manager appeared, as well as for Mushuda and Shoshu Riki, which have had afar-reaching effect in enhancing its brand power.
According to a monthly survey conducted by CM Databank that ranks television commercial
categories in terms of their popularity, Mushuda’s Wedding Ceremony came in 19th and Shoshu
Pot Sales Branch Managers with Morisanchu 5th out of around 4,500 commercials.

Stills from television commercials for (left to right): Shoshu Pot, Mushuda and Shoshu Riki

Combination of R&D, Advertisingand Marketing

Streamlining
Power
Planning
Strength

Customer-firstMarketingStrength

Advertising
Strength

Masami Kitahara
Development PlanningGroup Manager
Including time in the Development
Planning Group, Kitahara has been
in marketing for a total of eight
years. He recently played a pivotal
role in setting up a fast and flexible
product development, advertisingand sales integration framework forthe rapid launch of Air Wash.

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S.T. CORPORATION ANNUAL REPORT 2006

3

Enhancing front-line strengths that put ideas
into action
MANUFACTURING

Q What does the Manufacturing Division undertake that you would class as innovation?

A

Kanzo Kobayashi

Q What have you been doing to counteract rising costs?

Senior Managing Executive
Officer in charge of Overall
Management, Manufacturing,and R&D Division
Kobayashi instigated Cost
Management and Control Committee
in 2005, dealt with Companywide
cost reforms and was a prime moverbehind a variety of manufacturing
floor initiatives that featured a tangible
result aspect and strengthened S.T.
Corporation’s “front-line capabilities.”

First of all, with respect to ramping up our operational capacity and decreasing the defectrate, the workforce has devised solutions at the plants over this past year, focusing on
enhancing front-line strengths that put ideas into action. Furthermore, best practice fromone plant should be developed laterally to other plants, and shared use of Intranet information has gathered pace. As a result, I believe that S.T. Corporation worked hard together
and has been able to undertake reform activities proactively.
In addition, based on the “Refreshing the Air” slogan, these proactive reform activities
have included people from S.T. Corporation plants undertaking in-store promotional activities on a number of occasions this year. Suggesting products directly to customers and providing opportunities for first-hand feedback gives people pride in their work and a heightened sense of responsibility.

A

There is a limit as to how much cost reduction the Manufacturing Division can undertake.
From product development to marketing, purchasing, manufacturing and sales, all divisions
have to cooperate with one another to put into effect drastic reforms. For that reason, a
Cost Management and Control Committee—an organization that cuts across the whole
Company—was set up last year. Delegates attending the committee, which is divided into
the New Product Cost Committee, which aims to reduce the costs of new products fromthe development and planning stages, and the VA/VE Committee, which investigateschanging to new sources of supply and reexamines the raw materials and components ofexisting products, exchanged views with representatives from each of five product categories. As a result, last year the Company was able to absorb the rising cost of raw materials
brought about by soaring crude oil prices.

Q What issues do you foresee over the next couple of years?
A
8

One problem is how to speed up the flow of information from stores and wholesale companies and, once accurately in our possession, whether or not this information can be reflected
at the sharp end of manufacturing. Store sales information is gathered in part throughpoint-of-sale (POS) systems and analyzed at the head office, but there are many stores inJapan, and the proportion of stores covered is not very high. As sales of some of S.T.
Corporation’s products, such as chemical warmers and mothproofing agents, are subject tothe vagaries of the weather, I believe it essential to set up a supply chain management system, and I want to create a mechanism that enables flexible adjustments in production.

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CSR

4

Seeking growth in corporate value harmonizedwith various stakeholders
S.T. Corporation offers households “excitement and satisfaction” through its products and services
as it aims for “growth with long-term profits.” The Company recognizes that planning growth incorporate value harmonized with large numbers of stakeholders—shareholders, customers, business
partners, local communities, employees—is one of its major management issues.

Corporate GovernanceWith the aim of strengthening its corporate governance, S.T. Corporation (then known as S.T.
Chemical) shifted to a “company-with-committees” structure in June 2004. Following the General
Shareholders’ Meeting held on June 14, 2006, another external director was newly elected andadded to the format of the Company’s board of directors, which is now comprised of eight members, five of whom are external nominees. I believe that applying the “company-with-committees”
model has improved management transparency, strengthened the audit function with regard to
management by separating management audit functions from executive functions and revitalized
discussions at meetings of the board of directors and executive officers, as well as at each of the committee meetings. As a result, the Company is marking definite progress in making flexible management a reality.

Hirohide Shimada
Executive Officer in chargeof the Corporate Planning,
Advertising and Public
Relations Group, as well asinternational business.
Besides being actively involved ininvestor relations (IR), including
overseas IR activities, Shimada
promotes a variety of Companywide
projects.

Internal Control System
In August 2004, the then newly established Legal Affairs and Internal Control Group, in its capacity
as a division that reports directly to the Chief Executive Officer, conducted a check on the status ofcompliance activities in each division. This was followed in March 2005 by the formulation of a
“Code of Corporate Behavior” and “Rules Governing Compliance,” the distribution of these handbooks being intended to heighten awareness among all S.T. Corporation employees. I look forward
to the groupwide system consolidation brought about by creating positions for directors to be incharge of compliance and timely disclosure at all of the Company’s subsidiaries in Japan.

Social Action Programs
With the aim of “Using resources efficiently, communicating with and contributing to local communities,” the S.T. Corporation plants at Honjo, Saitama Prefecture, and Iwaki, Fukushima
Prefecture, held bargain sales of products that had not been released to the market (for such reasons
as changes in design) for the benefit of local residents and donated part of the proceeds to the social
welfare councils in the two cities.
The Company proactively supports cultural aid activities, such as musicals and stage plays. The
Company-sponsored musical campaign is now in its ninth year, and the numbers of theatergoers has
exceeded 120,000 people. Continuing the theme of last year’s A Musical to Refresh the Spirit, the2006 production of Anne of Green Gables is being performed in eight major cities in Japan. Tomomi
Kahara, the singer playing the lead role, and Jiro Sakagami, selected for the role of Matthew, whobrings up Anne as an adopted child, chose their costars at nationwide auditions. I hope that S.T.
Corporation’s extensive sponsorship will enable all the people involved in the musical to fulfill theirambitions and offer them an opportunity to be “spiritually refreshed.”9エステーAR_再校戻し_0802 06.8.10 13:33 ページ 10

S.T. CORPORATION ANNUAL REPORT 2006

S.T. CORPORATION AT A GLANCE• Net sales increased 4.6% compared with the previous fiscal year as a result of such factors as sales growth in the Thermal Care
Group and increased sales of new Air Care Group products.
• Operating income declined 16.4% owing to such factors as the increased advertising expenses incurred by the Air Care Group in
response to intensified competition.
• Net income for the fiscal year under review fell 45.8% year on year owing to an impairment loss including the amortization of
goodwill of the Thermal Care business.
• Shareholders’ equity ratio remained little changed from the previous fiscal year at 73.5%.
• At ¥22, the cash dividend was the same as the previous fiscal year.
Thousands of
U.S. dollars (Note 1)

Millions of yen

2002

2003

2004

2005

2006

2006

¥ 36,921

38,06645,082

44,10946,134$ 392,732

1,983

3,798

3,419

3,748

3,133

26,668

509

1,431

1,451

1,823

988

8,408
4,087

Years ended March 31,

Net Sales
Operating Income
Net Income
R&D Expenses

408

490

413

423

480

Capital Expenditures

1,137

733

404

880

826

7,031

Total Assets

32,921

34,73236,26936,95937,905

322,680

Shareholders’ Equity

25,606

26,04826,69327,44927,861

237,171

Equity Ratio (%)

77.8

75.0

73.6

74.3

73.5

—

ROE (Note 2)

2.0

5.5

5.5

6.7

3.6

—

ROA (Note 3)

6.7

11.9

10.2

10.9

9.0

—

Net Income¥ 16.37

46.53

48.87

63.43

34.35

$ 0.29

Shareholder’s Equity

833.01

874.85924.33957.45966.43

8.23

8.00

10.00

17.00

22.00

22.00

0.19

Per Share

Yen

Cash Dividends

8.7%
Home care(other products)

S.T. Corporation offers a wide
variety of products, including
Finish, a dishwashing powder for
automatic dishwashers, benefitingfrom business alliances.

5.6%
Humidity care(dehumidifiers)

Our broad lineup of DryPet
dehumidifiers has continuously led
the market.

