215

Think Globally, Act Locally:
TAIYO NIPPON SANSO Corporation

A Client-Focused,
Innovation-Driven
Approach

Annual Report 2010

An n ual R epo r t

2010Year Ended March 31, 2010

an

210

ProfileTaiyo 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 is drawing 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, 2010 and 2009
Thousands of
U.S. dollars*1

Millions of yen

Operating results
Net sales
Net income

2010

2009

2010

¥433,390
15,748¥495,746
16,533$4,658,104
169,261

U.S. dollars*1

Yen

2010
Per share data:
Net income*2
Cash dividends

¥

39.39
12.00

2009
¥

41.21
12.00

Corporate position
Total assets
Total shareholders’ equity(12.6)%(4.7)%
Percentagechange

2010
$

0.42
0.13

Thousands of
U.S. dollars*1

Millions of yen

Percentagechange

2010

2009

2010

¥617,215
199,078¥534,350
181,037$6,633,867
2,139,703(4.4)%—
Percentagechange

15.5%
10.0%

Notes: 1. U.S. dollar amounts have been translated, solely for convenience, at the rate of ¥93.04=U.S.$1, the approximate rate of exchange at March 31, 2010.
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.

CON TE NTS

1

100 Years of History

2

Perception of the Business Climate in Key Markets

4

To Our Stakeholders

5

An Interview with the Chairman and the President

9

Message from Outside Auditor

10

Board of Directors, Corporate Auditors and Corporate Officers

11

Special Feature

18

Our Businesses

23

Six-Year Summary

24Management’s Analysis of Operating Results and Financial Position

28

Consolidated Financial Statements

33

Notes to Consolidated Financial Statements

50

Report of Independent Auditors

51

Investor Information

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

205

100 Years of History
Japan’s leading provider of industrial gases, Taiyo Nippon Sanso Corporation, is the fruit of the merger in 2004 of
Nippon Sanso Corporation (founded in 1910) and Taiyo Toyo Sanso Co., Ltd. (founded in 1946), a move aimed ataccelerating global expansion and creating a powerful entity with the potential to be a leading player in Asia and aroundthe world.

Industrial gases play a crucial role in our daily lives. However, unlike such immediately visible products as automobiles,
digital home appliances and mobile phones, industrial gases remain behind the scenes, providing essential support on
the front lines of production in industries that shape eras.

Since the dawn of the 20th century, the industrial gases sector has grown at a rapid pace, bolstered by the developmentof technologies for transforming gases from a gaseous to a liquid state and by innovations in methods of production,
supply and transport.

1910

1920

1930

1940

1950

1960

1970

1980

1990

1995

2000

2004

2006

Nippon Sanso Corporation

Taiyo Sanso Co., Ltd.

Toyo Sanso K.K.

Taiyo Toyo
SansoCo., Ltd.

TAIYO NIPPON SANSO
Corporation

2008

2010

210

Nippon Sanso Corporation(1910 – 2004)

1954
Commenced production of liquid oxygen (firstin Japan) and high-purity nitrogen and argon

1910
Established as Nippon Sanso Ltd.

La
ma

1935
Completed Japan’s first air separation plant

Toyo Sanso K.K.
(1919 –1994)

Be

1910 – 1940s

1950s

Principal Industrial Gases
Acetylene, oxygen

Principal Industrial Gases
OxygenIndustries Used inRailroad, shipbuilding,military and naval forces

Industries Used in
Steelmaking,shipbuilding

Principal Applications• Welding, cutting
Used for welding by shipbuilders

Principal Applications• Blast furnaces
Blown into a blast furnace

1918
Established as Toyo Sanso K.K.

1953
Commenced operations at the
Kawasaki Plant, a comprehensive
production facility, in Mizue-cho,
Kawasaki

1920
Opened the Ebara Plant in Ebara-gun, Tokyo

Taiyo Sanso Co., Ltd.
(1946 –1994)

1946
Established as Taiyo Sanso Co., Ltd.
(Completed first production facility
and commenced sales in 1947)

1953
Diversified into the dissolved
acetylene business; built the
Osaka Plant (acetylene
production facility)

19
Op
cu

1968
Established Kashima Sanso Co., Ltd., tosupply industrial gases to industrial
complex (petrochemicals) in Kashima,
Ibaraki Prefecture, a joint venture with
Mitsubishi Petrochemical Co., Ltd.
(currently Mitsubishi Chemical
Corporation)

19
Co
firs
fac
equ

215

gen (firstd argon1971
Completed the world’s first air separation
plant employing liquefied natural gas (LNG)
as refrigerant at Tokyo Liquefied OxygenCo., Ltd.

1964
Opened first onsite plant (Shunan Plant;
currently Shunan Sanso Co., Ltd.)
Launched production of semiconductormaterials gases (neon) at Kawasaki Plant
Began full-scale imports and sales of helium gas

furnacetions at theomprehensive
in Mizue-cho,a Sanso Co., Ltd., toses to industrial
micals) in Kashima,
joint venture withmical Co., Ltd.
hi Chemical

1982
Established National Oxygen Pte. Ltd. in
Singapore in a joint venture with three local
companies, notably National Iron and SteelMills Ltd., Singapore’s only government-owned
steelmaker

1980
Established Japan Oxygen, Inc., in the
United States

1960s

1970 – 1980s

Principal Industrial Gases
Oxygen, nitrogen (inert gas)

Principal Industrial Gases
Oxygen, nitrogen, argon
Xenon, krypton, neon, monosilane gas, others

Industries Used in
Petrochemicals industry
Electronics

ns

Opened Iwate Gas Center, its first onsite total
gas center (TGC) supplying gases for use in
semiconductor fabrication

Principal Applications• Refining
Used in the production of a wide
range of petrochemicals• Prevention of oxidation• Prevention of contamination

1955
Commenced operations at the Takasaki Plant, thefirst dedicated liquefied gas storage and filling
facility in Japan, which featured state-of-the-art
equipment

1975
Began supplying specialty gases to
Mitsubishi Electric Corporation’s
Kumamoto Plant, diversifying into
industrial gases for the electronics
industry

1
A
c
p
se
b

D
d
te

1967
Completed and delivered Japan’s first foodrefrigerator “Magic Freeze” employing
liquid nitrogen

Gases

1981
Commenced full-scale production and salesof stainless steel insulated bottles

Industries Used in
Semiconductors
Nonferrous metals, metals
Aerospace, aircraft
Principal Applications• Various production processes• Smelting• Emission spectrometry• Plasma cutting• Deoxidation• Rocket fuel1971
Established Shinyo Sanso Co., Ltd.;
commenced operations at the Nitta Plant,a liquefied gas production facility

1987
Designated general supplier of specialty materials gases by Taiwan
Semiconductor Manufacturing Company Limited (TSMC), marking
the launch of full-scale supply of gases for semiconductor-related
applications overseas
Established Kawaguchi Sogo Gas Center in joint venture with Showa
Denko K.K., integrating the acetylene production andgeneral-purpose gas filling operations of the two partners andforming Japan’s largest gas filling company

T
(

1994
Signed merger agreement with
Toyo Sanso K.K.

210

1989
Acquired the Thermos Group,a manufacturer of housewares

1983
Acquired Matheson Gas Products, Inc. of the United States;
combination of Matheson Gas Products’ specialty gas
production technologies and Nippon Sanso’s refining andseparating technologies reinforced position in specialty gases
business

1992
Acquired industrial gases manufacturer
Tri-Gas, Inc., in the United States

Developed and commercialized total metal organic vapor
deposition (MOCVD) system based in proprietary
technologies

1996
Established Nippon Sanso Taiwan Inc.
(currently Taiyo Nippon Sanso Taiwan,Inc.) to market specialty and high-purity
gases and equipment and provide
engineering services, in Taiwan

1999
Merged Matheson and Tri-Gas
in the United States to create
Matheson Tri-Gas, Inc.

1994
Took an equity stake inindustrial gases manufacturer
Ingasco, Inc., in the Philippines

n
ocal
eel
owned

1990s

2001
Established Japan Fi
specialty gases for sem
joint venture with Ta

2003
Established ShangLtd. (currently Sh
Gas Co., Ltd.) an
and marketing co2000 – p
Principal Applications• Hydrogen fuel cells• Medical equipment• Linear motor cars

Principal Industrial Gases
Oxygen, nitrogen,semiconductor gases,
hydrogenPrincipal Industrial
Oxygen, nitrogen, seIndustries Used inElectronics, semico

Industries Used in
Automobiles
EnergyMedicine
Engineering

Principal Applicatio• Production of light

tting
n
l

with

Taiyo Toyo Sanso Co., Ltd.
(1995 –2004)

1995
Began operations

1996
Established Fu Yang Gas Co., Ltd., aproduction and sales company forindustrial gases and semiconductormaterials gases, in Hsinchu, Taiwan

2001
Established Japan Fine Products Co., Ltd., asupplier of specialty gases forsemiconductor-related applications, in ajoint venture with Nippon Sanso
Corporation

1998
Acquired management rights to Nichigo
Acetylene Co., Ltd.

2000
Transformed Nippon Tansan Co., Ltd., into awholly owned subsidiary through share swap

2003
Established Taiyo To
Co., Ltd., an importfor semiconductor-reIntegrated Mitsubish
business (Kurosaki,
plants) into TM Air
Kashima Sanso)

205

2001
Established Japan Fine Products Co., Ltd., a supplier of
specialty gases for semiconductor-related applications, in ajoint venture with Taiyo Toyo Sanso Corporation
2003
Established Shanghai Nippon Sanso Gas Co.,
Ltd. (currently Shanghai Taiyo Nippon Sanso
Gas Co., Ltd.) an industrial gases manufacturingand marketing company, in China

TAIYO NIPPON SANSO
Corporation(2004 –)
2004
Merged to form Taiyo Nippon Sanso
Corporation (October 1)

2006
Matheson Tri-Gas acquired Linweld Inc., a U.S.
industrial gases production and marketing company

2007
Launched helium production project at joint venture
established with Air Products and Chemicals, Inc., in
the U.S. state of Wyoming

2000 – present
Principal Industrial Gases
Oxygen, nitrogen, semiconductor gases, helium
Industries Used inElectronics, semiconductors
Principal Applications• Production of light-emitting diodes (LEDs)

2003
Established Taiyo Toyo Trading (Shanghai)Co., Ltd., an importer of equipment and gases
for semiconductor-related applications
Integrated Mitsubishi Chemical’s separator gas
business (Kurosaki, Mizushima and Yokkaichi
plants) into TM Air Co., Ltd. (formerly
Kashima Sanso)

2008
Established Taiyo Nippon Sanso (China) Investment
Co., Ltd., and Dalian Changxing Island Taiyo
Nippon Sanso Gas Co., Ltd., in China
2009
Matheson Tri-Gas acquired Valley National
Gases LLC, the largest independent distributorof industrial gases in the United States2009
Launched joint monosilane
production project with Evonik
Degussa Japan Co., Ltd.

