Expanding Our Presencein Growing Markets

and Regions
Annual Report

2009Year Ended March 31, 2009

Profile
Taiyo Nippon Sanso Corporation is the fruit of the merger of Nippon Sanso
Corporation and Taiyo Toyo Sanso Co., Ltd., on October 1, 2004. The Company isdrawing on the capabilities of its two predecessors in its drive to become a leading player
in Asia and around the world.
Management Philosophy“Market-driven collaborative innovation: improving the future through gases”
Financial Highlights
Taiyo Nippon Sanso Corporation and Consolidated Subsidiaries
Years ended March 31, 2009 and 2008

Millions of yen
2009
2008

Operating Results
Net sales
Net income¥495,746
16,533¥507,718
21,930Yen
2009

Per share data:
Net income2
Cash dividends

¥

41.21
12.00

2008

¥0054.48
12.00

Millions of yen
2009
2008

Corporate Position
Total assets
Total shareholders’ equity¥534,350
181,037¥547,237
203,696

Thousands of
U.S. dollars1
2009$5,046,788
168,309

U.S. dollars1
2009

$

0.42
0.12

Thousands of
U.S. dollars1
2009$5,439,784
1,842,990

Percentagechange(2.4)%)(24.6))%
Percentagechange(24.4)%)— %)Percentagechange(2.4)%)(11.1))%

Notes: 1. U.S. dollar amounts have been translated, solely for convenience, at the rate of ¥98.23=U.S.$1,
the approximate rate of exchange at March 31, 2009.
2. Net income per share is computed based on the weighted average number of shares ofcommon stock outstanding during each year, as adjusted retroactively for free share
distributions made during the period.

Contents
1
2
4
8
16
18
23
24
27
28
33
48
49

Operational Highlights
To Our Stakeholders
An Interview with the President
Special Feature
Segment Overview
Our Businesses
Board of Directors, Corporate Auditors and Corporate Officers
Management’s Analysis of Operating Results and Financial Position
Six-Year Summary
Consolidated Financial Statements
Notes to Consolidated Financial Statements
Report of Independent Auditors
Investor Information

Disclaimer Regarding Forward-Looking Statements
This annual report contains forward-looking statements regarding the future plans, strategies, activities and performance of Taiyo
Nippon Sanso Corporation. Forward-looking statements reflect management’s assumptions and beliefs based on information available
as of the date of this document‘s publication and inherently involve risks and uncertainties. Actual results may thus differ substantiallyfrom these statements. Risks and uncertainties include, but are not limited to, changes in general economic and specific market
conditions, currency exchange rate fluctuations and evolving trends in demands for the Company’s products and services.

Operational Highlights

Overseas Operations
In fiscal 2009, we made concrete progress in our efforts to implement two of the key
strategies outlined in our new medium-term business plan, launched in fiscal 2008,
namely, to allocate management resources and strengthen our presence in growing markets and regions, and to promote an active merger and acquisition (M&A) strategy. In
March 2009, acting through wholly owned subsidiary Matheson ­Tri-Gas, Inc., in the
United States, we acquired Valley National Gases LLC, the largest independent­distributor of industrial gases and welding supplies in the United States. The purchase ofValley National Gases, which has a strong marketing base in the American northeast, will
enable us to establish a network of industrial gases sales bases across the contiguous UnitedStates, thereby positioning us to dramatically expand our U.S. industrial gases business.
We also look forward to considerable synergies in the areas of production and sales,with Valley National Gases distributing specialty gases and helium provided by
Matheson Tri-Gas. We expect these synergies to support an annual increase in earnings
of approximately $18 million.
For more information,please see pages 12 and 13.

Domestic Operations

For more information,please see pages 10 and 11.

In Japan, we concluded a contract for a joint monosilane production project with
Evonik Degussa Japan Co., Ltd. The project involves the integration of monosilane gas
production, purification, filling and quality management in a new joint venture.
Output from the joint venture will be marketed in Japan and elsewhere in Asia exclusively by the Taiyo Nippon Sanso Group. We currently enjoy a 50% share of theJapanese monosilane gas market. This project will increase our annual production
capacity to approximately 1,000 tons, enabling us to capitalize on an anticipatedincrease in demand for monosilane gas from liquid crystal display (LCD) and solar cell For more information,please see pages 12 and 13.
manufacturers by providing a safe and stable supply.
Owing to rising demand for monosilane in the manufacture of semiconductors,
LCDs and thin-film solar cells, the annual global market for this gas is expected to reachapproximately 4,000 tons in 2011, double the current level. We expect our annual sales
to reach between 600 and 700 tons in fiscal 2013, and will thus proceed with the construction of facilities with the aim of launching full-scale p­ roduction within three years.
For more information,please see pages 10 and 11.

1

To Our Stakeholders

New Medium-Term Management Plan: Year
One in Review
Fiscal 2009, ended March 31, 2009, was the first yearof a newly formulated medium-term business plan.
During the period, the financial crisis that originatedin the United States triggered a global economic
downturn, leading to a sharp deterioration of businessconditions for the Taiyo Nippon Sanso Group’s principal customer industries, particularly from the third
quarter on. Despite operating in a harsh environment,
we steadfastly maintained our commitment to reinforcing our ability to serve customers in the electronics market and to expand our overseas operations.
Preferring to look at the opportunities provided by
the current economic situation and with a sharedsense of urgency, the companies of the Taiyo Nippon
Sanso Group sought to improve earnings andstrengthen the Group’s financial condition by promoting decisive efforts to reduce costs, thereby transforming the Group into a firmer and fitter organization.
At the same time, we radically revised capital investment plans under our new medium-term businessplan—initially set at ¥200 billion—and initiatedmeasures aimed at responding to the changes taking
place in our operating environment.
Taking a look at conditions in principal industries,
the steel industry was hit hard by weak demand forhigh-end steel materials from automobile and­e lectronic appliance manufacturers, prompting a
sharp decline in production volumes that persistedfrom autumn 2008 forward. In the chemicals industry, manufacturers struggled to contend with higher
raw materials prices and diminishing demand forhigh-performance plastics, which forced sharp cutbacks in the production of ethylene. In the electronics­industry, declining demand for digital household electrical appliances and automotive electronics equipment, among others, triggered sharp inventory
adjustments, significant production cutbacks, delayed
capital investments and the integration and reorganization of production facilities, resulting in the closureof some plants.
In the Gas Business segment, demand for gases
declined against a background of falling production
in customer industries, with the exception of ­nitrogen,which continued to benefit from demand for use ineliminating the risk of explosions when operating
rates are low. As a consequence, shipmentsof mainstay oxygen and argon fell 17% and 10%,respectively, from fiscal 2008. In our Plant and Gas
Equipment Business segment, sales of air separation
plants were level with the previous fiscal year, while
the absence of major orders drove down sales of­electronics-related machinery and equipment. In theHousewares Business and Others segment, sales ofmainstay vacuum insulated sports bottles and­insulated mugs were robust. As a result of all thesefactors, consolidated net sales slipped 2.4%, to¥495,746 ­million. Operating income fell 24.8%, to¥29,164 million and net income declined 24.6%, to¥16,533 million.
Becoming a Global Player: Implementing
Structural Reforms Under Our New
Medium-Term Business Plan
While certain areas of the steel and chemicals industries are showing signs of improvement, this is seen asa temporary phase and it is likely to be some time
before we see a real recovery from the economic
downturn that began in the fiscal 2009 second half.
In this environment, we will continue to pushahead boldly with a variety of measures aimed atensuring our place as a major global player in linewith the four strategic themes of our new mediumterm business plan, which are to accelerate growth
and achieve a commensurate increase in income, promote further globalization, implement cost-cutting
measures and strengthen Group management. Given
the uncertain economic outlook, however, we dointend to rethink the numerical goals we have set for
the final year of the plan.
We also recognize the need to implement swift
structural reforms to overcome the difficulties we currently face and secure sufficient earnings. We beganaddressing this task in fiscal 2009. In terms of efforts
in core businesses, which are responsible for the bulkof our earnings, in the Gas Business our focus is onenhancing operating efficiency and rallying Group
strengths to create a solid foundation that will assure
our position as a major global player despite adverse
conditions. We are also endeavoring to ensure future
growth for the Gas Business by focusing on maintaining appropriate sales prices; further improving efficiency; reducing costs; reinforcing management ofreceivables; expanding Gas Business operations­overseas and increasing demand from new sectors.

2

In the Electronics-Related Business, our emphasis
is on expanding into and increasing sales in new
growth markets in Japan and overseas; strengthening
our earnings structure, an initiative that includes­principal affiliated companies; establishing a solid
position as a manufacturer of, and formulating anoverseas business strategy for, key strategic products;
and reinforcing management of receivables.
In the Onsite and Plant Business, efforts are­centered on maintaining plant operating rates andexpanding target markets; achieving an optimum
operating structure that further lowers production
costs for semiconductors; stepping up risk management to guarantee stable supplies; and securing onsite
plant contracts in overseas markets.

ChairmanHiroshi Taguchi

President
Hirosuke Matsueda

categories, namely, security, safety, ­quality assurance
and the environment. We have also created the Risk
Assessment Subcommittee, which is charged with protecting our interests as an inherent part of our corporate culture by identifying, assessing and debating
business risks affecting the Group’s businesses.
Aware of the need to incorporate effective corporate governance and compliance into all aspects ofcorporate activity as the core of a solid foundation forcontinued survival and prosperity, management
pledges to continue reinforcing such efforts. To fulfill
our mission as “the Gas Professionals,” we will continue striving to earn the confidence of customers in key
markets and in doing so to enhance corporate value.
Our forecasts for fiscal 2010 call for consolidated
net sales of ¥450,000 million, operating income of¥27,400 million and net income of ¥13,300 million.
In closing, on behalf of the Board of Directors, wethank stakeholders for their guidance and support todate. We look forward to your continued understanding
and confidence in the years ahead.

Improving Corporate Governance andTaking On New Challenges
In a harsh operating environment, the challenge of­creating an effective and outstanding corporate governance system, thereby enhancing transparency andensuring accountability, takes on increasing importance.
To date we have modified our corporate governance organization by introducing a corporate officer
system to expedite management decision making andby establishing a management team suited to thenature of our businesses that consists of a Board of
Directors, which has 16 members, one of whom is an
outside director, and a Board of Auditors comprisingfour standing corporate auditors, including two­outside auditors.
In terms of financial reporting and compliance,
management is responsible for the entire financial
reporting process, including the preparation of­financial statements and the creation of a system of
related internal controls. The Board of Auditors­oversees the independent auditors. The Board ofAuditors also maintains close contact with the independent auditors to establish the latter’s autonomy
from the Board of Directors, convening to hear the
independent ­a uditors’ annual auditing plans inadvance and to hear the results of audits conducted bythe ­independent auditors.
As a part of our effort to establish an effective internal control framework, we have created the Technology
Risk Management Committee, recognizing the needfor us—as a company engaged primarily in the provision of high-pressure gases—to manage risks in four

June 2009

Hiroshi Taguchi
ChairmanHirosuke Matsueda
President

3

An Interview with the President

The real keys to future
growth are resources, energy
and the environment

Q
A

The core strategy set forth in your new medium-term businessplan is to focus your investment of management resources ingrowing markets and regions. Given the tremendous changes
that occurred in fiscal 2009, the first year of the plan, what are
your thoughts on this now?
In the domestic market, we have seen a pronounced decline in demand across the board
from main customer industries, including electronics, steel, chemicals and automobiles. If
you look at it from a medium- to long-term perspective, however, the real keys to future
growth are resources, energy and the environment. Our portfolio already encompasses solar
cell-, LED- and hydrogen-related materials, but before we can say that we have laid thefoundations for future business development we must take further steps to strengthen thesebusinesses.
Another key strategy we are pursuing is to establish ourselves as an upstream manufacturer of helium and electronics materials gases. To this end, it is vital that we ensure stable supply capabilities and reinforce our competitiveness.

4

Q
A
Q
A

What can you tell us about the other aspect of that strategy, that is,
focusing investment of management resources in growing regions?

In the United States, where the recent financial crisis originates, we recognize that it isunlikely we will be able to avoid the impact of retreating demand. Nevertheless, as indicatedby our purchase of Aeris, Inc., of northern California, sluggish market conditions and astrong yen make this a good time for mid-tier acquisitions. We see more opportunities likethis arising moving forward.
In Asia, the impact of slowing economic growth is evident, but growth remains strong in
China and elsewhere. We intend to further expand the scale of our operations in the region,
and will continue to allocate management resources to this effort, seeing it as an important
prerequisite to future growth.

What steps are you taking to reinforce the foundation of yourglobal operations?

The driving force behind our efforts is our strategy to expand our operations in growing
regions. In addition, we are increasing collaboration with R&D organizations overseas, evidenced during the period under review by the start of joint development projects with IBM of
the United States in next-generation materials gases and process technologies for semiconductors, and IMEC of Belgium in fabrication technology for high-brightness green LED devices.
To facilitate the optimum allocation of personnel, one of our most important management resources, we are concentrating on implementing training programs around the world
for mid- and management-level employees developed to foster globally competent individuals. This reflects our fundamental belief that being a major global player in industrial gases
means being a company in which talented individuals have the opportunity to rise to the topof the executive ladder regardless of nationality. As a major global player, our target market
will be considerably broader than it is today, as will the scope of our operations. Accordingly,
it will be crucial to have executives who are well-versed in business practices and customs in
different countries and regions, who have experience working abroad and a solid record ofachievement.

5

Q
A
Q
A

Expansion of businesses is of course important, but in the­current operating environment—and especially given the­precipitous decline in demand from core customer industries—
stakeholders will also be interested in what you are doing toenhance profitability. What steps are you taking to lower costs?
The entire Taiyo Nippon Sanso Group is accelerating efforts to achieve total cost reductions,
including administrative costs. Just to give you a few examples, we are continuing with aproject designed to increase the efficiency of distribution. We are also working to increase
the efficiency of day-to-day operations at our gas production facilities, lower production
costs, expand local procurement and overseas manufacturing capabilities and step up use of
telecommunications systems, including teleconferencing.
In fiscal 2009, we also upgraded our backbone system, combining and facilitating integrated management of intra-Group sales, purchasing, production, accounting and personnel
systems in an integrated management system. This has greatly enhanced efficiency from theperspective of ensuring the optimal allocation of human resources, physical assets and capital.

Translating stronger Group management into clearly recognizable
increases in corporate value is always a key challenge for­management. What are your views on this at present?
To date, we have focused on enhancing the performance of Group companies by reassessing
their strengths and reorganizing and integrating them with the aim of enhancing coordination. Our ability to overcome the challenges of an operating environment characterized bysharply deteriorating economic conditions depends to a large degree on our own efforts toenhance our efficiency and capabilities, so I prefer to look at the current situation as a good
opportunity for us to accelerate these efforts.
Of course, in a rapidly changing economic environment there is also the danger of getting
too caught up in Group optimization and the need to reduce costs, and as a result losing
sight of the basics of manufacturing, namely, ensuring the safety, reliability and quality ofour products. The road is littered with cases of companies that have fallen into this trap andas a result lost the confidence of customers. The Taiyo Nippon Sanso Group pledges to rally
its strengths and reinforce compliance, thereby earning the trust of the market and increasing corporate value—results that give a solid sense of having reinforced management—asswiftly as possible. We are confident that this will enable us to overcome the current crisisand push forward with efforts to achieve our goal of becoming a major global player.

