F i n a n c i a l

S t a t e m e n t s

2006

TAYCA CORPORATION
Nittochi Yodoyabashi Bldg., 6-13, Kitahama 3-chome, Chuo-ku, Osaka, Japan

Phone: (06) 6208-6400

Fax: (06) 6208-6422

C ONSOLIDATED F IVE -Y EAR S UMMARYTAYCA CORPORATION AND C ONSOLIDATED S UBSIDIARIES
Millions of yen
2006

2005

2004

2003

2002

Net sales ................................................................ ¥27,610
Income (loss) before income taxes .....................
1,628
Net income (loss) .................................................
961
Total assets............................................................ 39,902
Shareholders’ equity............................................. 22,949
Common stock ......................................................
9,855¥26,067
1,209
732
34,702
20,1499,855¥24,866
1,324
854
33,333
19,6399,855¥25,971665
498
31,311
17,805
9,855¥24,844(918)(809)
31,267
17,2159,855

Per share of common stock (in yen):
Net income (loss) ............................................. ¥ 18.77
Shareholders’ equity......................................... 456.99¥ 14.17400.92¥ 16.31390.54¥¥ (15.75)
334.75

9.69
346.58Notes: (1) Figures for 2002 – 2006 represent the fiscal year ended March 31, respectively.
(2) The computation of net income (loss) per share is based upon the weighted average number of shares outstanding during
the period.

C ONSOLIDATED B ALANCE S HEETSTAYCA CORPORATION AND C ONSOLIDATED S UBSIDIARIESMarch 31, 2006 and 2005

TAYCA CORPORATION
Thousands of
U.S. dollars (Note 1)

Millions of yen

ASSETS

2006

2005

2006

Cash and cash equivalents .......................................................................

¥ 2,305¥ 3,121$ 19,628

Time deposits ............................................................................................

79

79

672

Marketable securities ...............................................................................

2

35

25

Trade notes and accounts receivable ......................................................

8,279

7,768

70,479Inventories (Note 3) ..................................................................................

5,834

5,244

49,664

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

541

450

4,606

Allowance for doubtful accounts .............................................................

(9)

(9)

(82)

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

17,032

16,690144,994

Land ...........................................................................................................

1,291

876

10,997

Buildings and structures ..........................................................................

14,161

14,022

120,556

Machinery and equipment .......................................................................

36,016

34,626306,600

Vehicles ......................................................................................................

162

150

1,382

Tools, furniture and fixtures .....................................................................

2,146

2,025

18,273

Construction in progress ..........................................................................

1,075

540

9,156

Less: accumulated depreciation ..............................................................

(41,881)(40,772)(356,531)

Net property, plant and equipment ..............................................

12,972

11,469110,434

Investment securities ...............................................................................

9,021

5,613

76,802

Investments in unconsolidated affiliated companies (Note 5) ............

20

20

175

Other assets ...............................................................................................

814

846

6,933

Intangible fixed assets ..............................................................................

40

61

345

Total investments and other assets ..............................................

9,897

6,542

84,257¥39,902¥34,702$339,686

Current assets:

Property, plant and equipment:

Investments and other assets:

See the accompanying Notes to Consolidated Financial Statements.

1

LIABILITIES, MINORITY INTERESTS ANDSHAREHOLDERS’ EQUITY

Thousands of
U.S. dollars (Note 1)

Millions of yen
2006

2005

2006

Current liabilities:
Short-term borrowings (Note 4) ..............................................................

¥

306

¥

233

$

2,612

Current portion of long-term debt (Note 4) ...........................................

2,015

1,921

17,153

Trade notes and accounts payable ..........................................................

3,772

3,413

32,111

Accrued income taxes ...............................................................................

535

302

4,555

Accrued expenses .....................................................................................

73

56

628

Other current liabilities ............................................................................

2,992

2,843

25,471

Total current liabilities ...................................................................

9,695

8,770

82,533Long-term debt (Note 4) ..........................................................................

3,744

3,704

31,872

Deferred income taxes ..............................................................................

1,498

303

12,760Liabilities for severance indemnities ......................................................

1,693

1,508

14,413

Allowance for directors’ and statutory auditors’ retirement .................

280

228

2,386

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

7,216

5,744

61,433

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

41

37

356

Issued — 51,428,828 shares in 2006 and 2005 ..................................