2010
Matheson Tri-Gas acquired WesternInternational Gas and Cylinders, Inc., aleading U.S. wholesale supplier of acetylene

Perception of the BusinessClimate in Key Markets
Japan
The steel, chemicals and electronics industries—the principal customer industries for piped gases continue torecover strongly, bolstered primarily by export demand from other parts of Asia.
In the area of piped gases for the steel industry, one of the primary users of piped gases, export demand, particularly from customers in the Republic of Korea and China, remains robust and steel exports at present are outpacing
the previous peak (fiscal year 2008, when steel exports from Japan totaled 38.4 million tons), as a consequence of
which domestic blast furnaces continue to operate at full capacity.
In piped gases for the chemicals industry, there is a likelihood that over the long term the supply–demand balance will weaken, owing to falling prices for the raw material naphtha accompanied by a slump in the markets for
ethylene and other petrochemicals products, combined with the start of full-scale production at large-scale facilities
in the Middle East and China. However, demand from China and other parts of Asia is recovering strongly, whilesales to industrial complexes in Japan remain brisk.
Although demand for bulk gases for small and medium-sized customers appears to be recovering, the pace ofimprovement is moderate, underlined by a lack of drive in domestic consumption, capital investment andconstruction-related demand.
In the area of specialty materials gases for the electronics industry, market conditions are recovering steadily,reflecting improved production levels for semiconductors and liquid crystal displays (LCDs), together with thecommencement of production of large LCDs at the Green Front
Total Sales and Operating Income in Japan
Years ended March 31 (Millions of yen)
500,000 CAGR

Total sales 10.1%
Operating income 13.9%

35,000Sakai in Osaka in October 2009 and the emergence of new
demand for use in solar cells. Of particular note, with demand forlight-emitting diodes (LEDs) for PCs, televisions, signage and28,000lighting applications and power semiconductors rising rapidly, we

300,000

21,000are benefiting from firm orders from domestic and overseas cus-

200,000

14,000100,000

7,000

400,000

tomers as Japan’s top manufacturer of gallium nitride (GaN) metal002004 2005 2006 2007 2008 2009 2010 2011
(Estimate)
Total sales
Operating income

organic chemical vapor deposition (MOCVD) equipment. To better respond to customer needs, we are installing a new UR25K, alarge-scale mass- production testing facility at our Tsukuba
Laboratory, which conducts evaluations for customers, alongside
the facility’s existing testing line.

Note: Compound annual growth is calculated based on actual total sales andoperating income ﬁgures for the years ended March 31, 2004—2010 andestimates for the year ending March 31, 2011.

North America
Although economic conditions in the United States continue to recover at a leisurely pace, we continue to expand
the nature of our local operations, having long positioned North America as a stable growth market.
In the six years since the merger that created Taiyo Nippon Sanso in 2004, we have invested approximately$1.6 billion, both in M&A deals and in capital expenditures. In fiscal year 2011, the compound annual growth rate
(CAGR) for sales is expected to reach 14.9% and we have begun to realize significant synergies. We are also seeing

2

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substantial growth in operating income, in line with initial projec-

Total Sales and Operating Income in North America

tions. The sharp deterioration of economic conditions in fiscal year

Years ended March 31 (Millions of yen)2010 had a significant negative impact on our performance, but

100,000 CAGR

12,000Total sales 14.9%
Operating income 17.2%
80,0009,600

60,0007,200

40,0004,800

20,0002,400

discounting this transitory episode our investments in the UnitedStates are yielding steady results. Looking ahead, we will work toenhance the efficiency of our U.S. operations and implement measures, including building a new gas production facility, while also
seeking out attractive M&A opportunities, as part of a strategy
aimed at ensuring sustainable expansion and growth.

002004 2005 2006 2007 2008 2009 2010 2011
(Estimate)
Total sales
Operating income

Note: Compound annual growth is calculated based on actual total sales andoperating income ﬁgures for the years ended March 31, 2004—2010 andestimates for the year ending March 31, 2011.

Asia
Despite a temporary interruption due to the collapse of Lehman Brothers, the economy of Asia, including China,
and the region’s industrial gases market were quick to bounce back and resume rapid growth. Recognizing thestrategic importance of Asia as the driving force behind global economic growth, we continue to place a high priority on our operations in the region. While the market for industrial gases in Asia is still small in comparison withthat of Japan or the United States, we have invested strategically inthis tremendous growth potential market, approximately ¥25 billion over the past six years, particularly in gas production facilities.

Total Sales and Operating Income in Asia
Years ended March 31 (Millions of yen)
35,000To date, our ongoing investments in Asia have focused on
capital expenditures designed to capitalize on growth in the market
for general industrial gases, as well as other strategic efforts, shown

28,000

CAGR
Total sales 13.8%
Operating income 6.1%

2,500
2,000

21,0001,500

14,000

1,000

7,000

500

in the list below. In recent years, we have focused on growing markets such as steel, petrochemicals and other heavy industry markets,
solar cells, and on electronics markets, including LCDs and LEDs,
building on our established base to seek out major investment002004 2005 2006 2007 2008 2009 2010 2011
(Estimate)
Total sales
Operating income

opportunities in a bid to drive the further expansion and growth of
our Asian operations.

Note: Compound annual growth is calculated based on actual total sales andoperating income ﬁgures for the years ended March 31, 2004—2010 andestimates for the year ending March 31, 2011.

Major recent investments in Asia
Singapore:

Built third air separation plant

Philippines: Built second air separation plant
China:

Built air separation plant for Shanghai Taiyo Nippon Sanso Gas Co., Ltd.
Acquired Yangzhou Taiyo Nippon Sanso Semiconductor Gases Co., Ltd.
Invested in Taiyo Nippon Sanso Shenwei (Shanghai) Medical Gas Co., Ltd.
Took an equity stake in Shanghai Shenwei Gas Filling Co., Ltd.

South Korea: Established SKC Airgas Inc., joint venture with SKC

Projected investments in Asia in the near future
Vietnam:

Build air separation plant pursuant to agreement to supply industrial gases to a major steel maker (Ba Ria-Vung Tau, in southern
Vietnam)
Build air separation plant for joint venture with local gas company (Hanoi, northern Vietnam)

Philippines: Build air separation plant (Mindanao)
Build facility for specialty gases (Luzon)
China:

Complete air separation plant for Dalian Changxing Island Harbor Industrial Zone3

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To Our Stakeholders

Early in fiscal year 2010, ended March 31, 2010, theglobal economic downturn—triggered by the financial and economic crisis that originated in the fall of
2008—continued to exert a negative impact on
Japan’s economy. The period began on a gloomy noteas the unprecedented severity of the operating envi-

Hirosuke Matsueda
Chairmanronment made it difficult for many beleaguered

Yasunobu Kawaguchi
President

manufacturers to formulate plans for the period, forcing many to reduce capital investments significantly

management resources in growing markets andbelow their initial targets.

regions and to enhance the efficiency of Groupmanagement—and with preparations for repositioning

Subsequent months brought better news as theourselves on a growth trajectory.

economies of China and other key emerging markets
rebounded sharply, and stimulus measures imple-

Fiscal year 2011 marks the centennial of Taiyo

mented by various countries began to yield results. In

Nippon Sanso’s founding. The year will also be impor-Japan, signs of an improvement in performance weretant in that it will lay the foundation for our next

visible, particularly in major manufacturing indus-

medium-term business plan. Having taken the helm

tries, including electronics, chemicals, steel and auto-in June 2010, we look forward to guiding Taiyo

mobiles. Other encouraging trends for Taiyo Nippon

Nippon Sanso’s drive to achieve sustainable growth. In

Sanso also emerged, including rising demand for solar

addition to ensuring a stable, safe supply of industrial

cells and the increasing popularity of light-emittinggases, we pledge to continue leveraging our unique gas

diodes (LEDs) for use in PCs, televisions, lighting andtechnologies to contribute to both industry and soci-other applications.

ety. As always, we look forward to the ongoing trustand support of stakeholders in the years ahead.

In the period under review, our efforts to achieve
the targets set forth in our current medium-termAugust 2010

management plan, which began in fiscal year 2009,were also hindered by the impact of global economic
upheaval, which drove down domestic demand, causing our reality to diverge widely from the assumptions
underlying the plan. As a consequence, we were
unfortunately forced to shelve the initial targets we
had set for the period. We did, however, make deci-

Hirosuke Matsueda, Chairman

sive moves aimed at responding to harsh economic
conditions. Our principal emphasis was on shoring
up income by further reducing costs. We also proceeded with ambitious efforts to accelerate the growthof our businesses—in line with the central strategies

Yasunobu Kawaguchi, Presidentof our business plan, which are to focus allocation of4

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An Interview with the Chairman and the President

Q

Can you give us a status update on your current medium-termbusiness plan?
Mr. Matsueda
We embarked on our current medium-term business plan in fiscal year 2009. Since then,our efforts have been greatly impeded by the global economic downturn, which has driven
down domestic demand, causing reality to diverge widely from the assumptions underlying
the plan. At the end of fiscal year 2009, we made the difficult decision to shelve the plan’s
initial targets.
Nevertheless, in fiscal year 2010, we continued to press ahead with efforts to respondto the economic upheaval. In particular, we sought to shore up income through increasingly
rigorous cost-cutting measures and—in line with the central strategies of our business plan—to accelerate the growth of our businesses by focusing the allocation of management resourcesin growing markets and regions, expand upstream businesses and promote an ambitious
mergers and acquisitions (M&A) strategy. Thanks to these efforts, I am confident that weare well prepared to reposition Taiyo Nippon Sanso on a growth trajectory.
The period brought a number of key achievements in the area of products and services
for the electronics
cs industry, which includes such high-growth fields as semiconductors, liquid
uid crystal displays (LCDs), solar cells and light-emitting
diodes (LEDs). For example, we completed and brought on line a new
Total Gas Centerr to supply the largest LCD manufacturing complex
in Japan. We also
lso introduced new mass-produced, large-scale
metal organic chemical
hemical vapor deposition (MOCVD) equipment for LED manufacturing processes, which met with

We’re pressing ahead withefforts to accelerate expansion
in high-growth markets

5

大陽日酸̲P2̲22̲0906.indd 5

10.9.12 7:31:31 PM

positive reviews from customers in this particularly fast-growing sector, underscoring ourefforts to expand both our electronics materials gases and MOCVD equipment businesses.
In addition, with the aim of establishing a strong foundation for the expansion of our supply
capabilities for monosilane gas, demand for which is expected to grow sharply for applications in the manufacture of solar cells and LCDs, we are embarking on an exciting upstream
manufacturing project.
Another key focus for us is to capitalize on the growth potential of key geographic markets. Since the merger that resulted in the creation of Taiyo Nippon Sanso, we have allocatedconsiderable management resources to efforts aimed at strengthening our North American
gas manufacturing and supply network through the acquisition of regional gas distributors
and the purchase of helium assets. In fiscal year 2011, we expect the compound annual
growth rate (CAGR) for sales in our North American gas business to reach 14.9%, based on
actual total sales for fiscal years 2005 through 2010 and our estimate for fiscal 2011, underscoring the business’ rapid expansion and increasingly strong market position. High-growth
Asian markets, including China, also remain crucial, and we continue to take steps aimed atsignificantly increasing our manufacturing capabilities, thereby positioning us to leverage
market growth to bolster the performance of our gas business. These include expanding ourliquefied gas manufacturing capacity, securing orders for large-scale onsite gas supply systems
and enhancing our production and supply facilities for specialty gases.
In Japan, we continue to forecast stable growth for the foreseeable future. To ensure
a variety of meaour ability to benefit from domestic market growth,th,, wew aarere iimplementing
mplememen
includingconsolidatingsures aimed at enhancing operating efficiency,
ncy, incnclludidin
ding
ng cconng
onso
sollidadati
tin
ng Taiyo Nippon Sanso
facilities.
Group companies and upgrading keyy facilities
fa
ies
es.
s.