6Our strategy is toexpand our operations ingrowing regions

Q
A

In closing, can you tell us about your efforts
to address­environmental issues—an important factor in increasing brand value?

We are engaged in a variety of efforts aimed at addressing the issue of global warming. In
particular, we have taken steps to reduce energy consumed at gas manufacturing plants andinstalled load indicators (LIs) in our tanker trucks to reduce energy consumed in logistics.
Among our various operations, the most energy intensive is the production of industrial
gases, such as oxygen, nitrogen and argon, which use a significant amount of electric power.
CO2 emissions from these operations account for 98% of total CO 2 emissions for theGroup. We have established the Energy Conservation Subcommittee, a subset of ourEnvironment Committee, the purpose of which is to reduce energy use per unit of production at our gas manufacturing plants (lower volume of electric power used, higher volume ofgases produced).
With the aim of reducing energy consumption in logistics, we have installed liquefied gas
LIs in approximately 90% of our tanker trucks in a bid to improve the efficiency of logistics
practices. Eventually, we plan to install LIs in all of our tanker trucks not only to reduce distances traveled and fuel consumed, but also to facilitate energy-efficient driving, multidrop
deliveries and other environment-friendly practices.

7

Special Feature

Rising to the Challenge:

Expanding Our
Presence in
Growing Markets
and Regions
With the aim of establishing itself as an Asian-born major player in the global
industrial gases industry, Taiyo Nippon Sanso continues to address new challenges
as it embarks upon the second year of its new medium-term business plan.
The central strategy of our new medium-term business plan is to focus allocation of management resources in growing markets and regions. The major
growth market we are targeting is electronics, and principal growth regions
include the United States and Asia. In this year’s special feature, we take a lookat our progress to date and our outlook for fiscal 2010.

Three Core Strategies of Our New
Medium-Term Business Plan
(Fiscal 2009–Fiscal 2011)• Focus allocation of management resources in growing markets and regions• Expand upstream businesses• Promote an ambitious M&A strategy

8Theme 1
Focus allocation of management resources in growing markets:

Electronics• Noteworthy electronics industry trends• Accelerating efforts to expand electronics-related businesses• Strengths in compound semiconductor fabrication equipment business• R&D aimed at differentiating products and services• Expanding our business foundation to support future growth

Theme 2Focus allocation of management resources in growing markets:

Advancing our U.S. industrial gases business• Our U.S. industrial gases business today• Our history in the U.S. industrial gases market• Market position and key achievements• Reinforcing our business foundation in the promising U.S. market

Theme 3Focus allocation of management resources in growing markets:

China and Asia

• Position of our Chinese industrial gases business• Our history in China’s industrial gases market• Efforts to respond to customer needs in the Korean market• Efforts to respond to customer needs in the Taiwanese market• Operations in Southeast Asia (Singapore, Malaysia, the Philippines)• Industrial gases market potential in other parts of Asia

9

Theme 1
Focus allocation of management resources in growing markets:

Electronics

Noteworthy electronics industry trends• Advances in integration bode well for semiconductor demand, while for LCDs the trend toward ever-bigger
panels offers promise.
• Global initiatives aimed at conserving energy and addressing environmental issues are expected to further bolster
demand for solar cell- and LED-related materials.
• Demand continues to rise for monosilane gas, a specialty gas used in the manufacture of thin-film solar cells (theglobal market for monosilane gas is estimated at approximately 2,000 tons).

Global Outlook for Monosilane Gas (by Application)(Thousands of tons)(Billions of yen)

7

140

6

120

5

100

4

80

3

60

2

40

1

20

0

2006

2007

Left axis (Shipments)
Semiconductors
LCs
Solar cells
Photoreceptor drums

2008

2009

2010

Right axis (Sales)
Semiconductors
LCs
Solar cells
Photoreceptor drums
Total global sales

2011

2012

2013

0

(Calendar year)

Source: “Market Outlook for Monosilane Gas for Use inElectronics Process Materials and Products in 2008,”
Fuji-Keizai Group

Accelerating efforts to expand electronics-related businesses• We continue to promote the focused allocation of investments in the United States, east Asia and Southeast Asia,and to accelerate efforts to secure a solid position in the market for electronics materials-related gases.
Additionally, we will expand our production capacity for specialty gases to ensure stable supply capabilities.
• We are developing a comprehensive lineup encompassing specialty gases, metal organic chemical vapor deposition(MOCVD) equipment, devices, compact nitrogen generators, safe delivery sources (SDSs) and waste gas­processing equipment, thereby enabling us to offer comprehensive solutions.
• We are reinforcing our supply capabilities for monosilane gas, demand for which is expected to grow for
applications in thin-film transistors (TFTs), key process materials in chemical vapor deposition (CVD).
• Taiyo Nippon Sanso’s sales of specialty gases for use in solar cells were approximately 230 tons in fiscal 2009. In
fiscal 2012, we will launch production of these promising gases, thereby positioning us to take advantage of
expanding demand.

Strengths in compound semiconductor manufacturing equipment business• Trends in the market for compound semiconductors
Rising demand for LCD backlights, white LEDs for ordinary lighting and semiconductor lasers, among others,
are spurring interest in large-scale mass production equipment.
Demand is particularly strong for use in electronic devices, notably LED backlights, which have replaced cold
cathode tube backlights.

10Efforts to Reinforce Compound Semiconductor
Manufacturing Equipment Business

Global Market for MOCVD Equipmentin 2006: Approximately ¥25 billion
Others 7%
TAIYO NIPPON SANSO 15%
U.S. company 19%

Acquired MOCVD equipment
business of competitors.

German company 59%

Enhanced product lineup

Share of domestic market:
80%–90%Source: MLSI materials for 2006

• Competitive advantages of our MOCVD equipment
Thanks to our outstanding gas supply technologies, our MOCVD equipment enables precise control over
CVD and pressure.
This equipment facilitates epitaxial growth not only in decompressed, but also in high-pressure, ambientenvironments.

R&D aimed at differentiating products and services• In October 2008, we commenced joint R&D with
Global Outlook for LEDs

Interuniversitair Micro-Electronica Centrum vzw (IMEC)
in the area of manufacturing (film fabrication) technology
for high-efficiency LED devices. Realization of this goal
will enhance the precision of our MOCVD equipment.
• We are also promoting the development of MOCVD
equipment with 2–3 times the processing speed andoutstanding throughput of existing models (in the area ofcompound semiconductors, we are focusing on the
fabrication of blue LEDs, white LEDs and gallium nitride(GaN) devices using purple lasers).
• In the area of cutting-edge semiconductor processdevelopment, in April 2008 we signed an agreement with
International Business Machines Corporation (IBM) todevelop next-generation semiconductor materials andprocess technologies for 32 nm node devices and later
DRAMs, while in October we initiated a project with
Albany NanoTech Center, at the University of Albany in
the United States.

Increase in demandfor LEDs

Anticipated increase in demandfor MOCVD equipment(Billions of yen)

2,000
1,800

General lighting
applications

Further market
growth

1,600
1,200
1,000
800
600

LED lighting

Interior: Offices, homes;
Exterior: Roads, tunnels,
sports facilities

1,400

Interior: Commercial
facilities (base lighting);
Exterior: Sidewalks,
parks, squares
Interior: Retailpremises (spotlights);
Exterior: Landscape,signage

4000Backlights forlarge LCDs

Streetlights

Backlights for small
and medium-sized
LCDs, vehicle
interior lighting

2007

2010

Special lighting
applications

2015

2020

(Calendar year)

Expanding our business foundation to support future growth• At Sakai Gas Center Co., Ltd.—established in November 2007 as part of a “21st Century Industrial Complex” inthe city of Sakai, in Osaka—we are currently constructing core gas production and supply facilities for a new
LCD panel plant slated to open in the complex in October 2009.
• We recently launched a joint monosilane production project with Evonik Degussa Japan Co., Ltd., an affiliate ofEvonik Industries AG of Germany. Production is scheduled to get underway in early 2011, with annual
production capacity of 1,000 tons. Output from the project will enable us to expand monosilane gas sales inJapan and elsewhere in Asia.
• In June 2008, subsidiaries NS Engineering Corporation and Saan Engineering Corporation were merged under
the name Taiyo Nippon Sanso Engineering Corporation. The new company has taken over its predecessors’
semiconductor-related engineering operations, including gas equipment sales, installation and maintenance. The
aims of this integration include enhancing the efficiency and competitiveness of our semiconductor equipment
and engineering business, facilitating the effective allocation of management resources, leveraging synergies,
rallying technological and engineering capabilities, and enhancing product quality and safety assurance, as well as
cost reductions.
• In the area of specialty gases, in 2009 subsidiary Matheson Tri-Gas commenced production of hydrogen selenide(H2Se) for use in copper indium gallium selenide (CIGS) solar cells, for which demand is expected to increase.

11

Theme 2
Focus allocation of management resources in growing markets:

Advancing our U.S. industrial gases business
Our U.S. industrial gases business today• The United States is the world’s largest consumer of industrial gases; growth in the U.S. market is essential for us
in our bid to become a major global player. We have thus positioned the United States as one of our mostimportant markets.
• In line with our current medium-term business plan, which came into effect in April 2008, we are seeking out
promising M&A opportunities in the United States with the aim of acquiring capable regional distributors,
thereby reinforcing our supply capabilities.
• We have established a production and sales network that essentially covers the entire United States.

Our history in the U.S. industrial gases market• We have viewed the United States as a promising market for our industrial gases business, which comprised
general-purpose and specialty gases, since establishing Japan Oxygen Co. Ltd. in 1980.
• In 1999, we merged industrial gas manufacturer subsidiaries Matheson Gas Products Inc. and Tri-gas Inc., tocreate New Jersey-based Matheson Tri-Gas, Inc. Since then, we have continued to reinforce our U.S. operations
as the Taiyo Nippon Sanso Group by conducting our ambitious U.S. M&A strategy through Matheson Tri-Gas.
• We have expanded our presence in the U.S. market through strategic M&A deals that have seen us acquirecapable industrial gas distributors in the central-southeast, western and Pacific regions.

Market position and key achievements• In March 2009, we acquired Valley National Gases LLC, the largest independent distributor of industrial gases in
the United States, through Matheson Tri-Gas.
• This latest acquisition has given us a marketing base in the northeastern United States.
• We will expand Valley National Gases’ business domain to encompass the integrated production and sale ofgeneral-purpose industrial gases by building an ASU at the company’s site.
• Matheson Tri-Gas spearheaded the acquisition of Five Star Gas & Gear, Inc., which enjoys a strong marketingbase in southern California, in March 2008,
and Aeris, Inc., the largest distributor ofindustrial gases in northern California, in
October 2008.
• In September 2008, we commenced operationof a helium filling station in southern
California. This began with the purchase in2006 of the helium business of the former
BOC Group plc of the United Kingdom.
• In spring 2011, we plan to begin productionof helium at a joint venture with a U.S. firm.
Global demand for helium is centered in the
United States, Europe and Asia and is expected
to increase for electronics applications in all
three markets.

12Impact of Valley National Gases Acquisition on U.S. Business Development

New ASUs
ASUs in 2008
New ASUs established in 2009
Original Matheson Tri-Gas markets (2008)
New Matheson Tri-Gas markets obtained
through acquisition of Valley National Gases LLC

Reinforcing our business foundation in the promising U.S. market• We will continue expanding our R&D, production and sales activities in the U.S. market, and to use our U.S.
business foundation as a springboard from which to accelerate efforts to cultivate operations in other markets
around the world, in line with our goal of transforming the Taiyo Nippon Sanso Group into a major global
player.
• Expansion efforts will encompass general-purpose industrial and specialty gases and helium. These efforts will
focus on optimizing our global production network, including related facilities, seeking higher levels of efficiency
and realizing synergies with other businesses.
• Against a background of rising demand for specialty gases for the electronics industry, we will launch full-scale
production of H2Se for use in CIGS solar cells.
• With the aim of accelerating decision making, we will introduce a teleconferencing system to link key bases inJapan with those overseas, including Matheson Tri-Gas’s five bases.

13

Theme 3
Focus allocation of management resources in growing markets:

China and Asia

• As the center of the global electronics industry, Asia has emerged as a particularly promising growth market for
the industrial gases sector. To take advantage of opportunities in this market, we are stepping up efforts to ensurea stable supply of products by securing sales channels, as well as by establishing new production bases andexpanding facilities.
• With the number of manufacturers of solar cells entering the market expected to increase, demand formonosilane gas, a specialty gas, is expected to grow markedly in Asia.
• Moving forward, we will continue to actively foster the expansion of our operations in China and other parts ofeast Asia, as well as in Southeast Asia, including Singapore, Malaysia and the Philippines.

Position of our Chinese industrial gases business• In June 2008, we established Dalian Changxing Island Taiyo Nippon Sanso Gas Co., Ltd., to supply industrial
gases to the Dalian Changxing Island Harbor Industrial Zone, which will primarily house shipbuilding andrelated firms. A large-scale air separation facility with a capacity of 8,000 m3/h, which is scheduled to come online in 2010, is currently under construction.
• In May 2008, we acquired monosilane gas filling company Yangzhou Zhongyuan Semiconductor Gas Co. Ltd.,
which began operations the following month under the name Yangzhou Taiyo Nippon Sanso Semiconductor Gas
Co., Ltd.

Our history in the Chinese industrial gases market• We first set up operations in the Chinese market in 1993 with the establishment of industrial gases
manufacturing and sales company Dalian Nippon Sanso Gas Co., Ltd., which was renamed Dalian Taiyo Nippon
Sanso Gas Co., Ltd., in May 2005. Since then, we have actively expanded our presence to capitalize on growth in
the promising Chinese market.
• Having received an order to supply industrial gases to an LCD manufacturer in Shanghai in May 2003 weestablished Shanghai Taiyo Nippon Sanso Gas Co., Ltd., to supply industrial gases. The following May, Shanghai
Taiyo Nippon Sanso Gas began supplying industrial gases by pipeline and in October 2004 brought its main
plant on line and began to offer bulk gas services.

Efforts to respond to customer needs in the Korean market• Looking to capitalize on expected growth in demand for specialty gases from semiconductor, LED and solar cellmanufacturers, in September 2006 we built a new industrial gases production facility focusing on specialty gases
at an industrial estate in Asan.
• In June 2007, we established SKC Airgas Inc., in a joint venture with Korean conglomerate SKC.

Efforts to respond to customer needs in the Taiwanese market• Taiyo Nippon Sanso Taiwan, Inc., is currently ranked No. 2 in the Taiwanese specialty gases market. The
company is pushing forward with our business into foundry, Dram, Lcd markets, in Taiwan furthermore by using
our industrial gas supply technologies to meet the relevant needs of customers.

14

Operations in Southeast Asia (Singapore, Malaysia, the Philippines)• Singapore industrial gases affiliate National Oxygen Pte. Ltd. (NOX) is currently expanding its storage and filling
facilities for specialty gases for use in semiconductor fabrication.
• In 2008, acting through NOX’s wholly owned Malaysian subsidiary Nippon Oxygen Sdn. Bhd., we built a new
onsite plant in the state of Terengganu to supply industrial gases to steelmakers and petrochemicals
manufacturers.
• In the Philippines, we have continuously invested in our local operations for many years and in 2008 increased
our production capacity by, among others, expanding our industrial gases production facility. As this indicates,
we expect demand for industrial gases to remain firm in the Philippines for the foreseeable future.

