The Gas Professionals

Annual Report

2007

Year Ended March 31, 2007

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, 2007 and 2006
Thousands of
U.S. dollars1
2007

Percentagechange¥397,308 $3,884,684
14,444
170,216

15.4%
39.1

Millions of yen
2007
2006

Operating Results
Net sales
Net income¥458,587
20,094Yen
2007

Per share data:
Net income2
Cash dividends¥0049.93
12.00

2006

¥547,791
201,297

Percentagechange¥0035.45 $0,000.423
10.00
0.102

40.8%
20.0

Thousands of
U.S. dollars1
2007

Percentagechange¥471,602 $4,640,330
178,055
1,705,184

16.2%
13.1

Millions of yen
2007
2006

Corporate Position
Total assets
Total shareholders’ equity

U.S. dollars1
2007

Notes: 1. U.S. dollar amounts have been translated, solely for convenience, at the rate of¥118.05=U.S.$1, the approximate rate of exchange at March 31, 2007.
2. 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.

Contents
1
2
4
8
10
17
18
19
47

Operational Highlights
To Our Stakeholders
Special Feature
Segment Overview
Our Businesses
Corporate Social Responsibility
Board of Directors, Corporate Auditors and Corporate Officers
Financial Section
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 ofthe date of this document‘s publication and inherently involve risks and uncertainties. Actual results may thus differ substantially fromthese 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

Taiyo Nippon Sanso is investing decisively overseas using cash flow
reserves, which have doubled thanks to the merger
With the aim of realizing the ultimate goals of the merger of its predecessors, which areto achieve a global market share of 10% and annual net sales of more than ¥500,000
million—the basic prerequisites for becoming the first Asian-born gas provider to qualify
as a major international player—Taiyo Nippon Sanso is taking steps to expand the scaleof its operations and increase income.
As a part of this effort, in fiscal 2007, ended March 31, 2007, Taiyo Nippon Sanso
purchased the helium gas business of the former BOC Group plc, and medium-sized
U.S. industrial gas firm Linweld Inc. We expect these acquisitions to contribute
substantially to full-term consolidated results beginning in fiscal 2008.
The BOC Group was acquired in 2006 by Linde AG. Subsequently, we purchased
the BOC Group’s helium gas business—which enjoys a global market share of approximately 10%—from Linde, in the process acquiring rights and interests in the UnitedStates, Russia and Poland. Going forward, we will maximize the position of this business as a primary wholesaler with a view to expanding its operations into Asia, thereby
further reinforcing our presence.
The acquisition of Linweld was made through subsidiary Matheson Tri-Gas, Inc.
Engaged in the manufacture and sales of industrial gas, Linweld enjoys a high market
share in the U.S. Midwest, a market that is expected to see sustained growth going forward. Matheson Tri-Gas operates mainly in Texas, and is also active in the eastern,southern and western United States. The acquisition of Linweld has thus enabled
Matheson Tri-Gas to enter a new market, thereby accelerating efforts to expand andstrengthen its North American gas business. Linweld’s consolidated net sales in the fiscal
year ended June 30, 2006, totaled $152 million.

Expansion of Taiyo Nippon Sanso’s Operations in North America
1926 Matheson Gas Products, Inc. (MGP) founded1983 Acquired 50% of MGP shares (Amerigas acquired the remaining portion)
1987 Tri-Gas, Inc. founded1989 NS-U.S.A. founded (to make MGP a wholly owned subsidiary)
1991 Semi-Gas Systems, Inc. acquired
1992 Invested through NS-U.S.A. to make Semi-Gas Systems a wholly owned subsidiary
1995 Matheson Gas Products Korea (MGPK) founded
1996 Tri-Gas Technologies founded
July 1, 1999

Matheson Gas Products, Inc. and Tri-Gas, Inc. merged to establish Matheson
Tri-Gas, Inc.

2004 Acquired 6 plants of former Messer from Air Liquide
Aug. 2006 Acquired renowned Midwest-based industrial gas producer Linweld
Sept. 2006

Acquired helium business previously operated by BOC simultaneously with
Linde’s BOC acquisition

2007 Began operation of large-scale air separation plants in Southern California

Establish new large-scale air separation plants in the Midwest and Texas

1

To Our Stakeholders

Performance Highlights
In fiscal 2007, the first year of our current mediumterm business plan, we focused on further expanding
our business and improving management efficiency.
We also undertook strategic mergers and acquisitions,forward-looking capital investment and other measures aimed at developing new businesses. As a consequence, we surpassed the targets set for our current
medium-term business plan Global 5000: Stage 1(consolidated net sales of ¥450,000 million and net
income of ¥20,000 million in fiscal 2009) a full two
years ahead of schedule. On behalf of the new management team that took the reins of Taiyo Nippon
Sanso in fiscal 2006, we are proud to report thisachievement and confident that it demonstrates theessential soundness of our approach.
In fiscal 2007, firm demand for high-grade steel
materials from the automobile and shipbuilding
industries continued to underscore robust conditionsin the global steel industry. The chemical industry also
saw steady growth in demand for high-performanceresins from the automobile and consumer electronics
sectors, while sales of general-purpose resins were also
firm, led by exports. Conditions in the electronics
sector were also brisk overall as demand for memoryand other semiconductor devices continued to flourish, despite the drawn-out impact of production
adjustments for certain products.
With the aim of contributing to the growth of ourcustomers, we made steady progress in improving ourcompetitiveness and productivity during the period
under review. Owing to such efforts, a strong performance by our mainstay gas business both in Japanand overseas—coupled with robust results in ourplant and gas equipment business—resulted in a risein consolidated net sales of 15.4%, to ¥458,587 million. Operating profit climbed 36.2%, to ¥36,488
million, owing to improved capacity utilization rates
at our gas production facilities, which helped to lower
costs, and the penetration of price increases implemented in response to rising raw materials prices. Net
income advanced 39.1%, to ¥20,094 million, as a
special gain—namely, a gain on sale of property,
plant and equipment generated through the sale ofrental real estate—was partially offset by a special loss
resulting from the sale of idle land.

of the opportunity presented by this achievement, we
identified several challenges we must address to earn
the status of a global player in the industrial gas business, which we define as an operator with ¥500,000
million in annual net sales.
First, we must grow and expand our core industrial
gas-related businesses. To this end, we must strive tobuild value throughout the business cycle, cultivating
new demand by ensuring our ability to understandand anticipate our customers’ everyday needs. We
also recognize the need to further enhance efficiency
through decisive, forward-looking capital investment.
It is also necessary for us to further strengthen andfoster the development of businesses that we haveacquired.
Second, we must reinforce our global network.
Essentially, this means drawing on technologies accumulated in the Japanese market, principally gas utilization, production and supply technologies, making
related investments and allocating resources to link
our operations worldwide. Recognizing that thiseffort also demands measures to foster employee
development, we have declared fiscal 2008 “Human
Resources Development Year” and are implementing
ongoing, globally oriented training programs primarily for mid-level managers who exhibit businessadministration skills.
Third, we must improve management efficiency.
Three years have passed since the merger that createdTaiyo Nippon Sanso, and we have been more successful than initially anticipated in maximizing thebenefits of the merger. Nonetheless, there is still work
to be done that will enable us to further reduce costs
and generate higher profits. Accordingly, we continue
to take steps to, among others, rationalize logistics
operations Companywide.
Finally, we must improve our efforts to addressenvironmental issues and enhance compliance—the
two most important challenges we face in ensuring
the ongoing viability of our businesses. On the environmental front, we are taking steps to restrain theuse of energy for the production and transportationof gas. We are also enhancing social responsibility. In
terms of observing socially acceptable practices, werecognize that ensuring an incident- and disaster-freework environment, as well as product safety security,
is a component of our costs. In addition, we are pursuing ongoing, long-term initiatives at building corporate value, in line with our codes of conduct,
which are intended as strategic blueprints defining

The Next StageIn fiscal 2007, Taiyo Nippon Sanso succeeded in raising its performance to a new level. Taking advantage2

guidelines for employees of all Taiyo Nippon Sanso
Group companies.
Reinforcing Corporate GovernanceTaiyo Nippon Sanso strives continuously to enhancetransparency and fulfill its responsibility to provide
adequate explanations to shareholders and investors
and to otherwise ensure superior corporate governance.
Our management team consists of the Board of
Directors, which has 16 members, and the Board ofAuditors, comprising four standing corporate auditors. Two of the directors are non-executive directors.
One of these directors and two of the auditors are
external. To ensure proper financial compliance regulations, management accepts responsibility for thefinancial reporting process, including the preparationof financial statements and creation of an internal
control framework. The Board of Auditors oversees
our independent accountants. To ensure the independence of the independent accountants from the directors, the Board of Auditors obtain audit plans inadvance and convenes regularly to hear results of the
independent accountants’ audits. Ernst & Young
ShinNihon, who we have engaged as our independentaccountants, is obliged to express an opinion on thelegitimacy of our financial statements.
As one of the key components of our internal control framework, we have identified four categories ofrisks that we, as a company primarily engaged in theprovision of high-pressure gases, must manage—
security, safety, quality and the environment—and
have established the Technology Risk Management
Committee. Administrative responsibility for thecommittee lies with the Technological Affairs
Division. The Committee is responsible for reviewing tasks set by individual committees for each of theaforementioned four risk categories, identifying necessary improvements to be made based on related
management regulations, and using methods outlined in JISQ 2001 guidelines for the development
and implementation of risk management systems, aswell as for issuing instructions and requests foramendments.

ChairmanHiroshi Taguchi

President
Hirosuke Matsueda

net sales of ¥485,000 million, operating profit of¥38,300 million and net income of ¥20,500 million.
With the aim of confronting issues with the potential to hamper the ongoing viability of the businessesof the Taiyo Nippon Sanso Group, we have positioned fiscal 2008 as the year in which we will focus
on strengthening our fundamental ability to address
the many challenges we face, thereby reinforcing our
footing and preparing us for the next stage of our evolution. To this end, we believe that it is essential toreinforce efforts Companywide to implement best
current practices if we are to achieve our vision of
becoming the first Asian-born industrial gas provider
to break into the top ranks globally.
In closing, on behalf of the Board of Directors wethank our stakeholders for continuing to demonstrate
their confidence in Taiyo Nippon Sanso. We hopethat this annual report will enhance your understanding of our efforts to achieve our corporate vision byobserving the guidelines for conduct implied in our
corporate philosophy and striving to build corporate
value and, in so doing, create value for our customers,
shareholders and communities.
June 28, 2007

Hiroshi Taguchi
Chairman

OutlookIn June 2007, a proposal by the Board of Directors toincrease annual cash dividends by ¥2.00, to ¥12.00
per share, was approved at the annual meeting ofshareholders. For fiscal 2008, we project consolidated

Hirosuke Matsueda
President

3

Special Feature

President
Hirosuke Matsueda

4

An Interview with the President
Having successfully completed its current medium-term business plan, Global 5000: Stage 1,
Taiyo Nippon Sanso has shifted its focus to growth strategies aimed at becoming a global
operator with a business comparable in scale with that of the major global players in theindustrial gas business, and establishing a solid foundation that will enable the Company tosecure a 10% global market share in the near future.
To these ends, we will continue to address key challenges to ensure continued growth.
With our core gas and electronics-related businesses at the forefront, we will continue toaccelerate innovation in the cultivation of both technologies and human resources to add
new value to products and services as well as enhance productivity.

Q
In fiscal 2007, you surpassed the targets set
for your current medium-term businessplan a full two years ahead of schedule.
How do you evaluate your performance forthe period?

tries, I attribute our performance in fiscal 2007 to theefforts of employees throughout the Taiyo Nippon
Sanso Group to identify and capitalize on opportunities to promote growth. Together, we have also begun
to formulate new growth strategies aimed at achieving
new targets.