We continue to take steps aimed atincreasing our manufacturing capabilities

6

大陽日酸̲P2̲22̲0906.indd 6

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Q

What will the change in management
mean for the Company?

Mr. Matsueda
Since the merger that resulted in the creation of Taiyo Nippon Sanso, our stated goals havebeen to become a major player in Asia and worldwide. To these ends, we have pursued an
ambitious program of business expansion, while at the same time promoting measures toenhance operating efficiency. Although we felt the impact of the global economic downturn
keenly, the worst is past and we are now seeing definite signs of improvement. I am confident that the strong foundation we have built will stand in our stead as we endeavor to capitalize on the opportunities that recovery will bring. Fiscal year 2011 will be a particularly
important year for Taiyo Nippon Sanso, as we will launch a new medium-term businessplan. We felt that a new management team with a fresh face at the top would be particularly
conducive to the development and implementation of a new plan, and so the decision wasmade to appoint a new president.

Mr. Kawaguchi
Fiscal year 2011 will be an especially critical juncture for Taiyo Nippon Sanso. We will
also be celebrating our centenary, so I definitely feel the weight of responsibility taking overthe helm at this time. I intend to continue on the strategic course established under
Mr. Matsueda’s capable leadership, while keeping vigilant watch over market trends andchanges in the global industrial structure, thereby ensuring the flexibility necessary to
respond effectively, and accelerate our march forward.
As always, the fundamental goal of our new medium-termbusiness plan will be to map out strategies aimed at securing
sustainable growth. Our efforts in three key fields—namely,
the environment, energy and resources—will be crucial

Our fundamental goal is to map out
strategies aimed at securing
sustainable growth7

大陽日酸̲P2̲22̲0906.indd 7

10.9.12 7:31:38 PM

to achieving this goal in the years ahead. Accordingly, we will leverage our technologicalcapabilities to reduce consumption of electric power at our gas manufacturing plants and offuel in logistics, thereby reducing emissions and contributing to efforts to reverse global
warming. We will also apply our gas technologies in this effort, developing high-efficiency
oxygen burners and promoting the use of MG Shield, a high-SF6 cover gas with a low global
warming potential (GWP), together with our effective SF6 recovery system, which help users
to reduce their emissions of greenhouse gases. In the energy and resources fields, we will not
only pursue further efforts in our mainstay electronics market to broaden the use of solar
cells, increase manufacturing efficiency and cultivate new applications for LEDs, but also
participate in initiatives designed to increase energy efficiency through the production andsupply of biogas and the development of highly superconductive cooling equipment.
These and other of the Group’s technologies will thus play a key role in our pursuit offlexibility and sustainable growth going forward.

Q

In closing, can you give us your views on Taiyo Nippon Sanso’s
management vision?
Mr. Matsueda
With an unshakable commitment to our management philosophy—“Market-driven collaborative innovation: Improving the future through gases,” we will press forward with efforts
to cultivate new markets, assure sustainable growth and broaden the potential of industrial
gases, proudly bearing our slogan, “The gas professionals.” As members of society, we also
recognize that we have an obligation to conduct our operations in accordance with acceptedvalues and ethical norms, thereby driven to manage the Company in a manner that is both
fair and appropriate, to exist in harmony with society and achieve innovation-driven growth.

Mr. Kawaguchi
I would just like to add to what Mr. Matsueda has said by reiterating our conviction that theverification of the safety, security and quality of all of our products and services is the cornerstone of good management. In line with this conviction, we seek constantly to improve andstrengthen our product safety inspections and operational safety audits and to reinforce ourquality assurance systems. Going forward, we will continue working to earn the trust of ourcustomers and of society, establish and maintain a sound operating foundation and contributeto the advancement of industry and society.

8

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Message from Keiichi Kiyota, Independent Outside Corporate Auditor
1. Background to the appointment of independent
outside corporate auditors in JapanTo protect the interests of general (i.e., minority) shareholders, the Tokyo Stock Exchange requires companies
listed on the exchange to secure independent directors
and/or auditors who have no conflict of interest withgeneral shareholders. I was appointed as an independent
outside corporate auditor by Taiyo Nippon Sanso tofulfill this requirement.
2. The role of corporate auditors in Japan

to internal information, the ability to interview/question
directors and employees whenever necessary and otherwise aids their ability to fulfill their roles. Taiyo Nippon
Sanso’s corporate auditors are also in a position to work
closely with the Company’s Technological Affairs
Division, which is responsible for managing technology
risks; the Corporate Audit office, which is responsible forinternal audits and reports directly to the president; andthe General Administration Division and Corporate
Administration Division, which have established andadminister the Company’s system of internal controls.

Under Japan’s Companies Act, for companies having

In addition to safeguarding and further enhancing thisadopted the Company with Board of Auditors model,

open atmosphere, I will continue to value my indepen-

the execution of duties by directors is monitored anddence from the directors and to reinforce my capacity tosupervised by the Board of Directors and simultaneously

work with the independent public accountants in audit-

audited by corporate auditors. While this system is often

ing the Company’s accounts, and to monitor, supervise

criticized for limiting the ability of corporate auditors toand express opinions, as necessary, at importantfulfill their responsibilities because it does not accord

meetings, including those of the Board of Directors.

them voting rights on the Board of Directors, it is also
greatly valued because it facilitates both effective supervision of decision making by directors other than those
directly involved in the process, and objective auditingby corporate auditors who are independent and thus
have no conflict of interest.
While the term “auditor” is commonly used in English
for corporate auditors in Japan, this does not capture thefull extent of the auditor’s role. Corporate auditors not
only audit the financial statements prepared by the directors, but also monitor the decision-making process—accomplished through resolution of the Board of

4. Future goals
By capitalizing on the skills, knowledge and experience
gained as a corporate auditor over seven years, as a graduate of New York University School of Law and as an
officer in American, British and Japanese corporations, I
pledge to continue devoting my best efforts to helping
Taiyo Nippon Sanso meet the expectations of its generalshareholders and other stakeholders. To this end, I willcontinue to support the Company, a globally active
organization, in its endeavors to increase corporate value
through appropriate management and sound expansion.

Directors or the ringi system, a system for proposal ratification common in Japan; supervise the discharge of
duties by individual directors and inspect documentation
pertaining to resolutions and decisions made by directors, thus enabling them to comprehensively oversee theKeiichi Kiyota

execution of duties by directors.*

Independent Outside Corporate Auditor

3. Taiyo Nippon Sanso’s auditing system* Corporate auditors are thus the last bastion of responsibility in ensuring the effective
execution of duties by directors. The Tokyo Stock Exchange’s recently added provision

Taiyo Nippon Sanso has four corporate auditors, all ofthat listed companies appoint independent outside corporate auditors is a change thatwhom are full time, which affords them adequate accesswill further strengthen this role.

9

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Board of Directors, Corporate Auditors and Corporate Officers

Board of Directors

Corporate Auditors

ChairmanHirosuke Matsueda

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

President
Yasunobu Kawaguchi

Corporate Officers
Executive Vice President
Fumio Hara
Executive Directors/Advisors
Konosuke Ose
Hiroshi Taguchi
Senior Managing Directors
Masashi Yamashita
Ken-ichi Kasuya
Toshio Sato
Shinji Tanabe
Kunishi Hazama
Tadashige Maruyama

Executive Corporate Officers
Hiroshi Katsumata
Kinji Mizunoe
Masanori Zaima
Shin-ichiro Hiramine
Akihiko Umekawa
Keiki Ariga

Corporate Officers
Masakazu Naruo
Masahiro Imagawa
Tetsuya Nakayama
Masami Sakaguchi
Susumu Naka
Yoshihide Kenmochi
Yuki Hajikano
Shigenobu Somaya
Jun Ishikawa
Takashi Tatsumi
Masahiro Sakamoto
Takashi Fukano
Masahiko Kitabatake
Mikio Yamaguchi
Hiroyuki Tanizawa
Tadashi Higashino
Atsuhiro Fujita
Toshiaki Yamazaki
Hiroshi Nagae(As of June 29, 2010)

Managing Directors
Akira Ito
Yoshikazu Yamano
Masayuki Tanino
Yujiro Ichihara
Shigeru Amada
Executive Directors
Ryuichi Tomizawa *1
William J. Kroll

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

10

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Special Feature

Putting Strategies into Action:

Laying a Foundation for
Future Growth
Taiyo Nippon Sanso continues to promote ambitious strategies in line with four key goals:• Accelerate profitable growth• Promote globalization• Pursue cost reductions• Strengthen Group management
Taiyo Nippon Sanso has positioned fiscal year 2011 as a year for further reinforcing its operating foundation in preparation for the launch of its next medium-term business plan. In this year’s special feature, welook at three themes that will guide us as we endeavor to transform Taiyo Nippon Sanso into an entity
capable of sustainable, profitable growth, as well as how these themes fit with our basic business strategies.

Concentrate resources in growth markets

Theme 1

• Expand sales of MOCVD equipment• Press ahead with monosilane gas production project• Pursue helium gas production projects

Enhance our position in promising geographic markets

Theme 2

• Step up expansion of our North American gases business• Decisively build up our operations in Asia

Advance our environment, resource and energy businesses• Develop biogas refining units

Theme 3

• Perfect new technologies for highly oriented carbon nanotubes• Foster hydroenergy businesses• Develop cryogenic systems for superconductive devices

11

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Special Feature
Theme 1

Concentrate resources in growth markets
Expand Sales of Gallium Nitride (GaN)
MOCVD Equipment

equipment is currently in the area of 80%, and our

The increasing popularity of white LEDs in lighting

MOCVD business boasts annual sales of approxi-

is spurring demand for LEDs and, in turn, for gases

mately ¥3.3 billion. In addition to sales in Japan, weused in LED manufacturing. In response to risingalso accept major orders for MOCVD equipment

demand from LED manufacturers, who are investingfrom the Republic of Korea, Taiwan and other overseas

actively to expand production capacity, we aremarkets. We do not forecast a strong increase in sales

capitalizing on our supply capabilities for these gases

overseas in fiscal year 2011, but we do expect overseas

and our vertically integrated production system—

sales to increase to 40% of total MOCVD sales bywhich encompasses all aspects of production, fromfiscal year 2012 and anticipate annual sales rising torefining through to adsorption—and allocating man-

¥10 billion in the near future. In late 2010, we expect

agement resources to efforts aimed at reinforcing ourto complete a state-of-the-art, large-scale mass pro-electronic materials business, which includes metal

duction system for six- and eight-inch wafers—theorganic chemical vapor deposition (MOCVD) equip-

first such system in the world.