CO

U.S. dollars

Notes: 1. All dollar figures herein refer to U.S. currency. Yen amounts have been translated, for convenience only, at ¥117.47= $1, the approximate exchange rate on March 31, 2006.
2. ROE = Net Income / Average total shareholders’ equity
3. ROA = (Operating Income + Interest and Dividends Received + Purchase Discount) / Average total assets

44.1%

Air care

1.983

27,861

36,95936,26934,73227,4491,451

26,693

1,431

26,048

1,823
3,133

36,921 38,066

32,921

3,748
3,419

25,606

3,798

45,082 44,109 46,134

37,905(deodorizers and air fresheners)

988

509

02

03

04

05

Net Sales (millions of yen)

10

06

02

03

04

05

06

Operating Income (millions of yen)

02

03

04

05

06

Net income (millions of yen)

02

03

04

05

06

Total Assets/Shareholder’s Equity(millions of yen)

The Air Care Group, with such products
as Air Wash and Shoshu Riki, is a corebusiness.

エステーAR_再校戻し_0802 06.8.10 13:34 ページ 11

22.2%

8.7%

Cloth Care

Home care(mothproofing agents)(other products)

The Cloth Care Group, with suchproducts as Mushuda and Neopara Ace,is one of S.T. Corporation’s core business.

S.T. Corporation offers a wide
variety of products, including
Finish, a dishwashing powder for
automatic dishwashers, benefitingfrom business alliances.

5.6%

58.4%

6.9%

41.6%

Hand Care(gloves)

Humidity care

The Hand Care Group markets
the Family series of household
gloves that moisturize the hands.

(dehumidifiers)

Our broad lineup of DryPet
dehumidifiers has continuously led
the market.

12.5%

COMPOSITION OF NET SALESBY BUSINESS SEGMENT

Thermal care(year ended March 2006)(disposable warmers)

MOTHPROOFING AND HYGIENE-RELATED PRODUCTS
HOUSEHOLD ENVIRONMENT-RELATED PRODUCTS

44.1%

The Thermal Care Group markets
the Onpacks brand of disposable
warmers.

MARKET SHARE TRANSITION
Air Fresheners

Air care30.3%(deodorizers and air fresheners)
The Air Care Group, with such products
as Air Wash and Shoshu Riki, is a corebusiness.

2001

36.6%
2006

Deodorizers

13.9%
2001

57.1%
2006

(years ended March 31)

11エステーAR_再校戻し_0802 06.8.10 13:34 ページ 12

S.T. CORPORATION ANNUAL REPORT 2006

REVIEW OF OPERATIONSIn the fiscal year
under review, consolidated net sales rose
4.6% compared withthe previous fiscal
year to ¥46.1 billion.
12

エステーAR_再校戻し_0802 06.8.10 13:34 ページ 13

AIR CARE (Deodorizers and Air Fresheners)

Air Wash

Shoshu Riki

Shoshu Pot

Shoshu Plug

Dasshutan

Air Care, one of S.T. Corporation’s core businesses, is a field in which market
growth is expected. The Company offers a unique lineup of major air care products,
which includes the following: the core Shoshu Riki megabrand; Air Wash, which isgetting brand awareness of our “Refreshing the Air” slogan; Shoshu Plug, which uses
battery power to deodorize even the most spacious of rooms; and Shoshu Pot, which
has gel-type contents. Despite more intense competition caused by an overseas company operating in Japan and new product launches by other companies in Japan
during fiscal 2006, in-store marketing activities and an aggressively conducted television advertising campaign resulted in increased sales, primarily of the Company’s
core Shoshu Riki megabrand and the new stand-alone Air Wash. Furthermore, theCompany expects to tap new markets by bringing to market such high-value-added
products as Kitchen Shoshu Riki and Hikaru Shoshu Plug. Net sales rose 4.6%
compared with the previous fiscal year to ¥20,357 million.

20,35718,506

19,457

17,36015,861

02

03

04

05

06

Net Sales (millions of yen)

CLOTH CARE (Mothproofing Agents)

Mushuda(for wardrobes)

Mushuda(for closets)

MushudaBochu Cover

MushudaMatomete Cover

Neopara Ace

The Cloth Care Group has formed part of our business since the Company was
founded and is second only to the Air Care Group as a marketing priority.
Mushuda and Neopara Ace, which are both trusted major brands that “protect
valuable clothing from insects,” enjoy a formidable level of customer loyalty.
Products such as Mushuda Fan for walk-in closets (for large storage spaces),
Mushuda Bochu Cover and Mushuda Bochu Cover for Formal Wear (both ofwhich are suitable for open storage) and Mushuda Matomete Cover (a box-typecover that can store up to seven jackets) have been developed to bring out the bestin cloth materials and capitalize on the wide diversification of cloth storage techniques. The new-value appeal of the Company’s mothproofing agents was conveyed
by means of aggressive sales promotion activities, which included a distinctive television commercial campaign. The trend to extend product life cycles from six months
to one year is almost complete, and stability in prices is returning, net sales increased
4.1% compared with the previous fiscal year to ¥10,270 million. The profit ratio
improved as a result of efforts to reduce costs.

12,168

11,492
10,657
9,862

02

03

04

05

10,27006

Net Sales (millions of yen)13

エステーAR_再校戻し_0802 06.8.10 13:34 ページ 14

S.T. CORPORATION ANNUAL REPORT 2006

HUMIDITY CARE (Dehumidifiers)

3,201
DryPet(for wardrobes)

DryPet Compact

Binchotan DryPet

DryPet with
Charcoal(for futon)

DryPet with
Charcoal(for shoes)

DryPet dehumidifiers have continuously led the market since going on sale in 1981.
Today’s lineup consists of products for widely differing locations and applications,
including dehumidifier sheets for drawers and casings for clothes, wardrobes andshoe closets. Binchotan Drypet (Special charcoal ingredient) is a highly versatile,
high-value-added product that acts not only as a dehumidifier, but also as a deodorant. DryPet with charcoal for futon, which can be placed under futon or bedding
and dried in the sun for reuse, and DryPet with charcoal for shoes have also been
added to the lineup. Amid stiff price competition, net sales remained essentiallyunchanged from the previous fiscal year, edging down 0.4% to ¥2,583 million. The
profit ratio improved as a result of implementing sales strategies that also paid particular heed to profit.

3,079
2,767

02

03

04

2,592

2,583

05

06

Net Sales (millions of yen)

HAND CARE (Gloves)

3,460
Family Chamomile

Family Squalene

Family Thin
PVC Gloves(fingertip-reinforced)

Middle Thick
PVC Gloves(fingertip-reinforced)

The Family series of household gloves are high-value-added products that not only
protect the hands, but also soothe the skin. Washing chores are more enjoyable forcustomers using S.T. Corporation’s wide-ranging product lineup, which comprises
gloves with squalene additives, gloves with chamomile extract in a special foam layer
to prevent hands from becoming hot and sticky, as well as fingertip-reinforced regular household gloves. Although prices fell due to wholesale business to joint venture
sales subsidiary, the Hand Care Group’s net sales slightly increased 0.2% year on
year to ¥3,174 million as new product sales grew smoothly.

14

3,025

02

3,167

03

04

3,166

3,174

05

06

Net Sales (millions of yen)

エステーAR_再校戻し_0802 06.8.10 13:34 ページ 15

HOME CARE (Cleaners and Other Products)

4,160
FinishUltra Powers

Kome-Touban

Scotchgard

Nexcare

3,999

3,667
3,280

The Home Care Group has developed various products, including the following:
Finish, a dishwashing powder for automatic dishwashers marketed in agreementwith the British company, Reckitt Benckiser plc; Ultra Powers washing machine tub
cleaner; Zippers food-storage bags; Gekipika household sponges; and Kome-touban,
which protects uncooked rice from insects. Additionally, although Scotchgard waterand oil repellant, along with Nexcare brand products, which are both marketed inalliance with Sumitomo 3M, have enjoyed steady sales growth, this was not sufficient to counteract the diminishing sales of other existing products. Thus, net sales
dipped 3.9% to ¥3,999 million in the fiscal period under review.

2,667

02

03

04

05

06

Net Sales (millions of yen)

THERMAL CARE (Disposable Warmers)

5,752

5,713
Haru-Onpacks

Pokakkusu(for hands)

Haru-Onpacks(for socks)

Onpacks(for shoes)

4,871

Ashipoka-sheet(for feet)

The Thermal Care Group began marketing Onpacks brand disposable warmers
manufactured by Mycoal Corporation in July 2003. Now offered are chemical
warmers with self-adhesive patches for attachment to clothing and for the soles ofusers’ feet. An easy-to-understand Pokakkusu V guide for three parts of the body
(hands, body or feet) is included with this product. As a result of endeavors toachieve fair sales levels at consistently fair prices and the favorable effects of a record
spell of cold weather, net sales climbed 18.1% year on year to ¥5,752 million.