A
We achieved consolidated net sales of ¥458,500 million, surpassing our consolidated net sales target
under Global 5000: Stage 1—formulated to guideour efforts from fiscal 2006 through fiscal 2009—afull two years ahead of schedule and bringing us within reach of our long-range annual sales target of¥500,000 million. It was an auspicious year in otherways as well, as we made effective use of cash flows tocomplete two key acquisitions overseas. We also succeeded in growing and expanding our businesses inJapan, against a backdrop of soaring demand in thesteel, chemicals, electronics and other industries, as
indicated by steady results from an acquisition madein fiscal 2006.
In addition to a generally robust operating environment, as evidenced by brisk demand in key indus-

Q
As a consequence of your recent acquisitions overseas, your sphere of influence has
increased considerably. You have attracted
attention not only because of the expansionof your geographical reach but also becauseof your influence on the communities inwhich you have acquired operations. What
are your thoughts on this?
A
We will continue to invest in promising new growth
opportunities, as well as to expand existing businesses,
in the United States, Europe, Asia and Japan. In our
U.S. business in particular, in February 2007 our
U.S. subsidiary commenced operations of a low-energy
large-scale air separation plant in California with a5global currency, so by coordinating our allocation ofmanagement resources around the world we canincrease our competitiveness. That said, it is people
who breathe life into strategies. For this reason, I havedesignated fiscal 2008 as the first year of a new program designed to foster human resources. In addition
to introducing globally focused training for mid-leveland senior managers aimed at identifying and nurturing individuals with management potential, we willtake decisive steps to enliven our corporate culture,
thereby creating an environment in which employees
can make full use of their expertise.

daily output capacity of 600 tons. We already haveplans to install two additional plants of a similar scalein North America and hope to grow the company
into an operation capable of generating annual sales
in excess of $1 billion. In Asia, we have completedlarge-scale, low-energy plants in Singapore and more
recently in the Philippines, both with hourly output
capacities of 10,000m 3, positioning us to securedemand, which is rising sharply thanks to brisk economic growth. Going forward, we will continue totake a long-term perspective, taking into account theviews of customers and local communities and focusing on efforts that contribute to local economic prosperity, as well as to the expansion of the Taiyo
Nippon Sanso Group’s business.

Q
Three years have passed since the merger
that created Taiyo Nippon Sanso. From aGroup point of view, what improvements
have been made during that time?

Q
Looking ahead, what steps must you take toensure Taiyo Nippon Sanso maintains its
competitive edge?

A
We have been more successful than initially anticipated in realizing the benefits of the merger and generating synergies. Nonetheless, we recognize that there ismore to be done. As an example, there is still room
for improvement Companywide in the rationalizationof logistics. We have also established a project team toA
The most important task ahead is the globalization of
our technologies and work force. Fortunately, thenumerous gas-use, production and supply technologies we have cultivated to date enjoy considerable

6

fiscal 2009 two years ahead of schedule and expect tocome within striking distance of our long-range targetof annual consolidated net sales of ¥500,000 million
in fiscal 2007 has prompted us to begin mapping out
a new three-year medium-term management planthat we intend to launch in fiscal 2008. The plan will
set forth a new basic business strategy, as well as measures aimed at accelerating efforts to expand our business scale and enhance operating efficiency.
Recognizing that product safety, quality assurance
and environmental protection are essential to ourongoing viability as a corporate entity, we will also
continue to devote our best efforts to provide a stablesupply of high-quality products to our customers,
ensure the safety of local communities and our
employees and reduce the environmental impact of
our operations. As the first Asian-born industrial gas
provider to become a major global player, we pledge
to concentrate management resources on growthstrategies that will enable us to respond to the expectations of our customers, partners, employees andlocal communities.

reassess business processes. By rationalizing businessactivities and creating an optimal logistics system, we
will succeed in adding value to our supply chain by
the end of fiscal 2008. This will in turn enable us toincrease Taiyo Nippon Sanso’s business value in theJapanese market and deliver industrial gas solutions
services that satisfy our customers and business partners.
Q
In closing, what challenges must you
address to achieve the new targets you
have set?
A
Going forward, we recognize that growing our coregas business is crucial to ensuring our place as a major
global player that has earned the respect of society atlarge. Accordingly, our basic policy—which is tostrengthen and expand the business by applying cash
flows to advance in new directions and increasing theefficiency of our operations—will remain unchanged.
That said, the fact that we surpassed our targets for7

Segment Overview

Gas Business

Sales ShareIn fiscal 2007, shipments and sales of mainstay oxygen, nitrogen and argon

were up from fiscal 2006. Shipments of oxygen were bolstered by increased
demand from the steel and shipbuilding industries. Shipments of nitrogenrose on the strength of higher demand from a variety of industries, including
electronics (for nitrogen supplied by small-scale onsite air separation plants),
as well as chemicals, steel and food processing (for liquefied nitrogen).
Shipments of argon rose to silicon crystal manufacturers, reflecting brisk
production of 300mm wafers. Demand for argon for use in welding and abroad spectrum of other applications also grew.
Shipments and sales of carbon dioxide were bolstered by the addition of afull year of results from subsidiary Ekika Carbon Dioxide Co., Ltd. Shipments
and sales of specialty gases rose sharply, reflecting high capacity utilization
rates among customers in the electronics industry in Japan and overseas.
Owing to these and other factors, sales to outside customers in the Gas
Business segment rose 13.9%, to ¥305,442 million, and operating income
advanced 25.6%, to ¥26,996 million.

Plant and Gas Equipment Business

Years ended March 31¥305,442 million(66.6% of net sales)

80
60
40
20
0

Sales Share

Fiscal 2007 sales of electronics-related equipment increased appreciably,
supported by rising investment confidence in the electronics industry. Salesof compound semiconductor fabrication equipment also rose sharply, reflecting an upward turn in the business cycle, as did sales of cutting and welding
equipment, led by laser cutting equipment and numerically controlled (NC)cutters handled by Group company Nissan Tanaka Corporation, owing to rising
capacity utilization rates in the steel, shipbuilding and construction industries.
Healthy capital investment in the domestic electronics and steel industries andfirm demand from companies in South Korea, Taiwan and Southeast Asia
supported a notable rise in sales of air separation plants.
As a consequence, sales to outside customers in the Plant and Gas
Equipment Business rose 20.5%, to ¥136,896 million, while operating income
climbed 96.8%, to ¥11,615 million.

Housewares Business and Others
Thermos K.K. spearheads the manufacture and sale of housewares products.
Sales of these products rose in fiscal 2007, owing to robust sales of sports
bottles, as well as contributions from increased demand for personal-sized
insulated mugs.
As a result, segment sales rose 5.5%, to ¥16,248 million. Nonetheless, a
7.3% increase in operating expenses prompted a 2.0% decline in operating
income, to ¥1,822 million.

Net Sales per
EmployeeYears ended March 31(Million of yen)

Years ended March 31¥136,896 million

2006

2007

Net Sales per
EmployeeYears ended March 31(Million of yen)

(29.9% of net sales)

60

40

20

0

Sales ShareYears ended March 31¥16,248 million

2006

2007

Net Sales per
EmployeeYears ended March 31(Million of yen)

(3.5% of net sales)

12

8

4

0

8

2006

2007

Main Products• Oxygen• Nitrogen• Argon• Medical-related gases• Specialty gases• Electronic materials gases• Stable isotopes (SIs)• LP gas

R&D Highlight• In the area of liquefied gases,
launched AA Sun Arc, a shield gas
for TIG welding of stainless steel
developed jointly with the Joining
and Welding Research Institute of
Osaka University

Topics• Reinforced domestic medical-related gases business• Enhanced efficiency of domestic package gas business• Strengthened and expanded North American industrial
gases business• Purchased primary wholesale rights for helium gas
business from Linde AG• Significantly increased filling capacity for electronics
material gases in the Republic of Korea• Sharply expanded production capacity in Singapore and
the Philippines

Main Products• Large-scale air separation plants• Compact nitrogen generators• High-purity gas production equipment• Exhaust gas processing equipment• MOCVD equipment• Cutting and welding equipment
Topics• Delivered large air separation plant to steelmaker in Japan• Brought Matheson Tri-Gas air separation plant in Vernon,
California, on line with a daily liquid gas production capacityof 600 tons, exceeding capacity of plants in Japan

Main Products• Stainless steel vacuum bottles• Cooking implements• Professional-use kitchen implements

R&D Highlights• Commenced demonstration testsof energy-efficient air separation
plant with Japan’s New Energy
and Industrial Technology
Development Organization (NEDO)• Focused on research aimed at
reinforcing ability to respond to
customers’ needs with total solutions encompassing everythingfrom the processing of raw gas tothe abatement of exhaust gases• As Japan’s only industrial gas
company with its own plant engineering center, emphasized development of products that appeal tocustomers in close cooperation
with the research laboratory

R&D Highlight• Capitalized on proprietary technology to develop an innovative
thermal insulation pasta cooker

Topics• Unveiled new mug-style thermal insulation bottle for hot
drinks in the “Easy Drink” series• Introduced new mug-style thermal insulation bottle withstraw for children• Augmented lineup of thermal insulation lunch jars withthree lunchboxes for the Japanese-style boxed lunch
market9

Our Businesses

Electronics-Related Businessand abatement systems in optimal locations. We also
provide remote monitoring of safety levels and design
alarm systems as part of our broad range of solutions
for semiconductor device and LCD manufacturing
processes.
We operate in Japan and around the world as a partner for electronics manufacturers. We produce and sellhigh-purity industrial gases, electronic materials gases
and electronics-related equipment to customers in the
United States, Taiwan,
China and Singapore.

Advances in semiconductor device integration andthe use of thin films in semiconductors, together with
the increasing size of liquid crystal display (LCD)
panel sizes and the expanding markets for semiconductors in digital appliance and automotive markets,
are highlighting the need for electronics-related firms
to achieve higher quality and production efficiency.
Taiyo Nippon Sanso helps such firms by supplying
via pipeline high-purity nitrogen, an inert gas that isessential to semiconductor device, LCD and otherfabrication processes. We also deliver stable suppliesof electronic materials gases used in film depositionand other processes and are well-positioned torespond to increases in demand.
In constructing special piping, we draw on our
industrial gas supply technologies to facilitate theinstallment of environment-friendly gas purification

Annual sales

Approximately ¥122,500 million

Principal products andoperations

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

Market needs

Comprehensive gas supplies
Total gas and equipment solutions

Our 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
and equipment• 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

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

123

2009
Target Line

114

2006

2007

Note: A new target will be set
under our new mediumterm business plan

Fiscal 2007 highlights

Acquired U.S. firm Linweld Inc.
Secured onsite supply contracts for large users• Demand for specialty gases rose
• Sales of MOCVD equipment, which uses gallium nitride, for white lightemitting diodes• Sales of electronic materials gases were robust
Purchased helium gas business of the former BOC Group plc.
Expanded provision of electronic materials specialty gases to China
Stepped up provision of specialty gases to semiconductor manufacturers at
Taiyo Nippon Sanso Taiwan, Inc. (20%+ market share)

TargetSales of ¥126,000 million in fiscal 2009 (This target was set in 2006 andwill be superseded by a new target to be set under our new medium-termbusiness plan, which will be released in early 2008.)