Production Capacity for Liquefied Gases (Oxygen, Nitrogen and Argon)
in Fiscal 2009 (Estimate)

China
15,500m3/h
Vietnam
3,500m3/h
Thailand
33,600m3/h
Singapore
17,100m3/h

Japan
168,500m3/h
USA157,000m3/h
Capacity (m3/h) Share of total (%)

the Philippines
19,300m3/h

Japan
North America
Rest of Asia
Total

168,500
157,000
90,000415,500

40.5%
37.8%
21.7%
100.0%

Industrial gases market potential in other parts of Asia
• With demand for industrial gases expected to increase in the years ahead, Vietnam and Thailand are particularly
promising markets.
• In Vietnam, we responded to the launch of several major steel and petrochemicals projects by expanding ourindustrial gases production facility and endeavored to consolidate our operating foundation in the north of thecountry, recently a favored destination for investments.
• Political unrest prompted a temporary lull in investment in Thailand, but the situation has improved and we arepreparing to resume.
• Owing to the global financial crisis that began in the United States, growth in the markets for industrial gases inother parts of Asia has been generally sluggish in recent months. Demand from the electronics industry,
particularly for specialty gases, remains on an uptrend, however, and is expected to sustain steady growth.

15

Segment Overview

Gas BusinessIn fiscal 2009, shipments and sales of mainstay oxygen and argon were down from theprevious period. The decline occurred despite robust results in Japan and overseas in
the first half, including the positive impact of M&A activities, and was due largely toa steep decline in demand in the second half as the financial and economic crises
sweeping world markets spread into a global economic downturn. The drop in domestic
demand was particularly abrupt and reflected production cuts by customers in thewake of inventory adjustments.
The decline in shipments and sales of oxygen reflected a sharp drop in demand frommajor customer industries, including steel and chemicals. Shipments and sales of­nitrogen were level with the previous fiscal year, as demand remained firm, particularly
from the chemicals and electronics industries, where applications include ensuring
product safety, purging and enhancing product quality. Shipments and sales of argonfell, reflecting plummeting demand for stainless steel smelting and welding applications, as well as for use in production of silicon crystals, among others.
Owing to these and other factors, sales to outside customers in the Gas Businesssegment slipped 2.5%, to ¥329,813 million, and operating income declined 27.5%, to¥22,449 million.

Plant and Gas Equipment BusinessDespite favorable gains in orders for major projects in the domestic market, sales ofelectronics-related equipment fell substantially below the fiscal 2008 level. This trend
reflected the sharp deterioration of economic conditions in the second half, which
pushed down demand both in Japan and overseas from manufacturers of digital household electronic appliances and of the semiconductors and liquid crystals used therein.
Sales of compound semiconductor fabrication equipment remained firm, although­demand from manufacturers of white light-emitting diodes (LEDs) used in LCD backlights
and standard lighting equipment—seen as a growth market—flagged. Inquiries regarding this equipment for major mass-production applications have since picked up again,
however, and expectations remain high that orders will increase once the economy hasbottomed out.
As a consequence, sales to outside customers in the Plant and Gas Equipment
Business segment dipped 2.8%, to ¥147,445 million, while operating income rose
11.4%, to ¥11,587 million.

Housewares Business and Others
Thermos K.K. spearheads the manufacture and sale of housewares. In fiscal 2009,
sales of these products were up from the previous fiscal year, reflecting brisk sales of
new products and firm shipments of mainstay vacuum insulated sports bottles,­personal-sized insulated mugs and thermal cookers.
As a result of such factors, the Housewares Business and Others segment reported a
4.7% increase in sales, to ¥18,488 million. Segment operating income rose 15.5%, to¥2,232 million.

Segment Sales as
Net Sales per
Segment Sales
Net Sales per
Percentage
of as
Employee
Percentage ofNet Sales Employee
Consolidated
Consolidated
Net SalesYear
ended March
31
Years ended March 31
Year ended March 31
Years ended March 31¥329,813 million(Millions of yen)¥329,813 million(Millions of yen)
90
90
60
60
66.5%
66.5%

30
30
0
0

2008
2008

2009
2009

Net Sales per
Segment Sales as
Net
Sales perSegment
Sales
Employee
Percentage
of asPercentageofConsolidated Net Sales Employee
Consolidated
Net Sales
Years ended March 31
Year ended March
31
Years ended March 31
Year ended March 31¥147,445
million(Millions of yen)¥147,445 million(Millions of yen)
60
60

29.7%
29.7%

40
40
20
20
0
0

2008
2008

2009
2009

Segment Sales as
Net Sales per
Segment Sales
Net Sales per
Percentage
of as
Employee
Percentage ofNet Sales Employee
Consolidated
Consolidated
Net SalesYear
ended March
31
Years ended March 31
Year ended March 31
Years ended March 31¥18,488 million(Millions of yen)
¥18,488 million(Millions of yen)
12
12
3.7%
3.7%

8
8
4
4
0
0

Note: Taiyo Nippon Sanso had a total of 8,471 employees. Of these, 528 employees in administrative and technical departments thatare not assigned to a specific segment are not included in the calculations for sales per employee in each segment.

16

2008
2008

2009
2009

Main Products• Oxygen• Nitrogen• Argon• Medical gases• Specialty gases• Electronic materials gases• Stable isotopes

R&D Highlights• Commenced production of hydrogen
selenide, used in compound solar cells• Launched four-year joint program withIBM to develop next-generation­semiconductor materials, including­materials gases, and semiconductor
process technologies

Topics• Reinforced electronic materials gases business• Increased investments in Asia
• Completed Kawaguchi Sogo Gas Center, Japan’slargest gas filling plant• Acquired Valley National Gases LLC, the largest
independent distributor of industrial gases in the
United States, thereby facilitating expansion ofoperations across the country

Main Products• Large-scale air separation plants• Compact nitrogen generators• High-purity gas production equipment• Exhaust gas processing equipment• Metal organic vapor deposition (MOCVD) equipment• Cutting and welding equipment
Topics• Sought to cultivate new markets in the semiconductor
fabrication field by focusing on usefulness of
products in responding to environmental concerns• In the area of electronics, promoted investment in
new production facility-related project with our
major customer• Entered alliance with Koike Sanso Kogyo Co., Ltd.,
with the aim of establishing a development andproduction joint venture in the area of cutting andwelding equipment• Proceeded with construction of large-scale air
separation plant in China’s Dalian Changxing Island
Harbor Industrial Zone with the aim of commencing
production of industrial gases by the end of 2009
Main Products• Stainless steel vacuum bottles• Cooking implements• Professional-use cooking implements
Topics• Introduced five new designs to its lineup of highly
popular insulated, vacuum sports bottles• Launched two new insulated lunchboxes forJapanese-style boxed lunches with outstanding
thermal-insulating properties• Unveiled two new ultralight, compact models in the
Keitai Mug line of insulated mugs
• Introduced two insulated shopping bags with highcold-insulating properties

R&D Highlights• Endeavored to materialize a large-sized­refrigeration unit using neon as refrigerant• Developed and successfully completed
performance tests for new biogas
concentrator developed jointly with Japan’s
Research Institute of Innovative Technology
for the Earth (RITE), commercialization ofwhich is slated for fiscal 2010
• Commenced joint development ofhigh-brightness green LED device withIMEC of Belgium

R&D Highlight• Continued to capitalize on proprietary
thermal insulation and metal processing
technologies to develop innovative
products

17
17

Our Businesses

Electronics-Related BusinessIn constructing special piping, we draw
Amidst advances in device integration and the use ofon our industrial gas supply technologies tothin films in semiconductors and the increasing size offacilitate the installation of environmentLCD panels, and with rising demand for photovoltaic
friendly gas purification and abatement syspower generation as a viable alternative energy andtems in optimal locations. We also provide remote
LEDs to reduce energy consumption, electronicsmonitoring of safety levels and design alarm systems as
related firms face growing pressure to achieve higher
part of our broad range of solutions for semiconductor
quality and production effiSales ofSalesof Nippon Sanso Salesandof LDC manufacturing
Sales
of
Sales ofprocesses.
ciency.
Taiyo
Electronics-Related
Gas Business
Onsite and Plant
Medical-Related
LP Gas Business
We operate in JapanBusinessand around the world as a parthelps such firms by supply- BusinessBusiness
Years ended March 31
March 31
31
Years ended March 31
nerMarch
to electronics
manufacturers.
We produce andYears
sellended March 31
ing,Years
viaendedpipeline,high-purity Years ended
Billions of yen
Billions of yen
Billions of yen
Billions of yen
Billions of yen
high-purity
industrial gases, electronic materials gases
nitrogen, an inert gas that is
70
50
16
50
250
70
160
231
64 and electronics-related equipment to customers in the45
essential
to 229semiconductor
141
13.8
13.7
134
60
40
United States, Taiwan, China, Singapore
and thedevice, LCD and200
other
12
120
50
Philippines.
manufacturing processes.
30
150
40
We
also
deliverstablesup8
80
30
plies of electronic materials
20
100
20
gases used in film deposition
4
40
10
50
10
and other processes.
0

0
2008

2009

2008

2009

0

0
2008

2009

2008

2009

2009

Fiscal 2009 sales

Approximately ¥134,100 million

Principal products andoperations

High-purity nitrogen and argon
Electronic materials gases, including Safe Delivery Source (SDS)
MOCVD equipment
Gas purification, abatement and other systems
High-purity gas supply facility installation and construction

Market needs

Comprehensive gas supplies
Total gas and equipment solutions

Competitive advantages

Strong ties with domestic electronics manufacturers•• Close relationships with users who employ advanced technologies•• Superior marketing strength through the provision of total solutions for gas andequipment•• Comprehensive, world-class technologies•• Engineering operations and gas center network•• Supply structure covering key world markets—Japan, East Asia (South Korea, China
and Taiwan), Southeast Asia, the United States and Europe

Fiscal 2009 highlights•• Commenced joint development of next-generation semiconductor process
technologies with IBM•• Released UR25K, a state-of-the-art large-scale MOCVD system•• Commenced joint development of manufacturing technology for high-brightness
green LED device with IMEC, a Belgian research organization specializing in next-­
generation chemical compound semiconductor technologies•• Launched joint monosilane production project with Evonik Degussa Japan Co., Ltd.
•• Reinforced semiconductor specialty gases supply capabilities of Nippon Oxygen Sdn
Bhd, a subsidiary of our subsidiary National Oxygen Pte Ltd.

18

2011
(Target)0Gas Business

Sales ofElectronics-Related
Business
Years ended March 31
Billions of yen
160
141

134
120

80

40

0
2008

2009

Drawing on these capabilities, we provide a diverse
Taiyo Nippon Sanso supplies oxygen, nitrogen, argon
range of equipment for the manufacture, supply,
and a host of other industrial gases that aretransport and storage of various types of gases. In
indispensable to advanced production activities ofthese ways, we help industrial customers enhancemodern industry, including cutting, welding,their productivity and quality while supporting efforts
combusting, melting,Sales of
Sales ofof improve the environment.
Sales of
In addition tochilling
and freezing. We Salesto
Gas Business
Onsite and Plant
Medical-Related
LP Gas Businessmaintaining
thelargestindustrial
gas
supply network
supply
these
gases
in
safe
Business
Business
Years ended March 31
31 we are expanding
Years endedour
Marchmanufacturing31
in MarchJapan,
andf o rYearsm sended, i Marchn c l u31d i n g v i a Years ended
Billions of yen
Billions of yen
Billions of yen
Billions of yen
supply bases in the UnitedStates as well as in China
pipeline, tanker
truck and
70
50
16
50
250
70
231
229
64
and other parts of Asia.
cylinder.
45
13.8
13.7
60
We have built a strong
40
200
12
technological base50over30
150m a n y y e a r s , g a i40n i n g
8particular expertise in30 low20
100
temperature, high-pressure,
20
4
10
50
separation, vacuum
10 andgas control technologies.
0
0
0
0
2008

2009

2008

2009

2008

2009

2009

2011
(Target)Fiscal 2009 sales

Approximately ¥228,800 million

Principal products andoperations

Oxygen, nitrogen, argon, carbon dioxide, hydrogen, helium and other industrial gases
Gas supply (filling, transport, storage) equipment, facilities installation and construction
Gas equipment (including for cutting, welding, combustion and freezing)

Market needs

Use of gases to raise productivity, enhance quality, save energy and enhance theenvironment
Optimal, stable, economic supply of gases

Competitive advantages

Japan’s largest and strongest industrial gas producer, offering increased cost advantages
and price competitiveness•• Production and sales capabilities
Balanced, nationwide network of production bases
Liquid gas production capacity equivalent to 30% of the domestic market•• Logistics capabilities
Approximately 500 filling stations capable of serving approximately 40% of thedomestic market
Tanker truck fleet and extensive network of shipping bases
Growing marketing network, including around 250 sales agents
Further strengthening of operations in China and other parts of Asia, as well as in the
United States•• Currently involved in project to manufacture industrial gases in China’s Dalian Chanxing
Island Harbor Industrial Zone•• Established unassailable market positions in the Philippines, Vietnam and Singapore•• Promoting M&A activities and construction of gas production facilities in the UnitedStatesHigh market shares for other industrial gases•• In Japan, number 1 in carbon dioxide, number 1 in helium and number 2 in acetylene

Fiscal 2009 highlights•• Acquired Valley National Gases LLC, the largest independent distributor of industrial
gases in the United States•• Acquired Aeris, Inc., the largest gas manufacturer in northern California•• Completed Kawaguchi Sogo Gas Center, Japan’s largest gas filling plant19

Onsite and Plant Businesss ofBusinessnded March 31
of yen
229

250
200
150

In the onsite business, Taiyo Nippon Sanso constructs
large cryogenic air separation plants on the premises ofmajor industrial gas users, notably steel mills andchemical complexes. The largest of our plants can produce up to 65,000 Nm3 of gas per hour. We also provide stable supplies of oxygen and nitrogen throughour pipelines. Our onsite
Sales of
Salesoperatesofbusinessaround theOnsite and Plant
Medical-Relatedclock
every day of the year,
Business
Business
Years ended March 31
Years ended March 31
ensuring
consistent supplies
Billions of yen
Billions of yenof large volumes of indus70
167064
trial 13.8
gases andearning us the
13.7
60
trust of steelmakers12 and50
chemical manufacturers.
40
8
30

100

20
50

4

10

10

0
2009

In our plant business, we build a wide range of air
separation plants, which form the foundation of theindustrial gases business. We draw on our expertise inindustrial gas production and supply not only to serve
industrial gas producers but also to build a strong trackrecord in manufacturing air separation plants, many ofwhich we export around the globe. In addition, we
Salessupplyofmany different types of experimental equipLP Gas Business
ment, including space simulation
Years ended March 31
chambers, which replicate the condiBillions of yen
50 tions of outer space. We also supply50
e q u45i p m e n t f o r
e x p l o r i n g b40a s i cphysics and discov30
ering new functional materials.
20

0

0
2008

2009

2008

2009

2009

2011
(Target)0Fiscal 2009 sales

Approximately ¥70,100 million

Principal operations

Onsite: Supplies of oxygen, nitrogen, argon and other gases by pipeline
Plant: Cryogenic air separation plants, pressure swing adsorption (PSA) air separation
plants/cryogenic vacuum equipment and other chemical equipment

Market needs

Onsite: Large, stable supply systems
Plant: Production and installation of high-performance facilities

Competitive advantages

With onsite and plant businesses, Taiyo Nippon Sanso can provide support for both plants
and engineering on a global scale, drawing on its capabilities as a manufacturer ofindustrial gases•• Ability to optimize facilities and operating efficiency

Fiscal 2009 highlights•• Completing two air separation plants with capacity of 18,000 m per hour in the American
states of Iowa and Texas, both of which will go into operation by the end of 20093•• Completing air separation plant with capacity of 8,000 m per hour in China’s Dalian
Chanxing Island Harbor Industrial Zone•• Focused on securing new demand for gases and expanding sales in overseas markets;
endeavored to expand scale by reducing plant costs per unit of production

320

Medical-Related Business

Sales of
Onsite and Plant
Business
Years ended March 31
Billions of yen
70
64

70
60
50

Applying our advanced gas-related
technologies, we also make and sell
stable isotopes for advanced diagnostics
and treatment, as well as specialty gases.