04

05

06

Net Sales (millions of yen)15

エステーAR_再校戻し_0802 06.8.10 13:34 ページ 16

S.T. CORPORATION ANNUAL REPORT 2006

MANAGEMENT’S DISCUSSION AND ANALYSIS

Net sales
In the fiscal year ended March 31, 2006, consolidated net salesrose ¥2,025 million (4.6%) compared with the previous fiscal
year, to ¥46,134 million. Of S.T. Corporation’s mothproofing
and hygiene-related products, the Thermal Care Group performed particularly well, recording sales of ¥5,752 million, an
18.1% year-on-year increase. This was attributable to brisk salesof the group’s chemical warmers in the harsh winter months.
The Cloth Care Group marked a change of fortunes from thedeclining sales caused by a dwindling market over the past few
years. Sales of the Air Care Group’s deodorizers and air fresheners, one of the Company’s core businesses that comes under theHousehold Environment-Related Products segment, rose 4.6%
to ¥20,357 million. This growth in market share and sales
expansion was brought about by new hit products such as thestand-alone Air Wash and expansion in existing products including Shoshu Riki. In contrast, sales in both the Humidity Care
Group (dehumidifiers) and the Home Care Group were down
compared with the previous fiscal year, by 0.4% and 3.9%,
respectively.

Cost of Sales
The cost of sales climbed ¥1,593 million, or 6.5% year on year.
Although cost of sales had declined 1.9% in the previous fiscal
year, the main reasons for the turnabout in the fiscal year underreview were expanding sales of products with low gross profit
margins (such as newly-released air fresheners and chemical
warmers) and, on the other hand, shrinking sales of existinghigh-profit-margin deodorizer and air freshener brands. Amid
continuously high prices for raw materials, the Company kept
down increases in manufacturing costs to less than zero andimplemented ongoing cost reductions.

Operating income
In comparison with the previous fiscal year, operating income
fell 16.4% to ¥3,133 million.
This was due to the effect of such factors as the Company
increased promotional expenses, primarily increased advertising,in response to more intense competition after an overseas com16

pany entered the Japanese air care market in the fiscal period
under review. As a result, selling, general and administrative(SG&A) expenses swelled ¥1,013 million to ¥16,892 million.
However, there are bright prospects. In the mothproofing
agents market, in which the Company holds the top share, andthe market trend to extend product life cycles from six months
to one year is almost complete and stability in sales prices isreturning. In due course, this will further improve the market
share of the Company’s products.

Other income (expenses)
The Company applied asset-impairment accounting in writing
down the carrying value of prepaid expenses for license rights forsales of Thermal Care products, the expected amount of which
the Company judged to the uncollectible, resulting in a chargeof ¥536 million. An impairment loss on idle fixed assets was¥166 million.

Net income
Net income was ¥988 million, representing 45.8% of the previous fiscal year’s figure. Income before income taxes and minority
interests was ¥1,913 million. Net income per share was ¥34.35,
down from ¥63.43 in the previous fiscal year.

Financial position
Total assets rose ¥946 million to ¥37,905 million as of the endof the fiscal year under review. Total current assets also expanded¥821 million to ¥23,606 million. Total fixed assets increased¥125 million to ¥14,300 million, the major component being
total investments and other assets, which increased ¥370 million
to ¥6,303 million.
Owing to an increase in trade payables being largely offset by adrop in other payables, total current liabilities edged up ¥63 million to ¥7,973 million compared with the previous fiscal year-end.

エステーAR_再校戻し_0802 06.8.10 13:34 ページ 17

Capital expenditures

Dividends

Capital expenditures totaled ¥826 million, a fall of ¥54 million
from the previous fiscal year. The Household EnvironmentRelated Products segment accounted for 82% of total capital
expenditures.

Having given due consideration to net income and shareholder
returns during the fiscal year under review, the annual dividend,
including the interim dividend of ¥11, was ¥22, as had beenplanned at the beginning of the fiscal year. On a non-consolidated basis, the dividend payout ratio was 92%.

Cash flows
During the fiscal year ended March 31, 2006, net cash provided
by operating activities decreased ¥1,016 million to ¥1,954 million. Sources of cash included adjustments to reconcile income
before income taxes and minority interests to net cash provided
by operating activities of ¥2,616 million, a decrease of ¥593 million compared with the previous fiscal year, and the net balance
between receivables and payables and accrued expenses was acash outflow of ¥297 million.
Net cash used in investing activities was ¥2,230 million,¥1,307 million more than the net cash used in the previous fiscal
year. This was mainly attributable to the purchase of marketablesecurities, primarily government and corporate bonds.
Net cash used in financing activities decreased ¥614 million
to ¥571 million. In the fiscal year under review the Company
purchased treasury stock of ¥3 million, down ¥569 million fromthe previous fiscal year. Payments of dividend in the consolidated fiscal year ended March 31, 2006, totaled ¥661 million.
Accounting for all these factors, cash and cash equivalents
decreased ¥831 million at the end of the fiscal year, totaling¥8,802 million.

Financial indicators
Compared with the previous fiscal year, ROE fell 3.2 percentage
points to 3.6%, and ROA fell 1.9 percentage points to 9.0%.
Shareholders’ equity per share of common stock rose from¥957.45 to ¥966.43, shareholders’ equity edged down from
74.3% to 73.5%, while the interest coverage ratio was 14,432.9
times, compared with 2,623.4 times in the previous fiscal year.

17エステーAR_再校戻し_0802 06.8.10 13:34 ページ 18

S.T. CORPORATION ANNUAL REPORT 2006

SIX-YEAR SELECTED FINANCIAL DATA (UNAUDITED)
S.T. CORPORATION and Subsidiaries
Years ended March 31

Millions of yen except per share data and financial rations

FOR THE YEAR:
Net sales
Cost of sales
Gross Profit
Selling, general and administrative expenses
Operating income
Income (loss) before income taxes and minority interests
Net income
AT YEAR-END:
Inventories
Property, plant and equipment-net
Current liabilities
Long-term liabilities
Total liabilities
Shareholder’s equity
Total assets
OTHER SELECTED DATA:
Capital expenditures
R&D expenses
Free cash flow
PER SHARE DATA (¥):
Net income
Shareholders’ equity
Cash dividends
FINANCIAL RATIOS(%):
As a percent of net sales:
Gross Profit
Selling, general and administrative expenses
Operating income
Income (loss) before income taxes and minority interests
Net income
ROE (Note 1)
ROA (Note 2)
Equity Ratio (%)

2001

2002

2003

2004

2005

2006

¥37,896
20,161
17,72615,327
2,399
1,503
750

¥36,921
20,46916,47914,497
1,983
1,018
509

¥38,066
19,707
18,351
14,553
3,798
2,619
1,431

¥45,082
24,97320,07916,660
3,419
2,746
1,451

¥44,109
24,49019,627
15,879
3,748
3,209
1,823

¥46,134
26,08320,024
16,892
3,133
1,913
988

¥ 3,883
9,169
6,464
1,636
8,099
25,782
34,382¥ 3,566
8,937
5,147
1,646
6,794
25,60632,921¥ 3,661
8,684
6,928
1,250
8,178
26,04834,732¥ 3,668
8,154
7,887
1,175
9,062
26,69336,269¥ 3,769
8,018
7,910
1,079
8,989
27,44936,959¥ 4,824
7,582
7,973
1,591
9,564
27,86137,905¥ 1,600
343
481¥ 1,137
408
1,650

¥

¥

¥

¥

¥ 23.60
822.21
8.00¥ 16.37
833.018.00¥ 46.53874.8510.00¥ 48.87924.3317.00¥ 63.43957.4522.00¥ 34.35
966.43
22.00

46.8
40.4
6.3
4.0
2.0
2.9
7.9
75.0

44.6
39.3
5.4
2.8
1.4
2.0
6.7
77.8

48.2
38.2
10.0
6.9
3.8
5.5
11.9
75.0

44.6
37.0
7.6
6.1
3.2
5.5
10.2
73.6

44.5
36.0
8.5
7.3
4.1
6.7
10.9
74.3

43.5
36.6
6.8
4.1
2.1
3.6
9.0
73.5

Notes: 1. ROE=Net income / Average total shareholders’ equity
2. ROA=(Operating income + Interest and dividends received + Purchase discount) / Average total assets

18

733
490
4,486

404
413
3,005

880
423
2,909

826
480
1,868

FINANCIAL SECTIONCONTENTS
Consolidated Balance Sheets

20

Consolidated Statements of Income and Retained Earnings

22

Consolidated Statements of Cash Flows23

Notes to Consolidated Financial Statements

24

Report of Independent Auditors

35

19

S.T.CORPORATION ANNUAL REPORT 2006

CONSOLIDATED BALANCE SHEETS
S.T.CORPORATION and consolidated subsidiaries
March 31, 2006 and 2005ASSETS
Current assets:
Cash and time deposits (Note 11)
Marketable securities (Note 4)
Trade notes and accounts receivables
Less—allowance for doubtful receivables
Inventories
Deferred tax assets (Note 7)
Other current assets
Total current assets

Investments and other assets:
Investments in non-consolidated subsidiaries and affiliates
Investment securities (Note 4)Long-term loans
Deferred tax assets other than unrealized revaluation loss on land (Note 7)
Deferred tax assets—unrealized revaluation loss on land (Note 5)
Other assets
Less—allowance for doubtful accounts
Total investments and other assets

Property, plant and equipment, at cost (Notes 5 and 6):
Land
Buildings and structures
Machinery, equipment and vehicles
Tools, furniture and fixtures
Construction in progress
Less accumulated depreciation
Property, plant and equipment, net

Intangible assets, net of accumulated amortization
Total assets
See notes to consolidated financial statements.