9,855

9,855

83,901

Capital surplus ..........................................................................................

6,767

6,767

57,610Retained earnings .....................................................................................

3,179

2,488

27,064

Unrealized gain on available-for-sale securities ....................................

3,553

1,453

30,250Foreign currency translation adjustments ..............................................

(2)

(23)

(25)

1,252,636 shares in 2006 and 1,222,046 shares in 2005 ....................

(403)

(392)

(3,438)

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

22,94920,149195,362¥39,902¥34,702$339,686

Long-term liabilities:

Contingent liabilities (Note 5)
Shareholders’ equity:
Common stock:
Authorized — 150,000,000 shares

Treasury stock, at cost:2

C ONSOLIDATED S TATEMENTS OF I NCOMETAYCA CORPORATION AND C ONSOLIDATED S UBSIDIARIESFor the Years Ended March 31, 2006 and 2005

TAYCA CORPORATION
Thousands of
U.S. dollars (Note 1)

Millions of yen

Net sales ...............................................................................................................
Cost of sales .........................................................................................................
Gross profit ...............................................................................................
Selling, general and administrative expenses...............................................
Operating income ....................................................................................
Other income (expenses):
Interest and dividend income ........................................................................
Interest expenses.............................................................................................
Other, net .........................................................................................................
Total other expenses ...............................................................................
Income before income taxes and minority interests ............................
Income taxes:
Current..............................................................................................................
Deferred ............................................................................................................
Minority interests ................................................................................................
Net income ...............................................................................................

2006

2005

2006

¥27,610
21,328
6,281
4,513
1,768

¥26,067
20,330
5,736
4,373
1,363

$235,043
181,566
53,47638,426
15,050

82
(123)
(97)
(139)
1,628

74
(113)
(114)
(153)
1,209

700
(1,055)(829)(1,183)
13,866

809
(143)
0
961

563
(79)
(6)
732

6,892
(1,219)8$ 8,185¥¥

U.S. dollars(Note 1)Yen

Net income per share.........................................................................................

¥ 18.77¥ 14.17$

0.16

See the accompanying Notes to Consolidated Financial Statements.

C ONSOLIDATED S TATEMENTS OF S HAREHOLDERS ’ E QUITYTAYCA CORPORATION AND C ONSOLIDATED S UBSIDIARIESFor the Years Ended March 31, 2006 and 2005

Balance, March 31, 2004 ...........................
Net income ..............................................
Cash dividends ........................................
Bonuses to directors ...............................
Unrealized gain on available-for-sale securities ...
Foreign currency translation adjustments ...
Increase in treasury stock .......................
Balance, March 31, 2005 ...........................
Net income ..............................................
Cash dividends ........................................
Bonuses to directors ...............................
Unrealized gain on available-for-sale securities ...
Foreign currency translation adjustments ...
Increase in treasury stock .......................
Balance, March 31, 2006 ...........................

Number ofshares ofcommon stock(Thousands)

Commonstock

Capitalsurplus51,428¥9,855¥6,767

Millions of yen
Unrealized gain Foreign currency
Retained(loss) on availabletranslation
earnings
for-sale securities
adjustments¥2,028
732
(251)
(20)

¥1,393¥(22)

Treasurystock
at cost¥(382)

60(1)
51,428¥9,855¥6,767¥2,488
961
(251)
(19)

¥1,453¥(23)(9)¥(392)

2,100
20
51,428¥9,855¥6,767¥3,179¥3,553¥ (2)(11)¥(403)$(199)$(3,341)

Thousands of U.S. dollars (Note 1)

Balance, March 31, 2005 ..................................................
Net income .....................................................................
Cash dividends...............................................................
Bonuses to directors......................................................
Unrealized gain on available-for-sale securities .........
Foreign currency translation adjustments...................
Increase in treasury stock..............................................
Balance, March 31, 2006 ..................................................

$83,901$21,186
8,185(2,137)(170)$12,371

17,879174$83,901

See the accompanying Notes to Consolidated Financial Statements.