We build special filling facilities for medical gases
within our industrial gas production and sales­networks to ensure stable supplies of medical oxygenand other high-quality gases used by medical­i nstitutions. We help improve the safety and­reliability of medical treatment by developing pure air
supply systems and other
Sales of
Salessupportofmedicalequipment,
Medical-Related
LP Gas Businessas well as devices for home
Business
Years ended March 31
Years ended
March 31 (HOT),
oxygentherapy
Billions of yen
Billions of yen
and throughsuch services
50
16
50
as
regularinspection
of
45
13.8
13.7
equipment and operationof40
12
remote monitoring systems.
30

40
8
30

20

20

4

10

10
0

0
2008

2009

2008

2009

2009

2011
(Target)0Fiscal 2009 sales

Approximately ¥13,700 million

Principal products

Medical-related oxygen and other gases
Synthesized (pure) air supply facilities, portable oxygen cylinders and medical-use oxygen
compressors
Stable isotopes

Market needs

Quality control and assurance for medical-use gases
Mass production and ongoing supply of stable isotopes used in cancer diagnostic agents

Competitive advantages

Production and sale of pharmaceutical ingredients for positron emission tomography (PET)
diagnostics•• Strong position as manufacturer of Water–180, a pharmaceutical ingredient for reagentsused in PET diagnostics, with a 70% domestic market share•• Have commenced shipments of world-class pharmaceutical ingredients to leading
manufacturers of fluorodeoxyglucose (FDG) PET reagents in Europe and the United States
Reliable systems for manufacture and sale of pharmaceutical products•• Continue to gather safety information and data

Fiscal 2009 highlights•• Established T-I Medical Co., Ltd., with the aim of strengthening home health carebusiness in the Kansai area•• Brought TN-Medical Inc. and SEEDVEST Co., Ltd., into the Group; began offering
installation and inspection and maintenance services for gas piping in hospitals•• Commenced sterilizing services together with Konoike Medical Co., Ltd.
•• Expanded sales of stable isotopes and sought out M&A opportunities with the aim ofstrengthening medical gas and equipment businesses•• Developed Cryolibrary, a cryopreservation system for bioresources with automaticstorage/retrieval function

21

LP Gas Businesss ofical-Related
nessnded March 31
of yen

16
13.7
12

8

4

0
2009

With residential-use fuel cells expected to achieve
increased market penetration, LP gas—which is used tofuel cells—is attracting increasing attention as an­environment-friendly energy.

LP gas is highly valued as a clean energy source, withapplications ranging from industrial to home power
generation. An environment-friendly alternative tochlorofluorocarbons, LP gas is also used as an aerosol
gas and as fuel for taxi fleets.
Taiyo Nippon Sanso wholesales LP gas to plants andfor other industrial applicaSales oftions, supplies taxi fueling
LP Gas Businessstations and a wide range ofYears ended March 31
customers, from restaurants
Billions of yen
and other commercial users
50
50
45
to residential users. Our
40
energy business also sells LP
gas for household use to30
96,000 homes throughout
Japan through direct sales
20
outlets.
10

2009

2011
(Target)0Fiscal 2009 sales

Approximately ¥45,100 million

Principal products andoperations

Propane, butane and other liquid gases
Related equipment and devices (air conditioners, hot water heaters)
Construction of LP gas supply facilities, air-conditioning facilities

Market needs

Stable supply of LP gas to 25 million households in areas not served by town gas services

Competitive advantages

400,000-ton LP gas supply capacity nationwide (ranked seventh in Japan)

Fiscal 2009 highlights•• Subsidiary Saan Gas Co., Ltd., introduced raw materials price adjustment system,
enhancing transparency of pricing to customers•• Integrated sales companies in the Kanto region•• Strove to achieve goal of 100,000 direct sales outlets through M&As and other initiatives

22

Board of Directors, Corporate Auditors and Corporate Officers

Board of Directors

Corporate Auditors

ChairmanHiroshi Taguchi

Shigeto Umatani
Kiyoshi Fujita
Keiichi Kiyota *2
Shigeru Koyama *2

President
Hirosuke Matsueda

Corporate Officers
Executive Vice President
Yasunobu Kawaguchi
Executive Director/Advisor
Konosuke Ose
Senior Managing Directors
Ken-ichiro Ebisawa
Fumio Hara
Toyoo Go
Masashi Yamashita
Ken-ichi Kasuya

Corporate Executive
Officers
Yoshikazu Yamano
Masayuki Tanino
Yujiro Ichihara
Shigeru Amada
Hiroshi Katsumata
Kinji Mizunoe
Masanori Zaima
Shin-ichiro Hiramine
Akihiko Umekawa

Managing Directors
Toshio Sato
Akira Ito
Shinji Tanabe
Kunishi Hazama
Tadashige Maruyama

Corporate Officers
Masakazu Naruo
Akira Nishimoto
Keiki Ariga
Masahiro Imagawa
Tetsuya Nakayama
Masami Sakaguchi
Yoichi Washizu
Susumu Naka
Yoshihide Kenmochi
Yuki Hajikano
Shigenobu Somaya
Jun Ishikawa
Takashi Tatsumi
Masahiro Sakamoto
Takashi Fukano
Masahiko Kitabatake
Mikio Yamaguchi
Hiroyuki Tanizawa(As of June 26, 2009)

Executive Directors
Ryuichi Tomizawa *1
William J. Kroll

Notes: *1 Outside Director
Notes: *2 Outside Corporate Auditor

23

Management’s Analysis of Operating Results and Financial Position

Scope of Consolidation and Application of the Equity Method
As of March 31, 2009, the Taiyo Nippon
Sanso Group consisted of Taiyo Nippon
Sanso Corporation (the parent company); 71
consolidated subsidiaries (43 based in Japanand 28 based overseas); and 29 equitymethod affiliates (nine based in Japan and 20
based overseas).

A total of 59 consolidated subsidiaries and21 equity-method affiliates are accounted forin the Gas Business segment. The Plant andGas Equipment Business segment comprises
six consolidated subsidiaries, while theHousewares Business and Others segment
encompasses six consolidated subsidiaries andeight equity-method affiliates.

Operating Results
In fiscal 2009, consolidated net sales slipped
2.4% from fiscal 2008, to ¥495,746 million.
Cost of sales rose 2.3%, to ¥343,905 million,
and selling, general and administrative
expenses advanced 4.7%, to ¥122,676 million,
the latter due primarily to increases in depreciation and amortization, and in research anddevelopment costs. Owing to such factors,
operating income declined 24.8%, to ¥29,164
million, and the operating margin, at 5.9%,
was down 4.7 percentage points.

Net Sales

Other income, a net figure, fell 67.2%, to¥655 million. The Company also posted a special loss of ¥2,765 million. As a consequence,
net income amounted to ¥16,503 million,
down 24.6%. Net income per share was¥41.21, while return on equity (ROE) was
8.6%, 2.2 percentage points less than in theprevious fiscal year.

Operating Income

Net Income(Billions of yen)(%)(Billions of yen)(%)(Billions of yen)

(Yen)

500

30

50

45

25

55

400

24

40

36

20

44

300

18

30

27

15

33

200

12

20

18

10

22

100

6

10

9

5

11

0

0

0

0

0

0

2005 2006 2007 2008 20092005 2006 2007 2008 20092005 2006 2007 2008 2009

Gas business
Plant and gas equipment businessHousewares business and others
Overseas sales ratio (right scale)

Gas business
Plant and gas equipment businessHousewares business and others
Overseas sales ratio (right scale)

Net income per share (right scale)Note: Since the merger of Nippon Sanso and Taiyo Toyo Sanso took place October 1, 2004, consolidated figures for fiscal 2005,
ended March 31, 2005, exclude the figures for the former Taiyo Toyo Sanso for the six months ended September 30, 2004.
Taiyo Nippon Sanso’s results for fiscal 2005 are compared to the fiscal 2004 totals of the former Nippon Sanso.

24

Financial Position
As of March 31, 2009, total assets amounted to¥534,350 million, down 2.4% from the fiscal
2008 year-end. This result was due largely to a
decline in unrealized gains on short-term
investments brought on by falling share prices,which pushed short-term investments down to¥16,191 million. The current ratio was 125%,level with the previous fiscal year.
Property, plant and equipment, net, rose 9.5%,
to ¥233,831 million. Total investments andother assets fell 20.3%, to ¥63,664 million,
reflecting sluggish conditions in the stock market.

Owing to increases in notes and accounts
payable—trade and short-term loans payable,
total current liabilities declined 2.2%, to¥164,965 million. Total noncurrent liabilities
rose 8.9%, to ¥42,952 million, primarilyreflecting an increase in long-term loans payable. Interest-bearing debt rose ¥31,333 million, to ¥191,074 million.
Total net assets decreased ¥23,563 million,to ¥194,250 million. As a consequence, the net
assets ratio slipped 3.3 percentage points, to33.9%, and net assets per share dropped¥53.35, to ¥452.67.

Cash Flow Analysis
2008, and an increase in purchases of investment securities.
Net cash provided by financing activities, at¥30,363 million, was up ¥3,960 million fromthe previous period. The factor behind thischange included a rise in interest-bearing debt.
Owing to the Company’s operating, investing and financing activities in fiscal 2009,
cash and cash equivalents at the end of theyear totaled ¥28,776 million, ¥16,067 million
higher than at the fiscal 2008 year-end.

In fiscal 2009, net cash provided by operating
activities amounted to ¥51,912 million, up¥17,238 million from fiscal 2008. Principal
factors contributing to this result were a¥24,580 million decrease in notes andaccounts receivable—trade. The interest coverage ratio was 14.7 times, up 4.4 points.
Net cash used in investing activities
amounted to ¥25,956 million, down ¥701
million. This change primarily reflected¥24,712 million in payments for purchases ofproperty, plant and equipment, up from fiscal

Total Assets

Equity(Billions of yen)(Billions of yen)

(%)

(%)

550

250

40

15

440

200

32

12

330

150

24

9

220

100

16

6

110

50

8

3

0

0

0

Return on Equity (ROE) and
Return on Assets (ROA)

02005 2006 2007 2008 20092005 2006 2007 2008 20092005 2006 2007 2008 2009

Equity ratio (right scale)

ROE
ROA

25

Business Risks(semiconductors, liquid crystals, solar cells).
While the Company strives to ensure the effective management of related risks, it cannot
guarantee that all of its products are free of
defects.

Management Policies, Business-Related Risks
Purchase of Property, Plant and Equipment

The Company maintains large-scale gas supply
facilities for major customers and needs tospend heavily to maintain and upgrade thesefacilities. Accordingly, interest rate trends could
have a material impact on the Company’s business performance.

Financial Risks and Other Factors
Foreign Exchange Risk

The Company exports products for sale outsideof Japan. The Company strives to hedge foreignexchange risks by entering into forward
exchange contracts and other derivatives transactions. However, the Company may not beable to respond to sudden fluctuations in currency rates, which therefore may have an
adverse impact on its business performance.

Reliance on Specific Industries

The Company supplies gases to a wide range ofindustries and its exposure to risks from reliance on specific industries is thus low.
Nevertheless, changes in key electronics markets (semiconductors, liquid crystals, solar
cells) could have a significant impact on the
Company’s business performance.

Retirement Benefit Liabilities

A sudden deterioration in retirement plan
returns resulting in an increase in retirement
benefit costs may have an adverse impact on its
business performance.

Manufacturing Costs

Electricity is the major component of the costof manufacturing such core products as oxygen,nitrogen and argon. Accordingly, a sharp
increase in the price of crude oil could result ina substantial increase in electricity charges,
which the Company may be unable to reflect in
the pricing of its products.

Natural Disasters

The occurrence of earthquakes or other natural
disasters in areas where the Company has manufacturing facilities may damage facilities. In
particular, damage to the Company’s large-scale
manufacturing facilities may lead to a significant decline in production capacity and incur
major recovery costs. Such factors may
adversely affect the Company’s businessperformance.

Overseas Factors

The Company maintains operations overseas,
particularly in the United States and in otherparts of Asia, including China, where theCompany has substantial gas operations.
Political and economic changes in countries
where the Company has operations may havean adverse impact on its business performance.

Legal Issues

Unanticipated changes to existing laws, theintroduction of new laws, particularly in countries overseas where the Company maintains
operations, may adversely affect the Company’sbusiness performance. Revisions to environmental laws that result in a tightening ofrestrictions may result in an increase in costs toensure compliance, which may also adversely
affect the Company’s business performance.

Technical and Safety Factors
Technological Development

The creation of new products and technologies
entails various uncertainties, owing to theCompany’s reliance on technological development in such areas as compound semiconductors,
the environment and energy.
Intellectual Property

The Company’s business depends on proprietary technological development. The Company
endeavors to obtain intellectual property rights
as necessary for its proprietary technologicaldevelopment activities. However, there are no
guarantees that its technologies are completely
protected.

Medium-Term Business Plan

In April 2008, the Company formulated a new
medium-term business plan. The Company iscurrently devoting its best efforts towardachieving the quantitative targets of this plan.
Based on the information available to management at the time the plan was formulated, thesetargets are judged to be appropriate. However,a number of factors—including changes in theoperating environment—could render theachievement of these targets impossible.