Basic policies

Taiyo Nippon Sanso’s principal advantage is the fact that it builds Total Gas
Centers, encompassing high-purity nitrogen manufacturing facilities and electronic materials gas supply facilities on sites adjacent to semiconductor fabrication facilities, thereby enabling it to deliver a stable supply of high-quality
nitrogen and materials gases.
We have established a plant for specialty nitrogen for use in electronics
from which it has begun supplying customers in Japan, North America andAsia. As well, we are currently considering the expansion of our nitrogenplant in Taiwan, a move that will accelerate efforts to reinforce our operating
foundation.
Our principal strategy for mainstay products is to develop gases for use in
semiconductor device fabrication. In the area of next-generation semiconductor materials gases for use in the 65-nanometer process, we have developed
low-k materials produced using chemical vapor deposition (CVD), as well as ahigh-k chamber cleaning gas.
Another mainstay of this business is metal organic vapor deposition(MOCVD) equipment, used in the manufacture of semiconductors, whichuses gallium nitride. In this area, we have completed development of a newmodel with significantly improved processing capacity that is capable ofsimultaneously processing 10 2-inch wafers or eight 3-inch wafers—a significant improvement over previous models.
Going forward, our principal R&D strategy will be to reinforce our sales andtechnological capabilities as the leading provider of the electronics-related gases
and to concentrate efforts in growth areas, including FPDs and LEDs, while atthe same time investing in development and implementing sales activities ina manner that recognizes the different directions of individual customers.

11

Gas Business
Drawing on these capabilities, we provide a diverse
range of equipment for the manufacture, supply,transport and storage of various types of gases. In
these ways, we help industrial customers enhancetheir productivity and quality while supporting efforts
to improve the environment. In addition to maintaining the largest industrial gas supply network in Japan,
we are expanding our manufacturing and supply basesin the United States, China and other parts of Asia.

Taiyo Nippon Sanso supplies oxygen, nitrogen, argon
and a host of other industrial gases that are indispensable to advanced production activities of modern
industry, including cutting, welding, combusting,melting, chilling and freezing. We supply these gases
in safe forms, including via pipeline, tank trucks andcylinders.
We have built a strong technological base overmany years, gaining particular expertise in high temperatures and pressures, vacuums and gas controls.

Annual sales

Approximately ¥214,500 million

Principal products andoperations

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

Market needs

Use of gas to raise productivity, enhance quality, save energy and enhancethe environment
Optimal, stable, economic supply of gas

Our advantages

Japan’s largest and strongest industrial gas producer, offering increased
cost advantages and price competitiveness• Production and supply capabilities
Balanced, nationwide network of production bases
Liquefaction capacity accounting for approximately 33% of domestic market• Logistics capabilities
Approximately 500 filling stations capable of serving approximately 40% of
the domestic market
Tank truck fleet and extensive network of shipping bases
Growing marketing network, including around 250 sales agents
Further strengthening of operations in China and the United States• Operations in Shanghai and Suzhou• Expanding U.S. businesses of Matheson Tri-Gas
Cultivating hydrogen station engineering and gas distribution businesses• High market shares for other industrial gases• In Japan, No. 1 in carbon dioxide and helium and No. 2 in acetylene

12Sales of
Gas Business
Years ended March 31
Billions of yen
215

2009
Target Line

169

2006

2007

Note: A new target will be set
under our new mediumterm business plan

Fiscal 2007 Highlights

Purchased helium gas business of the former BOC Group plc.
Singapore subsidiary significantly enhanced its operating foundation for various
industrial gases
Merged three carbon dioxide gas companies to create Nippon Ekitan
Corporation
Reinforced argon production and transport facilities
Established Osaka Package Gas Center, a large-scale filling station, by consolidating
existing facilities
Began construction of the largest industrial gas production facility in thePhilippines

Targets

Sales of ¥196,000 million in fiscal 2009 (This target was set in 2006 andwill be superseded by a new target to be set under our new medium-termbusiness plan, which will be released in early 2008.)
Focus on new demand for gas and expand business overseas

Basic policies

Thanks to robust market conditions and effective M&A activities, we are confident of achieving the targets we have set for this business—which alreadyhas the highest sales of all the Taiyo Nippon Sanso Group’s businesses—
under our current medium-term management plan and are thus focusing ourefforts on enhancing earnings capabilities. For example, we are striving toeliminate redundancy in business areas and consolidate bases to optimize
Group capabilities.
Our principal marketing policy focuses on five tasks: establish an earnings
foundation worthy of the top name in the industry; cultivate gas use technologies in growth areas; reinforce our network of special agencies throughout
Japan; promote the optimization of filling stations; and globalize our operations. At the same time, we will continue to pay close attention to the opinions of our partners and customers. In line with this basic policy, we havedeveloped a business strategy and a development policy that focus on maintaining and eventually expanding demand for bulk gas. The growth engine
behind this will be our ability to maintain existing customers and existing
demand and to attract new customers and cultivate new demand, as well as
to continue supplying gas to Japanese firms establishing operations overseas
wherever these operations may be.
With the aim of enhancing logistics capabilities—a key task of our current
medium-term business plan—we are working closely with the logistics groupof our Business Division and attempting to eliminate redundant deliveries andto enhance the efficiency of delivery vehicles, moves that will reinforce ourdomestic operating foundation. In our cylinder gas business, we will maximize our position as a producer to enhance our relationships with representatives of local trading companies. For example, we will offer comprehensive
assistance to our partners, helping them to resolve a variety of issues, fromthe development of storage infrastructures and improvement of product quality
and safety to personnel- and financing-related issues.

13Sales of
Onsite and Plant
Businesses
Years ended March 31
Billions of yen
54
49

2009
Target Line

Onsite and Plant Businessseparation plants, manyof which we export
2006 2007
around the globe. In
Note: A new target will be set
addition, we supply
under our new mediumterm business plan
many different types ofexperimental equipment, including
space simulation chambers, which replicate the conditionsof outer space. We
also supply equipment for exploringbasic physics anddiscovering new
functional materials.

In the onsite business, we construct large cryogenic
air separation plants on the premises of major industrial gas users, notably steel mills and chemical complexes. The largest of our plants can produce up to
65,000 m3/h. We also provide stable supplies of oxygen and nitrogen through our pipelines. Our onsite
business operates around the clock every day of theyear, ensuring consistent supplies of large volumes ofindustrial gases and earning us the trust of steelmakers
and chemical manufacturers.
In our plant business, we build a wide range of
air separation plants, which form the foundation of
the industrial gases business. We draw on our
expertise in industrial gas production and supply
not only to serve industrial gas producers, but also
to build a strong track record in manufacturing air

Annual sales

Approximately ¥53,500 million

Principal operations

Onsite: Supplies of oxygen, nitrogen and argon via 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

Our advantages

With onsite and plant businesses, we can provide support for both plants
and engineering on a global scale, drawing on our capabilities as amanufacturer of industrial gases.
• Ability to optimize facilities and operating efficiency

Fiscal 2007 highlights

Received healthy orders from steelmakers, electronics manufacturers andoverseas customers
Built new large-scale oxygen plant
Promoted collaboration between our R&D group (Tsukuba and Yamanashi
laboratories and others) and external organizations

Targets

Sales of ¥51,000 million in fiscal 2009 (This target was set in 2006 and will
be superseded by a new target to be set under our new medium-termbusiness plan, which will be released in early 2008.)
Secure new demand for gases and expand sales in overseas markets

14Sales ofMedical-Related
Business
Years ended March 31
Billions of yen
2009
Target Line

14

Medical-Related Business11

such services as regulartesting of equipment and2006 2007
operation of remoteNote: A new target will be set
monitoring systems.
under our new mediumterm business plan
Applying our advanced
gas-related technologies, we also make and sell stable
isotopes (SIs) for advanced diagnostics and treatment,
as well as specialty gases.

We build special filling facilities for medical gases within our industrial gas production and sales networks toensure stable supplies of medical oxygen and otherhigh-quality gases used by medical institutions. We
help improve the safety and reliability of medical treatment by developing pure air supply systems and othermedical support equipment, as well as devices for homeoxygen therapy. In addition, we help improve safety
and reliability in the medical treatment sector throughAnnual sales

Approximately ¥13,800 million

Principal products

Medical-related oxygen and other gases
Synthesized (pure) air supply facilities, portable oxygen cylinders and medicaluse oxygen compressors
SIs

Market needs

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

Our advantages

Production and sales of pharmaceutical ingredients for positron emission
tomography (PET) diagnostics• Strong position as a manufacturer of Water –180, a pharmaceutical ingredient for reagents used in PET diagnostics, with an 80% domestic market
share• Have commenced shipments of world-class pharmaceutical ingredients toleading manufacturers of fluorodeoxyglucose (FDG) PET reagents in Europe
and the United States
Reliable systems for manufacture and sales of pharmaceutical products• Gather safety control information and data

Fiscal 2007 highlights

Commenced construction of medical technical service center
Made affiliate KOMATSU MEDICAL INSTRUMENTS CO., LTD., a wholly
owned subsidiary
Established CRYOTRANSYS CORP. (integrated Group’s transfer business forliquid helium used in magnetic resonance imaging (MRI) equipment)
Entered business alliance with Koike Medical Co., Ltd.

Targets

Sales of ¥20,000 million in fiscal 2009 (This target was set in 2006 and will
be superseded by a new target to be set under our new medium-termbusiness plan, which will be released in early 2008.)
Expand SI sales; strengthen marketing capabilities in medical gases andequipment via M&A initiatives

15

Sales of
LP Gas Business
Years ended March 31
Billions of yen

43

2009
Target Line41

LP Gas Businessof air conditioning andcogeneration systems.
2006 2007
The Taiyo Nippon
Note: A new target will be set
Sanso Group sells LP
under our new mediumterm business plangas for household heating, hot water and air conditioning use through93,000 direct sale outlets located throughout Japan.
Our energy business will likely become a focus ofattention in the years ahead as fuel cells proliferate theresidential market.

LP gas is highly valued as a clean energy source. Its
expanding range of applications includes commercial
air conditioning and heating equipment, home power
generation and hot water systems using generators andwaste heat, as well as fuel for taxi fleets. An environment-friendly alternative to chlorofluorocarbons, LP
gas is also used as an aerosol gas. We satisfy a broad
range of industrial needs through an integrated structure, which encompasses everything from tank truck
deliveries of bulk LP gas to the design and installation

Annual sales

Approximately ¥42,500 million

Principal products andoperations

Supply of LP gas for residential and industrial customers
Annual unit sales of around 450,000 metric tons

Market needs

Stable supply of household fuel to 25 million households in areas not adequately served by electric power and town gas services

Our advantage

450,000 metric tons (ranked 6th in Japan)

Fiscal 2007 highlights

Merging LP gas affiliates into regional entities
Strengthened procurement capabilities by exploiting groupwide economies ofscale

Targets

Sales of ¥45,000 million in fiscal 2009 (This target was set in 2006 and will
be superseded by a new target to be set under our new medium-termbusiness plan, which will be released in early 2008.)
Expand cogeneration business16

Corporate Social Responsibility

Contributing to Society as the Gas
Professionals
Taiyo Nippon Sanso remains clearly focused on balancing the need to secure economic benefits with theneed to mitigate potential risks, while at the sametime striving to create value for its stakeholders andcontribute to sustainable development.
Positron emission tomography (PET) diagnostic
imaging is attracting increasing attention for use in
the detection of cancer. We have developed the technology to produce Water –18O, a tracer material
used in PET diagnostics, by distilling carbon monoxide and enriching oxygen-18 (18O) (an oxygen isotope) that enables us to ensure a stable supply ofhigh-quality material using only 1/6 the energy
required by conventional technologies.
PET diagnostic imaging offers significant advantages over other diagnostic methods, notably reduced
strain on patients. As a consequence, demand has
expanded steadily since the latter half of the 1990s.
We are the first manufacturer to use high-purity oxygen as a starting material to produce Water –18O
using a proprietary cryogenic distillation technology
to distill and enrich 16O and 18O isotopes. This
process is based on a theory, developed in cooperation
with Shiro Asano, professor emeritus at the Tokyo
Institute of Technology, for distilling 18O using precision air separation. We currently have an annual production capacity for Water –18O using this processof 100kg and have secured market shares of 90% inJapan and 30% worldwide. Going forward, we willcontinue striving to increase corporate value by pursuing businesses such as this that offer economic viability
as well as contribute to society.

well-known soccer analyst and former professional
player in Japan, among others, and finished up with agame in front of an audience of approximately 600
parents and siblings.
Environmental Preservation
In fiscal 2007, we obtained blanket certification
under ISO 14001, the International Organization forStandardization’s standard for environmental management systems. Our Electronic Materials Division
and Chubu Branch had previously achieved certification, but this blanket certification recognizes ISO
14001 compliance at of all our operations in Japan.
Also in the period under review, we succeeded incommercializing MG Shield®, a cover gas that offers aviable alternative to sulfur hexafluoride in the production of magnesium alloys. In addition to being highly
fireproof, MG Shield®, the principal component of
which is fluorinated ketone, is environment-friendly(global warming potential coefficient (GWP): 1).
On another front, we developed a hydrogen dispenser that can produce 70Mpa of hydrogen, or twice
the maximum working pressure, during a single
charge. Used in hydrogen filling stations, this dispenser will make it possible for hydrogen-powered
fuel cell vehicles (FCVs) to travel 500km on one
charge, considered the principal goal for nextgeneration FCVs.