20

Thousands of
U.S. dollars (Note 2)

Millions of yen

2006

2005

2006

¥ 8,625
4,779
4,552
(19)
4,824
370
474

¥10,456
3,000
4,889
(18)
3,769
353
336

$ 73,426
40,68138,754(159)
41,064
3,153
4,031

23,60622,784200,950

194
4,568
129
48
—
1,388
(24)

204
3,513
137
160
72
1,871
(24)

1,650
38,884
1,102
407—
11,819
(207)

6,303

5,933

53,656

3,267
6,131
7,121
3,310
2
(12,248)

3,404
6,102
7,760
2,941
10
(12,198)

27,81452,18960,61628,17813(104,265)

7,582

8,018

64,544

415

224

3,530

¥ 37,905¥ 36,959$ 322,680

LIABILITIES AND SHAREHOLDERS’ EQUITY
2006

Current liabilities:
Short-term bank loans (Note 6)
Trade payables
Other payables
Income taxes payable (Note 7)
Consumption taxes payable
Accrued expenses
Allowance for sales returns
Other current liabilities
Total current liabilities
Long-term liabilities:
Employees’ retirement and severance benefits (Note 8)
Directors’ retirement and severance benefits
Deferred tax liabilities—unrealized revaluation profit on land (Note 5)
Total long-term liabilities
Minority interests in consolidated subsidiaries

Thousands of
U.S. dollars (Note 2)

Millions of yen

¥

36
4,774
1,957
417
18
524
177
69

2005

¥

3
4,417
1,920
786
19
563
150
51

2006

$

303
40,63916,663
3,554
157
4,460
1,508
590

7,973

7,910

67,874

1,115
95
381

1,002
77
—

9,494
811
3,241

1,591

1,079

13,547

480

521

4,089

7,066
7,068
15,174
(549)
873
(297)
(1,474)

7,066
7,068
14,891
(108)
519
(359)
(1,627)60,14760,167129,175(4,673)
7,428(2,524)(12,549)

Contingent liabilities (Note 13)
Shareholders’ equity (Note 9):
Common stock
Authorized—96,817,000 shares in 2006 and in 2005
Issued and outstanding—30,346,851 shares in 2006 and 2005
Capital surplus
Retained earnings
Unrealized revaluation loss on land, net of taxes (Note 5)
Unrealized holding profit on securities, net of taxes
Translation adjustments
Treasury stock, at cost
Total shareholders’ equity

27,861

27,449237,171

Total liabilities and shareholders’ equity¥37,905¥36,959$322,680

See notes to consolidated financial statements.

21

S.T.CORPORATION ANNUAL REPORT 2006

CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
S.T.CORPORATION and consolidated subsidiaries
For the years ended March 31, 2006 and 2005

Thousands of
U.S. dollars (Note 2)

Millions of yen

2006

2005

2006

¥46,134
26,083¥44,109
24,490$392,732
222,039

20,051(27)

19,6198

170,693(228)

20,024
16,892

19,627
15,879170,465
143,796

3,133

3,748

26,668

55
(0)
223
(871)
44
(29)
(1)
(702)
63

56
(1)
205
(825)
1
19
(9)
—
14

465
(1)
1,901
(7,418)
371
(251)
(5)
(5,978)534(1,219)(540)(10,381)

1,913

3,209

16,288

1,084
(135)

1,283
28

9,226
(1,149)Minority interests

949
(23)

1,311
75

8,077
(197)

Net income

988

1,823

8,408

14,891

13,722

126,764

—

0

—

661
1
36
7

576
16
64
—

5,624
5
310
58

¥15,174¥14,891$129,175

Net sales
Cost of sales
Gross profit before reversal of allowance for sales returns
Reversal of allowance for sales returns
Gross profit
Selling, general and administrative expenses (Note 10)
Operating income
Other income (expenses):
Interest and dividends received
Interest expenses
Cash purchase discountCash sales discount
Profit on sales of securities, net
Equity in income (loss) of affiliates
Write-down of securities
Impairment loss on fixed assets (Note 15)
Other, net
Income before income taxes and minority interests
Income taxes (Note 7)
Current
Deferred

Retained earnings at beginning of year
Increases:
Reversal of unrealized revaluation loss on land, net taxes
Decreases:
Cash dividends paid
Bonuses to directors
Redemption or disposition of treasury stockReversal of unrealized revaluation profit on land, net taxes
Retained earnings at end of year (Note 9)
See notes to consolidated financial statements.

22

CONSOLIDATED STATEMENTS OF CASH FLOWS
S.T.CORPORATION and consolidated subsidiaries
For the years ended March 31, 2006 and 2005

Thousands of
U.S. dollars (Note 2)

Millions of yen

Cash flows from operating activities:
Income before income taxes and minority interests
Adjustments to reconcile income before income taxes and minority interests to
net cash provided by operating activities:
Depreciation and amortization
Impairment loss
Loss on sale of property, plant and equipment
Gain on sale and valuation of marketable securities
Loss (profit) on sale and valuation of investment securities(Decrease) increase of allowance for doubtful receivables(Decrease) increase of employees’ retirement and severance benefits(Decrease) increase of directors’ retirement and severance benefits(Decrease) increase of allowance for sales returns
Interest and dividends received
Interest expense
Foreign exchange gain
Equity in (income) loss of affiliates
Change in operating assets and liabilities:
Receivables
Inventories
Payables and accrued expenses
Others, net
Sub totalInterest and dividends received
Interest paid
Income taxes paid
Net cash provided by operating activities
Cash flows from investing activities:
Deposit of time deposits (more than 3 months)
Refund of time deposits (more than 3 months)
Purchase of marketable securities
Proceeds from sale of marketable securities
Purchase of property, plant and equipment
Proceeds from sale of property, plant and equipment
Purchase of investment securities
Proceeds from sale of investment securities
Other investments, net
Net cash used in investing activities
Cash flows from financing activities:
Increase in bank loans
Repayments of bank loans and current portion of long-term debt
Repayment of long-term debt
Purchase of treasury stock
Proceeds from sale of treasury stock
Payments of dividend
Payments of dividend to minority shareholders
Net cash used in financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year (Note 11)

2006

2005

2006

¥ 1,913¥ 3,209$ 16,288

873
702
67
(1)
(42)
1
110
18
27
(55)
0
(23)
29

845
—
51
(1)
9
(62)
(37)
(24)
(8)
(56)
1
(3)
(19)

7,428
5,978
570
(9)
(358)
5
936
153
228
(465)
1
(199)
251

344
(1,027)
385
37
3,359
51
(0)
(1,456)
1,954

235
(97)
302
(296)
4,048
54
(1)
(1,130)
2,970

2,932
(8,739)3,278
316
28,592436(1)(12,391)
16,635(0)300(1,005)
1,828
(777)
10
(2,462)104(229)(2,230)

(800)
—
(979)
2,350
(705)
114
(841)
—
(62)
(923)

(0)
2,554
(8,552)
15,563(6,614)
87(20,956)
887(1,953)(18,986)

36
(3)
—
(3)
120
(661)
(60)
(571)

22
(70)
(69)
(572)
156
(576)
(77)
(1,185)

303
(28)
—
(25)
1,020
(5,624)(509)(4,863)

17
(831)
9,633
¥ 8,802

(0)
861
8,772
¥ 9,633

143(7,070)82,004$ 74,933

See notes to consolidated financial statements.