Product Defects

The Company sells high-pressure gas-related
products and handles toxic and flammablegases used in electronics manufacturing
26

Six-Year Summary
Taiyo Nippon Sanso Corporation and Consolidated Subsidiaries

Years ended March 31

Net sales

2009

2008

Millions of yen
2007
2006

2005

2004

¥495,746¥507,718¥458,587¥397,308¥300,055¥230,272

Operating income

29,16438,78336,48826,78820,727

14,317

Net income

16,533

21,93020,094

14,444

11,568

4,541

Selling, general and administrative
expenses/Net sales (%)

24.7%

23.1%

23.2%

24.0%

24.5%

Return on equity (%)

8.6%

10.8%

10.6%

8.7%

8.7%2

24.1%

Return on assets (%)

3.1%

4.0%

3.6%

3.1%

3.3%

2

4.9%
1.8%

Capital expenditure

66,01036,26035,891

22,17638,092

7,413

Depreciation and amortization

28,33925,506

21,21018,982

14,592

11,627

Research and development
3,936

2,903

2,713

2,223

2,056

2,296

Interest-bearing debt

expenses

191,074

159,500

152,232

122,196

122,089

86,325

Total net assets

194,250

217,813

216,068

178,055

154,207

94,802

Total assets

534,350547,237

547,791

471,602404,668

263,595

Yen

Per share data:
Net income1¥41.21¥54.48¥49.93¥35.45¥32.76¥15.38Cash dividends

12.00

12.00

12.00

10.00

9.00

6.00

24.54

19.17

31.21

Times

Price earnings ratio

15.55

14.65

21.31

Notes: 1. Net income per share is computed based on the weighted average number of shares of common stock outstanding during
each year, as adjusted retroactively for free share distributions made during the period.
2. ROE and ROA for fiscal 2005 are computed based on the combined net incomes of Taiyo Nippon Sanso for fiscal 2005 and theformer Taiyo Toyo Sanso for the six months ended September 30, 2004.
3. Since the merger of Nippon Sanso and Taiyo Toyo Sanso took place October 1, 2004, consolidated figures for fiscal 2005
exclude the figures for the former Taiyo Toyo Sanso for the six months ended September 30, 2004. Taiyo Nippon Sanso’s results
for fiscal 2005 are compared to the fiscal 2003 and 2004 totals of the former Nippon Sanso.
4. Figures given for total net assets prior to fiscal 2007 are for total shareholders’ equity.

27

Consolidated Balance Sheets
Taiyo Nippon Sanso Corporation and Consolidated Subsidiaries

Millions of yen
2009
2008

March 31

Thousands of
U.S. dollars(Note 3)2009

AssetsCurrent assets:
Cash and deposits (Note 4)¥ 29,208¥ 12,971 $ 297,343

Notes and accounts receivable—trade (Note 6)

116,977

139,331

1,190,848

Merchandise and finished goods

18,10821,187

184,343

Work in process

17,803

14,596

181,238

Raw materials and supplies

8,597

5,689

87,519Deferred tax assets (Note 10)

6,012

7,213

61,203

Other

10,966

11,624

111,636

Allowance for doubtful accounts
Total current assets

Property, plant and equipment (Notes 8, 9 and 18)(1,771)(979)(18,029)

205,904

211,633

2,096,142

5,826,407

572,328

542,900

Accumulated depreciation(338,497)(329,396) (3,445,964)

Property, plant and equipment, net

233,831

213,504

2,380,444

43,93058,764447,216

Investments and other assets:
Investment securities (Note 5)Long-term loans receivable

651

1,685

6,627

Total intangible assets

30,95042,242315,077

Prepaid pension cost (Note 13)

12,51813,189127,436

Deferred tax assets (Note 10)

2,501

2,149

25,461

Other

6,753

6,083

68,747

Valuation allowance for investments(1,430)(980)(14,558)

Allowance for doubtful accounts(1,258)(1,033)(12,807)

Total investments and other assets

94,615122,099

963,199

Total assets¥534,350

See notes to consolidated financial statements.

28¥547,237 $5,439,784

Millions of yen
2009
2008

March 31

Thousands of
U.S. dollars(Note 3)2009

Liabilities and net assets
Current liabilities:
Short-term loans payable (Note 7)¥ 49,495

Notes and accounts payable—trade81,23687,167

826,998

Income taxes payable (Note 10)

6,162

8,139

62,730

Other
Total current liabilities¥ 39,105 $ 503,868

28,09034,314285,962

164,985

168,727

1,679,579

Noncurrent liabilities:
Long-term loans payable (Note 7)

135,659

107,707

1,381,034

Pension and severance indemnities (Note 13)

5,306

4,719

54,016

Deferred tax liabilities (Note 10)18,63932,785

189,749

Negative goodwill

1,718

2,256

17,490

Lease obligations (Note 7)

8,556

8,231

87,102

Other

5,234

4,994

53,283

175,115

160,695

1,782,704

Total noncurrent liabilities
Contingent liabilities (Note 14)
Net assets (Notes 11 and 21):
Shareholders' equity:
Capital stock:
Authorized―1,600,000,000 shares

27,03927,039275,262

Capital surplus

Issued―403,092,837 shares

44,91044,911

457,192

Retained earnings

131,478

124,392

1,338,471(2,181)(362)(22,203)

Valuation difference on available-for-sale securities

3,076

12,83931,314

Deferred losses on hedges

(111)

(194)

(1,130)Foreign currency translation adjustment(23,011)(4,769)(234,256)

Accumulated other comprehensive loss

(163)

(161)

(1,659)Treasury stock, at cost—
3,159,559 shares in 2009 and 550,612 shares in 2008
Valuation and translation adjustments:

13,212

14,117

134,501

Total net assets

Minority interests

194,250

217,813

1,977,502

Total liabilities and net assets¥534,350¥547,237 $5,439,784

29

Consolidated Statements of Income
Taiyo Nippon Sanso Corporation and Consolidated Subsidiaries

Millions of yen
2009
2008

Years ended March 31

Net sales
Cost of sales (Note 16)
Gross profit
Selling, general and administrative expenses (Note 16)
Operating income
Other income (expenses):
Interest and dividend income
Interest expenses
Amortization of negative goodwill
Gain on sales of noncurrent assets (Note 17)
Loss on sale and retirement of noncurrent assets (Note 17)
Foreign exchange losses
Gain on sales of investment securities
Loss on sales of investment securities
Loss on valuation of investment securities
Loss on valuation of golf club memberships
Gain on sales of golf club memberships
Loss on sales of golf club memberships
Gain on sales of subsidiaries and affiliates’ stocks
Equity in earnings of affiliates
Impairment loss (Note 18)
Loss on liquidation of subsidiaries and affiliates
Loss on revaluation of investments
Merger expense
Gain on revaluation of investments
Compensation for transfer
Reversal of allowance for doubtful accounts
Provision of allowance for doubtful accounts
Loss on revision of retirement benefit plan
Early extra retirement payments
Expenses for integration
Other
Income before income taxes and minority interests
Income taxes (Note 10):
Current
Deferred¥495,746
343,905
151,841
122,676
29,164

Thousands of
U.S. dollars(Note 3)
2009

¥507,718 $5,046,788
351,789
3,501,018
155,928
1,545,770
117,145
1,248,865
38,783296,895

1,313(3,504)
667
354
(916)
(824)
9
—
(209)
(81)
2
—
9
1,333
(141)
—
(450)
—
—
—
278
(722)
(333)
(311)
—
200
(3,325)25,8391,391(3,453)
571
1,334
(785)
(102)
277
(29)
(105)
(88)
—
(14)
—
1,305
(49)
(1,001)
(50)
(295)
352
35
—
—
—
—
(42)
467
(281)
38,502

13,367(35,671)
6,790
3,604
(9,325)(8,388)92—(2,128)
(825)
20
—
92
13,570(1,435)—(4,581)———
2,830(7,350)(3,390)(3,166)—
2,036(33,849)
263,046

12,332
16,205125,542(4,089)(1,047)(41,627)8,243
15,157
83,915
1,062
1,413
10,811¥ 16,533 ¥ 21,930 $ 168,309

Minority interests in income
Net income

U.S. dollars(Note 3)

Yen

Amounts per share:
Net assets
Net income
Cash dividends¥452.67
41.21
12.00

See notes to consolidated financial statements.

30¥506.02
54.48
12.00

$4.61
0.42
0.12

Consolidated Statements of Changes in Net Assets
Taiyo Nippon Sanso Corporation and Consolidated Subsidiaries

Millions of yen
Number ofshares ofcommonstock

Balance at March 31, 2007
403,092,837
Disposal of treasury stock—
Change of scope of
consolidation (increase)—
Change of scope ofequity method—
Dividends from surplus
—
Other
—
Net income—
Purchase of treasury stock—
Net changes of items otherthan shareholders’ equity—
Balance at March 31, 2008
403,092,837
Disposal of treasury stock—
Change of scope of
consolidation (decrease)—
Decrease due to merger—
Effect of changes inaccounting policies applied
to foreign subsidiaries—
Dividends from surplus—
Net income—
Purchase of treasury stock—
Net changes of items otherthan shareholders’ equity—
Balance at March 31, 2009
403,092,837

Valuation
Deferreddifference on gains oravailable-for- losses onsale securities hedges

Foreign
Accumulated
currency
othertranslation comprehensive Minority
adjustments
loss
interests

Total
net assets¥ 56—¥ (2,535)—¥(111)—¥14,770—¥216,068
375

—

—

—

—

—

81

—
—
—
—
—

—
—
—
—
—

—
—
—
—
—

—
—
—
—
—

—
—
—
—
—

136
(5,233)(18)
21,930(196)— (12,143)¥ (362) ¥12,839
35
—

(251)
¥(194)—(2,233)¥ (4,769)—(49)¥(161)—(653)¥14,117—(15,329)¥217,813
34

Commonstock

CapitalsurplusRetainedearnings

Treasurystock¥27,039—¥44,746
164¥107,495—¥ (376) ¥24,982
211
—

—

—

81

—

—
—
—
—
—

—
—
—
—
—

136
(5,233)(18)
21,930
—

—
—
—
—
(196)

—
¥27,039———¥44,911 ¥124,392
(0)
—

—
—

—
—

(99)
(10)

—
—

—
—

—
—

—
—

—
—

—
—

(99)
(10)

—
—
—
—

—
—
—
—

(4,506)(4,830)16,533————(1,854)

—
—
—
—

—
—
—
—

—
—
—
—

—
—
—
—

—
—
—
—

(4,506)(4,830)16,533(1,854)—¥27,039—¥44,910—¥131,478—(9,762)¥(2,181) ¥ 3,076

83¥(111)(18,242)¥(23,011)(2)¥(163)(904)¥13,212(28,828)¥194,250

Thousands of U.S. dollars (Note 3)
Commonstock

Balance at March 31, 2008
Disposal of treasury stock
Change of scope of
consolidation (increase)
Decrease due to merger
Effect of changes inaccounting policies applied
to foreign subsidiaries
Dividends from surplus
Net income
Purchase of treasury stock
Net changes of items otherthan shareholders’ equity
Balance at March 31, 2009

CapitalsurplusRetainedearnings

Treasurystock

Valuation
Deferreddifference on gains oravailable-for- losses onsale securities hedges

Foreign
Accumulated
currency
othertranslation comprehensive Minority
adjustments
loss
interests

Total
net assets$275,262 $457,202 $1,266,334 $ (3,685) $130,703 $(1,975) $ (48,549) $(1,639) $143,714 $2,217,378
—
(0)
—
356
—
—
—
—
—
346
—
—

—
—

—
—
—
—

—
—
—
—

(1,008)
(102)

—
—

—
—

—
—

—
—

—
—

—
—

(1,008)(102)(45,872)—(49,170)—
168,309—— (18,874)

—
—
—
—

—
—
—
—

—
—
—
—

—
—
—
—

—
—
—
—

(45,872)(49,170)
168,309(18,874)———— (99,379)
845 (185,707)(20)(9,203)(293,474)$275,262 $499,949 $1,338,471 $(22,203) $ 31,314 $(1,130) $(234,256) $(1,659) $134,501 $1,977,502

See notes to consolidated financial statements.

31

Consolidated Statements of Cash Flows
Taiyo Nippon Sanso Corporation and Consolidated Subsidiaries

Millions of yen
2009
2008

Years ended March 31

Operating activities
Income before income taxes and minority interests
Depreciation and amortization
Impairment loss
Amortization of goodwill
Interest and dividends income
Interest expense
Equity in earnings of affiliates
Gain (loss) on sales and retirement of noncurrent assets
Gain on sales of investment securities
Decrease in accounts receivable—other
Decrease (increase) in notes and accounts receivable—trade
Decrease (increase) in advance payments
Increase in inventories
Decrease in notes and accounts payable—trade(Decrease) increase in accrued expenses
Increase in advances received
Decrease (increase) in prepaid pension costs
Increase in provision for retirement benefits
Other, net
Interest and dividends income received
Interest expenses paid
Income taxes paid
Net cash provided by operating activities
Investing activities
Increase in short-term investments
Purchases of property, plant and equipment
Proceeds from sales of property, plant and equipment
Purchases of intangible assets
Purchases of investment securities
Proceeds from sales of investment securities
Payments for assets purchase
Purchase of investments in subsidiaries resulting in change in scopeof consolidation
Payments of loans receivable
Other, net
Net cash used in investing activities
Financing activities
Net increase in short-term loans payable
Net decrease in commercial papers
Proceeds from long-term loans payable
Repayment of long-term loans payable
Proceeds from issuance of common stock
Proceeds from issuance of bonds
Redemption of bonds
Repayments of lease obligations
Cash dividends paid
Cash dividends paid to minority shareholders
Purchase of treasury stock
Proceeds from sales of treasury stock
Net cash provided by financing activities
Effect of exchange rate change on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Increase in cash and cash equivalents resulting from change of scopeof consolidation
Increase in cash and cash equivalents resulting from merger withunconsolidated subsidiaries
Cash and cash equivalents at end of period (Note 4)
See notes to consolidated financial statements.

32

Thousands of
U.S. dollars(Note 3)
2009

¥25,839
28,339141
1,961(1,313)
3,504(1,333)
527
(19)
470
18,962
1,006(4,970)(6,225)(1,519)
503
670
273
2,011
68,8281,767(3,541)(15,141)
51,912¥38,50225,50649
283(1,392)
3,453(1,305)
(619)
(248)
293
(5,618)(1,513)(1,567)(9,272)
3,547
830
(204)
76
(630)
50,1702,895(3,368)(15,023)
34,674$263,046
288,496
1,435
19,963(13,367)
35,671(13,570)
5,365
(193)
4,785
193,037
10,241(50,596)(63,372)(15,464)
5,121
6,821
2,779
20,472700,682
17,988(36,048)(154,138)
528,474

168(58,703)
1,000(1,426)(5,833)102(5,425)671(33,991)
1,892(2,340)(2,710)
1,720
—

1,710
(597,608)
10,180(14,517)(59,381)
1,038(55,228)—(30)
48(70,100)(3,261)(2,287)(23)(40,330)

—
(305)
489
(713,631)

10,136(4,000)57,875(22,172)
—
—
—
(990)
(4,831)(280)(1,852)74
33,960(499)
15,273
12,7098,159(1,000)18,980(16,560)
241
10,000(10,000)(602)(5,233)
(208)
(194)
16
3,597
(33)
(2,091)
14,404

103,186(40,721)589,178(225,715)———(10,078)(49,180)(2,850)(18,854)753
345,719(5,080)155,482
129,380

777

396

7,910

15
¥28,776—¥12,709153$292,945

Notes to Consolidated Financial Statements
Taiyo Nippon Sanso Corporation and Consolidated Subsidiaries

1. Basis of Consolidated Financial Statements
The accompanying consolidated financial
statements of TAIYO NIPPON SANSOCORPORATION (the “Company”) and consolidated subsidiaries are prepared on the basis ofaccounting principles generally accepted in Japan,
which are different in certain respects as to application and disclosure requirements of International
Financial Reporting Standards, and are compiled
from the consolidated financial statements preparedby the Company as required by the Financial
Instruments and Exchange Law of Japan.