In the Community
We are involved in a number of initiatives aimed at
benefiting the community. These include Sergio
Soccer Clinic, an annual program for elementary
school-age soccer teams. In the period under review,
we sponsored highly successful clinics in Chiba andOsaka that included coaching by Sergio Echigo, a17

Board of Directors, Corporate Auditors and Corporate Officers

Board of Directors

Corporate Auditors

ChairmanHiroshi Taguchi

Toshiro Hatagami
Yoshinori Kobayashi *2
Yasusuke Nakanishi *2
Kiyoshi Fujita

President
Hirosuke Matsueda

Corporate Officers
Executive Vice Presidents
Yasunobu Kawaguchi
Kazuya Ito
Keiji Futamatsu

Corporate Executive Officers
Katsuji Tsukada
Toshio Sato
Akira Ito
Shinji Tanabe
Yoshihisa Shibata
Kunishi Hazama
Tadashige Maruyama
Shigeto Umatani

Executive Director/Advisor
Konosuke Ose
Senior Managing Directors
Soichi Hirabayashi
Hiroyuki Miura
Yutaka Kurosawa
Kenichiro Ebisawa
Fumio Hara

Corporate Officers
Junichi Ishimaru
Toshio Suwa
Yasuharu Kamioka
Yoshikazu Yamano
Masayuki Tanino
Yujiro Ichihara
Shigeru Amada
Shuichi Yoshida
Masakazu Naruo
Hiroshi Katsumata
Kinji Mizunoe
Masanori Zaima
Shinichiro Hiramine
Akihiko Umekawa
Akira Nishimoto
Keiki Ariga
Masahiro Imagawa
Tetsuya Nakayama

Managing Directors
Toyoo Go
Masashi Yamashita
Kenichi Kasuya
Executive Directors
Ryuichi Tomizawa *1
William J. Kroll(As of June 29, 2007)

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

18

Financial Section

Contents
20 Analysis of Operating Results and Financial Position
23 Six-Year Summary
24 Consolidated Financial Statements
29 Notes to Consolidated Financial Statements
46 Report of Independent Auditors

19

Analysis of Operating Results and Financial Position

Scope of Consolidation and Application of the Equity Method
A total of 54 consolidated subsidiaries and17 equity-method affiliates are included in
the Gas Business segment. The Plant andGas Equipment Business segment accounts
for six consolidated subsidiaries, while theHousewares Business and Others segment
encompasses six consolidated subsidiaries
and eight equity-method affiliates.

As of March 31, 2007, the Taiyo Nippon
Sanso Group consisted of Taiyo Nippon
Sanso Corporation (the parent company);
66 consolidated subsidiaries (43 in Japanand 23 overseas), up from 60 a year earlier
owing to the acquisition of medium-sized
U.S. industrial gas firm Linweld Inc.; and25 equity-method affiliates (9 in Japan and16 overseas).
Operating Results
In fiscal 2007, consolidated net sales totaled¥458,587 million, an increase of 15.4% fromfiscal 2006, while cost of sales rose 14.7%, to¥315,863 million, owing primarily to higher
packing and freight costs and salaries. Accordingly, operating profit climbed 36.2%, to¥36,488 million, and the operating margin
improved 1.3 percentage points, to 8.0%.

Net Sales

Other income soared 64.7%, to ¥10,287
million, while other expenses more thandoubled, to ¥10,271 million, resulting in a
net gain of ¥16 million, down from ¥1,279
million in the previous period. As a consequence, net income rose 39.1%, to ¥20,094
million. Net income per share was ¥49.93,
and return on equity was (ROE) was 10.6%.

Operating Profit

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

(Yen)

500

30

50

30

20

50

400

24

40

24

16

40

300

18

30

18

12

30

200

12

20

12

8

20

100

6

10

6

4

10

0

0

0

0

0

0

2003 2004 2005 2006 2007

2003 2004 2005 2006 2007

2003 2004 2005 2006 2007

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 2003 and 2004 totals of the former Nippon Sanso.

20

Financial Position
As of March 31, 2007, total assets amounted
to ¥547,791 million, up 16.2% from the fiscal 2006 year-end. This increase was largely
attributable to M&A activity, namely theacquisition of U.S. firm Linweld and thepurchase of the helium gas business of theformer BOC Group plc, which added¥46,900 million, as well as to increases innotes and accounts receivable—trade andinvestment securities at the parent company,
the latter owing to an increase in current
value, which added ¥26,600 million. The
current ratio edged down 0.06 percentage
point, to 1.22 times.
Property, plant and equipment, net, rose
8.5%, to ¥206,386 million, owing mainly to
an increase in machinery and transportationequipment. Total investments and otherassets climbed 40.4%, to ¥140,510 million,
reflecting a ¥15,467 million increase ininvestment securities and a ¥24,682 million
increase in intangible assets, net.

Total current liabilities rose 16.1%, to¥164,907 million. This increase was due toa ¥17,365 million increase in notes andaccounts payable—trade, resulting from thefact that the fiscal year ended on a Saturday,
a bank holiday in Japan. As a result, notes
and accounts due were still included in thebalance due as of the fiscal year-end.
Total long-term liabilities advanced
24.0%, to ¥166,814 million, primarilyreflecting increases in long-term debt andlong-term lease liabilities of ¥21,996 millionand ¥4,023 million, respectively. As a consequence of these factors, interest-bearing
debt increased ¥37,259 million, to¥152,232 million.
Total net assets amounted to ¥216,068
million, an increase of ¥21,102 million. As
a result, the net asset ratio slipped 1.1 percentage points, to 36.7%. Net assets per
share rose ¥58.42, to ¥500.28.

Cash Flow Analysis
In fiscal 2007, net cash provided by operating activities amounted to ¥40,061 million,up ¥8,124 million. Principal factors contributing to this change included an increaseof ¥8,437 million in income before income
taxes and minority interests and an increaseof ¥8,921 million in increase in payables.
The interest coverage ratio was 16.1 times,
up 1.4 percentage points.

Net cash used in investing activities cameto ¥66,286 million, up ¥41,048 million
from the previous year. This was attributable mainly to ¥33,445 million in payments
for acquisition of subsidiaries’ stocks withchange in scope of consolidation.
Net cash provided by financing activities
came to ¥22,451 million, compared with
¥8,977 million used in these activities in

Total Assets

EquityReturn on Equity (ROE) and
Return on Assets (ROA)(Billions of yen)(Billions of yen)

(%)

(%)

550

240

40

15

180

30

120

20

12

440

9

330

6

220
60

10
3

110

0

0
2003 2004 2005 2006 2007

00

2003 2004 2005 2006 2007

2003 2004 2005 2006 2007

Equity ratio (right scale)

ROE
ROA

21

fiscal 2006. Major contributing factors were
¥15,000 million in proceeds from issuanceof bonds and a ¥4,364 million increase inlease liabilities.

Owing to the Company’s operating,investing and financing activities in fiscal
2007, cash and cash equivalents at end of
the year totaled ¥14,404 million.

Business Risks
Taiyo Nippon Sanso faces a variety of risks,
the potential impact of which it strives tominimize through effective risk management.
The Company recognizes the following risks
as having the potential to affect its performance, and are thus important factors forconsideration in any investment decision:

A number of other factors could also affect
the Company’s business performance. These
include unforeseen revisions to existing laws
and the enactment of new ones.
Technical and Safety Factors
Technological Development

The creation of new products and technologies entails various uncertainties, owing to
the Company’s reliance on technologicaldevelopment activities in such areas as compound semiconductors, the environment
and energy.

External Factors
Foreign Exchange and Interest Rates The

Company uses various means to minimize
the effect of currency fluctuations on its
import and export transactions, including
the purchase of foreign exchange forward
contracts. Nonetheless, sudden fluctuations
in exchange rates could negatively affect theCompany’s business performance.
In addition, interest-rate trends could have amaterial impact on performance. The Company
maintains large-scale supply facilities for large
customers and needs to spend heavily tomaintain and upgrade these facilities.

Intellectual Property

The Company obtains intellectual property
rights required for its proprietary technological development activities. However, there
are no guarantees that its technologies arecompletely protected.
Product Defects

The Company sells high-pressure gas-related
products and handles toxic and flammablegases used in semiconductor fabrication.
While the Company strives to ensure theeffective management of related risks, itcannot guarantee that all of its products
are free of defects.

Reliance on Specific Industries

Changes in the semiconductor market, acore sector, could have a significant impact
on the Company’s business performance.
Changes in Oil Prices

Electricity is the major component of thecost of manufacturing such core products as
oxygen, nitrogen and argon. Surging oil
prices could lead to a substantial increase inelectricity charges, and it may be impossible
for the Company to reflect such charges in
the pricing of products.

Other Factors
Retirement Benefit Liabilities

Further decreases in the discount rate anda sudden deterioration in retirement plan
returns may materially affect the Company’sbusiness performance.

Competition
Gas Prices

Natural Disasters

The occurrence of natural disasters in areas
where the Company has 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 business performance.

The Company’s business performance may
be affected if it is unable to curb declines
in the prices of its products due to intensecompetition.
Overseas Factors

The Company maintains gas operations
overseas, primarily in the United Statesand Asia. Political and economic changes
in other countries, including China, which
continues to see rapid economic growth,
may have an adverse impact on the
Company’s business performance.

Legal Issues

Unanticipated changes to existing laws, theintroduction of new laws and the tighteningof environmental laws, particularly in countries overseas where the Company maintains
operations, may negatively affect theCompany’s business performance.

22Six-Year Summary
Taiyo Nippon Sanso Corporation and Consolidated Subsidiaries

Years ended March 31

Net sales

2007

2006

Millions of yen
2005
2004

2003

2002

¥458,587¥397,308¥300,055¥230,272¥238,445¥241,546

Operating profit

36,48826,78820,727

14,317

10,313

9,758

Net income

20,094

14,444

11,568

4,541

4,263

3,134

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

23.2%

24.0%

24.5%

24.1%

24.8%

25.0%

Return on equity (%)

10.6%

8.7%

8.7%2

4.9%

4.7%

3.5%

Return on assets (%)

3.6%

3.1%

3.3%

2

1.8%

1.6%

1.1%

Capital expenditure

35,891

22,17638,092

7,413

17,693

17,284

Depreciation and amortization

21,21018,982

14,592

11,627

13,70914,213

Research and development
2,713

2,223

2,056

2,296

2,508

3,454

Interest-bearing debt

expenses

152,232

122,196

122,089

86,32590,489106,021

Total net assets

216,068

178,055

154,207

94,802

89,18290,704

Total assets

547,791

471,602404,668

263,595

253,698

275,649

Yen

Per share data:
Net income1¥49.93¥35.45¥32.76¥15.38¥14.36¥10.58Cash dividends

12.00

10.00

9.00

6.00

6.00

6.00

31.21

22.98

31.19

Times

Price earnings ratio

24.54

19.17

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 2002 to 2004 totals of the former Nippon Sanso.
4. Figures given for net assets prior to fiscal 2007 are for total shareholders’equity.