23

S.T.CORPORATION ANNUAL REPORT 2006

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
S.T.CORPORATION and Consolidated Subsidiaries
March 31, 2006

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(a) Basis of presentation(e) Marketable securities and investment securities
Other securities with determinable market value are carried at market

The accompanying consolidated financial statements of S.T.

value with any changes in unrealized holding gain or loss, net of the

CORPORATION (the “Company”) and consolidated subsidiaries are

related deferred income tax assets or liabilities, in shareholders’ equity.

prepared on the basis of accounting principles generally accepted in

Other securities without determinable market value are stated at cost

Japan, which are different in certain respects as to the application anddetermined principally by the moving-average method and the cost of

disclosure requirements of International Financial Reporting Standards,

other securities sold is principally computed based on the moving-

and are compiled from the consolidated financial statements prepared byaverage method. During the years ended March 31, 2006 and 2005,

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

the Company and its consolidated subsidiaries did not have any

In preparing the accompanying consolidated financial statements,

trading securities.

certain reclassifications have been made to the consolidated financial
statements issued domestically for readers outside Japan. Furthermore,(f) Inventories

the notes to the consolidated financial statements include information

Inventories of the Company and its domestic subsidiaries are statedwhich is not required under accounting principles generally accepted

at cost determined by the average-cost method and those of overseas

in Japan but is presented herein as additional information.

subsidiaries are stated at the lower of cost or market, cost being
determined by the average cost method.

(b) Principles of consolidation and accounting for investments inunconsolidated subsidiaries and affiliates(g) Property, plant and equipment and depreciation

The consolidated financial statements for the year ended March 31,

Property, plant and equipment are stated at cost. Depreciation of property

2006 and 2005 include the accounts of the Company and its six

plant and equipment of the Company and its domestic subsidiaries

significant subsidiaries in 2006 and, its five significant subsidiaries in

except for buildings (excluding structures attached to the buildings)

2005. All significant inter-company balances and transactions have beenacquired on and after April 1, 1998, is computed by the declining-eliminated in consolidation.

balance method in conformity with the Corporation Tax Law of

The equity method is applied to investments in significant
affiliates in accordance with the provisions of the Regulations.

Japan. Depreciation of property and equipment of overseas subsidiaries and buildings, excluding structures, acquired on and after April 1,
1998 of the Company and domestic subsidiaries is computed by the(c) Accounting period
The accounting period of the Company begins on April 1 and ends

The estimated useful lives of the major depreciable assets are

March 31 of the following year. The two overseas subsidiaries haveas follows:

fiscal years ending on December 31. The necessary adjustments for

Buildings and structures

3 to 56 years

significant transactions, if any, during the intervening period are madeMachinery, equipment and vehicles

2 to 17 years

on consolidation.

Tools, furniture and fixtures

2 to 20 years(d) Translation of foreign currency transactions and financial statements(h) Intangible assets and long-term prepaid expenses

Monetary assets and liabilities denominated in foreign currencies are

Intangible assets and long-term prepaid expenses are amortized by thetranslated into yen at the rates in effect at the balance sheet date andstraight-line method. Cost of software purchased for internal use is

the accounts of the overseas consolidated subsidiaries, etc., except foramortized by the straight-line method over 5 years, the useful life

the components of shareholders’ equity, are translated into yen at theapplicable to commercially available software.

rates of exchange in effect at the balance sheet date. Foreign exchange
gains and losses are credited or charged to operations and translation
adjustments are included in shareholders’ equity and minority interests.

24

straight-line method.

(i) Allowance for doubtful receivables(n) Consumption taxes

The Company and its domestic subsidiaries provide allowances for

Consumption taxes imposed on the Company’s and its subsidiaries’

estimated losses bad debts at the amounts calculated based on pastsales to customers are withheld by the Company and its subsidiaries at theexperience for receivables other than doubtful receivables and amounts

time of sale and subsequently paid to the government. Consumption

estimated specifically for each doubtful receivable. Overseas subsidiar-taxes withheld upon sale are not included in net sales in the accompany-

ies provide allowances for doubtful receivables principally based on

ing statements of income, but are recorded as a liability, “consumption

estimated uncollectable amounts.

taxes payable.” Consumption taxes which are paid by the Company
and its subsidiaries on the purchases of goods and services from outside(j) Allowance for sales returns

the group are also not included in costs or expenses in the accompanying

The allowance for sales returns is generally provided for losses on sales

statements of income, but are offset against consumption taxes pay-

returns subsequent to the balance sheet date at an amount equivalentable. The net balance is reflected as consumption taxes payable in theto that calculated based on sales in conformity with the Corporationaccompanying consolidated balance sheets at March 31, 2006 and 2005.

Tax Law of Japan.
The allowance for certain products is estimated based on theactual percentage of returns in prior years.

(o) Valuation of assets and liabilities of consolidated subsidiaries
Assets and liabilities of the consolidated subsidiaries acquired before
April 1, 1999 have been valued at cost. It is the Company’s policy to(k) Employees’ retirement and severance benefits

value assets and liabilities of subsidiaries acquired on and after April 1,

Accrued retirement and severance benefits are provided based on the1999 at fair value when the Company obtains control over such sub-estimated retirement and severance benefit obligation and the pension

sidiaries, however, the Company has not acquired any subsidiaries sincefund assets.

April 1, 1999.

Actuarial gains and losses, and past service obligations are amortized using the straight-line method over 5 years, which is within theestimated average remaining service years of employees.
In addition, one overseas subsidiary provides an allowance for payment of employees’ retirement and severance benefits at 100% of the(p) Cash and cash equivalents
Cash and cash equivalents in the cash flow statements consist of cashon hand, demand deposits and liquid short-term investments with amaturity of three months or less from their date of acquisition.

voluntary termination payment.
(q) Appropriation of Retained Earnings(l) Directors’ retirement and severance benefits

Under the Commercial Code of Japan, the appropriation of retained

The Company has accrued directors’ retirement and severance benefits

earnings with respect to a given financial period is made by resolution

at the amount which would be required to be paid if all directorsof the shareholders at a general meeting to be held subsequent to theresigned from their positions at left the Company as of the balanceclose of such financial period. The accounts for that period do not,sheet date in accordance with internal regulations.

therefore, reflect such appropriations.

(m) Leases

2. BASIS OF TRANSLATION

Finance leases, except for those which transfer ownership of the prop-

The consolidated financial statements presented herein are expressed

erty to the lessee, are accounted for as operating leases.

in yen and, solely for the convenience of the reader, have been translated into U.S. dollars at ¥117.47 =U.S.$1.00, the approximate exchange rate prevailing on the Tokyo Foreign Exchange Market on March
31, 2006. This translation should not be construed as a representationthat the amounts shown could have been, or could in the future be,converted into U.S. dollars at that or any other rate.

25

S.T.CORPORATION ANNUAL REPORT 2006

3. APPLICATION OF NEW ACCOUNTING STANDARDS

4. MARKETABLE SECURITIES AND—Accounting for Impairment of Fixed Assets

INVESTMENT SECURITIES

Effective the year ended March 31, 2006, the Company and the con-

The cost and related aggregate market value of other securities with asolidated subsidiaries have adopted a new accounting standard for thedeterminable market value at March 31, 2006 and 2005 are summarized

impairment of fixed assets which requires that tangible and intangible

as follows:

fixed assets be carried at cost less depreciation, and be reviewed forMillions ofyen

impairment whenever events or changes in circumstances indicate thatthe carrying amount of an asset may not be recoverable. Companies

Thousands of
U.S. dollars

2006

2005

2006

¥5,406¥3,935$46,024

Market value

6,860

4,800

58,399Total unrealized gain

1,482

883

12,616

Total unrealized loss

28

19

240

would be required to recognize an impairment loss in their statement

Costof income if certain indicators of asset impairment exist and the bookvalue of an asset exceeds the undiscounted sum of future cash flows of
the asset. The standard states that impairment losses should be measured as the excess of the book value over the higher of (1) the fairmarket value of the asset, net of disposition costs and (2) the present

The Company recognized impairment losses on securities at thevalue of future cash flows arising ongoing utilization of the asset anddifference between the market value and book value if the market value

from disposal after asset use. The standard covers land, factories, build-

had declined by 30% or more from the book value. Impairment losses

ings and other forms of property, plant and equipment as well as intan-

on securities for the years ended March 31, 2006 and 2005 were ¥1gible assets. Fixed assets will be grouped at the lowest level for which

million (U.S.$5 thousand) and ¥9 million, respectively.

there is identifiable cash flows that are independent of cash flows ofother groups of assets.

Securities at March 31, 2006 and 2005 excluded from the abovetable are summarized at their respective book value as follows:

The effect of this change was to increase operating income by ¥65
Millions ofyenmillion (U.S.$553 thousand), and to decrease income before income
taxes and minority interests by ¥637 million (U.S.$5,424 thousand).
The effect on the business segment information of the Company

26

Thousands of
U.S. dollars

2006

2005

2006

Other securities:

and its consolidated subsidiaries is described in Note 16, Segment In-

Unlisted investment trust

formation.

certificates within the closed

The impairment loss on fixed assets has been deducted directly

period

¥ 462

¥ 461

$ 3,930

from the carrying amounts of the respective assets in the consolidated

MMF

1,170

1,170

9,964

balance sheets.