Our share of the Japanese market for MOCVD

ment for use in LED and power semiconductor

Joint Monosilane Gas Production Project

manufacturing.
With the aim of increasing diode brightness

To reinforce our position as a producer of gases forwithout increasing power requirements, LED manu-

the electronics industry, we continue to promote

facturers are working to develop chip technologies

an ambitious program of strategic investments both inthat facilitate the efficient conversion of power into

Japan and overseas. In 2009, we announced

light, as well as to keep manufacturing costs down.

the launch of a project with Evonik Degussa Japan
Co., Ltd., an affiliate of Evonik Industries AG of

To manufacture high-brightness chips, we arefocusing on controlling thevolume and speed of gas injection and use a three-layered
gas flow system, minimizing
defect rates and making it

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12

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Germany, to produce monosilane gas, which is useda coolant for magnetic resonance imaging (MRI)in the manufacture of semiconductor devices, liquid

devices. Despite the importance of helium, however,crystals displays (LCDs) and solar cells. Under the

supplies worldwide are extremely limited.

terms of the agreement, we will set up a joint venture

In 2006, we purchased the helium gas businesswith Evonik Degussa Japan in 2010 with a view toof the former BOC Group plc, as a result of which wecommencing operations in March 2011.

gained BOC’s helium source contracts and otherThrough this agreement, we aim to respond to

related assets in the United States, Russia and Poland.

growing global demand for monosilane gas. The joint

Capitalizing on our newly acquired position as one ofventure will employ an innovative process whereby aonly six companies in the world with rights tothin silicon film is produced on a substrate for a sili-

conduct transactions directly with major helium

con wafer, LCDs or solar cell from a silicon-based

producers, we designated our helium business as a key

precursor using chemical vapor deposition (CVD).

growth driver. In 2007, subsidiary Matheson Tri-Gas,

The agreement calls for construction of a plant

Inc., formed a joint venture with Air Products andwith an annual production capacity of 1,000 tons in

Chemicals, Inc., of the United States, thereby estab-Yokkaichi, Mie Prefecture.

lishing itself as a helium manufacturer, and resolved
to begin production at a new helium plant in the

Together with silane gas filling subsidiary

American state of Wyoming in 2012.

Yangzhou Taiyo Nippon Sanso Semiconductor Gases
Co., Ltd. in China, the new joint venture will play aWith the aim of securing new sources of helium

crucial role in ensuring a stable supply of products inin the United States and further strengthening our

the region.

position as a top supplier in Japan, we recently
commenced helium sales in China. Acting throughExpand Helium Gas Sales Through Major
Projects

Matheson Tri-Gas, we signed a long-term helium

Helium gas is used in a wide range of applications,

Development Co., Ltd., China’s largest independent

including the fabrication of semiconductor devices

helium distributor. We also signed a helium supply

and LCDs for electronics industries and the manufac-

agreement with Jinhong Gas Co., Ltd., of Jiangsu

ture of optical fibers, while liquid helium is needed as

Province, which is building a new helium filling

supply agreement with Jiyang Technology &base. In spring 2010, we acquired former helium
customer K-Air Gases India Private Limited, which

Taiyo Nippon Sanso: Total Solutions for Compound Semiconductors

was subsequently renamed Matheson K-Air Gases
Design and productionof procurement facilities

India Private Limited, thereby enabling us to expand
Analysis systems

helium operations in India.

MOCVD Process
Technologies

Gas procurement
equipment

Monitoring systems

Specialty gases

13

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Special Feature
Theme 2

Enhance our position in promisinggeographic markets
Expansion and Growth of U.S. Operations 2010

Liqueﬁed gas production bases
Headquarters
Air separation units
Production and sales bases

1. Enhance cost competitiveness2. Cultivate new markets

Strengthen presencein the United States

Accelerating Effort to Strengthen
Our North American Industrial Gases
Businessbases, acquiring local distributors and securing helium

In line with our strategy of enhancing our position

continue to take decisive steps to increase the effi-

in promising geographic markets, in May 2010, we

ciency of our operations and build new gas produc-

acquired Western International Gas and Cylinders,tion facilities. We will also seek attractive M&A

Inc., a leading U.S. wholesale producer and sup-opportunities while at the same time implementing

plier of acetylene gas. This followed our April 2009

strategies aimed at ensuring sustainable growth.

source contracts. These and other measures havesteadily enhanced our presence in the region. We will

acquisition of Valley National Gases LLC, the largest

Expanding Operations in Asia

privately held U.S. distributor of industrial gases.
Looking ahead, we will capitalize on synergies

The industrial gases business is by nature closely tiedamong Valley, Western and Matheson Tri-Gas, whichto the local economy. In developing countries in Asia,

boasts a network of production and sales bases acrosseconomic growth is driving the need for effective

North America. We will also work to expand ourresource and energy development and supply infra-

share of regional industrial gases markets.

structures, underscoring the increasing importance of

To date, we have promoted the focused alloca-

these countries as markets for companies like Taiyo

tion of management resources in North America,

Nippon Sanso and stimulating intense competition

expanding our network of liquefied gas production

for market share among industrial gas companies,

14

大陽日酸̲P2̲22̲0906.indd 14

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including the major global players. In this environ-excess of 50%. Additionally, on thement, we recognize that enhancing our production

northern island of Luzon, we plan tocapabilities in Asian markets as strategically crucial

build a facility for specialty gases forto future growth and are taking active steps, particu-

semiconductor fabrication at the sitelarly in the Philippines and Vietnam, to address thisof our existing air separation plant

challenge.

in Batangas. Including benefits fromIn the Philippines, the annual market forinvestment in the two new plants,

industrial gases reached approximately ¥15 billion inestimated at approximately ¥2.0

2009, and is expected to continue growing by aroundbillion, we aim to double our sales in

7% or 8% annually for the foreseeable future. The

the Philippines by fiscal year 2015, tocountry is an increasingly popular choice among¥8.0 billion.

Vietnam

Hanoi

Area servedby new plant

Current
businessarea

European and North American manufacturers—

In Vietnam, other major global

particularly in the electronics industry—as a loca-

players have established source fields

tion for offshore production facilities, and exports

in the north. In contrast, we produceof semiconductor devices and electronics equipment

and supply separated gases through subsidiary

to the United States, the European Union (EU),Vietnam Japan Gas Co., Ltd., in the south, where weJapan and China, among others, are expanding in line

enjoy a commanding market share. With the aim ofwith global economic recovery. Numerous ambitious

securing the top market share throughout Vietnam,

infrastructure projects, including building, subway,

we have earmarked approximately ¥4.0 billion forroad and water supply facilities, are also being imple-

major investments in both the north and the south.

mented. In response, we are working to enhance

Recently, we signed a long-term contract to supply

the production capabilities of locally incorporated

industrial gases by pipeline to Pomina Steel Co., Ltd.,subsidiary Ingasco, Incorporated and Taiyo Nippon

Vietnam’s largest electric furnace steel manufacturer.

Sanso Philippines Inc., the leading name in industrial

Under the terms of the contract, we will build an air

gases in the Philippines.

separation plant—our fourth in the country—with aOn the island of Mindanao, in the southern

capacity of 11,000 Nm3/hour at Phu My I Industrial

part of the country, we plan to build an air separa-

Park, in the province of Ba Ria-Vung Tau. We aim totion plant to supply oxygen,commence full production at the new plant in 2012.

Luzon

Current
businessarea

nitrogen, argon and otherIn northern Vietnam, we have established a joint

gases for use in furnaces andventure with a local gas producer and will build an air

to food products manu-

separation plant at Thang Long Industrial Park II, in

facturers. The new plant

the province of Hung Yen. The new plant will have awill have a capacity

capacity of 3,500 Nm3/hour, thus giving Vietnamof 2,000 Nm /hour;Japan Gas a domestic market share of approximately

combined with its

40% and the top position in the Vietnamese market.

3

Philippines
Newbusinessarea

Ho Chi MinhCity

existing liquid
gas production
capacity, which iscurrently 20,000

Cebu (Visayas)

Nm 3 /hour, thiswill give Ingasco
Mindanaoa market share in

15

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Special Feature
Theme 3

Advance our environment,
resource and energy businesses
Developing Biogas Refining Units

extremely narrow space between high-density longcarbon nanotubes and their propensity to bundle
made it impossible to create uniform sheets in resin.

With the aim of encouraging the greater use of biogas
in the home, we have developed an innovative compact
pressure swing adsorption (PSA) biogas refining unit.
The unit is capable of increasing the purity of methanegas yielded by sewage sludge, livestock manure andfood waste from the normal by 60% to 98% or higher,
on a par with standard city gas.
In simulation testing of home biogas supply systems, employing transport and storage technologies,
conducted at the Yamaga Biomass Center in Japan’s
Kumamoto Prefecture, this unit was assessed to havethe necessary performance capabilities, leading to its
choice for use in Japan’s first system for supplying biogas
to ordinary homes. We also received an order for biogas
refining units for use in a project to demonstrate thepotential of supplying biogas and city gas using thesame pipelines. These units are effective in reducing
emissions of greenhouse gases. Going forward, welook forward to ever-greater opportunities to demonstrate the capabilities of our biogas refining units inapplications designed to provide viable alternatives tocity gas.

Fostering Hydroenergy Businesses
For some years, we have participated in a variety ofenergy-related national projects in Japan, focusing
primarily on the development of gas technologies necessary
to the realization of a practical hydrogen-based energy
system in the future. These efforts have met withconsiderable success.
In 2015, Japan intends to begin creating a fullscale network of hydrogen stations. One immediateoutcome of this is expected to be sharp growth in themarket for hydrogen fuel cells and related products; aprivate-sector research firm recently estimated thatthe market would increase to approximately ¥1,500
billion annually by 2020, from ¥10 billion today.
While hurdles to the popular adoption of fuel cellvehicles (FCVs) remain, including high cost, a lack offilling facilities and disagreement as to how hydrogenfuel cells should be mounted, they offer a powerfulalternative, along with electric vehicles, for the next
generation of automobiles. FCVs are also attractive
for their ability to contribute to the reduction of CO
emissions. We are currently involved in a number ofpilot initiatives, including the construction of hydrogenstations, designed to facilitate the development of an
optimal hydrogen supply system.

Perfecting New Technologies for Highly
Oriented Carbon Nanotubes
In collaboration with the Osaka Science &Technology Center, Osaka Prefecture, and Hokkaido
University, we recently succeeded in perfecting
dispersion solution and film transfer technologies forvertically aligned carbon nanotubes. Dispersion solution
is used to dissolve the tubes, making it easy to introduce
plastic or other substances and facilitating extended
dispersion, i.e., for more than 1,000 hours. Filmtransfer is used to harden densely aligned long nanotubes in resin into a sheet formation, facilitating use
for applications requiring a high degree of electroconductivity, including solar cells, fuel cells, lithium-ion
batteries and other electrode materials, as well as inelectron emission devices for displays. To date, theDeveloping Cryogenic Systems for Superconducting Power Applications
Superconductivity is relevant in many markets,
including electric power, electronics and transport.
We are currently involved in a number of initiatives
aimed at developing cooling technologies for use in
the transport industry (for superconducting motors
for ships and railways) and in smart grids (for superconducting transformers and cables to facilitate theefficient control and transmission of power.)

16

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Responding to Advances in Superconductivity
Electronics

Smart grids

Electric power

Medicine

Markets forsuperconductivity
Research

Between 2010 and 2030, latentdemand for smart grids inJapan, the United States andEurope is expected to be worth¥125 trillion.