23

Consolidated Balance Sheets
Taiyo Nippon Sanso Corporation and Consolidated Subsidiaries

Millions of yen
2007
2006

March 31

Thousands of
U.S. dollars(Note 4)
2007

AssetsCurrent assets:
Cash and deposits (Note 5)¥ 15,046

Short-term investments (Notes 5 and 6)¥18,714 $ 127,454

291

371

2,465

Notes and accounts receivable—trade (Note 7)

132,759

119,390

1,124,600

Inventories (Note 8)

39,34231,316333,266

Deferred income taxes (Note 12)

6,186

5,803

52,402Other current assets

8,039

6,492

68,098

(772)

(748)

(6,540)Total current assets

Allowance for doubtful receivables

200,892

181,340

1,701,753

Property, plant and equipment (Notes 10, 11 and 20)

519,643

495,175

4,401,889

Accumulated depreciation(313,257)(304,979) (2,653,596)

Property plant and equipment, net

206,386

190,196

1,748,293

Investment securities (Note 6)

79,20563,738670,945

Long-term loans receivable

1,048

1,249

8,878

Investments and other assets:

Intangible assets, net

41,691

17,009353,164

Prepaid pension expenses (Note 15)

12,984

12,821

109,987

Deferred income taxes (Note 12)

1,900

1,339

16,095

Other assets

5,941

6,066

50,326

Valuation allowance for investments(1,282)(865)(10,860)

Allowance for doubtful receivables(977)(1,294)(8,276)
1,190,258

Total investments and other assets

140,510100,064

Total assets¥547,791¥471,602 $4,640,330

See notes to consolidated financial statements.

24

Thousands of
U.S. dollars(Note 4)
2007

Millions of yen
2007
2006

March 31

Liabilities and Net assets
Current liabilities:
Short-term bank loans and current portionof long-term debt (Notes 9 and 10)¥ 30,080

Notes and accounts payable—trade95,344

77,979807,658

Accrued income taxes (Note 12)

8,317

7,752

70,453

Other current liabilities
Total current liabilities¥ 23,768 $ 254,807

31,16532,565

263,998

164,907

142,064

1,396,925

Long-term liabilities:
106,595

84,599902,965

Pension and severance indemnities (Note 15)

Long-term debt (Notes 9 and 10)

5,077

5,432

43,007

Deferred income taxes (Note 12)

40,08033,135339,517

Negative goodwill

1,452

—

12,300Consolidation adjustment accountLong-term lease liabilities

—

1,318

—

9,433

5,410

79,907

Other liabilities

4,175

4,675

35,366

Total long-term liabilities

166,814

134,570

1,413,079

27,03927,039229,047

Contingent liabilities (Note 16)
Net assets (Notes 3, 13 and 22):
Shareholders’ equity:
Common stock:
Authorized—800,000,000 shares
Issued—403,092,837 shares
Capital surplus

44,74644,833379,043

Retained earnings

107,495

93,425910,589(376)(1,657)(3,185)24,982

19,452

211,622

Treasury common stock, at cost—
719,203 shares in 2007 and 3,297,515 shares in 2006
Valuation and translation adjustments:
Unrealized holding gain on securities
Deferred gains on hedges
Foreign currency translation adjustments
Accumulated other comprehensive loss
Minority interests

56

—

474

(2,535)(5,038)(21,474)

(111)

—

(940)

14,77016,910125,116
1,830,309

Total net assets

216,068

194,966

Total liabilities and net assets¥547,791¥471,602 $4,640,330

25Consolidated Statements of Income
Taiyo Nippon Sanso Corporation and Consolidated Subsidiaries

Millions of yen
2007
2006

Years ended March 31

Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses (Note 18)
Operating profit
Other income (expenses):
Interest and dividend income
Interest expense
Amortization of negative goodwill
Amortization of consolidation adjustment accountGain on sale of property, plant and equipment (Note 19)
Loss on sale and disposal of property, plant and equipment(Note 19)
Gain on sale of investment securities
Loss on devaluation of memberships at golf clubs
Loss on sale of memberships at golf clubs
Equity in earnings of affiliates
Impairment loss (Note 20)
Loss on liquidation of affiliates
Loss on revaluation of investments
Merger expense
Expenses for improvement of environment
Gain from prior period adjustments
Gain from reversal of allowance for doubtful receivables
Gain from termination of part of the retirement benefit plan
(Note 15)
Other, net
Income before income taxes and minority interests
Income taxes (Note 12):Current
Deferred
Minority interests in earnings of consolidated subsidiaries
Net income¥458,587
315,863
142,724
106,235
36,488¥397,308 $3,884,684
275,326
2,675,671
121,981
1,209,013
95,193899,915
26,788309,089

1,235(2,512)
403
—
6,628

842
(1,982)
—
395
3,044

10,462(21,279)
3,414—
56,146(5,826)
174
(67)
(13)
1,300
(813)
—
(540)
—
(500)
—
—

(964)
107
(155)
—
779
(738)
(128)
(725)
(275)
—
161
149

(49,352)
1,474
(568)
(110)
11,012(6,887)—(4,574)—(4,235)
—
—

—
547
16
36,505

51
718
1,279
28,068—4,634
136
309,233

14,08010,551
119,271
833
1,843
7,056
14,913
12,394
126,328
1,498
1,228
12,690¥ 20,094 ¥ 14,444 $ 170,216
U.S. dollars(Note 4)

Yen

Amounts per share:
Net assets
Net income
Cash dividends¥500.28
49.93
12.00

See notes to consolidated financial statements.

26

Thousands of
U.S. dollars(Note 4)2007

¥441.86
35.45
10.00

$4.24
0.42
0.10

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

Millions of yen
Number ofshares ofcommonstock

Balance at March 31, 2005
Gain on disposal of treasury stock
Increase due to merger ofsubsidiaries
Decrease due to decrease ofownership ratio
Bonuses to directors andcorporate auditors
Cash dividends paid
Other
Net income for the year ended
March 31, 2006
Net changes in items other thanthose in shareholders’ equity
Balance at March 31, 2006
Reclassified balance as ofMarch 31, 2006
Gain on disposal of treasury stock
Retirement of treasury stock
Increase due to merger ofsubsidiaries
Bonuses to directors andcorporate auditors
Cash dividends paid
Other
Net income for the year ended
March 31, 2007
Purchase of treasury stock
Net changes in items other thanthose in shareholders’ equity
Balance at March 31, 2007

Commonstock

405,892,837—

CapitalsurplusRetainedearnings

Treasurystock

Unrealized
holding gain
on securities¥27,039 ¥44,807 ¥ 83,672 ¥ (479) ¥ 9,300
—
25
—
—
—

Foreign
Accumulated
Deferred currency
othergains on translation comprehensive
hedges adjustmentsloss¥— ¥(10,132) ¥
—
—

—
—

Minority
interests

Total
net assets¥——¥154,207
25

—

—

—

22

—

—

—

—

—

—

22

—

—

—

(499)

—

—

—

—

—

—

(499)

—
—
—

—
—
—

—
—
—

(146)
(4,040)
(27)

—
—
—

—
—
—

—
—
—

—
—
—

—
—
—

—
—
—

(146)
(4,040)
(27)

—

—

—

14,444

—

—

—

—

—

—

14,444—
405,892,837—
27,039—44,833—93,425(1,178)(1,657)

10,152
19,452——

5,094(5,038)————14,068178,055——(2,800,000)

—
—
—

—
10
(96)

—
—
(1,425)

—
18
1,522

—
—
—

—
—
—

—
—
—

—
—
—

(16,910)——(16,910)
28
—

—

—

—

29

—

—

—

—

—

—

29

—
—
—

—
—
—

—
—
—

(167)
(4,429)
(30)

—
—
—

—
—
—

—
—
—

—
—
—

—
—
—

—
—
—

(167)
(4,429)
(30)

—
—

—
—

—
—

20,094
—

—
(259)

—
—

—
—

—
—

—
—

—
—

20,094
(259)

56
2,502
(111)
¥56 ¥ (2,535) ¥(111)(2,139)¥ 14,770

5,837¥216,068

Minority
interests

Total
net assets—
403,092,837

—
—
—
—
5,530
¥27,039 ¥44,746 ¥107,495 ¥ (376) ¥24,982

Thousands of U.S. dollars (Note 4)
Commonstock

Balance at March 31, 2006
Reclassified balance as ofMarch 31, 2006
Gain on disposal of treasury stock
Retirement of treasury stock
Increase due to merger ofsubsidiaries
Bonuses to directors andcorporate auditors
Cash dividends paid
Other
Net income for the year ended
March 31, 2007
Purchase of treasury stock
Net changes in items other thanthose in shareholders’ equity
Balance at March 31, 2007

CapitalsurplusRetainedearnings

Treasurystock

Foreign
Accumulated
Unrealized Deferred currency
otherholding gain gains on translation comprehensive
on securities hedges adjustments
loss$229,047 $379,780 $791,402 $(14,036) $164,778 $ — $(42,677)
—
—
—

—
85
(813)

—
—
—
152
(12,071) 12,893

—

—

246

—
—
—

—
—
—

—
—

—
—

$ —

$

— $1,508,302

—
—
—

—
—
—

—
—
—

—
—
—

(143,244)——(143,244)
237
—

—

—

—

—

—

—

246

(1,415)(37,518)
(254)

—
—
—

—
—
—

—
—
—

—
—
—

—
—
—

—
—
—

(1,415)(37,518)(254)

170,216——(2,194)

—
—

—
—

—
—

—
—

—
—

170,216(2,194)————
46,845 474
21,194(940)$229,047 $379,043 $910,589 $ (3,185) $211,622 $474 $(21,474) $(940)

See notes to consolidated financial statements.

27(18,119)
49,445$125,116 $1,830,309

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

Years ended March 31

Operating activities
Income before income taxes and minority interests
Depreciation and amortization
Impairment loss
Amortization of goodwill
Amortization of consolidation adjustment accountInterest and dividend income
Interest expense
Equity in earnings of affiliates
Loss on disposal and sale of property, plant and equipment
Gain on sale of investment securities(Increase) decrease in receivables
Increase in accounts receivable
Increase in inventories
Increase in payables
Increase in accrued expenses
Decrease in advances received
Increase in prepaid pension expenses
Increase in pension and severance indemnities
Other
Interest and dividends received
Interest paid
Income taxes paid
Net cash provided by operating activities

Millions of yen
2007
2006

Thousands of
U.S. dollars(Note 4)2007

¥ 36,505
21,210813
498—(1,236)2,512(1,300)(1,008)(174)(742)(10,803)(6,084)
15,531
383
(505)
(163)
(309)
(2,067)53,0581,583(2,488)(12,092)
40,061¥ 28,068
18,982
738
—
(207)
(842)
1,982
(779)
(2,201)(108)
951(8,741)
(466)
6,610
1,489
(1,544)(2,697)(1,786)837
40,282
1,155(2,173)(7,325)31,937$ 309,233
179,670
6,887
4,219
—
(10,470)
21,279(11,012)(8,539)(1,474)(6,285)(91,512)(51,537)
131,5633,244(4,278)(1,381)(2,618)(17,510)449,454
13,410(21,076)(102,431)
339,356

Investing activities
Increase in short-term investments
Proceeds from sales or redemption of marketable and investment securities
Purchases of property, plant and equipment
Proceeds from sales of property, plant and equipment
Purchases of intangible assets
Proceeds from sales of intangible assets
Payments for purchase of investment securities
Proceeds from sales of investment securities
Payments for acquisition of subsidiaries’ stocks
with change in scope of consolidation
Other
Net cash used in investing activities

746—(30,290)
9,407(4,835)
4(7,997)
436

304
506
(23,074)
4,298
(418)
171
(1,883)
151

6,319
—
(256,586)
79,687(40,957)
34(67,742)
3,693(33,445)(310)(66,286)(5,158)(135)(25,238)(283,312)(2,626)(561,508)

Financing activities
Repayments of short-term bank loans(Repayments of) proceeds from commercial paper
Proceeds from issuance of long-term debt
Repayment of long-term debt
Proceeds from issuance of stocks
Proceeds from issuance of bonds
Repayment of lease liabilities
Increase in lease liabilities
Cash dividends to shareholders
Dividends paid to minority interests
Redemption of treasury stock
Proceeds from sale of treasury stocks
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash and cash equivalents
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of the year
Increase by change in the scope of consolidation
Increase by newly consolidated subsidiaries
Increase by merger of subsidiaries
Cash and cash equivalents at end of the year (Note 5)(5,843)(2,000)27,182(11,234)277
15,000(411)
4,364(4,429)
(238)
(257)
42
22,451367(3,405)
17,416243—
150¥ 14,404(5,873)3,000
22,440(23,410)150———(4,040)(183)(1,186)125(8,977)190(2,087)
17,839830
458
376¥ 17,416(49,496)(16,942)
230,258(95,163)
2,346
127,065(3,482)36,967(37,518)(2,016)(2,177)356
190,182
3,109(28,844)
147,531
2,058
—
1,271
$ 122,016

See notes to consolidated financial statements.