As permitted by the Financial Instruments andExchange Law of Japan, amounts of less than one
million yen have been omitted. As a result, thetotals shown in the accompanying consolidated
financial statements (both in yen and U.S. dollars)
do not necessarily agree with the sums of theindividual amounts.
Certain amounts previously reported have been
reclassified to conform to the current year
presentation.

2. Summary of Significant Accounting Policies
The effect of the adoption of this accounting
standard on the segment information is describedin the relevant section.

(a) Consolidation

The accompanying consolidated financial
statements include the accounts of the Company
and its 71 significant subsidiaries. All significant
intercompany accounts and transactions have been
eliminated in consolidation.
In accordance with the regulations for the
preparation of consolidated financial statements
under the Financial Instruments and Exchange
Law of Japan, investments in certain unconsolidated subsidiaries and significant affiliates areaccounted for by the equity method of accounting.
The differences at the dates of acquisition
between the cost and the underlying net equity ininvestments in consolidated subsidiaries and thecompanies accounted for by the equity method areamortized equally over the years for which theireffect are reasonably estimated.
Investments in unconsolidated subsidiaries andaffiliates other than those which are accounted forby the equity method are principally stated at cost.
Effective from the beginning of the fiscal year,
April 1, 2008, the Company has adopted the“Practical Solution on Unification of Accounting
Policies Applied to Foreign Subsidiaries for
Consolidated Financial Statements” (Practical
Issues Task Force No. 18 issued by the AccountingStandards Board of Japan on May 17, 2006). As
a result, the balance of consolidated retained
earnings for the year ended March 31, 2009
decreased by ¥4,506 million ($45,872 thousand).
In addition, operating income and income before
income taxes for the year ended March 31, 2009
decreased by ¥1,420 million ($14,456 thousand),compared with the amounts that would have beenreported under the previous accounting method.

(b) Cash equivalents

For purposes of the statements of cash flows, theCompany considers all highly liquid instrumentswith maturity of three months or less whenpurchased to be cash equivalents.
(c) Marketable and investment securities

Marketable securities and investments in securities
are classified into three categories: trading securities,
held-to-maturity securities and other securities.
The Company and certain of its subsidiaries havemarketable securities classified as other securities,
which are carried at fair value with any changes invaluation difference on available-for-sale securities,
net of the applicable income taxes, reported as aseparate component of net assets. Non-marketablesecurities classified as other securities are carried atcost. Under the Corporate Law of Japan, unrealized gain or loss on other securities, net of theapplicable income taxes, is not available for
distribution as dividends.
(d) Inventories

Inventories of the Company and its domestic
subsidiaries are stated at cost, determined by theweighted-average method, specific identification
method or the moving-average method (lower
than book value due to a decline in profitability).
As for overseas consolidated subsidiaries,
inventories are stated at the lower of cost or
market, cost being determined by the first-in
first-out method.
33

(Change in accounting policy)
Effective from the beginning of the fiscal year,
April 1, 2008, the Company has adopted the“Accounting Standard for Measurement of
Inventories” (Financial Accounting Standard
No. 9, issued by the Accounting Standards Boardof Japan on July 5, 2006), and the method of
measurement of inventories held for the purposeof ordinary sales has been changed to the cost,
determined by the average method, the specificidentification method, or the moving-averagemethod. Net book value of inventories in the
consolidated balance sheets is written down when
their net realizable values decline. The effect of thischange on the consolidated statement of income forthe year ended March 31, 2009 was immaterial.
The effect of the adoption of this accounting
standard on the segment information is describedin the relevant section.

(Changes in accounting policy)
Previously, finance lease transactions that do nottransfer ownership of the leased assets to the lessee
followed methods applicable to ordinary operatinglease transactions. Effective from the beginningof the fiscal year, April 1, 2008, however, theCompany has adopted “Accounting Standard forLease Transactions” (Financial AccountingStandard No. 13 originally issued by the First
Committee of the Business Accounting Council
on June 17, 1993 and revised by the AccountingStandards Board of Japan on March 30, 2007)
and “Implementation Guidelines for AccountingStandards for Lease Transactions” (Financial
Accounting Standard Implementation Guidelines
No. 16 originally issued by the Accounting System
Committee of the Japanese Institute of Certified
Public Accountants on January 18, 1994 andrevised by the Accounting Standards Board ofJapan on March 30, 2007), and such transactions
are now accounted for as ordinary sale andpurchase transactions. Finance leases contracted
on or before March 31, 2008 that do not deem totransfer ownership of the leased asset to the lessee
are accounted for as operating lease transactions.
As a result of the change, total assets increased by¥3,900 million ($39,703 thousand) compared withthe amounts that would have been reported under
the previous accounting method. The effect on
operating income and income before income taxes
and minority interests was immaterial.
The effect of the adoption of this accounting
standard on the segment information is describedin the relevant section.

(e) Property, plant and equipment (except forleased assets)

Property, plant and equipment is stated at cost,and for the Company and its domestic subsidiaries, depreciation is computed by the straight-line
method for buildings and leased equipment and by
the declining balance method for other equipment
based on the estimated useful lives of the respective
assets. As for overseas consolidated subsidiaries,
depreciation is principally computed by thestraight-line method based on the estimated useful
lives of the respective assets.
The useful lives are as follows:
Buildings
3 to 50 years
Machinery
4 to 15 years(g) Translation of foreign currencytransactions

All monetary assets and liabilities, regardless of
short-term or long-term, denominated in foreign
currencies other than receivables and payables
hedged by qualified foreign exchange forward
contracts, are translated into yen at the exchange
rates prevailing as of the fiscal year-end, andresulting gains and losses are included in income.
The accounts of the overseas consolidated
subsidiaries are translated into yen at the year-end
exchange rates, except for net assets, which aretranslated at historical rates, and income statement
items are translated into yen at average exchange
rates during the year. Differences arising from thetranslations are stated under “Foreign currencytranslation adjustments” and minority interests inconsolidated subsidiaries in the accompanying
consolidated balance sheets.

(Supplementary information)
Effective from the beginning of the fiscal year,
April 1, 2008, the Company and its domestic
subsidiaries have changed the estimates for useful
lives of machinery pursuant to the revision to the
Corporate Tax Law. As a result of this change,
operating income and income before income taxes
and minority interests for the year ended March
31, 2009 decreased by ¥1,907 million ($19,414
thousand), compared with the amounts that would
have been reported under the previous estimates.
The effect of the adoption of this accountingchange on the segment information is described in
the relevant section.
(f) Leases

Leased assets are initially accounted for at theiracquisition costs and depreciated over the lease termby the straight-line method with no residual value.

34

(h) Pension and severance indemnities(k) Income taxes

Allowance for employees’ retirement benefits is
recognized at the net total of the present value of thedefined benefit obligation at the balance sheet date,plus any actuarial gains (less any actuarial losses) not
yet recognized, minus the fair value of plan assets (ifany) at the balance sheet date out of which the
obligations are to be settled directly. If the amountdetermined above is negative (an asset), such asset
should be recorded as prepaid pension expenses.
Net retirement benefit expense or income isrecognized at the net total of current service costand interest cost, minus the expected return on any
plan assets, minus any actuarial gains (less any
actuarial losses) and past service cost recognized
during the year, plus any retirement benefits paid
at a lump sum.
To determine the present value of a defined
benefit obligation and the related current service
cost and, where applicable, the past service cost,
the project unit credit method are used.
Actuarial gains or losses and past service cost
are recognized for each defined benefit plan over a
period not exceeding the expected average remaining service years of the employees participating in
the plan. The Company and its domestic subsidiaries recognize actuarial gains or losses evenly over 12
to 16 years following the respective fiscal years
when such gains or losses are identified. Past service
cost is amortized using the straight-line method
over 13 to 16 years.
The Company recognized the amount of
unrecognized past service cost due to the revisionof the retirement rule at April 1, 2003.
For transition benefit liability, the Company
established the pension and severance indemnity
trust by contribution of shares owned by theCompany, and the remaining transition benefit
liability is being recognized over a period of 15 years.

Deferred tax assets and liabilities are determinedbased on the differences between financial reporting and the tax bases of assets and liabilities and aremeasured using the enacted tax rates and laws
which will be in effect when the differences are
expected to reverse.
(l) Amounts per share

Presentation of diluted net income per share is
not applicable as there were no potentially dilutive
securities for the years ended March 31, 2009
and 2008.
(m) Allowance for doubtful accounts

To cover possible losses on collection of receivables,
the Company and its domestic subsidiaries
provided for an allowance with respect to specificdebts of which recovery is doubtful, based on
estimated write-off amounts, after considering the
likelihood of recovery on an individual basis.
(n) Valuation allowance for investments

To state the investment amount fairly, theallowance is provided by considering the relatedparties’ assets and other factors.
(o) Derivative and hedging transactions

The Company and certain of its subsidiaries haveused foreign exchange forward contracts solely inorder to hedge against risks of fluctuations in foreign
currency exchange rates relating to its receivables
and payables denominated in foreign currencies,
and have used interest-rate swap agreements solely
to hedge against risks of fluctuations in interest rates
relating to its long-term loans payable. Also,
currency exchange swap agreements have been usedsolely to hedge against risks of fluctuations inforeign exchange of long-term loans payable
denominated in foreign currencies, in compliancewith the internal rules of respective companies.
Under the “Accounting Standard for Financial
Instruments, (No.10 issued by the AccountingStandards Board of Japan)” derivative transactions
are valued at market prices, except for hedging
transactions whose gains or losses are deferred andrecorded in the balance sheet until the hedged transactions are settled. Moreover, if interest-rate swaps inJapan are specifically tied to the hedged loan transactions, unrealized gains or losses on those swaps are
not recognized in the consolidated financial statements as such gains or losses are to be offset withthose on the hedged transactions. Deferred hedge
accounting is applied to currency swaps.
Receivables and payables hedged by qualified
foreign exchange forward contracts are translated
at the corresponding foreign exchange forward
contract rates.

(i) Allowance for directors’ and corporate
auditors’ retirement benefits

The allowance for directors’ and corporate auditors’
retirement benefits of the Company and certain ofits domestic subsidiaries is provided at the amountwhich would have been required to be paid if all
directors and corporate auditors had voluntarily
terminated their services as of the balance sheet date.
This amount has been determined in accordancewith the internal rules of the respective companies.
The allowance included ¥410 million ($4,174
thousand) and ¥323 million for corporate officers
at March 31, 2009 and 2008, respectively.
(j) Research and development expenses

Research and development expenses are charged tooperations as incurred.

35

3. U.S. Dollar Amounts
should not be construed as a representation thatJapanese yen have been, could have been, or couldin the future be converted into U.S. dollars at theabove or any other rate.

The translation of Japanese yen amounts into U.S.
dollar amounts is included solely for convenience,as a matter of arithmetical computation only, at therate of ¥98.23 = U.S.$1, the approximate rate ofexchange at March 31, 2009. The translation
4. Cash and Cash Equivalents

The components of cash and cash equivalents at March 31, 2009 and 2008 were as follows:
Millions of yen
2009
2008

Cash and deposits
Time deposits with maturities of more than three months¥29,208(432)¥28,776

Thousands of
U.S. dollars
2009¥12,971(261)¥12,709$297,343(4,398)$292,945

5. Marketable and Investment Securities
At March 31, 2009 and 2008, information withrespect to other securities for which market prices

Cost

Unrecognized gain items:
Stock
Unrecognized loss items:
Stock
Total

Millions of yen
2009
Balance sheet Unrecognizedamountgain (loss)

Thousands of U.S. dollars
2009
Balance sheet Unrecognized
Costamountgain (loss)¥19,479¥24,818¥5,339$198,300$252,652$54,352567¥20,046423¥25,241(144)¥5,195

5,772$204,072

4,306$256,958(1,466)$52,886

Cost

Unrecognized gain items:
Stock
Unrecognized loss items:
Stock
Total

were available was summarized as follows:

Millions of yen
2008
Balance sheet Unrecognizedamountgain (loss)¥15,185¥37,076¥21,890803¥15,988645¥37,721(158)¥21,732

Proceeds from sales of securities classified asother securities amounted to ¥62 million ($631
thousand) and ¥782 million with an aggregate gainon sales of ¥19 million ($193 thousand) and ¥277
million for the years ended March 31, 2009 and2008, respectively, and an aggregate loss on sales ofnil and ¥29 million for the years ended March 31,
2009 and 2008, respectively.
Balance sheet amounts of non-marketablesecurities classified as other securities at March 31,
2009 and 2008 were as follows:

Other securities:
Millions of yen
2009
2008

Unlisted securities (except for OTC securities)
Preferred securities
Preferred stock
Money market fund

¥2,796—1,000—¥2,358—1,000—

There are no securities with maturity dates classified as other securities at March 31, 2009.

36

Thousands of
U.S. dollars
2009$28,464—
10,180—6. Notes and Accounts Receivable(a) Notes and accounts receivable liquidated at March 31, 2009 and 2008 were as follows:
Millions of yen
2009
2008

Accounts receivable transferred by liquidation
Notes receivable transferred by liquidation¥10,280
7,726¥11,771
9,087

Thousands of
U.S. dollars
2009$104,652
78,652(b) Notes receivable discounted at March 31, 2009 and 2008 were as follows:
Millions of yen
2009
2008

Notes receivable discounted¥20

Thousands of
U.S. dollars
2009

¥166

$204

7. Short-Term Borrowings, Long-Term Loans Payable and Lease Obligations
At March 31, 2009 and 2008, short-term borrowings and the current portion of long-term loans

payable consisted of the following:

Millions of yen
2009
2008

Bank loans
Current portion of long-term loans payable
0.95% unsecured bonds, payable in yen, due 2009
Total

¥24,581
9,914
15,000¥49,495

The average interest rates applicable to shortterm loans payable outstanding at March 31, 2009
and 2008 were 2.93% and 3.75%, respectively.

¥16,593
22,512―¥39,105

Thousands of
U.S. dollars
2009$250,239
100,926
152,703$503,869

Long-term loans payable at March 31, 2009
and 2008 were comprised of the following:

Millions of yen
2009
2008

Loans from banks due through 2017 at average interest rates of
1.93% in 2009 and 2.29% in 2008
0.95% unsecured bonds, payable in yen, due 2009
1.81% unsecured bonds, payable in yen, due 2011
1.58% unsecured bonds, payable in yen, due 2012

¥110,659—
15,00010,000¥135,659

Thousands of
U.S. dollars
2009¥ 67,707 $1,126,530
15,000—15,000152,703
10,000101,802¥107,707 $1,381,034

At March 31, 2009, commercial paper (¥1,000
million ($10,180 thousand)) with a borrowing rateof 0.54% and at March 31, 2008 commercial paper(¥5,000 million) with a borrowing rate of 0.68%

were included in other current liabilities.
Short-term lease obligations of ¥966 ($9,834
thousand) were included in other current
liabilities.