OthersTransport(Source: Financial & Economic Research Center, Nomura Securities Co., Ltd.)Superconductive motors for ships

Cryogenic Systems for Superconductive Devices
Compact neon gas
cryogenic unit

Speciﬁcations
Cooling efﬁciency: 0.06 at 80 kelvin/
Cooling capacity: 2 kW at 65 kelvin

Principal marketst4VQFSDPOEVDUJOHNBHOFUJDFOFSHZTUPSBHF 4.&4t4VQFSDPOEVDUJOHUSBOTGPSNFST QPXFSUSBOTNJTTJPOt4VQFSDPOEVDUJOHDBCMFT QPXFSUSBOTNJTTJPOt4VQFSDPOEVDUJOHHFOFSBUPST QPXFSHFOFSBUJPOt4VQFSDPOEVDUJOHNPUPST USBOTQPSUt5IFXPSMETmSTUDSZPHFOJDVOJUFNQMPZJOHOFPOHBTIn 2007, a collaborative
Cryogenic system fort1SPNPUJPOBOEBEWBODFNFOUPGUFDIOPMPHJFTGPSUIF
project between industry andsuperconducting power
QSPEVDUJPOBOEIBOEMJOHPGTVCDPPMFEMJRVJEOJUSPHFO
applications
academia that also involved
IHI Corporation, Sumitomo
Electric Industries, Ltd.,1SPWJEFDPPMJOHTZTUFNTBOENBOBHFNFOUTFSWJDFTUIBU
Hitachi, Ltd. and the
SFTQPOEUPUIFJODSFBTJOHVTFPGTVQFSDPOEVDUJWJUZ
University of Fukui, as wellas us, succeeded in developing a liquid nitrogen-cooled
bismuth alloy superconductsuperconducting magnetic energy storage (SMES)
ing motor with a greater displacement than any othersystems, superconducting cables and superconducting
such motor to date. Our contribution was the designtransformers by 2012. We are responsible for developand production of the cryogenic vessel and automatic
ing cryongenic systems for the third application, thatcooling system. With the cooperation of Kyushu
is, for superconducting transformers.
University and the International Superconductivity
With latent demand expected to be worth a
Technology Center (ISTEC), in January 2008, wecumulative total of ¥125 trillion over the next 20
developed the world’s first neon turbo refrigerator.
years, the market for smart grids, which are essential
Japan’s New Energy and Industrial Technology
to the spread of superconductivity, offers considerable
Development Organization (NEDO) is currently
promise. We expect to play a key role in the creation
pursuing a superconductive device development projof a smart grid infrastructure, capitalizing on ourect. NEDO has set a target for the use of highaccumulated know-how in industrial gases to promote
temperature yttrium-based superconductive materials
the development and early commercialization ofdeveloped under this program, which are now enterrelated cryogenic systems.
ing the actual production stage, in next-generation

17

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Our Businesses

Electronics-Related BusinessAs part of our broad range of solutions for semiconductor, LCD and solar
cell manufacturing processes, we also provide MOCVD equipment for manufacturing compound semiconductors, which
are mounted in LEDs for LCDs and PC backlights;
installation of environment-friendly gas purification
and abatement systems in optimal locations; construction of special piping that draws on our industrial gas
supply technologies; and remote monitoring of safetylevels and design alarm systems. We operate in Japanand around the world as a partner to electronics manufacturers, producing and selling highpurity industrial gases,
electronic materials gases
and electronics-related
equipment to customers as a
total solutions provider.

Amidst advances in device
integration and the use ofthin films in semiconducYears ended March 31 (Billions of yen)tors and the increasing size
160
of LCDs, and with rising134
demand for solar cell power
120
110
generation as a viable alternative energy and LEDs to80
reduce energy consumption, electronics-related
firms face growing pressure40
to achieve higher quality
and production efficiency.
0
Taiyo Nippon Sanso
2009
2010
helps such firms by supplying via pipeline, high-purity nitrogen, an inert gas
that is essential to semiconductor device, LCD andother manufacturing processes. We also deliver stablesupplies of electronic materials gases used in film
deposition and other processes.
Sales ofElectronics-Related
Business

Fiscal year 2010 sales

Approximately ¥110,879 million

Principal products and operations

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

Market needs

Comprehensive gas supplies
Total gas and equipment solutions

Competitive advantages

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

Fiscal year 2010 highlights

Released “UR25K”, a state-of-the-art large-scale MOCVD system• Began supplying electronic materials gas and regular industrial gases to the Green Front Sakai factorycomplex in Osaka• Commenced joint development of next-generation semiconductor process technologies with IBM• Began joint construction of monosilane plant with Evonik Degussa Japan Co., Ltd.
• Reinforced semiconductor specialty gases supply capabilities of National Oxygen Pte Ltd.

18

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Gas Business
Sales of
Gas
Business
Years ended March 31 (Billions of yen)
280
229
203

210

140

70

0
2009

2010

many years, gaining particular expertise in low temperature, high-pressure,separation, vacuum and gas
control technologies.
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 enhance their 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 bases in the United States as well as
in China and other parts of Asia.

Taiyo Nippon Sanso supplies oxygen, nitrogen,argon and a host of otherindustrial gases that are
indispensable to advanced
production activities ofmodern industry, including
cutting, welding, combusting, melting, chilling andfreezing. We supply thesegases in safe forms, including via pipeline, tanker
truck and cylinder.
We have built a strong
technological base over

Fiscal year 2010 sales

Approximately ¥203,894 million

Principal products and operations

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

Market needs

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

Competitive advantages

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

Fiscal year 2010 highlights• Acquired Valley National Gases LLC, the largest privately held U.S. distributor of industrial gases• Received an order for pressure swing adsorption (PSA) biogas refining equipment to be used in Japan’s
first project for the input of biogas into city gas pipelines• Acquired 51% stake in K-Air Gases India Private Limited of India, which became a consolidated subsidiary• Built new air separation plant for Shin Sagami Sanso Co., Ltd.

19

大陽日酸̲P2̲22̲0906.indd 19

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Our Businesses

Onsite and Plant Businessreplicate the conditions of outer space. In addition, we
supply equipment for exploring basic physics and discovering new functional materials.

In the onsite business, Taiyo
Nippon Sanso constructs
large cryogenic air separaYears ended March 31 (Billions of yen)tion plants on the premises
80
of major industrial gas
70
users, notably steel mills
58
60
and chemical complexes.
We also provide stable sup40
plies of oxygen and nitrogen through our pipelines.
Our onsite business oper20
ates around the clock every
day of the year, ensuring0
consistent supplies of large
2009
2010
volumes of industrial 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 separation
plants, which we export around the globe. In addition,
we supply many different types of experimental equipment, including space simulation chambers, which
Sales of
Onsite and Plant
Business

Fiscal year 2010 sales

Approximately ¥58,500 million

Principal products and operations

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

Market needs

Onsite operations: Systems for the safe and stable supply of large volumes of gas
Plant: Production and installation of high-performance facilities

Competitive advantages

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

Fiscal year 2010 highlights• Built a new plant at Shin Sagami Sanso Co., Ltd.’s factory in Oyama, Tochigi• Completed and commenced operations on two air separation plants with capacity of 18,000 Nm3/hour in
the American states of Iowa and Texas• Began construction of new plants in the Phillipines and Vietnam• Completed air separation plant with capacity of 8,000 Nm3/hour in China’s Dalian Chanxing Island Harbor
Industrial Zone
• Focused on securing new demand for gases and expanding sales in overseas markets; endeavored to
expand scale by reducing plant costs per unit of production20

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Medical-Related BusinessWe build special filling
facilities for medical gases
within our industrial gas
Years ended March 31 (Billions of yen)production and sales net16
15
works to ensure stable sup13
plies of medical oxygen and12other high-quality gases
used by medical institu8
tions. We help improve thesafety and reliability of
medical treatment by devel4
oping pure air supply systems and other medical
0
support equipment, as well
2009
2010
as devices for home oxygentherapy (HOT), and through such services as regularinspection of equipment and operation of remotemonitoring systems. Applying our advanced gas-related
technologies, we also make and sell stable isotopes foradvanced diagnostics and treatment, as well as specialty
gases.
Sales of
Medical-Related
Business

Fiscal year 2010 sales

Approximately ¥15,005 million

Principal products and operations

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

Market needs

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

Competitive advantages

Reliable systems for manufacture and sale of pharmaceutical products• Continue to gather safety information and data
Production and sale of pharmaceutical ingredients for positron emission tomography (PET) diagnostics• Strong position as manufacturer of Water–18O, a pharmaceutical ingredient for reagents used in PET
diagnostics, with a 70% domestic market share• Have commenced shipments of world-class pharmaceutical ingredients to leading manufacturers offluorodeoxyglucose (FDG) PET reagents in Europe and the United States

Fiscal year 2010 highlights• Established Taiyo Nippon Sanso Shenwei (Shanghai) Medical Gas Co., Ltd.
• Expanded sales of stable isotopes and sought out M&A opportunities with the aim of strengthening
medical gas and equipment businesses

21

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Our Businesses

LP Gas BusinessLP gas is highly valued as aclean energy source, withapplications ranging fromYears ended March 31 (Billions of yen)industrial to household
60
purposes. An environmentfriendly alternative to45
45
chlorofluorocarbons, LP gas
34
is also used as an aerosol gas
30
and as fuel for taxi fleets.
Taiyo Nippon Sanso
wholesales
LP gas to plants
15
and for other industrial
applications, supplies taxi
0
fueling stations and a wide
2009
2010
range of customers, fromrestaurants and other commercial users to residential
users. Our energy business also sells LP gas for household use to 96,000 homes throughout Japan throughdirect sales outlets.
With residential-use fuel cells expected to achieve
increased market penetration, LP gas—which is used
to fuel cells—is attracting increasing attention as anenvironment-friendly energy.
Sales of
LP GasBusiness

Fiscal year 2010 sales

Approximately ¥34,385 million

Principal products and operations

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

Market needs

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

Competitive advantages

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

Fiscal year 2010 highlights• Integrated sales companies in the western region of Japan• Strove to achieve goal of 100,000 homes supplied through M&As and other initiatives

22

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Six-Year Summary
Taiyo Nippon Sanso Corporation and Consolidated Subsidiaries

Years ended March 31

Millions of yen
2008
2007

2010

2009

2006

2005

¥433,390¥495,746¥507,718¥458,587¥397,308¥300,055

Operating income

27,55629,16438,78336,48826,78820,727

Net income

15,748

16,533

21,93020,094

14,444

11,568Net sales

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

27.5%

24.7%

23.1%

23.2%

24.0%

24.5%

Return on equity (%)

8.3%

8.6%

10.8%

10.6%

8.7%

8.7%2

Return on assets (%)

2.4%

3.1%

4.0%

3.6%

3.1%

3.3%2

Capital expenditure

38,366

66,01036,26035,891

22,17638,092

Depreciation and amortization

30,14328,33925,506

21,21018,982

14,592

4,137

3,936

2,903

2,713

2,223

2,056

Interest-bearing debt

259,111

191,074

159,500

152,232

122,196

122,089

Total net assets

212,396

194,250

217,813

216,068

178,055

154,207

Total assets

617,215534,350547,237

547,791

471,602404,668

Research and development
expenses

Yen

Per share data:
Net income1¥39.39¥41.21¥54.48¥49.93¥35.45¥32.76

Cash dividends

12.00

12.00

12.00

12.00

10.00

9.00

21.31

24.54

19.17

Times

Price earnings ratio

23.20

15.55

14.65

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

23

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Management’s Analysis of Operating Results and Financial Position

Scope of Consolidation and Application of the Equity Method
As of March 31, 2010, the Taiyo Nippon
Sanso Group consisted of Taiyo Nippon Sanso
Corporation (the parent company); 70 consolidated subsidiaries (43 based in Japan and 27 based
overseas, including Valley National Gases, LLC and
TI-Medical Co., Ltd., acquired on April 20, 2010);
and 26 equity-method affiliates (10 based in Japanand 16 based overseas).