28

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 SANSO CORPORATION (the “Company”) and consolidated
subsidiaries are prepared on the basis of accounting
principles generally accepted in Japan, which are
different in certain respects as to application anddisclosure requirements of International Financial
Reporting Standards, and are compiled from theconsolidated financial statements prepared by theCompany as required by the Securities andExchange Law of Japan.

As permitted by the Securities and Exchange
Law of Japan, amounts of less than one million yen
have been omitted. As a result, the totals shown in
the accompanying consolidated financial statements (both in yen and U.S. dollars) do notnecessarily agree with the sums of the individual
amounts.
Certain amounts previously reported havebeen reclassified to conform to the current year
presentation.

2. Summary of Significant Accounting Policies
The Company and certain of its subsidiaries havemarketable securities classified as other securities
which are carried at fair value with any changes in
unrealized holding gain or loss, net of the applicable income taxes, reported as a separate componentof net assets. Non-marketable securities classified asother securities are carried at cost. Under the
Corporate Law of Japan, unrealized gain or loss onother securities, net of the applicable income taxes,
is not available for distribution as dividends.

(a) Consolidation

The accompanying consolidated financial statements include the accounts of the Company andits 66 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 Securities and Exchange Law of Japan,
investments in certain unconsolidated subsidiaries
and significant affiliates are accounted for by theequity 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 by the straight-line method over a
period of five years.
Investments in unconsolidated subsidiaries andaffiliates other than those which are accounted forby the equity method are principally stated at cost.

(d) Inventories

Inventories of the Company and its domestic subsidiaries are stated at cost determined by the average method, the specific identification method or
the moving average method.
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.
(e) Property, plant and equipment

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.

(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.

29

The useful lives are as follows:
Buildings
3 to 50 years
Machinery
4 to 15 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.

(f) Translation of foreign currency transactions

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, and resulting
gains and losses are included in income.
The accounts of the overseas subsidiaries aretranslated into yen at the year-end exchange rates,
except for net assets, which is translated athistorical rates. Differences arising from thetranslations are stated under “Foreign currencytranslation adjustments” and minority interests inconsolidated subsidiaries in the accompanying
consolidated balance sheets.

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

The allowance for directors’ and corporate auditors’ retirement benefits of the Company and certain of its domestic subsidiaries is provided at theamount which 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 inaccordance with the internal rules of the respective
companies. The allowance included ¥242 million($2,050 thousand) for corporate officers at March
31, 2007.

(g) Pension and severance indemnities

Allowance for employees’ retirement benefits is
recognized at the net total of the present value ofthe defined benefit obligation at the balance sheet
date, plus any actuarial gains (less any actuarial
losses) not yet recognized, minus the fair value ofplan assets (if any) at the balance sheet date out of
which the obligations are to be settled directly. If
the amount determined above is negative (anasset), such asset should be recorded as prepaid
pension expenses.
Net retirement benefit expense or income isrecognized as 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, past service cost, theproject unit credit method are used.
Actuarial gains or losses and past service cost arerecognized 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.

(i) Research and development expenses

Research and development expenses are charged tooperations as incurred.
(j) Income taxes

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.
(k) Amounts per share

Presentation of diluted net income per share is notapplicable as there were no potentially dilutive
securities for the years ended March 31, 2007
and 2006.
(l) Allowance for doubtful receivables

To cover possible losses on collection of receivables, the Company and its subsidiaries provided
for an allowance with respect to specific debts ofwhich recovery is doubtful, based on estimatedwrite-off amounts, after considering the likelihoodof recovery on an individual basis.
(m) Valuation allowance for investments

To state the investment amount fairly, theallowance is provided by considering the relatedparties’ assets and other factors.

30

(n) Derivative and hedging transactions

market prices, except for hedging transactions
whose gains or losses are deferred and recorded in
the balance sheet until the hedged transactions aresettled. Moreover, if interest-rate swaps in Japanare specifically tied to the hedged loan transactions,
unrealized gains or losses on those swaps are notrecognized in the consolidated financial statements
as such gains or losses are to be offset with those 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.

The Company and certain of its subsidiaries haveused foreign exchange forward contracts in orderto solely hedge against risks of fluctuations in foreign currency exchange rates relating to its receivables and payables denominated in foreign
currencies, interest-rate swap agreements in orderto solely hedge against risks of fluctuations ininterest rates relating to its long-term debt, and currency exchange swap agreements in order to solely
hedge against risks of fluctuations in foreignexchange of long-term debt denominated in foreign currencies, in compliance with the internal
rules of respective companies.
Under the “Accounting Standard for Financial
Instruments,” derivative transactions are valued at

3. Change in Accounting Policies and Adoption of New Accounting Standards(a) Accounting Standards for Presentation of
Net Assets in the Balance Sheet(c) Accounting Standard for Directors’ Bonus

Effective from the fiscal year beginning April 1,
2006, the Company applied Financial AccountingStandard No. 4, “Accounting Standard for
Directors’ Bonus,” issued on November 29, 2005
by the Accounting Standards Board of Japan. As aresult, operating income and income before
income taxes decreased by ¥44 million (US$373
thousand).

Effective from the fiscal year beginning April 1,
2006, the Company applied Financial AccountingStandard No. 5, “Accounting Standards for
Presentation of Net Assets in the Balance Sheet,”
and its Implementation Guidance No. 8, “Guidanceon Accounting Standards for Presentation of Net
Assets in the Balance Sheet,” issued on December 9,2005 by the Accounting Standards Board of Japan.
If the previous accounting policy were to be
applied, net assets at March 31, 2007 were¥201,352 million (US$1,705,650 thousand).

(d) Financial Accounting Standards Board(FASB) Statement No. 158, “Employers’
Accounting for Defined Benefit Pension
and Other Postretirement Plans—anamendment of FASB Statements No. 87,
88, 106, and 132 (R)”(b) Accounting Standard for Business
Combinations

Effective from the fiscal year beginning April 1,
2006, the Company applied Statement of Opinion,“Accounting for Business Combinations,” issued
on October 2003 by Business Accounting Council(BAC) of Japan, Financial Accounting Standard
No. 7, “Accounting Standard for Business
Divestitures,” issued on December 27, 2005, andthe related Implementation Guidance No. 10,“Guidance on Accounting Standard for Business
Combinations and accounting Standard forBusiness Divestitures,” issued on December 22,
2006 by the Accounting Standards Board of Japan.

Effective from the fiscal year beginning April 1,
2006, consolidated subsidiaries in the U.S. adopted
Statement of Financial Accounting Standard
No. 158 and recognized the underfunded amountof the postretirement benefit obligation (healthcare plan) in the consolidated balance sheet.
Adjustment for the initial application, excluding
deferred tax, is recognized in accumulated othercomprehensive loss as a component of net assets.

31

4. U.S. Dollar Amountsof exchange at March 31, 2007. The translation
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, atthe rate of ¥118.05=U.S.$1, the approximate rate

5. Cash and Cash Equivalents
The components of cash and cash equivalents at March 31, 2007 and 2006 were as follows:
Millions of yen
2007
2006

Cash and deposits
Time deposits with maturities of more than three months
Cash equivalents included in short-term investments

6. Marketable and Investment Securities

Cost$127,454(7,895)2,465$122,016

Millions of yen
2007
Balance sheet Unrecognizedamountgain (loss)

Thousands of U.S. dollars
2007
Balance sheet Unrecognized
Costamountgain (loss)¥15,668¥58,149¥42,481$132,723$492,579$359,856

373¥16,042313¥58,462(60)¥42,420

3,160$135,892

2,651$495,231(508)$359,339

Cost

Unrecognized gain items:
Stock
Unrecognized loss items:
Stock
Total

¥18,714(1,669)371¥17,416

respect to other securities for which market prices
were available was summarized as follows:

At March 31, 2007 and 2006, information with

Unrecognized gain items:
Stock
Unrecognized loss items:
Stock
Total

¥15,046(932)
291¥14,404

Thousands of
U.S. dollars
2007

Millions of yen
2006
Balance sheet Unrecognizedamountgain (loss)¥11,263¥44,472¥33,208

181¥11,445156¥44,628(24)¥33,183

Proceeds from sales of securities classified asother securities amount to ¥420 million ($3,558

32

thousand) and ¥127 million with an aggregate gainon sales of ¥174 million ($1,474 thousand) and¥108 million for the years ended March 31, 2007

and 2006, respectively.
Balance sheet amount of non-marketable securities

classified as other securities at March 31, 2007 and2006 were as follows:

Other securities:
Millions of yen
2007
2006

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

¥2,131
1,000
1,000
291

¥2,337
1,000
1,000
371

Thousands of
U.S. dollars
2007$18,052
8,471
8,471
2,465

There are no securities with maturity dates classified as other securities at March 31, 2007.
7. Notes and Accounts Receivable(a) Notes and accounts receivable liquidated at March 31, 2007 and 2006 were as follows:
Millions of yen
2007
2006

Accounts receivable transferred by liquidation
Notes receivable transferred by liquidation¥12,501
11,639¥3,059
6,160

Thousands of
U.S. dollars
2007$105,896
98,594(b) Notes receivable discounted at March 31, 2007 and 2006 were as follows:
Millions of yen
2007
2006

Notes receivable discounted
Notes receivable endorsed

¥ 3
—

¥617
67

Thousands of
U.S. dollars
2007

$25
—

8. Inventories
Inventories at March 31, 2007 and 2006 consisted of the following:
Millions of yen
2007
2006

Merchandise
Finished products
Semifinished products and work in process
Raw materials and supplies¥14,828
1,907
17,545
5,062¥39,34233¥12,027
1,698
13,1784,413¥31,316

Thousands of
U.S. dollars
2007$125,608
16,154
148,623
42,880$333,266

9. Short-Term Borrowings and Long-Term Debt
At March 31, 2007 and 2006, short-term borrowings and the current portion of long-term debt

consisted of the following:
Millions of yen
2007
2006

Bank loans
Current portion of long-term debt
Total

¥ 8,146
21,933¥30,080

The average interest rates applicable to shortterm bank loans outstanding at March 31, 2007
and 2006 were 2.92% and 0.96%, respectively.