3$57,610$57,610$27,064$30,250$ (25)(97)$(3,438)

C ONSOLIDATED S TATEMENTS OF C ASH F LOWSTAYCA CORPORATION AND C ONSOLIDATED S UBSIDIARIESFor the Years Ended March 31, 2006 and 2005

TAYCA CORPORATION
Thousands of
U.S. dollars (Note 1)

Millions of yen
2006

2005

2006

¥1,628
1,924
111
(82)
123
—

¥1,209
1,684
110
(74)
113
(191)

$13,866
16,379
952
(700)
1,055
—

(510)
(590)
359
(61)
2,903
82
(124)
(577)

(491)
218
696
673
3,948
74
(112)
(750)

(4,348)(5,022)
3,056(525)
24,713700(1,059)(4,912)

2,283

3,159

19,441

Investing activities:
Payments for purchases of time deposits................................................
Proceeds from maturities of time deposits .............................................
Payments for purchases of marketable securities...................................
Proceeds from sale of marketable securities...........................................
Payments for acquisition of property, plant and equipment .................
Payments for purchases of investment securities...................................
Proceeds from sale of investment securities...........................................
Other ...........................................................................................................
Net cash used in investing activities ..................................................

—
—
(24)
34
(3,056)
(14)
5
(12)

(100)
100
(24)
24
(2,744)
(30)
396
110

—
—
(212)
297
(26,018)
(120)
44
(110)

(3,068)(2,266)(26,119)

Financing activities:
Net increase (decrease) in short-term borrowings .................................
Proceeds from long-term debt ..................................................................
Repayment of long-term debt...................................................................
Payments for purchases of treasury stock................................................
Dividends paid............................................................................................
Net cash used in financing activities ..................................................

73
2,100
(1,966)
(11)
(250)

(8)
1,900
(1,995)
(9)
(250)

622
17,876(16,738)(97)(2,130)

(54)

(364)

(466)

Effect of exchange rate change on cash and cash equivalents..................

23

(0)

200

Net (decrease) increase in cash and cash equivalents................................
Cash and cash equivalents, beginning of year ..............................................
Cash and cash equivalents at end of year ...................................................

(815)
3,121
¥2,305

528
2,593¥3,121(6,943)
26,572$19,628

Operating activities:
Adjustments to reconcile net income to net cash provided byoperating activities:
Income before income taxes .....................................................................
Depreciation and amortization .................................................................
Loss on disposal of property, plant and equipment ..............................
Interest and dividend income ...................................................................
Interest expense .........................................................................................
Gain on sale of investment securities ......................................................
Changes in assets and liabilities:
Increase in notes and accounts receivable, trade ...................................
(Increase) decrease in inventories............................................................
Increase in notes and accounts payable, trade .......................................
Other ...........................................................................................................
Subtotal .................................................................................................
Interest and dividend income, received...................................................
Interest expense, paid................................................................................
Income taxes, paid .....................................................................................
Net cash provided by operating activities..........................................

See the accompanying Notes to Consolidated Financial Statements.

4

N OTES TO C ONSOLIDATED F INANCIAL S TATEMENTS
TAYCA CORPORATION AND C ONSOLIDATED S UBSIDIARIESFor the Years Ended March 31, 2006 and 2005

TAYCA CORPORATION

1. Basis of presenting consolidated financial statements
The accompanying consolidated financial statements of TAYCA CORPORATION(the “company”) and its subsidiaries have been prepared in accordance withthe provisions set forth in the Japanese Securities and Exchange Law and its
related accounting regulations, and in conformity with accounting principles
generally accepted in Japan, which are different in certain respects as toapplication and disclosure requirements of International Financial
Reporting Standards. In preparing these consolidated financial statements,
certain reclassifications and rearrangements have been made to the consolidated financial statements issued domestically in order to present them in aform which is more familiar to readers outside Japan.
The consolidated financial statements are stated in Japanese yen, the currency of the country in which the Company is incorporated and principally
operates. The translations of Japanese yen amounts into U.S. dollar
amounts are included solely for the convenience of readers outside Japanand have been made at the rate of ¥117.47 to $1, the approximate rate ofexchange at March 31, 2006. Such translations should not be construed as
representations that the Japanese yen amounts could be converted into U.S.
dollars at that or any other rate.

2. Summary of significant accounting policies
1) Principles of consolidation
The consolidated financial statements as of March 31, 2006 include theaccounts of the Company and its 5 subsidiaries.
The accompanying consolidated financial statements include the accountsof the Company and its significant subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation. All subsidiaries are consolidated on the basis of their results for fiscal years ended
December 31.