The annual maturities of long-term loans
payable subsequent to March 31, 2009 aresummarized as follows:

The annual maturities of lease obligations
subsequent to March 31, 2009 are summarized asfollows:

Years ending March 31

Millions of yen

2010
2011
2012
2013
2014
2015 and thereafter

¥

9,914
22,215
17,66820,20933,608
16,959¥120,573

Thousands of
U.S. dollars$ 100,926
226,153
179,864
205,731
342,136
172,646$1,227,456

37

Years ending March 31

Millions of yen

Thousands of
U.S. dollars

2010
2011
2012
2013
2014
2015 and thereafter

¥ 966
1,092
2,913
1,035
1,200
2,316
¥9,522$ 9,834
11,11729,655
10,537
12,21623,577$96,936

8. Pledged Assets
Assets pledged as collateral for short-term loans
payable of ¥72 million ($733 thousand) and ¥235
million, long-term loans payable of ¥697 million($7,096 thousand) and ¥780 million, and otherliabilities of ¥136 million ($1,385 thousand) and¥308 million at March 31, 2009 and 2008, respectively, were as follows:
Thousands of
U.S. dollars
2009

Millions of yen
2009
2008

Property, plant and equipment, at net book value¥3,176¥4,578$32,332

9. Assets Replaced by National Subsidy
Assets replaced by national subsidy at March 31, 2009 and 2008 were as follows:
Thousands of
U.S. dollars
2009

Millions of yen
2009
2008

Property, plant and equipment

¥411

¥411

$4,184

10. Income Taxes
Income taxes applicable to the Company comprise
corporation, enterprise and inhabitants’ taxes,
which, in the aggregate, resulted in a statutory tax
rate of 40.69% for the years ended March 31,
2009 and 2008.

Significant components of the Company’sdeferred tax assets and liabilities at March 31, 2009
and 2008 were as follows:
Thousands of
U.S. dollars
2009

Millions of yen
2009
2008

Current deferred tax assets and liabilities
Deferred tax assets:
Accrued bonus
Loss from valuation of inventory
Accrued expenses
Other
Deferred tax assets—subtotal
Valuation allowance
Deferred tax assets—net
Deferred tax liabilities
Net deferred tax assets
Deferred tax liabilities:
Adjustment of allowance for doubtful accounts
Deferred tax liabilities—subtotal
Offset by deferred tax assets
Net deferred tax liabilities¥2,000
310
1,346
2,538
6,196
(184)
6,012
—
¥6,012¥2,415
272
1,708
3,030
7,427
(212)
7,215
(1)
¥7,213$20,360
3,156
13,70325,837
63,076(1,873)
61,203—$61,203

¥

¥

$

¥

38

(24)
(24)
—
(24)

¥

(1)
(1)
1
−

$

(244)
(244)
−
(244)

Millions of yen
2009
2008

Noncurrent deferred tax assets and liabilities
Deferred tax assets:
Depreciation
Reserve for retirement benefits
Net operating loss carryforward for tax purposes
Other
Deferred tax assets—subtotal
Valuation allowance
Deferred tax assets—net
Deferred tax liabilities
Net deferred tax assets
Deferred tax liabilities:
Valuation difference on other securities
Reserve for replacement of fixed assets
Reserve for special depreciation
Reserve for replacement of fixed assets—special
Depreciation
Other
Deferred tax liabilities—subtotal
Offset by deferred tax assets
Net deferred tax liabilities

Thousands of
U.S. dollars
2009¥ 1,579
1,533
86
8,145
11,343(4,763)
6,580(4,079)¥ 2,501¥ 1,059
1,312
100
7,368
9,841
(4,095)
5,745(3,596)¥ 2,149$ 16,075
15,606875
82,918
115,474(48,488)
66,986(41,525)$ 25,461¥ (2,230)(6,731)(182)(142)(5,542)(7,889)(22,718)
4,079¥(18,639)¥ (8,959)(7,852)−(415)(7,546)(11,608)(36,381)3,596¥(32,785)$ (22,702)(68,523)(1,853)(1,446)(56,419)(80,312)(231,274)
41,525$(189,749)

A reconciliation between the normal effective
statutory tax rate and the actual effective tax rate
reflected in the accompanying consolidated

statements of income for the year ended March 31,
2009 is as follows:

Statutory tax rate
Non-deductible entertainment expenses
Dividends received and others
Valuation allowance for deferred tax assets
Undistributed earnings of overseas affiliates
Other
Effective tax rate

40.69%
1.57(2.55)
2.47(9.70)(0.58)
31.90%

2009

The reconciliation was omitted for the year
ended March 31, 2008 because the difference wasless than 5% of the statutory tax rate.

11. Shareholder’s Equity
Directors may declare dividends (except for
dividends in kind) if the Company has prescribedso in its articles of incorporation.
The Corporate Law permits companies to
distribute dividends-in-kind (non-cash assets) toshareholders subject to a certain limitation andadditional requirements.
Semiannual interim dividends may also be paid
once a year upon resolution by the Board of
Directors if the articles of incorporation of theCompany so stipulate.

(a) Dividends

Under the Corporate Law, companies can pay
dividends at any time during the fiscal year in
addition to the year-end dividend upon resolution
at the shareholders’ meeting. For companies thatmeet certain criteria, such as (1) having a Boardof Directors, (2) having independent auditors,(3) having a Board of Corporate Auditors, and(4) the term of service of the directors is prescribedas one year rather than two years of normal termby its articles of incorporation, the Board of39

(b) Increases/decreases and transfer ofcommon stock, reserve and surplus(c) Treasury stock and treasury stockacquisition rights

The Corporate Law requires that an amount equal
to 10% of dividends must be appropriated as alegal reserve (a component of retained earnings) or
as additional paid-in capital (a component of
capital surplus) depending on the equity accountcharged upon the payment of such dividends until
the total of aggregate amount of legal reserve andadditional paid-in capital equals 25% of thecommon stock. Under the Corporate Law, thetotal amount of additional paid-in capital and legal
reserve may be reversed without limitation.
The Corporate Law also provides that common
stock, legal reserve, additional paid-in capital,
other capital surplus and retained earnings can betransferred among the accounts under certain
conditions upon resolution of the shareholders.

The Corporate Law also provides for companies topurchase treasury stock and dispose of suchtreasury stock by resolution of the Board of
Directors. The amount of treasury stock purchased
cannot exceed the amount available for distribution
to the shareholders, which is determined by specificformula. Under the Corporate Law, stock acquisition rights, which were previously presented as aliability, are now presented as a separate componentof shareholders’ equity.
The Corporate Law also provides thatcompanies can purchase both treasury stockacquisition rights and treasury stock. Such treasury
stock acquisition rights are presented as a separate
component of shareholders’ equity or deducted
directly from stock acquisition rights.

12. Leases(a) The following pro forma amounts represent theacquisition costs, accumulated depreciation andnet book value of leased assets at March 31,
2009 and 2008, which would have beenreflected in the consolidated balance sheets if

finance lease accounting had been applied to
the finance lease transactions currently
accounted for as operating leases:

Millions of yen
2009
2008

Acquisition costs:
Property, plant and equipment
Other assets
Accumulated depreciation:
Property, plant and equipment
Other assets
Net book value:
Property, plant and equipment
Other assets

Lease payments relating to finance leasetransactions accounted for as operating leases
amounted to ¥1,621 million ($16,502 thousand)and ¥1,788 million, which were equal to theThousands of
U.S. dollars
2009¥9,578408¥9,987¥10,055549¥10,604$ 97,506
4,154$101,670¥6,058248¥6,307¥ 5,410285¥ 5,696$ 61,672
2,525$ 64,206¥3,519160¥3,680¥ 4,644263¥ 4,908$ 35,824
1,629$ 37,463

depreciation expense of the leased assets computedby the straight-line method over the respective
lease terms for the years ended March 31, 2009
and 2008, respectively.

40

accounted for as operating leases are summarized asfollows:

Future minimum lease payments (including theinterest portion thereon) subsequent to March 31,
2009 and 2008 for finance lease transactions
Year ending March 31

2009
2010
2011 and thereafter
Total
2008
2009
2010 and thereafter
Total

Millions of yen

Thousands of
U.S. dollars¥1,4002,279¥3,680$14,252
23,201$37,463¥1,585
3,322¥4,908operating leases are summarized as follows:(b) Future minimum lease payments subsequent toMarch 31, 2009 and 2008 or non-cancelableYear ending March 31

2009
2010
2011 and thereafter
Total
2008
2009
2010 and thereafter
Total

Millions of yen

Thousands of
U.S. dollars¥ 1,809
6,572¥ 8,381$18,416
66,904$85,320¥ 1,991
8,540¥10,532

13. Pension and Severance Indemnities
Certain overseas subsidiaries have a defined
contribution benefit plan.
The funded status and amounts recognized in
the accompanying consolidated balance sheets at
March 31, 2009 and 2008 and the components of
net retirement benefit expenses recognized in theaccompanying consolidated statements of income
for the years ended March 31, 2009 and 2008 aresummarized as follows:

The Company has the cash balance plan (market
rate-linked pension plan) and the defined contribution benefit plan.
The Company’s domestic subsidiaries have,jointly or severally, defined benefit plans, including
funded non-contributory tax-qualified retirement
pension plans and a lump-sum retirement benefits
plan, which together cover substantially all
full-time employees who meet certain eligibility
requirements.
(a) Retirement benefit liabilities

Millions of yen
2009
2008

Projected benefit obligation
Plan assets at fair market value
Unfunded retirement benefit liabilities
Net unrecognized actuarial losses
Difference at change of accounting standard
Unrecognized prior service cost
Prepaid pension cost
Allowance for employees’ retirement benefits¥ 33,865(27,975)
5,890(14,043)(2,777)
2,372
12,518(3,960)41¥ 34,008(35,115)(1,107)(7,896)(3,302)
2,614
13,189(3,497)

Thousands of
U.S. dollars
2009$ 344,752(284,791)
59,961(142,960)(28,270)
24,147
127,436(40,314)(b) Net retirement benefit expenses
Thousands of
U.S. dollars
2009

Millions of yen
2009
2008

Current service cost
Interest cost
Expected return on plan assets
Expense of actuarial loss
Net loss on change in accounting standard for
employees’ retirement benefits
Adjustment for prior service cost
Total of retirement benefit expenses
Other
Total

(c) The principal assumption used in determining
retirement benefit obligations and other¥1,360
594
(786)
707

¥1,531
581
(858)
292

$13,845
6,047(8,002)
7,197

466
(241)
¥2,100745¥2,846466(241)¥1,772785¥2,5574,744(2,453)$21,378
7,584$28,973

components for the Company and certain of its
domestic subsidiaries plans are shown below:

Discount rate
Rate of return on assets
Period of recognition of actuarial gains or losses
Period of recognition of transition gains or losses
Period of recognition of prior service cost
Allocation method of estimated retirement benefits

2009

2008

Mainly 2.0%
Mainly 3.0%
Mainly 12 to 16 years
Mainly 15 years
13 to 16 years
Evenly for period

Mainly 2.0 %Mainly 3.0 %Mainly 12 to 16 years
Mainly 15 years
13 to 16 years
Evenly for period

14. Contingent Liabilities
At March 31, 2009 and 2008, the Company andcertain of its subsidiaries had contingent liabilities
as guarantors of indebtedness, amounting to¥9,214 million ($93,800 thousand) and ¥8,701
million, which included reguarantees by joint

investors amounting to ¥785 million ($7,991
thousand) and ¥743 million and commitments toguarantees amounting to ¥1,058 million ($10,771
thousand) and ¥1,244 million, respectively.

15. Derivative and Hedging Activities
transactions and related risk management rules
which stipulate the limits on derivative transactions
for each contract amount. All derivative transactions have been entered into in compliance withthese rules.
Risk management for derivative transactions
has been under the control of the Finance
Department of the Company which reports
regularly or as necessary to the responsible officer.

(a) Outline of transactions and conditions

The Company and certain of its subsidiaries haveused foreign exchange forward contracts andinterest-rate swap agreements and currency swap
agreements to hedge against the risk of fluctuationsin interest and currency exchange rates relating totheir short-term receivables and payables andlong-term loans payable.
No market risk is anticipated as such derivatives have been entered into to offset or mitigate
gains or losses resulting from the hedged loan andother transactions.
The Company and these subsidiaries do not
anticipate nonperformance by any of the counterparties to the above transactions, all of whom areleading financial institutions which are deemed
highly creditworthy.
The Company and these subsidiaries haveestablished rules for the authorization of derivative(b) Interest-related derivatives

There were no interest-related derivatives at March
31, 2009 and 2008.
(c) Currency-related derivatives

Market value information at March 31, 2009 and2008 is not required as all of the Company andthese subsidiaries’ derivative transactions areaccounted for as hedging transactions.

42

16. Research and Development Costs
Research and development costs, included in costof sales and selling, general and administrative
expenses, for the years ended March 31, 2009 and2008 totaled ¥3,936 million ($40,069 thousand)and ¥2,903 million, respectively.

17. Gain and Loss on Sale and Retirement of Noncurrent Assets
Significant components of the gain on sale ofnoncurrent assets of ¥354 million ($3,604
thousand) and ¥1,334 million for the years ended

March 31, 2009 and 2008, respectively, were as
follows:

Millions of yen
2009
2008

Land

¥354

Significant components of the loss on sale andretirement of noncurrent assets of ¥916 million($9,325 thousand) and ¥785 million for the years¥1,334

Thousands of
U.S. dollars
2009$3,604

ended March 31, 2009 and 2008, respectively,
were as follows:

Millions of yen
2008
2007

Land
Machinery

¥118
398

¥114
218

Thousands of
U.S. dollars
2008$1,201
4,052

18. Impairment Lossbuildings accounted for ¥41 million ($417
thousand)) and ¥49 million (all of which was land)
for the years ended March 31, 2009 and 2008,
respectively, due to the lack of recovery probabilityof market value or projected recovery probability inthe near future. Recoverable amounts for relevant
assets are the net selling price (selling price is basedon contract, valuation by property tax or valuation
by inheritance tax).