CP

700

—

5,958

Foreign securities

96

23

819

Unlisted stocks

58

58

495

The Company recognized impairment losses on non-marketable

5. LAND REVALUATION

securities if the net book value had declined by 50% or more from theIn accordance with the Land Revaluation Laws (Proclamation No. 34

book value or if the issuers of the non-marketable securities went bankrupt

dated March 31, 1998), land used for business activities was revalued

or were substantially bankrupt.

at March 31, 2002. The book value before revaluation was ¥3,332

Other securities sold during the years ended March 31, 2006 and2005 are summarized as follows:

million and the book value after revaluation was ¥3,153 million andthe difference, net of taxes, is stated as unrealized valuation loss onland in shareholders’ equity. Deferred tax assets and liabilities arising

Millions ofyen

Proceeds received

Thousands of
U.S. dollars

from this revaluation are presented separately from deferred tax assets

2006

2005

2006

and liabilities for other temporary differences in the accompanying¥2,732¥2,350$23,254

balance sheets. The differences between the market value and the bookTotal profit

45

1

384

value after revaluation were ¥380 million (U.S.$3,233 thousand) andTotal loss

2

—

13

¥278 million at March 31, 2006 and 2005, respectively.

The redemption schedule of other securities with maturity dates

6. SHORT-TERM BANK LOANS
Short-term loans from banks at an average interest rate of 1.9%

at March 31, 2006 and 2005 are summarized as follows:amounted to ¥36 million (U.S.$303 thousand) at March 31, 2006.
Millions ofyen

Thousands of
U.S. dollars

2006

2005

2006

¥2,950¥1,246$25,117

1,828

1,754

15,558within 10 years

100

—

849

More than 10 years

—

—

—

One year and lessMore than 1 year andwithin 5 years
More than 5 years andAssets pledged as collateral at March 31, 2006 are presented below:
Millions ofyen

Thousands of
U.S. dollars

Buildings and structures

¥ 94

$ 801

Land

123

1,048

Total

¥ 217

$1,84927

S.T.CORPORATION ANNUAL REPORT 2006

7. INCOME TAXESAt March 31, 2006 and 2005, the tax effect of the temporary differences which gave rise to a significant portion of the deferred tax assets (excluding
deferred tax on the unrealized revaluation loss on land) were as follows:
Millions ofyen

Thousands of
U.S. dollars

2006

2005

2006

Current assets:
Accrued employees’ bonuses

¥ 157

¥ 159

$ 1,335

Allowance for sales returns

71

60

605

Accrued business taxes

41

45

349

Unrealized holding loss on securities, net of taxes

0

—

4

102

90

865

371

354

3,157

Other
Total current deferred tax assets
Current liabilities:
Deferred gain on sale of property

(0)

(0)

(4)

Unrealized holding profit on securities, net of taxes

—

(1)

—

Total current deferred tax liabilities

(0)

(1)

(4)

Net current deferred tax assets

370

353

3,153

440

381

3,744

Non-current assets:
Allowance for employees’ retirement and severance benefits
Allowance for directors’ retirement and severance benefits

38

31

324

Write-down of securities

78

96

666

Impairment loss

233

—

1,986

Other

15

33

126

Sub total non-current deferred tax assets

804

541

6,847

Valuation allowance

(140)

—

(1,190)Total non-current deferred tax assets

664

541

5,657

Non-current liabilities:
Deferred gain on sale of property

(20)

(20)

(169)

Unrealized holding profit on securities, net of taxes

(582)

(345)

(4,956)

Other
Total non-current deferred tax liabilities
Net non-current deferred tax assets

28

(15)

(15)

(124)

(617)

(381)

(5,249)

¥ 48

¥ 160

$

407

A reconciliation of the statutory tax rate to the Company’s effective
tax rate for the year ended March 31, 2006 is as follows:

The following table summarizes the components of the net retirement
benefit expenses for the years ended March 31, 2006 and 2005.
Millions of
yen

2006

Japanese statutory tax rate

40.00%

Thousands of
U.S. dollars

2006

2005

2006

¥ 157

¥ 154

$1,334

Permanent differences such as entertainment expenses, etc.

1.94Service cost

Permanent differences such as dividend income(1.36)

Interest cost on benefit obligation

53

50

451

Inhabitants’ per capita taxes, etc.

1.10

Expected return on plan assets

(28)

(26)

(234)

131

103

1,117

(22)

(23)

(191)

Valuation allowance

7.31

Amortization of actuarial loss

Other

0.60

Amortization of past service

Effective tax rate

49.59%

obligations
Extraordinary additional

No reconciliation has been presented for the year ended March 31,
2005 as the difference between the statutory tax rate and the effec-

retirement payments
Net retirement benefit expenses

—

0

—

¥ 291

¥ 259

$2,477

tive tax rate was less than 5%.
The assumptions used in determining the pension benefit obligation

8. EMPLOYEES’ RETIREMENT AND

are shown below:

SEVERANCE BENEFITSThe Company and its domestic subsidiaries have defined benefits

2006

plans covering substantially all of its employees which are partially

Method of periodic

funded through a qualified funded pension plan as described in Note

allocation of estimated

1(k). Under these plans, employees are entitled to lump-sum orretirement benefits

pension retirement or severance benefits, determined by points ac-

Discount rate

cumulated monthly based on the employees’ contributions, length of

Expected rate ofservice and the conditions under which the termination occurs. In

return on assets

addition, the Company and its domestic subsidiaries pay meritorious
service awards to employees in excess of the prescribed formula, which

2005

Straight-line method Straight-line method
2.0%

2.0%

2.0%

2.0%

9. SHAREHOLDERS’ EQUITY

are charged to income as paid as it is not practicable to compute the

The new Corporation Law of Japan (the “Law”), which superseded

liability for such future payments since the amounts vary depending

most of the provisions of the Commercial Code of Japan, went intoon the circumstances.

effect on May 1, 2006. The Law provides that an amount equal to

The following table summarizes the funding status and amounts

10% of the amount to be distributed as distributions of capital surplus

recognized in the consolidated balance sheets at March 31, 2006

(other than the capital reserve) and retained earnings (other than theand 2005.

legal reserve) be transferred to the capital reserve and the legal reserve,
respectively, until the sum of the capital reserve and the legal reserve
Millions ofyen

Thousands of
U.S. dollars

equals 25% of the common stock account. Such distributions can bemade at any time by resolution of the shareholders, or by the Board of

2006

2005

2006

¥ (2,817)¥(2,695)$ 23,982

Plan assets

1,600

1,377

13,621

Capital surplus and legal reserve are not available for dividends

Unfunded benefit obligation(1,217)(1,317)(10,362)

but may be used to reduce a deficit or may be transferred to stated

Unrecognized actuarial loss

96

332

815

capital. At March 31, 2006, the legal reserve of the Company included

6

(16)

52

¥ (1,115)¥(1,002)$ (9,494)

Directors if certain conditions are met, but neither the capital reserve

Retirement and severance
benefit obligationin retained earnings amounted to ¥550 million (U.S.$4,681 thousand).

Unrecognized past service
obligation
Accrued benefit obligation

nor the legal reserve is available for distributions.

29

S.T.CORPORATION ANNUAL REPORT 2006

The accompanying consolidated financial statements do not in-

Net assets per share as of March 31, 2006 and 2005 were ¥966.43

clude any provision for cash dividends of ¥11.00 (U.S.$0.09) per share(U.S.$ 8.23) and ¥957.45, respectively. Net income per share for the

totaling ¥317 million (U.S.$2,700 thousand) which were declared by

years ended March 31, 2006 and 2005 was ¥34.35 (U.S.$ 0.29) andthe Company in May 2006.

¥63.43, respectively.

The maximum amount which the Company can distribute as
dividends is calculated based on the non-consolidated financial statements of the Company and in accordance with the Commercial Code

Diluted net income per share for the years ended March 31, 2006
and 2005 was ¥34.16 (U.S.$0.29) and ¥63.00.
Basis for calculation of basic net income per share and diluted net
income per share for the years ended March 31, 2006 and 2005 was asof Japan.
At March 31, 2006, the Company had stock option plans, which

follows:

were approved at the annual general meetings of the shareholders andMillions ofyen

the Board of Directors as follows:

Date of approval

Number of shares
grantedEligible participants

Exercisable period

June 27, 2000

350,000

6 directors andJuly 1, 2002 –Net income

4 employees

June 30, 2007

Amounts not attributable toshares1 director andJuly 1, 2003 –appropriation of retained

shares23 employees

June 30, 2008

earnings
shareholders of common stock

225,000
shares43 employees

June 30, 2009of shares outstanding

June 13, 2003

155,000

1 director andJuly 1, 2005 –(millions of shares)

July 1, 2004 –shares

25 employees

June 30, 2010

Diluted net income per share:

130,000

4 officers andJuly 1, 2006 –Increase in number of sharesshares

9 employees

June 30, 2011

outstanding

160,000

3 officers andJuly 1, 2007 –Shares resulting in an

shares23 employees

June 30, 2012

anti-dilutive effect75,000

Officers andJuly 1, 2008 –(millions of shares)

employees

June 30, 2013

shares(the Board of
Directors willapprove resolutions
designating eligible
officers and employees)
The option price per share was determined on the date the options were granted based on an established formula for determining
option prices. The options are exercisable during the above periods
provided that the recipients are still directors, statutory auditors or
employees of the Company or its subsidiaries.