7) Income taxes
Current income taxes are provided for based on amounts currently payablefor each year. Deferred income taxes arising from temporary differences in
the recognition of assets and liabilities for tax and financial reporting purposes are reflected in the consolidated financial statements.
8) Appropriations of retained earnings
Appropriations of retained earnings are reflected in the financial statements
for the following year upon Board of Directors’ or shareholders’ approval.
9) Research and development costs
Research and development costs are charged to income as incurred.
10) Foreign currency transaction
All short-term and long-term monetary receivables and payables denominatedin foreign currencies are translated into Japanese yen at the current exchange
rates at the balance sheet date.
Revenue and expense items denominated in foreign currencies are translated using the rate on the date of the transaction. Related exchange gains orlosses are credited or charged to income as incurred.
11) Foreign currency financial statements
The balance sheet accounts of the foreign subsidiaries are translated into
Japanese yen at the current exchange rates as of the balance sheet date
except for shareholders’ equity, which is translated at the historical rate.
Revenue and expense accounts of the foreign subsidiaries are translated
into Japanese yen at the current exchange rates.
Differences arising from such translation are shown as “Foreign currencytranslation adjustments” in a separate component of shareholders’ equity.

3. Inventories
At the end of each fiscal year, inventories consisted of the following:2) Cash and cash equivalents
For the purposes of the consolidated statements of cash flows, cash and cash
equivalents include cash-on-hand and in banks and other highly liquid investments with maturities of three months or less when purchased.
3) Inventories
Inventories are stated at cost, determined by the moving-average method.
4) Securities
Securities other than those of unconsolidated subsidiaries and affiliates areclassified into three categories: trading securities, held-to-maturity debt
securities or other securities. Trading securities are carried at fair value.
Gain or loss, both realized and unrealized is credited or charged to income.
Held-to-maturity debt securities are carried at amortized cost. Marketablesecurities classified as other securities are carried at fair value with any
changes in unrealized holding gain or loss, net of the applicable income
taxes, included directly in shareholders’ equity. Cost of securities sold isdetermined by the moving average method. Non-marketable securities
classified as other securities are carried at cost.
5) Property, plant, equipment
Property, plant, equipment are stated at cost. Depreciation of property, plant,
equipment and its domestic subsidiaries is computed substantially by the
declining-balance method, while the straight-line method is applied to buildings acquired by the domestic companies after April 1, 1998, and is principally applied to the property, plant and equipment of foreign subsidiaries.
6) Liabilities for severance indemnities
The Company made provisions for liabilities for severance indemnities inan amount deemed necessary at the term-end, based on the estimatedamounts of projected benefit obligations and the fair value of the plan
assets. Transitional obligations in the amount of ¥1,222 million are charged
to expenses using the straight-line method over 10 years.
Actuarial gains/losses are recognized in income/expenses using thestraight-line method over 10 years, which is shorter than the average of theestimated remaining service lives commencing with the following period.
Overseas subsidiaries are outside the scope of application.

5

Millions of yen
2006

Finished goods and merchandise .... ¥3,631
Raw materials and supplies.............. 1,837
Work in process .................................
365¥5,834

Thousands of
U.S. dollars

2005

2006

¥2,8852,045
313¥5,244$30,910
15,6393,115$49,664

4. Short-term borrowings and long-term debt
Millions of yen
2006

Short-term borrowings...................... ¥ 306
Current portion of long-term debt ... 2,015
Long-term debt.................................. 3,744¥6,066

Thousands of
U.S. dollars

2005

2006

¥ 233
1,921
3,704
¥5,859$ 2,612
17,15331,872$51,639

Loans from banks due through 2036, interest 1.5% to 4.9%.

5. Contingent liabilities
Contingent liabilities at March 31, 2006 were as follows:
Millions ofyen

Guaranty for bank loan ....................................

¥69

Thousands of
U.S. dollars$590

TAYCA CORPORATION

6. Segment information
Industry segment information
The Companies operate principally in three industrial segments.
Each segment has the following main products:
Titanium dioxide and its derivatives: Titanium dioxide, Micro titanium dioxide, Surface treatment business
Other chemicals:
Surfactants, Sulfuric acid, Aluminum triphosphate
Others:Business warehouses, Electro-ceramics products
Millions of yen

For the year ended March 31, 2006
Sales:
Sales to outside customers .............................................
Inter-segment sales and transfers...................................
Total...............................................................................
Operating expenses ..............................................................
Operating income .................................................................
Identifiable assets at March 31, 2006..................................
Depreciation..........................................................................
Capital expenditures ............................................................