The Company and its subsidiaries categorize
business assets by business segmentation and idle
assets without a specific future use are categorized
separately. For idle assets affected by a decrease offair market value of land, the book values are
written down to the recoverable amounts and such
write-downs were recorded as impairment loss of¥141 million ($1,435 thousand) (of which land
accounted for ¥99 million ($1,008 thousand) and43

19. Segment Information
The business, geographical and overseas segment
information of the Company and its consolidated

subsidiaries for the years ended March 31, 2009
and 2008 is summarized as follows:(a) Business Segments

Year ended or as of March 31, 2009

I. Sales:(1) Sales to third parties(2) Intersegment sales
Total sales
Operating costs and expenses
Operating income
II. Assets, depreciation expenses
and capital expenditure:
AssetsDepreciation expenses
Impairment loss
Capital expenditure

Year ended or as of March 31, 2008

I. Sales:(1) Sales to third parties(2) Intersegment sales
Total sales
Operating costs and expenses
Operating income
II. Assets, depreciation expenses
and capital expenditure:
AssetsDepreciation expenses
Impairment loss
Capital expenditure

Year ended or as of March 31, 2009

Gas
business

Millions of yen
Plant and gas Housewares
equipment
businessbusinessand others
Total

Eliminations
or corporate

Consolidated¥329,813
20
329,834
307,384¥ 22,449¥147,445
23,362
170,807
159,219¥ 11,587¥18,48857
18,546
16,313¥ 2,232¥495,746 ¥—
23,441 (23,441)
519,187 (23,441)
482,917 (16,335)¥ 36,269 ¥ (7,105)¥495,746—
495,746466,582¥ 29,164¥390,458¥ 25,141¥—¥ 58,862¥79,757¥ 2,454¥—¥ 7,939¥19,405
¥ 767
¥
—
¥ 667

¥489,621¥ 28,363¥—¥ 67,469¥44,729
¥
(23)
¥ 141
¥ (1,459)¥534,350¥ 28,339¥141¥ 66,010

Gas
business

Plant and gas
equipment
business

Eliminations
or corporate

Consolidated¥338,347
19
338,366
307,421¥ 30,945¥151,717
11,720163,438
153,037¥ 10,400¥17,653150
17,804
15,871¥ 1,932¥507,718
11,890519,608
476,331¥ 43,277¥—(11,890)(11,890)(7,396)¥ (4,494)¥507,718—
507,718
468,934¥ 38,783¥394,125¥ 22,507¥—¥ 33,312¥75,178¥ 2,121¥—¥ 2,081¥19,322
¥ 647
¥
—
¥ 826

¥488,626¥ 25,276¥—¥ 36,220¥58,611
¥ 230
¥
49
¥
40

¥547,237¥ 25,506¥49¥ 36,260

Eliminations
or corporate

ConsolidatedGasbusiness

Plant and gas
equipment
business

I. Sales:(1) Sales to third parties$3,357,559 $1,501,018(2) Intersegment sales
204
237,830
Total sales
3,357,773 1,738,848
Operating costs and expenses 3,129,227 1,620,880
Operating income$ 228,535 $ 117,958
II. Assets, depreciation expenses
and capital expenditure:
Assets$3,974,936 $ 811,941
Depreciation expenses$ 255,940 $ 24,982
Impairment loss$
— $—Capital expenditure$ 599,226 $ 80,821

Millions of yen
Housewares
businessand others
Total

Thousands of U.S. dollars
Housewares
businessand others
Total$188,211 $5,046,788 $— $5,046,788
580
238,634 (238,634)—
188,802 5,285,422 (238,634) 5,046,788
166,069 4,916,187 (166,293) 4,749,893$ 22,722 $ 369,225 $ (72,330) $ 296,895$197,547 $4,984,434 $ 455,350 $5,439,784$ 7,808 $ 288,741 $(234) $ 288,496$— $— $ 1,435 $1,435$ 6,790 $ 686,847 $ (14,853) $ 671,994

Notes: 1. The business segments are classified into “Gas business,” “Plant and gas equipment business” and “Housewares businessand others” on the basis of the kind and character of products and merchandise.
2. The amounts of the operating costs and expenses included in the column “Eliminations or corporate” for the fiscal year ending
March 31, 2009 and 2008 were ¥3,645 million ($37,107 thousand) and ¥2,387 million, respectively, which mainly consisted of
expenses in the business administration department.

44

3. The amounts of the corporate assets included in the column “Eliminations or corporate” for the fiscal years ended March 31,
2009 and 2008 were ¥75,135 million ($764,889 thousand) and ¥76,309 million, respectively, which mainly consisted of surplus working funds, investment securities and the assets in the business administration department.
4. As shown in the Summary of Significant Accounting Policies, from the beginning of the fiscal year, April 1, 2008, the Company
has adopted the “Accounting Standard for Measurement of Inventories” (Financial Accounting Standard No. 9, issued by the
Accounting Standards Board of Japan on July 5, 2006). The effect of this change on the consolidated statement of income forthe year ended March 31, 2009 was immaterial.
5. As shown in the Summary of Significant Accounting Policies, from the beginning of the fiscal year, April 1, 2008, the Company
has adopted the “Practical Solution on Unification of Accounting Policies Applied to Foreign Subsidiaries for Consolidated
Financial Statements” (Practical Issues Task Force No. 18 issued by the Accounting Standards Board of Japan on May 17,2006). As a result, operating income and income before income taxes for the year ended March 31, 2009 decreased by ¥1,420
million ($14,456 thousand) in Gas business segment compared with the amounts that would have been reported under theprevious accounting method.
6. As shown in the Summary of Significant Accounting Policies, from the beginning of the fiscal year, April 1, 2008, the Company
has adopted “Accounting Standard for Lease Transactions” (Financial Accounting Standard No. 13 originally issued by the First
Committee of the Business Accounting Council on June 17, 1993 and revised by the Accounting Standards Board of Japan on
March 30, 2007) and “Implementation Guidelines for Accounting Standard for Lease Transactions” (Financial AccountingStandard Implementation Guidelines No. 16 originally issued by the Accounting System Committee of the Japanese Instituteof Certified Public Accountants on January 18, 1994 and revised by the Accounting Standards Board of Japan on March 30,2007). As a result of the change, total assets increased by ¥3,461 million ($35,234 thousand) in the Gas business segment,¥411 million ($4,184 thousand) in the Plant and gas equipment business segment and ¥27 million ($275 thousand) in theHousewares business and others segment compared with the amounts that would have been reported under the previous
accounting method. The effect of this change on the consolidated statement of income for the year ended March 31, 2009
was immaterial.
7. Supplementary information
As shown in the Summary of Significant Accounting Policies, from the beginning of the fiscal year, April 1, 2008, the Company
and its domestic subsidiaries have changed the estimates for useful lives of machinery pursuant to the revision to the
Corporation Tax Law. As a result of this change, operating income and income before income taxes and minority interests forthe year ended March 31, 2009 decreased by ¥1,840 million ($18,732 thousand) in the Gas business segment, ¥50 million($509 thousand) in the Plant and gas equipment business and ¥16 million ($163 thousand) in the Housewares business and others
segment, respectively, compared with the amounts that would have been reported under the previous estimates.

(b) Geographical Segments
Millions of yen
Othercountries
Total

Year ended or as of March 31, 2009

Japan

North
America

Sales:
Sales to third parties
Intersegment sales
Total sales
Operating costs and expenses
Operating income
Assets¥383,936
7,177
391,114368,386¥ 22,728¥324,729¥ 82,006
9,985
91,992
83,462¥ 8,529¥102,332¥29,802
3,298
33,101
31,513¥ 1,587¥34,653

Japan

North
America

Millions of yen
Othercountries
Total¥393,227
5,762
398,990369,542¥ 29,447¥311,037¥ 84,833
13,12897,962
87,940¥ 10,021¥121,374¥29,656
3,178
32,83430,778¥ 2,056¥40,479

Year ended or as of March 31, 2008

Sales:
Sales to third parties
Intersegment sales
Total sales
Operating costs and expenses
Operating income
Assets45

Eliminations
or corporate

Consolidated¥495,746 ¥—
20,461 (20,461)
516,208 (20,461)
483,362 (16,779)¥ 32,846 ¥ (3,682)¥461,715 ¥ 72,635¥495,746—
495,746466,582¥ 29,164¥534,350

Eliminations
or corporate

Consolidated¥507,718 ¥—
22,069(22,069)
529,787(22,069)
488,261(19,326)¥ 41,525 ¥ (2,742)¥472,890 ¥ 74,346¥507,718—
507,718
468,934¥ 38,783¥547,237

Year ended or as of March 31, 2009

Sales:
Sales to third parties
Intersegment sales
Total sales
Operating costs and expenses
Operating income
AssetsThousands of U.S. dollars
Othercountries
Total

North
AmericaJapan

Eliminations
or corporate

Consolidated$3,908,541 $ 834,837 $303,390 $5,046,788 $— $5,046,788
73,063
101,649
33,574208,297 (208,297)—
3,981,615
936,496 336,974 5,255,095 (208,297) 5,046,788
3,750,239
849,659 320,808 4,920,717 (170,813) 4,749,893$ 231,375 $ 86,827 $ 16,156 $ 334,379 $ (37,483) $ 296,895$3,305,803 $1,041,759 $352,774 $4,700,346 $ 739,438 $5,439,784

Notes: 1. Main countries or areas other than Japan
North America: the United States
Other countries: Singapore, Malaysia, Philippines, China, Taiwan, etc.
2. The amounts of the operating costs and expenses included in the column “Eliminations or corporate” for the fiscal year ending
March 31, 2009 and 2008 were ¥ 3,645 million ($37,107 thousand) and ¥2,387 million, respectively, which mainly consist of
the expenses in business administration department.
3. The amounts of the corporate assets included in the column “Eliminations or corporate” for the fiscal years ended March 31,
2009 and 2008 were ¥75,135 million ($764,889 thousand) and ¥76,309 million, respectively, which mainly consist of surplus
working funds, investment securities and the assets in business administration department.
4. As shown in the Summary of Significant Accounting Policies, from the beginning of the fiscal year, April 1, 2008, the Company
has adopted the “Accounting Standard for Measurement of Inventories” (Financial Accounting Standard No. 9, issued by the
Accounting Standards Board of Japan on July 5, 2006). The effect of this change on the consolidated statements of income forthe year ended March 31, 2009 was immaterial.
5. As shown in the Summary of Significant Accounting Policies, from the beginning of the fiscal year, April 1, 2008, the Company
has adopted the “Practical Solution on Unification of Accounting Policies Applied to Foreign Subsidiaries for Consolidated
Financial Statements” (Practical Issues Task Force No. 18 issued by the Accounting Standards Board of Japan on May 17,2006). As a result, operating income and income before income taxes and minority interests for the year ended March 31,
2009 decreased by ¥1,420 million ($14,456 thousand) in North America segment, compared with the amounts that would havebeen reported under the previous accounting method.
6. As shown in the Summary of Significant Accounting Policies, from the beginning of the fiscal year, April 1, 2008, the Company has
adopted “Accounting Standard for Lease Transactions” (Financial Accounting Standard No. 13 originally issued by the First
Committee of the Business Accounting Council on June 17, 1993 and revised by the Accounting Standards Board of Japan on
March 30, 2007) and “Implementation Guidelines for Accounting Standard for Lease Transactions” (Financial Accounting Standard
Implementation Guidelines No. 16 originally issued by the Accounting System Committee of the Japanese Institute of Certified
Public Accountants on January 18, 1994 and revised by the Accounting Standards Board of Japan on March 30, 2007). As a resultof the change, total assets increased by ¥3,900 million ($39,703 thousand) in the Japan segment compared with the amounts thatwould have been reported under the previous accounting method. The effect of this change on the consolidated statements ofincome for the year ended March 31, 2009 was immaterial.
7. Supplementary information
As shown in the Summary of Significant Accounting Policies, from the beginning of the fiscal year, April 1, 2008, the Company
and its domestic subsidiaries have changed the estimates for useful lives of machinery pursuant to the revision to the
Corporation Tax Law. As a result of this change, operating income and income before income taxes and minority interests forthe year ended March 31, 2009 decreased by ¥1,907 million ($19,414 thousand) in the Japan segment compared with theamounts that would have been reported under the previous estimates.

overseas consolidated subsidiaries, for the years
ended March 31, 2009 and 2008 are summarized
as follows:(c) Overseas Sales

Overseas sales, which include export sales of theCompany and its domestic consolidated subsidiaries and sales (other than exports to Japan) of its

Millions of yen
Year ended or as of March 31, 2009

Overseas sales
Consolidated net sales
Ratio of overseas sales toconsolidated net sales

North
America¥69,124

13.9%

Other

Total

¥48,406 ¥117,531
495,746
9.8%

46

23.7%

Thousands of U.S. dollars
North
America
Other
Total

$703,695 $492,782 $1,196,488$5,046,788

Millions of yen
Year ended or as of March 31, 2008

Overseas sales
Consolidated net sales
Ratio of overseas sales toconsolidated net sales

North
America¥71,448

Other

Total

¥55,140 ¥126,589
507,718

14.1%

10.8%

24.9%

Notes: 1. Main countries or areas
North America: the United States
Other countries: Singapore, Malaysia, Philippines, China, Taiwan, etc.
2. “Overseas sales” are sales outside of Japan by the Company and its consolidated subsidiaries.

20. Assets and Liabilities Acquired through Asset Purchase
The acquisition cost and net payments for assets
and liabilities of Aeris and Advanced Gas
Technologies, acquired through an asset purchaseby Matheson Tri-Gas (“MTG”), Inc., a consolidated subsidiary of the Company, for the year
ended March 31, 2009 was as follows:
Millions of yen

Current assets
Property, plant and equipment
Goodwill
Other assets
Total assets
Current liabilities
Noncurrent liabilities
Total liabilities
Acquisition cost of assets
Cash and cash equivalents
Payments for asset purchase

¥

858
2,110
2,086
986
¥ 6,042
¥ 164
269
¥ 434
¥(5,459)33¥(5,425)

Thousands of
U.S. dollars$ 8,735
21,48021,236
10,038$ 61,509$ 1,670
2,738$ 4,418$(55,574)
336$(55,228)

21. Subsequent Events(c) Name, business and total assets of thecompany acquired
Name:
Valley National Gases LLC
Business: Sales of industrial gases andgas-related equipment
Total assets: $514 million(d) Acquisition date
April 20, 2009(e) Percentage of shares owned after acquisition
100% shares of VNG owned by MTG(f ) Source of financing and payment plan
MTG funded $572.5 million by bank loan forthis acquisition and the Company provided aguarantee for MTG by the same amount.

(1) The Company completed the acquisitionof Valley National Gases LLC (“VNG”)
through asset purchase by MTG on April
20, 2009.

(a) Purpose of acquisition
Through the acquisition of VNG, which
demonstrates a strong competitiveness inindustrial gas business in the U.S. mid-west
to northeast regions, the Company intends
to expand its industrial gas business andestablish more robust business functions in
those regions.
(b) Name of counter party
CI Capital Partners LLC

consolidated financial statements for the year
ended March 31, 2009, were approved at theshareholders’ meeting held on June 26, 2009:(2) Appropriation of retained earnings

The following appropriations of retained earnings,
which have not been reflected in the accompanying
Cash dividends—¥6.00 ($0.061) per share

47

Millions of yen

Thousands of
U.S. dollars¥2,400$24,432

Report of Independent Auditors

48

Investor Information(At March 31, 2009)

Head Office:Toyo Building, 1-3-26, Koyama, Shinagawa-ku, Tokyo 142-8558, Japan
Number of Employees:

9,074
Date of Incorporation:

October 1910
Number of Shares:

Authorized—800,000,000

Issued—403,092,837

Minimum Trading Unit:

1,000 shares
Number of Stockholders:

24,710Major Stockholders:Thousands of Percentage ofShares Owned
Total

Major Stockholders

Mitsubishi Chemical Corporation
JFE Steel Corporation
Taiyo Nippon Sanso Client Shareholding Society
Meiji Yasuda Life Insurance Company
Japan Trustee Services Bank, Ltd. (Trust Account 4G)
Mizuho Corporate Bank, Ltd.
Japan Trustee Services Bank, Ltd. (Trust Account)
Dai-ichi Mutual Life Insurance Company
The Norinchukin Bank
State Street Bank and Trust Company (Account 505225)

53,59125,254
18,102
16,491
15,291
14,484
13,49810,037
10,0008,638
185,390

13.30%
6.27
4.49
4.09
3.79
3.59
3.35
2.49
2.48
2.14
45.99%

Common Stock Price Range and Trading Volume:(Yen)(Thousand Shares)

1,250

100,000

80,0001,000
Common Stock Price Range
750

60,000500

40,00020,000250
Trading Volume00
1st Quarter

2nd Quarter

3rd Quarter

Fiscal 2008

4th Quarter

1st Quarter

2nd Quarter

3rd Quarter

Fiscal 200949

4th Quarter

Toyo Building, 1-3-26, Koyama,
Shinagawa-ku, Tokyo 142-8558, Japan
Tel: 81-3-5788-8000
www.tn-sanso.co.jp

Printed in Japan