A total of 56 consolidated subsidiaries and18 equity-method affiliates are accounted for in
the Gas Business segment. The Plant and Gas
Equipment Business segment comprises eightconsolidated subsidiaries and one equity-method
affiliate, while the Housewares Business and Others
segment encompasses six consolidated subsidiaries
and eight equity-method affiliates.

Operating Results
In fiscal year 2010, ended March 31, 2010, consolidated net sales were down 12.6%, to ¥433,390
million. Cost of sales fell 16.7%, to ¥286,529
million, while selling, general and administrative
expenses slipped 2.7%, to ¥119,305 million,
primarily reflecting a decrease in packaging andfreight expenses. Owing to these and other factors,
operating income declined 5.5%, to ¥27,556
million, although the operating margin edged up
0.5 percentage point, to 6.4%.

Net Sales

Other income soared 423.0% to ¥2,771
million. The absence of special loss prompted bya reversal of the allowance for doubtful accounts,
which increased other expenses in the previous
fiscal year, prompted a 40.8% decline in otherexpenses, to ¥1,638 million. As a consequence,
net income amounted to ¥15,748 million, down
4.7%. Net income per share was ¥39.39, while
return on equity (ROE) was 8.3%, 0.3 percentage
point lower than in the previous fiscal year. At the

Operating Income

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

500

30

50

45

25

55

400

24

40

36

20

44

300

18

30

27

15

33

200

12

20

18

10

22

100

6

10

9

5

11

0

0

0

0

0

(Yen)

0

2006 2007 2008 2009 20102006 2007 2008 2009 20102006 2007 2008 2009 2010

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)24

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general meeting of the Company’s shareholders
on June 29, 2010, a proposal to pay a full-term
dividend of ¥12.00 for the period under review
was approved.
Capital expenditures, including the cost of
construction, totaled ¥38,366 million in the period

under review, approximately ¥27,600 million lessthan in fiscal 2009. In contrast, depreciation andamortization increased ¥1,804 million, to ¥30,143
million. Investment in R&D rose ¥201 million, to¥4,137 million, equivalent to approximately 1% ofconsolidated net sales.

Results by Segment
conditions in Japan prompted our electronics
materials-related equipment and plant businesses
to revise and/or postpone facility replacement plans
and new investments.
Rising demand for liquid crystal backlights
and LEDs for lighting applications combinedwith higher demand for electronic devices tosupport a 32% increase in sales in our compound
semiconductor manufacturing equipment and
MOCVD equipment business. With the release of
Mache, a new large-scale model, which stimulated
demand in Japan and overseas, bolstering orders,
we increased the capacity of the test line at our
Tsukuba Laboratory. In the current period, we will
install a new, large-scale mass-production testing
facility at the Tsukuba Laboratory.
Sales of welding equipment and materials
fell short of the fiscal year 2009 level. This result
was due to a sharp decline in domestic demand,
attributable to decreased public-sector investment
and to the postponement of capital expenditures in
the private sector, which hampered demand for use
in the manufacture of transportation and construction equipment. The decline in sales also reflecteda slower-than-expected improvement in economic
conditions in North America.
Owing to the aforementioned businessresults, among others, sales in the Plant and Gas
Equipment Business segment declined 22.7%, to¥113,997 million. Operating income plummeted
42.6%, to ¥6,646 million.

Gas Business

Shipments of the Company’s principle gases—
oxygen, nitrogen and argon—showed signs ofimproving overall, bolstered by increased exports
in the electronics, automotive, petrochemicals andother related industries and a recovery in demand,
thanks in part to domestic demand stimulus
measures, as well as by the positive impact of an
M&A deal during the period.
Against a backdrop of rising domestic demandin China and elsewhere in Asia for products
used in the manufacture of high-end steel plates
for automobiles and petrochemicals products,
shipments of oxygen for supply through pipelines
rallied strongly. Nonetheless, overall sales ofoxygen, including liquefied gas, declined from thefiscal 2009 level.
Overall shipments and sales of nitrogen,including liquefied gas, also fell short comparedwith the previous fiscal year, despite firm demand
from the steel, chemical and electronics industries
for use in ensuring process safety and nitrogenpurging, combined with demand for use at a newplant for large LCD panels established by Sharp
Corporation.
Despite signs of a recovery in demand for use
in the production of silicon liquid crystals andin stainless steel smelting, overall shipments andsales of argon also fell, owing to a steep decline indemand for use in welding.
As a consequence of these and other factors,
sales in the Gas Business segment declined 8.9%,
to ¥300,451 million. Operating income amounted
to ¥22,443 million, essentially level with fiscal
year 2009.

Housewares Business and Others

Sales in this segment were bolstered by robust
shipments of sports bottles, Keitai Mug insulatedmugs and the Shuttle Chef thermal cooker, allmainstay products of Thermos K.K. Segment salesrose 2.5%, to ¥18,941 million. Operating income
climbed 52.9%, to ¥3,412 million.

Plant and Gas Equipment Business

Sales and operating income in this segment
declined from fiscal 2009, as persistent recessionary

25

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Financial Position
payable, a result of the shift of loans due within
one year to the current portion. Total noncurrent
liabilities rose 45.8%, to ¥255,236 million, owing
primarily to newly issued bonds and an increase inlong-term loans payable. These factors resulted in a
¥63,433 million increase in interest-bearing debt,
to ¥259,111 million.
Total net assets increased ¥18,146 million, to¥212,396 million, as retained earnings, adjusted
for net income and dividends, rose ¥10,948 million and the valuation difference on available-forsale securities increased ¥7,804 million, reflecting again in latent profits on securities of listed companies held for investment. The net asset ratio slipped
1.6 percentage points to 32.3%, while net assets
per share rose ¥45.25, to ¥497.92.

As of March 31, 2010, total assets amounted to¥617,215 million. Approximately ¥30,000 millionof this total reflects a ¥1.0 increase in the valueof the yen against the U.S. dollar on the last dayof the fiscal year. The current ratio was 137%, a12.0 percentage point improvement from the fiscal 2009 year-end. Property, plant and equipment
increased 11.2%, to ¥259,963 million, primarily tothe acquisition of a subsidiary in the United States.
Investments and other assets climbed 31.5%, to¥83,724 million, as a recovery in the stock market
boosted latent profits on investment securities.
Total current liabilities declined 9.3%, to¥149,583 million, as declines in notes andaccounts payable—trade and the current portionof bonds countered an increase in short-term loans
Cash Flow Analysis
In fiscal year 2010, net cash provided by operating activities amounted to ¥40,730 million, down
¥11,182 million from fiscal 2009. Principal factors
contributing to this result were a ¥8,517 million
increase in notes and accounts receivable—trade, a¥14,918 million decrease in notes and accounts—
payable. The interest coverage ratio was 9.4 times,
down 5.3 points.
Net cash used in investing activities, at¥103,697 million, was up ¥33,597 million. This
result reflected the application of ¥56,100 million to the purchase of investments in subsidiaries
resulting in a change in the scope of consolidation and ¥2,622 million to the payment of loans
receivable.

Net cash provided by financing activities
amounted to ¥56,048 million, an increase of¥22,088 million. The main factor at work here
was an increase in proceeds from long-term loans
payable.
As a consequence of operating, investing andfinancing activities in the period under review,
cash and cash equivalents at end of term totaled¥23,723 million, ¥5,053 million lower than at the
fiscal 2009 year-end.

Total Assets

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

(%)

(%)

750

250

40

15

600

200

32

12

450

150

24

9

300

100

16

6

150

50

8

3

0

0

0

0
2006 2007 2008 2009 20102006 2007 2008 2009 20102006 2007 2008 2009 2010

Equity ratio (right scale)

ROE
ROA

26

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Business Risks
electronics manufacturing (semiconductors, liquid
crystals, solar cells). While the Company strives toensure the effective management of related risks, itcannot guarantee that all of its products are free of
defects.

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

The Company maintains large-scale gas supply
facilities for major customers and needs to spend
heavily to maintain and upgrade these facilities.
Accordingly, interest rate trends could have amaterial impact on the Company’s businessperformance.

Financial Risks and Other Factors
Foreign Exchange Risk

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

Reliance on Specific Industries

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

Retirement Benefit Liabilities

A sudden deterioration in retirement plan returns
resulting in an increase in retirement benefit costs
may have an adverse impact on the Company’sbusiness performance.

Manufacturing Costs

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

Natural Disasters

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

Overseas Factors

The Company maintains operations overseas,
particularly in the United States and in other partsof Asia, including China, where the Company has
substantial gas operations. Political and economicchanges in countries where the Company has
operations may have an adverse impact on its
business performance.

Legal Issues

The creation of new products and technologies
entails various uncertainties owing to theCompany’s reliance on technological developmentin such areas as compound semiconductors, theenvironment and energy.

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

Intellectual Property

Medium-Term Business Plan

Technical and Safety Factors
Technological Development

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

In April 2008, the Company formulated a new
medium-term business plan. The Company iscurrently devoting its best efforts toward achieving
the quantitative targets of this plan. Based on
the information available to management at thetime the plan was formulated, these targets are
judged to be appropriate. However, a numberof factors—including changes in the operating
environment—could render the achievement ofthese targets impossible.

Product Defects

The Company sells high-pressure gas-related products and handles toxic and flammable gases used in27

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Consolidated Balance Sheets
Taiyo Nippon Sanso Corporation and Consolidated Subsidiaries

Millions of yen
2010
2009

March 31

Thousands of
U.S. dollars(Note 3)2010

AssetsCurrent assets:
Cash and deposits (Notes 14 and 20)¥ 24,029 ¥ 29,208 $258,265

Notes and accounts receivable–trade (Notes 5 and 14)

127,687

116,977

1,372,388

Merchandise and finished goods

16,227

18,108

174,409

Work in process

12,47417,803134,071

Raw materials and supplies

7,353

8,597

79,031

Deferred tax assets (Note 9)

6,359

6,012

68,347Other

12,158

10,966130,675(976)(1,771)(10,490)

205,313205,904

2,206,718

Allowance for doubtful accounts
Total current assets

Property, plant and equipment (Notes 7, 8 and 19)

616,202572,328

6,622,979

Accumulated depreciation(356,239)(338,497)(3,828,880)

Property, plant and equipment, net

259,963

233,8312,794,099

Investment securities (Notes 4 and 14)

62,17843,930668,293Long-term loans receivable

2,921

651

31,395

Goodwill

47,441

22,285509,899

Other intangible assets

20,772

8,665

223,259

Prepaid pension cost (Note 12)

11,23012,518120,701

Deferred tax assets (Note 9)

2,248

2,501

24,162

Investments and other assets:

Other

7,780

6,753

83,620

Valuation allowance for investments(1,357)(1,430)(14,585)

Allowance for doubtful accounts(1,278)(1,258)(13,736)

Total investments and other assets

151,938

94,615

1,633,040

Total assets¥ 617,215 ¥ 534,350 $ 6,633,867

See notes to consolidated financial statements.