30¥1,823$8,408

—

—

—

988

1,823

8,408

29

29

—

0

0

—

—

0

—

Weighted-average number

June 14, 2002

June 14, 2006

¥ 988

Amounts attributable to(including 1

June 14, 2005

2006

Basic net income per share:

140,000

executive officer)

June 15, 2004

2005

Directors’ bonuses byofficers)

1 director and2006

shareholders of common stock:(all executive
June 15, 2001

Thousands of
U.S. dollars

10. MAJOR EXPENSES

11. CASH AND CASH EQUIVALENTS

Major expenses included in selling, general and administrative expenses

A reconciliation of cash and cash equivalents at March 31, 2006 andfor the years ended March 31, 2006 and 2005 were as follows:2005 to the accounts and amounts in the accompanying consolidatedbalance sheets is as follows:

Millions ofyen

Sales promotion expenses

Thousands of
U.S. dollars
Millions of
yen

2006

2005

2006

¥3,846¥3,683$32,738

Advertising costs

3,938

3,306

33,520Cash and time deposits

Salaries

1,580

1,669

13,453Time deposits with a maturity

Shipment and storage expenses

1,641

1,596

13,967in excess of three months

Provision for employees’Marketable securities withretirement and severance

a maturity in excess ofbenefits

230

204

1,956

Provision for directors’

three months
Cash and cash equivalents

Thousands of
U.S. dollars

2006

2005

2006

¥ 8,625¥10,456$73,426

(523)

(823)

(4,451)

700

—

5,958

8,802

9,633

74,933

retirement and severance
benefits

18

16

153

Deposits pledged as collateral mainly for leasing office space at

Provision for doubtful accounts

0

—

4

March, 31 2006 and 2005 amounted ¥23 million (U.S.$ 194 thousand)and ¥23 million, respectively.

Research and development expenses included in general and administrative expenses and cost of sales for the years ended March 31,

12. LEASES2006 and 2005 amounted to ¥480 million (U.S.$4,087 thousand) and

Finance leases, except for those which transfer ownership of the property¥423 million, respectively.

to the lessee, are accounted for as operating leases, and the assets andthe related liability are not included in the balance sheets.

(Fiscal 2005)
In accordance with the introduction of the Business Scale Taxation by(1) A summary of the pro-forma amounts (inclusive of the related

revision of the local tax law from the fiscal year beginning on or after

interest) of acquisition cost, accumulated depreciation and net book

April 1, 2004, the business tax on added value and capital was accounted

value at March 31, 2006 and 2005 primarily relating to tools, furniture

for selling, general and administrative expenses.

and fixtures held under finance lease is as follows:

As a result, selling, general and administrative expenses increased
Millions ofyen

by ¥53 million and operating income and income before income taxes
and minority interests decreased by ¥53 million for the year ended
March 31, 2005.

Acquisition costThousands of
U.S. dollars

2006

2005

2006

¥ 199

¥ 271

$1,695

Accumulated depreciation

110

181

936

Net book value

¥ 89

¥ 89

$ 759

(2) Future minimum lease payments, inclusive of the related interest,
at March 31, 2006 and 2005 are summarized as follows:
Millions ofyen

Payable in one year or less
Payable after one year
Total

Thousands of
U.S. dollars

2006

2005

2006

¥ 34

¥ 53

$ 288

55

36

471

¥ 89

¥ 89

$ 759

31

S.T.CORPORATION ANNUAL REPORT 2006

(3) Lease payments and pro-forma depreciation charges for the years

15. IMPAIRMENT LOSS ON FIXED ASSETS

ended March 31, 2006 and 2005 were ¥54 million (U.S.$ 464 thousand)For the year ended March 31, 2006, the Company and the consoli-and ¥69 million, respectively.

dated subsidiaries recognized ¥702 million (U.S.$5,978 thousand) of
impairment losses on fixed assets which consisted of the following:(4) Depreciation is computed by the straight-line method over therespective lease terms assuming a nil residual value.

Location

The old

Description

Idle asset

40

Idle asset

Land

8

65

Idle asset

Land

154

1,308

Other asset

536

4,565

Future minimum lease payments at March 31, 2006 and 2005 werefactory

as follows:(Fukushima Pref.)Payable in one year or less

Kyushu factory

2006

2005

2006

(Fukuoka Pref.)

¥ 1

¥ 1

$ 9

Family Glove

1

2

12

(Taiwan)

¥ 2

¥ 3

$ 21

Head officeLong-term(Tokyo)prepaid expenses

Payable after one year
Total

The old

13. COMMITMENTS AND CONTINGENT LIABILITIESThousands of
U.S. dollars

5

Fukushima

Thousands of
U.S. dollars

Millions of
yen

Land

Operating leases

Millions ofyenClassificationof royalty of

At March 31, 2006 and 2005, trade notes discounted with banks insales right ofthe ordinary course of business amounted to ¥96 million (U.S.$818

Thermal Carethousand) and ¥68 million, respectively.

14. DERIVATIVESThe Company has entered into forward foreign exchange contracts

recognized impairment losses on fixed assets.

to reduce its exposure to the risk of future adverse fluctuation in

As a result of a decline in land prices, the carrying value of theforeign exchange rates related to its trade receivables and payables

above idle assets has been reduced to their recoverable amounts, andand loans denominated in foreign currencies. It is the Company’s policy

such deducted amount (¥166 million) was recorded as impairment

not to enter into any speculative derivatives transactions and its sub-loss. As a result of a further decline of the marketing environment ofsidiaries and associated companies do not enter into any forward foreign

the Thermal Care, the Company does not expect recovery, therefore

exchange contracts.

the carrying value of the above long-term prepaid expenses has been

Unrealized gain or loss on a hedging instrument is deferred until
the Company recognizes gain or loss on the underlying hedged item.
Assets or liabilities hedged by forward foreign exchange contracts aretranslated at the forward exchange contract rates.

reduced to zero, and such deducted amount (¥536 million) wasrecorded as impairment loss.
The recoverable amount utilized in the calculation was the higherof the net selling price or value in use. In the case where net selling

As the Company enters into such contracts only with domestic

prices were used as recoverable amounts, relevant assets were evaluatedbanks with high credit ratings, the Company does not anticipate any

based on appraisal valuations or municipal property tax bases. And in therisk of non-performance by these counter-parties.

case where values in use were used as recoverable amounts, a full amountIn addition, the execution of and control over derivatives transactions are carried out by the Administrative Division in accordance withinternal control regulations which limit the nature of the transactions
and individuals authorized to be in charge of such transactions.
At March 31, 2006 and 2005, the Company had no outstanding
derivatives positions.

32

The Company and the consolidated subsidiaries group their fixed
assets considering classifications on management accounting, andof the carrying value of relevant assets was reduced, and therefore theCompany did not estimate discount rates.