¥13,130
10,637¥23,768

Thousands of
U.S. dollars
2007$ 69,005
185,794$254,807

Long-term debt at March 31, 2007 and 2006
comprised the following:

Millions of yen
2007
2006

Loans from banks due through 2017 at averageinterest rate of 2.14% in 2007 and 1.92% in 2006
0.92% unsecured bonds, payable in yen, due 2007
0.95% unsecured bonds, payable in yen, due 2009
1.81% unsecured bonds, payable in yen, due 2011

¥ 76,595—
15,00015,000¥106,595

0.56% commercial paper (¥6,000 million($50,826 thousand)) at March 31, 2007 and
0.13% commercial paper (¥8,000 million) at¥59,599
10,00015,000—¥84,599

Thousands of
U.S. dollars
2007$648,835—
127,065
127,065$902,965

March 31, 2006 were included in other current
liabilities.

The annual maturities of long-term debt are summarized as follows:
Years ending March 31

Millions of yen

Thousands of
U.S. dollars

2008
2009
2010
2011
2012
2013 and thereafter¥11,933
25,1807,887
19,607
14,055
9,866¥88,528$101,084
213,299
66,811
166,091
119,060
83,575$749,920

34

10. Pledged Assets
Assets pledged as collateral for short-term bankloans of ¥377 million ($3,194 thousand) and¥1,192 million, long-term debt of ¥1,501 million($12,715 thousand) and ¥857 million and otherliabilities of ¥350 million ($2,965 thousand) and¥3,157 million at March 31, 2007 and 2006
respectively were as follows:
Millions of yen
2007
2006

Property, plant and equipment, at net book value¥17,475¥6,119Thousands of
U.S. dollars
2007$148,030

11. Assets Replaced by National Subsidy
Assets replaced by national subsidy at March 31, 2007 and 2006 were as follows:
Millions of yen
2007
2006

Property, plant and equipment

¥411

¥411

Thousands of
U.S. dollars
2007$3,482

12. Income Taxes
Income taxes applicable to the Company comprise
corporation, enterprise and inhabitants’ taxes,
which, in the aggregate, resulted in statutory tax
rates of 40.69% for 2007 and 2006.

The effective tax rate reflected in the statement of income for the year ended March 31,
2006 differs from the statutory tax rate for thefollowing reasons:
2007

Statutory tax rate
Effect of:
Expenses permanently not deductible for income tax purposes
Dividend income deductible for income tax purposes
Change in valuation allowance
Other, net
Effective tax rate

The reconciliation omitted for the year ended
March 31, 2007 because the difference was lessthan 5% of the statutory tax rate.

35

40.69%
1.72(1.04)
3.14(0.35)
44.16%

Significant components of the Company’sdeferred tax assets and liabilities at March 31, 2007

and 2006 were as follows:
Millions of yen
2007
2006

Current deferred tax assets and liabilities
Deferred tax assets:
Accrued bonus
Loss from valuation of inventory
Accrued expenses
Tax losses carried forward
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 receivables
Deferred tax liabilities—subtotal
Deferred tax assets
Net deferred tax liabilities¥ 2,240
246
1,384
256
2,335
6,464
(227)
6,236
(49)
¥ 6,186¥ 2,036
143
1,266
2,169
2,222
7,837
(2,033)5,804(1)¥ 5,803$ 18,975
2,084
11,724
2,169
19,78054,756(1,923)52,825(415)$ 52,402

¥

¥

$

¥

(81)
(81)
49
(31)

¥

(61)
(61)
1
(60)

Millions of yen
2007
2006

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 replacement of fixed assets—special
Depreciation
Other
Deferred tax liabilities—subtotal
Deferred tax assets
Net deferred tax liabilities

36

Thousands of
U.S. dollars
2007

$

(686)
(686)
415
(263)

Thousands of
U.S. dollars
2007

¥

757
1,129
125
7,455
9,467
(4,268)
5,198(3,298)¥ 1,900

¥

760
1,341
37
6,573
8,713
(3,514)
5,199(3,859)¥ 1,339

$

6,413
9,564
1,059
63,15180,195(36,154)
44,032(27,937)$ 16,095¥(17,465)(6,868)(1,683)(7,100)(10,260)(43,378)
3,298¥(40,080)¥(13,609)(6,403)(1,545)(5,930)(9,506)(36,994)
3,859¥(33,135)$(147,946)(58,179)(14,257)(60,144)(86,912)(367,454)
27,937$(339,517)

13. Shareholders’ Equity(b) Increases / decreases and transfer ofcommon stock, reserve and surplus

On May 1, 2006, a new corporate law (the“Corporate Law”) became effective, which reformed
and replaced the Commercial Code of Japan withvarious revisions that would, for the most part, beapplicable to events or transactions which occur onor after May 1, 2006 and for the years ending on orafter May 1, 2006. The significant changes in the
Corporate Law that affect financial and accounting
matters are summarized below.

The Corporate Law requires that an amountequal to 10% of dividends must be appropriatedas a legal reserve (a component of retained earnings) or as additional paid-in capital (a component of capital surplus) depending on the equity
account charged upon the payment of such dividends until the total aggregate amount of legal
reserve and additional paid-in capital equals 25%of the common stock. Under the Commercial
Code of Japan, the aggregate amount of additional paid-in capital and legal reserve that exceeds
25% of the common stock may be made available
for dividends by resolution of the shareholders.
Under the Corporate Law, the total amount ofadditional paid-in capital and legal reserve may bereversed without limitation of such threshold.
The Corporate Law also provides that common
stock, legal reserve, additional paid-in capital, othercapital surplus and retained earnings can be transferred among the accounts under certain conditions
upon resolution of the shareholders.

(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 theshareholders’ meeting. For companies that meetcertain criteria such as; (1) having a Board of
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 of
Directors may declare dividends (except for dividends in kind) if the company has prescribed so 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. Under the Commercial
Code of Japan, certain limitations were imposedon the amount of capital surplus and retained
earnings available for dividends.
The Corporate Law also provides certain limitations on the amounts available for dividends or
the purchase of treasury stock. The limitation isdefined as the amount available for distribution to
the shareholders, but the amount of net assets
after dividends must be maintained at no less than
¥3 million.

(c) Treasury stock and treasury stockacquisition rights

The Corporate Law also provides for companies topurchase treasury stock and dispose of such treasury stock by resolution of the Board of Directors.
The amount of treasury stock purchased cannot
exceed the amount available for distribution to theshareholders, 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 that companies can purchase both treasury stock acquisitionrights and treasury stock. Such treasury stockacquisition rights are presented as a separate component of shareholders’ equity or deducted directlyfrom stock acquisition rights.

37

14. Leases(a) The following pro forma amounts represent
the acquisition costs, accumulated depreciationand net book value of leased property at March
31, 2007 and 2006 which would have beenreflected in the consolidated balance sheet if
finance lease accounting had been applied to thefinance lease transactions currently accounted for
as operating leases:
Millions of yen
2007
2006

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 lease transactions accounted for as operating leases amounted
to ¥1,610 million ($13,638 thousand) and ¥1,234
million, which were equal to the depreciation
expense of the leased assets computed by thestraight-line method over the respective lease terms
for the years ended March 31, 2007 and 2006,
respectively.

Thousands of
U.S. dollars
2007¥9,161
422¥9,584¥7,941318¥8,260$77,603
3,575$81,186¥4,571
224¥4,796¥3,577153¥3,730$38,721
1,898$40,627¥4,589197¥4,787¥4,363165¥4,529$38,873
1,669$40,551

Future minimum lease payments (including theinterest portion thereon) subsequent to March 31,
2007 and 2006 for finance lease transactions
accounted for as operating leases are summarized
as follows:Year ending March 31

2007
2008
2009 and thereafter
Total
2006
2007
2008 and thereafter
Total

Millions of yen

Thousands of
U.S. dollars¥1,401
3,386¥4,787$11,868
28,683$40,551¥1,162
3,367¥4,52938

(b) Future minimum lease payments subsequent to March 31, 2007 and 2006 for non-cancelable operatingleases are summarized as follows:Year ending March 31

2007
2008
2009 and thereafter
Total
2006
2007
2008 and thereafter
Total

Millions of yen

Thousands of
U.S. dollars¥1,992
7,258¥9,250$16,874
61,482$78,357¥1,9406,796¥8,737

15. Pension and Severance Indemnities
Certain foreign subsidiaries have the defined
contribution benefit plan.
The funded status and amounts recognized in
the accompanying consolidated balance sheets at
March 31, 2007 and 2006 and the components of
net retirement benefit expenses recognized in theaccompanying consolidated statements of income
for the year ended March 31, 2007 and 2006 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 fulltime employees who meet certain eligibility
requirements.
(a) Retirement benefit liabilities

Millions of yen
2007
2006

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 expenses
Allowance for employees’ retirement benefits¥ 34,842(43,516)(8,674)23(3,769)2,856
12,984(3,420)39¥ 35,293(45,712)(10,419)
2,385(4,199)3,097
12,821(3,686)

Thousands of
U.S. dollars
2007$ 295,146(368,623)(73,477)
195(31,927)
24,193109,987(28,971)

(b) Net retirement benefit expenses
Millions of yen
2007
2006

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
Gain on termination of part of the retirement benefit plan
Other
Total

(c) The principal assumption used in determining
retirement benefit obligations and otherThousands of
U.S. dollars
2007¥1,124
591
(709)
48

¥1,463
660
(639)
775

$ 9,5215,006(6,006)
407

466
(241)
¥1,280—338¥1,618609(213)¥2,656(51)462¥3,0673,947(2,042)$10,843—
2,863$13,706

components for the Company and certain of its
domestic subsidiaries plans are shown below:
2007

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

2006

Mainly 2.0%
Mainly 2.0%
Mainly 2.5%
Mainly 2.5%
Mainly 12 to 16 years Mainly 16 years
Mainly 15 years
Mainly 15 years
13 to 16 years
Mainly 16 years
Evenly for period
Evenly for period

16. Contingent Liabilities
At March 31, 2007 and 2006, respectively, theCompany and certain of its subsidiaries had contingent liabilities as guarantor of indebtedness,amounting to ¥8,245 million ($69,843 thousand)and ¥10,584 million, which included reguarantees

by joint investors amounting to ¥792 million($6,709 thousand) and ¥938 million and commitments to guarantees amounting to ¥1,685 million($14,274 thousand) and ¥1,803 million.

40

17. Derivative and Hedging Activities(a) Outline of transactions and conditions

The Company and certain of its subsidiaries
have established rules for the authorization ofderivative transactions and related risk management
rules which stipulate the limits on derivative transactions for each contract amount. All derivativetransactions have been entered into in compliancewith these rules.
Risk management for derivative transactions has
been under the control of the Finance Departmentof the Company, which reports regularly or as necessary to the responsible officer.

The Company and certain of its subsidiaries haveused foreign exchange forward contracts and interestrate swap agreements and currency swap agreements
in order to hedge against the risk of fluctuationsin interest rates and currency exchange relating totheir short-term receivables and payables andlong-term debt.
No market risk is anticipated as such derivatives have been entered into in order to offset or
mitigate gains or losses resulting from the hedgedloan and other transactions.
The Company and certain of its subsidiaries do
not anticipate non-performance by any of thecounterparties to the above transactions, all ofwhom are leading financial institutions which are
deemed highly creditworthy.

(b) Interest-related derivatives

At March 31, 2007 and 2006, the contract
amounts, market value and unrealized loss onderivatives were as follows:

March 31, 2007

Interest rate swaps:
Receive/floating and pay/fixed

March 31, 2006

Interest rate swaps:
Receive/floating and pay/fixedContracted amounts

Millions of yen
Market value

Unrealized loss

¥ —
¥ —

¥—
¥—

¥—
¥—

Contracted amounts

Millions of yen
Market value

Unrealized loss

¥177
¥177

¥1
¥1

¥1
¥1

Thousands of U.S. dollars
Contracted amounts
Market value

March 31, 2007

Interest rate swaps:
Receive/floating and pay/fixed

$ —
$ —

The market value and unrealized loss presented
above represent the amounts furnished by therespective financial institutions.