28

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Millions of yen
2010
2009

March 31

Thousands of
U.S. dollars(Note 3)2010

Liabilities and Net assets
Current liabilities:
Notes and accounts payable–trade (Note 14)¥ 67,926

Short-term loans payable (Notes 6 and 14)

47,429¥ 81,236 $ 730,073
49,495

509,770

Income taxes payable (Note 9)

7,051

6,162

75,785

Other27,17428,090292,068

149,583

164,985

1,607,728

201,197

135,659

2,162,479

Total current liabilities
Noncurrent liabilities:
Long-term loans payable (Notes 6 and 14)
Pension and severance indemnities (Note 12)

5,051

5,306

54,288Deferred tax liabilities (Note 9)32,305

18,639347,216

Negative goodwill

1,181

1,718

12,693

Lease obligations (Note 6)

8,957

8,556

96,270

Other
Total noncurrent liabilities

6,541

5,234

70,303

255,236

175,115

2,743,293

404,819

340,100

4,351,021

Contingent liabilities (Note 13)
Total liabilities
Net assets (Notes 10 and 21):
Shareholders’ equity:
Capital stock:
Authorized—1,600,000,000 shares
27,03927,039290,617

Capital surplus

Issued—403,092,837 shares

44,91044,910482,696

Retained earnings

142,426

131,478

1,530,804(2,307)(2,181)(24,796)

10,8803,076

116,939

27

(111)

290

Foreign currency translation adjustments(23,773)(23,011)(255,514)

Accumulated other comprehensive loss

(124)

(163)

(1,333)

Treasury stock, at cost—
3,268,919 shares in 2010 and 3,159,559 shares in 2009
Valuation and translation adjustments and others:
Valuation difference on available-for-sale securities
Deferred gains or losses on hedges

13,317

13,212

143,132

Total net assets

Minority interests

212,396

194,250

2,282,846

Total liabilities and net assets¥617,215¥534,350 $6,633,867

29

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Consolidated Statements of Income
Taiyo Nippon Sanso Corporation and Consolidated Subsidiaries

Millions of yen
2010
2009

Years ended March 31

Net sales
Cost of sales (Note 16)
Gross profit
Selling, general and administrative expenses (Note 16)
Operating income
Other income (expenses):
Interest and dividend income
Interest expenses
Amortization of negative goodwill
Gain on sales of noncurrent assets (Note 17)
Gain on extinguishment of tie-in shares
Compensation income
Loss on sales and retirement of noncurrent assets (Note 17)
Foreign exchange losses
Gain on sales of investment securities
Loss on valuation of investment securities
Loss on valuation of golf club memberships
Gain on sales of golf club memberships
Gain on sales of subsidiaries’ stocks
Loss on sales of subsidiaries’ stocks
Gain on sales of subsidiaries and affiliates’ stocks
Equity in earnings of affiliates
Impairment loss (Note 18)
Provision of valuation allowance for investments
Reversal of valuation allowance for investments
Reversal of allowance for doubtful accounts
Provision of allowance for doubtful accounts
Environmental expenses
Loss on revision of retirement benefit plan
Early extra retirement payments
Other
Income before income taxes and minority interests
Income taxes (Note 9):
Current
Deferred¥433,390
286,529
146,861
119,305
27,556

Minority interests in income
Net income¥495,746 $4,658,104
343,905
3,079,632
151,841
1,578,472
122,676
1,282,298
29,164
296,174928(4,352)
750
151
332
264
(1,146)
—
—
(1)
(68)
—
1,225
(18)
49
1,385
(570)
(240)
32
716
—
(108)
—
—
1,305
634
28,191

11,155146
11,301
1,142¥ 15,748

1,313(3,504)
667
354
—
—
(916)
(824)
9
(209)
(81)
2
—
—
9
1,333
(141)
(450)
—
278
(722)
—
(333)
(311)
200
(3,325)25,839¥497.92
39.39
12.00

9,974
(46,776)
8,061
1,623
3,568
2,837
(12,317)
—
—
(11)
(731)
—
13,166(193)527
14,886(6,126)(2,580)344
7,696—(1,161)——
14,026
6,814
302,999

12,332
119,895(4,089)1,569
8,243
121,464
1,062
12,274¥ 16,533 $ 169,261
U.S. dollars(Note 3)

Yen

Amounts per share:
Net assets
Net income
Cash dividends

Thousands of
U.S. dollars(Note 3)
2010

¥452.67
41.21
12.00

$5.35
0.42
0.13

See notes to consolidated financial statements.

30

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

Millions of yen

Balance at March 31, 2008
Disposal of treasury stock
Change of scope of
consolidation (decrease)
Decrease due to merger
Effect of changes inaccounting policies applied
to foreign subsidiaries
Dividends from surplus
Net income
Purchase of treasury stock
Net changes of items otherthan shareholders’ equity
Balance at March 31, 2009
Disposal of treasury stock
Change of scope ofequity method
Dividends from surplus
Net income
Purchase of treasury stock
Net changes of items otherthan shareholders’ equity
Balance at March 31, 2010

Number ofshares ofcommonstock

Commonstock

CapitalsurplusRetainedearnings

Treasurystock

Foreign
Accumulated
currency
othertranslation comprehensive
adjustments
loss

Minority
interests

Total
net assets

403,092,837—¥27,039—¥44,911(0)¥124,392—¥ (362) ¥12,839
35—¥(194)—¥ (4,769)—¥(161)—¥14,117—¥217,813
34

—
—

—
—

—
—

(99)
(10)

—
—

—
—

—
—

—
—

—
—

—
—

(99)
(10)

—
—
—
—

—
—
—
—

—
—
—
—

(4,506)(4,830)16,533————(1,854)

—
—
—
—

—
—
—
—

—
—
—
—

—
—
—
—

—
—
—
—

(4,506)(4,830)16,533(1,854)—
403,092,837——¥27,039——¥44,9100—¥131,478——(9,762)¥(2,181) ¥ 3,076
14—

83¥(111)—(18,242)¥(23,011)—(2)¥(163)—(904)¥13,212—(28,828)¥194,250
14

—
—
—
—

—
—
—
—

—
—
—
—

—
(4,799)15,748
—

—
—
—
—

—
—
—
—

—
—
—
—

—
—
—
—

—
—
—
—

(40)
(4,799)15,748(100)—
403,092,837—¥27,039—¥44,910—¥142,426—
7,804¥(2,307) ¥10,880

139
¥ 27

(762)
¥(23,773)

38¥(124)

104¥13,3177,324¥212,396

Minority
interests

Total
net assets

(40)
—
—
(100)

Valuation
Deferreddifference on gains oravailable-for- losses åon
sale securities hedges

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

Balance at March 31, 2009
Disposal of treasury stock
Change of scope of equity method
Dividends from surplus
Net income
Purchase of treasury stock
Net changes of items otherthan shareholders’ equity
Balance at March 31, 2010

CapitalsurplusRetainedearnings

Treasurystock

Valuationdifference on
available-forsale securities

Deferred
gains orlosses onhedgesForeign
Accumulated
currency
othertranslation comprehensive
adjustments
loss$290,617 $482,696 $1,413,134 $(23,442) $ 33,061 $(1,193) $(247,324) $(1,752) $142,003 $2,087,812
—
—
0
150
—
—
—
—
—
150
—
—
—
(430)
—
—
—
—
—
(430)
—
—
(51,580)
—
—
—
—
—
—
(51,580)——
169,261——————
169,261———(1,075)—————(1,075)————83,8781,494(8,190)408
1,118
78,719$290,617 $482,696 $1,530,804 $(24,796) $116,939 $ 290 $(255,514) $(1,333) $143,132 $2,282,846

See notes to consolidated financial statements.

31

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

Millions of yen
2010
2009

Years ended March 31

Operating activities
Income before income taxes and minority interests
Depreciation and amortization
Impairment loss
Amortization of goodwill
Interest and dividends income
Interest expense
Equity in earnings of affiliates
Loss on sales and retirement of noncurrent assets
Gain on sales of investment securities
Gain on extinguishment of tie-in shares
Loss on sales of subsidiaries’ stocks(Increase) decrease in accounts receivable–other(Increase) decrease in notes and accounts receivable–trade(Increase) decrease in advance payments
Decrease (increase) in inventories
Decrease in notes and accounts payable–trade
Decrease in accrued expenses
Increase in advances received
Decrease in prepaid pension costs(Decrease) increase in provision for retirement benefits
Other, net¥ 28,191 ¥ 25,839
30,14328,339
570
141
3,153
1,961
(929)
(1,313)4,352
3,504(1,385)(1,333)941
527(1,275)
(19)
(332)
—
18
—
(78)
470
(8,517)
18,962(337)
1,006
11,420(4,970)(14,918)(6,225)(1,934)(1,519)
664
503
1,287
670
(170)
273
3,873
2,011
54,736
68,8281,353
1,767(4,315)(3,541)(11,043)(15,141)
40,73051,912

Interest and dividends income received
Interest expenses paid
Income taxes paid
Net cash provided by operating activities
Investing activities
Increase in short-term investments
Purchases of property, plant and equipment
Proceeds from sales of property, plant and equipment
Purchases of intangible assets
Purchases of investment securities
Proceeds from sales of investment securities
Payments for assets purchase (Note 20)
Purchase of investments in subsidiaries resulting in change in scope of consolidation (Note 20)
Proceeds from sales of investments in subsidiaries resulting in change in scope of
consolidation (Note 20)
Payments of loans receivable
Other, net
Net cash used in investing activities
Financing activities
Net (decrease) increase in short-term loans payable
Net decrease in commercial papers
Proceeds from long-term loans payable
Repayment of long-term loans payable
Proceeds from issuance of bonds
Redemption of bonds
Repayments of lease obligations
Cash dividends paid
Cash dividends paid to minority shareholders
Purchase of treasury stock
Proceeds from sales of treasury stock
Net cash provided by financing activities
Effect of exchange rate change on cash and cash equivalents
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Increase in cash and cash equivalents resulting from change of scope of consolidation
Increase in cash and cash equivalents resulting from merger with unconsolidated subsidiaries
Cash and cash equivalents at end of period (Note 20)

Thousands of
U.S. dollars(Note 3)
2010$

302,999
323,979
6,126
33,889(9,985)
46,776(14,886)
10,114(13,704)(3,568)
193(838)(91,541)(3,622)
122,743(160,340)(20,787)
7,137
13,833(1,827)
41,627588,306
14,542(46,378)(118,691)
437,769

137(40,830)576(160)(4,685)
1,229(2,137)(56,100)

168(58,703)
1,000(1,426)(5,833)102(5,425)—

1,472(438,844)
6,191(1,720)(50,355)
13,209(22,969)(602,966)

1,547(2,622)(651)(103,697)

—
(30)
48
(70,100)

16,627(28,181)(6,997)(1,114,542)¥(6,516) ¥ 10,136(1,000)(4,000)81,34557,875(10,986)(22,172)
15,000—(15,000)—(1,444)(990)(4,800)(4,831)
(469)
(280)
(82)
(1,852)2
74
56,04833,9601,674(499)(5,243)
15,273
28,776
12,709
108
777
82
15
¥ 23,723 ¥ 28,776$(70,034)(10,748)874,301(118,078)
161,221(161,221)(15,520)(51,591)(5,041)(881)
21602,408
17,992(56,352)
309,286
1,161
881$ 254,976

See notes to consolidated financial statements.