16. SEGMENT INFORMATIONThe Company and its consolidated subsidiaries operate in two business segments and the business segment information for the years ended March 31,
2006 and 2005 is analyzed as follows:Year ended March 31, 2006
Millions of yen
Mothproofing
andhygiene-related
products

Householdenvironmentrelated
products

Total¥19,195¥26,939——

Total revenues

19,195

2. Operating expenses

16,976

Operating income

Eliminations
or corporate
assetsConsolidated¥46,134—¥46,134———

26,93946,134—

46,13426,02643,001—

43,001

2,219

913

3,133

—

3,133

(1) Total assets

8,726

12,611

21,337

16,56837,905(2) Depreciation

230

642

873

—

873

(3) Impairment loss

695

7

702

—

702

(4) Capital expenditures

148

678

826

—

826

Mothproofing
andhygiene-related
products

Householdenvironmentrelated
products

Total

Eliminations
or corporate
assetsConsolidated¥17,899¥26,210¥44,109—¥44,109

—

—

—

—

—

1. Revenues(1) Operating revenues(2) Intra-group sales and transfers

3. Assets, depreciation, impairment loss and capital expenditure:

Year ended March 31, 2005
Millions of yen

1. Revenues(1) Operating revenues(2) Intra-group sales and transfers
Total revenues

17,89926,21044,109—44,109

2. Operating expenses

15,75024,61040,361—40,361

Operating income

2,149

1,599

3,748

—

3,748

(1) Total assets

9,212

11,68920,901

16,05836,959(2) Depreciation

221

623

845

—

845

(3) Capital expenditures

73

807

880

—

880

3. Assets, depreciation and capital expenditure:33

S.T.CORPORATION ANNUAL REPORT 2006

Year ended March 31, 2006
Thousands of U.S. dollars
Mothproofing
andhygiene-related
products

Householdenvironmentrelated
products

Total$163,405$229,326——

Total revenues

163,405

2. Operating expenses

144,511

Operating income

Eliminations
or corporate
assetsConsolidated$392,732—$392,732———

229,326

392,732—

392,732

221,552

366,063—

366,063

18,894

7,775

26,668—26,668(1) Total assets

74,286

107,351

181,637

141,044

322,680(2) Depreciation

1,960

5,468

7,428

—

7,428

(3) Impairment loss

5,916

61

5,978

—

5,978

(4) Capital expenditures

1,259

5,771

7,031

—

7,031

1. Revenues(1) Operating revenues(2) Intra-group sales and transfers

3. Assets, depreciation, impairment loss and capital expenditure:

The business segments are classified according to the nature of the Company’s products and their markets. Major products in the mothproofing
and hygiene-related segment are Cloth Care, Hand Care and Thermal Care and those in the household environment-related segment are Air Care,
Humidity Care, and Home Care.
(Fiscal 2004)
Based on the agreement between the Company and its consolidated subsidiary, S.T.Mycoal., Ltd. for the year ended March 31, 2005, the sales
promotion expenses of the Company was borne by S.T.Mycoal.
As a result, operating expenses in the mothproofing and hygiene-related segment decreased by ¥73 million and the household environmentrelated segment increased by ¥73 million.
(Fiscal 2005)
Effective April 1, 2005, the Company and the consolidated subsidiaries adopted the new accounting standard for impairment of fixed assets (“Opinion
Concerning Establishment of Accounting Standard for Impairment of Fixed Assets”) issued by the Business Accounting Deliberation Council on
August 9, 2002) and the implementation guidance for the accounting standard for impairment of fixed assets (the Financial Accounting Standard
Implementation Guidance No.6 issued by the Accounting Standards Board of Japan on October 31, 2003), which requires that tangible and intangible
fixed assets be carried at cost less depreciation and be reviewed for impairment whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable.
The effect of this change was to decrease operating expenses by ¥65 million (U.S.$553 thousand) and to increase operating income by the sameamount in the Mothproofing and hygiene-related products segment.
Geographical segment information and overseas sales are not presented as the revenues and total assets in Japan exceeded 90% of the totals in bothsegments and as overseas sales were less than 10% of consolidated sales for the years ended March 31, 2006 and 2005.

34

REPORT OF INDEPENDENT AUDITORSThe Board of Directors
S.T.CORPORATION
We have audited the accompanying consolidated balance sheets of S.T.CORPORATION and consolidated subsidiaries as of March 31,
2006 and 2005, and the related consolidated statements of income and retained earnings, and cash flows for the years then ended, allexpressed in yen. These financial statements are the responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in Japan. Those standards require that we plan andperform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of S.T.
CORPORATION and consolidated subsidiaries at March 31, 2006 and 2005, and the consolidated results of their operations and their
cash flows for the years then ended in conformity with accounting principles generally accepted in Japan.
Supplemental Information
As described in Note 3, effective the year ended March 31, 2006, S.T.CORPORATION and consolidated subsidiaries adopted a new
accounting standard for the impairment of fixed assets.
The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the year ended March 31, 2006 arepresented solely for convenience. Our audit also included the translation of yen amounts into U.S. dollar amounts and, in our opinion,such translation has been made on the basis described in Note 2.

June 14, 2006

35

S.T.CORPORATION ANNUAL REPORT 2006

CORPORATE INFORMATION(August 1st, 2006)

BOARD OF DIRECTORS AND CORPORATE EXECUTIVE OFFICERS (August 1st, 2006)
Takashi Suzuki

Motohiko Kogo

The chairman of the board, member of nomination committee

Outside director, member of audit committee

Yasushi Kajiwara

Hiroyuki Kokado

Outside director, member of nomination, audit and compensation committees

Outside director, member of audit committee

Tsunehachi Tagaya

Toshiharu Nagasawa

Outside director, member of nomination and audit committees

Director, member of nomination committee

Masanori Noro

Mitsuo Tsuchihashi

Outside director, member of nomination and compensation committees

Director, member of compensation committee

EXECUTIVE OFFICERS
Takashi Suzuki

Nobuhiro Mine

Representative Executive Officer

Executive Officer

President, Chief Executive Officer

Chairman of S.T. Mycoal Co., Ltd.
President of Japan Corporation

Kanzo Kobayashi
Senior Managing Executive Officer

Michihiro Ishikawa

In charge of overall management, manufacturing and R&D

Executive Officer

Toshiharu Nagasawa

President of S.T. Trading Co., Ltd.

Managing Executive Officer

Masakazu Kinoto

In charge of human resources

Executive Officer

President of S.T. Business Support Co., Ltd.

Osaka branch general manager

Mitsuo Tsuchihashi

Hirohide Shimada

Managing Executive Officer

Executive Officer

In charge of corporate staff and affiliated companies

In charge of corporate planning, advertising, public relations and international business

Noriaki Kageura
Managing Executive Officer
Senior general manager of corporate sales headquarters

CORPORATE DATA
Company name
Headquarters
Establishment
Paid-in capital
Employees
Contact
E-mailTel
Fax

S.T.CORPORATION*
4-10, Shimo-ochiai, 1-Chome, Shinjuku-ku,
Tokyo 161-8540, Japan
August 31, 1948
¥7,065,500,000
737 (Consolidated)
474 (Non-consolidated)
Hirohide Shimada, Corporate Planning Group
ir@st-c.co.jp+81-3-5906-0734+81-3-5906-0742

GROUP COMPANIESConsolidated Subsidiaries

S.T. Trading Co., Ltd.
Sales of hand gloves, industrial paper wipes, lubricant spray and products

S.T. Auto Co., Ltd.
Sales of car chemical care products

S.T. Mycoal Co., Ltd.
Sales support and marketing of Mycoal disposable warmers

S.T. Business Support Co., Ltd.
Temporary staffing and contract work for S.T.CORPORATION

Family Glove (Thailand) Co., Ltd.
Manufacture and sale of hand gloves* S.T. Chemical changed its English name to S.T.CORPORATION
at the general shareholders’ meeting held on June 14, 2006.

Family Glove (Taiwan) Co., Ltd.
Manufacture and sale of hand gloves

36

エステーAR-表2-3 06.8.10 14:02 ページ 2

INVESTOR INFORMATION(March 31, 2006)

Fiscal year-end
Shares issued and outstanding
Listed exchange
Shareholders

March 31
30,346,851
Tokyo Stock Exchange, First Section
6,723

PRIMARY SHAREHOLDERS(Thousands of shares)(% of total)

4,747
3,817
2,459
1,671
884
882
860
831
785
681

15.6
12.6
8.1
5.5
2.9
2.9
2.8
2.7
2.6
2.2

Shaldan Co., Ltd.
T-ZONE Capital Corporation
Bear, Stearns & Co. Inc.
Nippon Life Insurance Company
Mizuho Bank, Ltd.
Seiichi Suzuki
Suzuki Family
Takashi Suzuki
Akio Suzuki
The Bank of Tokyo-Mitsubishi UFJ, Ltd.
Note: The Company has 1,518 thousand shares of treasury stock (5.0% of total shares).

Individuals

30.25%

Other Japanese institutions

39.49%

Financial institutions

16.81%

Non-Japanese institutions

8.45%

Treasury stock

5.00%

Registered transfer agent
AuditorAnnual shareholder’s meeting

Mizuho Trust & Banking Co., Ltd.
Ernst & Young Shin Nihon
Middle of June each year (June 14, 2006)

STOCK CHART
Stock Price (Yen)
2,400

Nikkei 225 (Yen)
24,0001,800

18,0001,200

12,0004,227,000

600

6,000
1,000,000
0003/6 7

8

9

10

11

12 04/1 2

3

4

5

6

7

8

9

10

11

12 05/1 2

3

4

5

6

7

8

9

10

11

12 06/1 2

3

4

5

0

6

37

エステーAR-表1-4 06.8.10 14:02 ページ 1

4-10, Shimo-ochiai 1-chome, Shinjuku-ku, Tokyo 161-8540 Japan
http://www.st-c.co.jp/

Printed in Japan