$—$—

Unrealized loss$—$—(c) Currency related derivatives

Market value information at March 31, 2007 and2006 is not required as all of the Company andcertain of its subsidiaries’ derivative transactions
are accounted for as hedging transactions.

18. Research and Development Costs
Research and development costs included in costof sales and selling, general and administrative
expenses for the years ended March 31, 2007 and2006 totaled ¥2,713 million ($22,982 thousand)and ¥2,223 million, respectively.

4119. Gain and Loss on Sales and Disposal of Property, Plant and Equipment
Significant components of the gain on sales of property, plant and equipment of ¥6,628 million($56,146 thousand) and ¥3,044 million for the year

ended March 31, 2007 and 2006, respectively, wereas follows:
Millions of yen
2007
2006

Land

¥6,628Significant components of the loss on sales
and disposal of property, plant and equipment of¥5,826 million ($49,352 thousand) and ¥964

¥3,039Thousands of
U.S. dollars
2007$56,146

million for the years ended March 31, 2007 and2006, respectively, were as follows:
Millions of yen
2007
2006

Land
Buildings and structures
Machinery¥4,992
—
438

¥222
130
184

Thousands of
U.S. dollars
2007$42,287—3,710

20. Impairment Loss
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 decrease of fairmarket value of land the book values are written
down to the recoverable amount and such write
down are recorded as impairment loss of ¥813 millions ($6,887 thousand) and ¥738 million (ofwhich land accounts for ¥598 million ($5,066

thousand) and ¥726 million and buildings for¥214 million ($1,813 thousand) and ¥12 million
in other expenses for the year ended March 31,
2007 and 2006, respectively, due to luck of recovery provability of market value or provability in thenear future. Recoverable amounts for relevant
assets are net selling price (selling price based oncontract, valuation by property tax or valuation byinheritance tax).

21. Segment Information
The business, geographical and overseas sales
segment information of the Company and its

consolidated subsidiaries for the years ended March
31, 2007 and 2006 is summarized as follows:(a) Business Segments

Year ended or as of March 31, 2007

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

Millions of yen
Plant and gas Housewares
equipment
businessbusinessand others
Total

Eliminations
or corporate

Consolidated¥305,442
99
305,542
278,545¥ 26,996¥136,896
12,299149,196
137,581¥ 11,615¥16,248
182
16,43014,608¥ 1,822¥458,587 ¥—
12,581 (12,581)
471,169 (12,581)
430,735(8,635)¥ 40,434 ¥ (3,945)¥458,587—
458,587
422,099¥ 36,488¥378,606¥ 18,607¥—¥ 32,941¥ 72,182¥ 1,695¥—¥ 1,800¥19,101¥ 612¥—¥ 1,426¥469,890¥ 20,915¥—¥ 36,168¥547,791¥ 21,210¥813¥ 35,891

42¥ 77,900
¥
294
¥
813
¥ (277)

Year ended or as of March 31, 2006

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

Year ended or as of March 31, 2007

Gas
business

Millions of yen
Plant and gas Housewares
equipment
businessbusinessand others
Total

Eliminations
or corporate

Consolidated¥268,284
162
268,447
246,952¥ 21,494¥113,626
6,251
119,877
113,975¥ 5,901¥15,39773
15,47013,611¥ 1,859¥397,308
6,486
403,795
374,539¥ 29,255¥—(6,486)(6,486)(4,019)¥ (2,467)¥397,308—
397,308
370,520¥ 26,788¥309,469¥ 16,517¥—¥ 19,455¥ 67,238¥ 1,243¥—¥ 2,055¥17,627
¥ 709
¥
—
¥ 741

¥394,334¥ 18,470¥—¥ 22,252¥77,267
¥ 512
¥ 738
¥
(76)

¥471,602¥ 18,982¥
738¥ 22,176

Gas
business

Plant and gas
equipment
business

Eliminations
or corporate

Consolidated

I. Sales:(1) Sales to third parties$2,587,395 $1,159,644(2) Intersegment sales
839
104,185
Total sales
2,588,242 1,263,837
Operating costs and expenses 2,359,551 1,165,447
Operating income$ 228,683 $ 98,391
II. Assets, depreciation expenses,
capital expenditure:
Assets$3,207,166 $ 611,453
Depreciation expenses$ 157,620 $ 14,358
Impairment loss$
— $—Capital expenditure$ 279,043 $ 15,248

Thousands of U.S. dollars
Housewares
businessand others
Total$137,637 $3,884,684 $— $3,884,684
1,542
106,573 (106,573)—
139,178 3,991,266 (106,573) 3,884,684
123,744 3,648,751 (73,147) 3,575,595$ 15,434 $ 342,516 $ (33,418) $ 309,089$161,804 $3,980,432 $ 659,890 $4,640,330$ 5,184 $ 177,171 $ 2,490 $ 179,670$— $— $ 6,887 $6,887$ 12,080 $ 306,379 $ (2,346) $ 304,032(b) Geographical Segments
Millions of yen
Othercountries
Total

Year ended or as of March 31, 2007

Japan

North
America

Sales:
Sales to third parties
Intersegment sales
Total sales
Operating costs and expenses
Operating income
Assets¥372,614
6,629
379,243
348,593¥ 30,650¥306,355¥ 62,208
9,402
71,611
63,741¥ 7,869¥117,870¥23,765
2,121
25,887
24,344¥ 1,543¥33,547

Japan

North
America

Millions of yen
Othercountries
Total¥329,413
3,968
333,382
310,607¥ 22,774¥304,390¥47,369
6,804
54,17449,091¥ 5,082¥63,125¥20,524
1,754
22,27821,027¥ 1,251¥25,497

Year ended or as of March 31, 2006

Sales:
Sales to third parties
Intersegment sales
Total sales
Operating costs and expenses
Operating income
Assets43

Eliminations
or corporate

Consolidated¥458,587 ¥—
18,154 (18,154)
476,742 (18,154)
436,678 (14,579)¥ 40,063 ¥ (3,574)¥457,773 ¥ 90,017¥458,587—
458,587
422,099¥ 36,488¥547,791

Eliminations
or corporate

Consolidated¥397,308 ¥—
12,526(12,526)
409,834(12,526)
380,725(10,205)¥ 29,108 ¥ (2,320)¥393,013 ¥ 78,588¥397,308—
397,308
370,520¥ 26,788¥471,602

Year ended or as of March 31, 2007

Japan

Sales:
Sales to third parties
Intersegment sales
Total sales
Operating costs and expenses
Operating income
Assets$3,156,408
56,154
3,212,562
2,952,927$ 259,636$2,595,129

Thousands of U.S. dollars
Othercountries
Total

North
America

its foreign consolidated subsidiaries, for the years
ended March 31, 2007 and 2006 are summarized
as follows:

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

Millions of yen

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

Consolidated$526,963 $201,313 $3,884,684 $— $3,884,684
79,644
17,967
153,782 (153,782)—
606,616 219,288 4,038,475 (153,782) 3,884,684
539,949 206,218 3,699,094 (123,499) 3,575,595$ 66,658 $ 13,071 $ 339,373 $ (30,275) $ 309,089$998,475 $284,176 $3,877,789 $ 762,533 $4,640,330(c) Overseas SalesYear ended or as of March 31, 2007

Eliminations
or corporate

North
AmericaOther¥55,344

Total¥40,826 ¥ 96,171
458,587

12.1%

8.9%

Thousands of U.S. dollars
North
America
Other
Total

$468,818 $345,837 $ 814,663
3,884,684

21.0%

Millions of yen
Year ended or as of March 31, 2006

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

North
America¥40,998

Other

Total

¥37,946 ¥ 78,945
397,308

10.3%

9.5%

19.8%

22. Assets and Liabilities of Newly Consolidated Subsidiaries by Acquisition of Stock
Assets and liabilities of newly consolidated subsidiaries, Linweld, Inc., and other 5 subsidiaries
through the acquisition of stocks, acquisition costand net payments for the acquisition effective in
fiscal 2007 were as follows:

Millions of yen

Thousands of
U.S. dollars

Current assets
Property, plant and equipment
Goodwill
Other assets
Total assets¥ 3,824
13,74915,6605,179¥ 38,414$ 32,393
116,468
132,656
43,871$ 325,404

Current liabilities
Long-term liabilities
Total liabilities¥ 4,085
1,656¥ 5,741$ 34,604
14,028$ 48,632

Acquisition cost of newly consolidated subsidiaries’ stocks
Cash and cash equivalents of newly consolidated subsidiaries
Payments for acquisition of subsidiaries’ stocks with change
in scope of consolidation¥(33,992)
547$(287,946)
4,634¥(33,445)$(283,312)44

23. Subsequent Events(a) Appropriation of retained earnings

financial statements for the year ended March 31,
2007, were approved at a shareholders’ meeting heldon June 28, 2007:

The following appropriations of retained earnings,
which have not been reflected in the accompanying

Cash dividends—¥7.00 ($0.059) per share(b) Issuance of domestic unsecured bonds

Millions of yen

Thousands of
U.S. dollars¥2,817$23,863bonds at the Board meeting on April 27, 2007 andissued them on June 14, 2007.

The Company achieved a comprehensive resolution regarding issuance of domestic unsecured

The overview is as follows:(1) Total amount of issuance: ¥10 billion(2) Issue price:¥100 per ¥100 of the face value(3) Interest rate:
1.58% per year(4) Issue date:June 14, 2007
(5) Maturity price:¥100 per ¥100 of the face value(6) Maturity date:June 14, 2012(7) Intended usage of the fund: Redemption of bonds(c) Making NS Engineering Co., Ltd., a whollyowned subsidiary through a stock forstock exchange

to enhance its structure to respond to customers’
needs promptly and accurately and also pursue further improvement of the competitiveness in
Semiconductor Devices and Construction businesses by making NS Engineering Co., Ltd., awholly-owned subsidiary.

On April 27, 2007, the Board of Directors of theCompany decided to make NS Engineering Co.,
Ltd., a wholly-owned subsidiary through a stock
for stock exchange and signed a stock exchange
contract with NS Engineering Co., Ltd.

2. Method of the stock exchange
Pursuant to Articles 767 and 769 of the JapaneseCompany Law, effective on May 18, 2007, theCompany provides its common stock to the shareholders (excluding the Company) by providing
treasury stock held by the Company in place of
issuing of new shares.

1. Purpose of the stock exchangeWith a good demand in business investment in theelectronics industry, Semiconductor Devices andConstruction businesses of Taiyo Nippon Sanso
Group continued expanding. NS Engineering Co.,
Ltd., a consolidated subsidiary of the Company,
designs and constructs many of the orders theCompany received. With the trend of large-scaled
construction, further efficient operation is being
required. Consequently, the Company is looking

3. Stock exchange ratio
At a conversion rate of 12.273 share of theCompany’s common stock per share of NS
Engineering Co., Ltd., stock.

45

Report of Independent Auditors

46

Investor Information(At March 31, 2007)

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

8,267
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:

17,727
Major Stockholders:Thousands ofShares Owned

Major Stockholders

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

40,947
20,617
17,283
16,491
14,484
13,29010,848
10,21810,037
10,000164,219

Percentage of
Total

10.16%
5.11
4.29
4.09
3.59
3.30
2.69
2.53
2.49
2.48
40.74%

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

1,250

100,000

1,000

80,000Common Stock Price Range

750

60,000500

40,000
Trading Volume250

20,00000
1st Quarter

2nd Quarter

3rd Quarter

4th Quarter

1st Quarter

2nd Quarter

3rd Quarter

4th Quarter

Note: Data for the third and fourth quarters of fiscal 2005 and beyond is for Taiyo Nippon Sanso. Data forprior quarters is for the former Nippon Sanso.

47

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