Titanium dioxide
and its derivatives

Otherchemicals

Others¥16,832752
17,585
16,223¥ 1,361¥18,238¥ 1,151¥ 2,849¥ 9,251
3,322
12,574
12,403¥ 170¥ 7,895
¥ 611
¥ 454

¥1,526
1,837
3,363
3,098
¥ 264
¥2,466¥ 126¥ 172

Titanium dioxide
and its derivatives

Otherchemicals¥15,994609
16,604
15,744¥ 860¥16,738¥ 1,017¥ 1,409¥ 8,632
3,044
11,677
11,379¥ 297¥ 7,848¥ 510¥ 1,113

Titanium dioxide
and its derivatives

Otherchemicals$143,291
6,408
149,699
138,108$ 11,590$155,262$ 9,800$ 24,255$ 78,756
28,286
107,043
105,587$ 1,455$ 67,214$ 5,205$ 3,869

Elimination ofinter-segment items

Consolidated
total

¥

—
(5,912)(5,912)(5,883)¥(29)¥11,302¥35¥
18¥27,610—
27,61025,842¥ 1,768¥39,902¥ 1,924¥ 3,495

OthersElimination ofinter-segment items

Consolidated
total¥1,439
1,550
2,990
2,779
¥ 211
¥2,061
¥ 120
¥ 79

¥ —
(5,204)(5,204)(5,199)¥(5)¥8,053¥ 36¥ 92¥26,067—
26,067
24,704¥ 1,363¥34,702¥ 1,684¥ 2,695

OthersElimination ofinter-segment items

Consolidated
total$12,995
15,63928,63526,379$ 2,255$20,994$ 1,075$ 1,470$—(50,334)(50,334)(50,083)$ (251)$96,214
$ 297
$ 161

$235,043—
235,043
219,992$ 15,050$339,686$ 16,379$ 29,756

Millions of yen

For the year ended March 31, 2005
Sales:
Sales to outside customers .............................................
Inter-segment sales and transfers...................................
Total...............................................................................
Operating expenses ..............................................................
Operating income .................................................................
Identifiable assets at March 31, 2005..................................
Depreciation..........................................................................
Capital expenditures ............................................................

Thousands of U.S. dollars

For the year ended March 31, 2006
Sales:
Sales to outside customers .............................................
Inter-segment sales and transfers...................................
Total...............................................................................
Operating expenses ..............................................................
Operating income .................................................................
Identifiable assets at March 31, 2006..................................
Depreciation..........................................................................
Capital expenditures ............................................................

7. Subsequent event
Undisposed deficits at the end of the term under review were disposed
through reversal of general reserve, as approved by the General Meeting of
Shareholders held on June 29, 2006.

Year-end cash dividends paid ...............
Bonus to directors and corporate auditors...

Millions of yen

Thousands of
U.S. dollars

¥250
15

$2,135129

6

R EPORT OF I NDEPENDENT P UBLIC A CCOUNTANTS
To the Board of Directors of
TAYCA CORPORATION
We have audited the accompanying consolidated balance sheets of TAYCA CORPORATION and subsidiaries at March
31, 2006 and 2005, and the related consolidated statements of income, shareholders’ equity and cash flows for theyears ended March 31, 2006 and 2005, all expressed in Japanese yen. These consolidated financial statements are theresponsibility of the Company’s management. Our responsibility is to express our opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with the auditing standards generally accepted in Japan. Those standards
require that we plan and perform 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 audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, theconsolidated financial position of TAYCA CORPORATION and subsidiaries at March 31, 2006 and 2005, and the consolidated results of their operations and their cash flows for the years ended March 31, 2006 and 2005, in conformity
with accounting principles generally accepted in Japan.

Our audits also comprehended the translation of Japanese yen amounts into U.S. dollar amounts and, in our opinion, such translation has been made in conformity with the basis stated in Note 1. Such U.S. dollar amounts arepresented solely for the convenience of readers outside Japan.

Masao Oishi
Certified Public Accountant
Osaka, Japan
June 29, 2006

Wataru Iwata
Certified Public Accountant