32

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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 preparedon the basis of accounting principles generally acceptedin Japan, which are different in certain respects as toapplication and disclosure requirements of International
Financial Reporting Standards, and are compiled fromthe consolidated financial statements prepared by theCompany as required by the Financial Instruments andExchange Act of Japan (the “FIEA”).
As permitted by the FIEA, 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 not necessarily
agree with the sums of the individual amounts.
Certain amounts previously reported have been
reclassified to conform to the current year presentation.

2. Summary of Significant Accounting Policies
taxes, is not available for distribution as dividends.

(a) Consolidation

The accompanying consolidated financial statements
include the accounts of the Company and its 70 significant subsidiaries (71 in 2009). All significant intercompany accounts and transactions have been eliminated inconsolidation.
In accordance with the regulations for the preparation of consolidated financial statements under the
FIEA, investments in certain unconsolidated subsidiaries
and significant affiliates are accounted for by the equity
method of accounting.
The differences at the dates of acquisition between
the cost and the underlying net equity in investments inconsolidated subsidiaries and the companies accounted
for by the equity method are amortized equally over theyears for which their effect are reasonably estimated.
Investments in unconsolidated subsidiaries and affiliates other than those which are accounted for by theequity method are principally stated at cost.

(d) Inventories

Inventories of the Company and its consolidated domestic subsidiaries are stated at cost, determined by the average method, specific identification method or themoving-average method (lower than book value due todecline in profitability).
As for overseas consolidated subsidiaries, inventories
are stated at the lower of cost or market, cost being
determined by the first-in first-out method.
(e) Property, plant and equipment (except for theleased assets)

Property, plant and equipment is stated at cost, and for
the Company and its consolidated domestic subsidiaries,
depreciation is computed by the straight-line method forbuildings and leased equipment and by the decliningbalance method for other equipment based on the estimated useful lives of the respective assets. As for consolidated overseas subsidiaries, depreciation is principally
computed by the straight-line method based on theestimated useful lives of the respective assets.

(b) Cash equivalents

For purposes of the statements of cash flows, theCompany considers all highly liquid instruments withmaturity of three months or less when purchased to be
cash equivalents.

The useful lives are as follows:
Buildings
3 to 50 years
Machinery
4 to 15 years(c) Investment securities

Investments in securities are classified into three categories: trading securities, held-to-maturity securities andother securities. The Company and certain consolidated
subsidiaries have marketable securities classified as othersecurities, which are carried at fair value with any
changes in valuation difference on other securities, net ofthe applicable income taxes, reported as a separate component of net assets. Non-marketable securities classified
as other securities are carried at cost. Under theCompanies Act of Japan (the “Act”), unrealized gain orloss on other securities, net of the applicable income(f) Intangible assets

Goodwill and other intangible assets are stated at cost.
As for the Company and its consolidated domestic subsidiaries, goodwill and other intangible assets are amortized by straight-line method based on their estimateduseful life. Consolidated overseas subsidiaries record
goodwill according to the Financial AccountingStandards Board Statement No. 142 (“Goodwill andOther Intangible Assets,” issued by the Financial
Accounting Standards Board of the USA).

33

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The Company recognized the amount of
unrecognized past service cost due to the revision of theretirement rule at April 1, 2003.
For transition benefit liability, the Company established the pension and severance indemnity trust by contribution of shares owned by the Company, and theremaining transition benefit liability is being recognizedover a period of 15 years.

(g) Leases

Leased assets are initially accounted for at their acquisition costs and depreciated over the leased term by thestraight-line method with no residual value.
Finance leases contracted on or before March 31,
2008 that do not deem to transfer ownership of theleased property to the lessee are accounted for as
operating lease transactions.

(Change in accounting policy)
Effective from the beginning of the fiscal year, April 1,
2009, the Company has adopted “Partial Amendments
to Accounting Standard for Retirement Benefits (Part3)” (Financial Accounting Standard No. 19, issued by
the Accounting Standards Board of Japan on July 31,2008). There was no effect of this change on operating
income and income before income taxes and minority
interests for the year ended March 31, 2010.

(h) Translation of foreign currency transactions

All monetary assets and liabilities, regardless of shortterm 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 consolidated
subsidiaries are translated into yen at the year-end
exchange rates, except for net assets, which are translated
at historical rates, and income statement items aretranslated into yen at average exchange rates during theyear. Differences arising from the translations are statedunder “Foreign currency translation adjustments” andminority interests in consolidated subsidiaries in theaccompanying consolidated balance sheets.

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

The allowance for directors’ and corporate auditors’
retirement benefits of the Company and certain consolidated domestic subsidiaries is provided at the amountwhich would have been required to be paid if all directors and corporate auditors had voluntarily terminatedtheir services as of the balance sheet date. This amount
has been determined in accordance with the internal
rules of the respective companies.
The allowance included ¥436 million ($4,686 thousand) and ¥410 million for corporate officers at March
31, 2010 and 2009, respectively.

(i) Pension and severance indemnities

Allowance for employees’ retirement benefits is recognized at the net total of the present value of the defined
benefit obligation at the balance sheet date, plus any
actuarial gains (less any actuarial losses) not yet recognized, minus the fair value of plan assets (if any) at thebalance sheet date out of which the obligations are to besettled directly. If the amount determined above is negative (an asset), such asset should be recorded as prepaid
pension expenses.
Net retirement benefit expense or income is recognized at the net total of current service cost and interest
cost, minus the expected return on any plan assets,
minus any actuarial gains (less any actuarial losses) andpast 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, whereapplicable, the past service cost, the project unit credit
method are used.
Actuarial gains or losses and past service cost are recognized for each defined benefit plan over a period notexceeding the expected average remaining service years of
the employees participating in the plan. The Company
and its consolidated domestic subsidiaries recognize
actuarial gains or losses evenly over 12 to 16 years following the respective fiscal years when such gains orlosses are identified. Past service cost is amortized using
the straight-line method over 13 to 16 years.

(k) Research and development expenses

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

Deferred tax assets and liabilities are determined basedon the differences between financial reporting and thetax bases of assets and liabilities and are measured using
the enacted tax rates and laws which will be in effectwhen the differences are expected to reverse.
(m) Amounts per share

Presentation of diluted net income per share is not applicable as there were no potentially dilutive securities forthe years ended March 31, 2010 and 2009.
(n) Allowance for doubtful accounts

To cover possible losses on collection of receivables, theCompany and its consolidated domestic subsidiaries provided for an allowance with respect to specific debts ofwhich recovery is doubtful, based on estimated write-off
amounts, after considering the likelihood of recovery on
an individual basis.

34

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Receivables and payables hedged by qualified foreignexchange forward contracts are translated at the corresponding foreign exchange forward contract rates.

(o) Valuation allowance for investments

To state the investment amount fairly, the allowance isprovided by considering the related parties’ assets andother factors.

(q) Recognition of revenues and costs ofconstruction contracts(p) Derivative and hedging transactions

The Company and certain consolidated subsidiaries haveused foreign exchange forward contracts solely in orderto hedge against risks of fluctuations in foreign currency
exchange rates relating to its receivables and payables
denominated in foreign currencies, and have used interest-rate swap agreements solely to hedge against risks offluctuations in interest rates relating to its long-termloans payable. Also, currency exchange swap agreements
have been used solely to hedge against risks of fluctuations in foreign exchange of long-term loans payable
denominated in foreign currencies, in compliance with
the internal rules of respective companies.
Under the “Accounting Standard for Financial
Instruments” (Financial Accounting Standard No. 10,
issued by the Accounting Standards Board of Japan on
March 10, 2008) derivative transactions are valued atmarket prices, except for hedging transactions whose
gains or losses are deferred and recorded in the balance
sheet until the hedged transactions are settled. Moreover,
if interest-rate swaps in Japan are specifically tied to thehedged loan transactions, unrealized gains or losses on
those swaps are not recognized in the consolidated financial statements as such gains or losses are to be offset
with those on the hedged transactions. Deferred hedge
accounting is applied to currency swaps.

Until the year ended March 31, 2009, the percentage-ofcompletion method was applied to recognize revenues forlong-term (over one year) construction contracts over one
billion yen. Effective from the beginning of the fiscal year,
April 1, 2009, the Company and certain consolidated
subsidiaries have applied the “Accounting Standard forConstruction Contracts” (Financial Accounting Standard
No. 15, issued by the Accounting Standards Board ofJapan on December 27, 2007) and the “Guideline on
Accounting Standard for Construction Contracts”(Financial Accounting Standard Implementation
Guideline No. 18, issued by the Accounting Standards
Board of Japan on December 27, 2007).
Under the new accounting standard and guideline,
revenues and costs of construction contracts that commenced on or after April 1, 2009, of which the percentage of completion can be reliably estimated, arerecognized by the percentage-of-completion method.
The percentage of completion is calculated at the cost
incurred as a percentage of the estimated total cost. The
completed-contract method continues to be applied forcontracts for which the percentage of completion cannot
be reliably estimated. There was no effect as a result of
this change on net sales, operating income and income
before income taxes and minority interests for the year
ended March 31, 2010.

3. U.S. Dollar Amounts
2010. The translation should not be construed as arepresentation that Japanese yen have been, could havebeen, or could in the future be converted into U.S.
dollars at the above or any other rate.

The translation of Japanese yen amounts into U.S. dollar
amounts is included solely for convenience, as a matterof arithmetical computation only, at the rate of ¥93.04 =U.S.$1, the approximate rate of exchange at March 31,

4. Investment Securities
At March 31, 2010 and 2009, information with respect
to other securities for which market prices were available

was summarized as follows:

Millions of yen
2010
Acquisition
Carrying
Cost
amountUnrecognized gain items: Stock
Unrecognized loss items: Stock
Total

Unrecognized gain items: Stock
Unrecognized loss items: Stock
Total¥21,447
1,155¥22,603

Unrecognizedgain (loss)¥40,253929¥41,183¥18,806(226)¥18,579

Millions of yen
2009
Acquisition
Carrying
Cost
amountUnrecognizedgain (loss)¥19,479567¥20,046¥24,818423¥25,241

Thousands of U.S. dollars
2010
Acquisition
Carrying
Unrecognized
Costamountgain (loss)$230,514
12,414$242,939$432,642
9,985$442,638$202,128(2,429)$199,688¥5,339(144)¥5,19535

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Proceeds from sales of securities classified as othersecurities amounted to ¥54 million ($580 thousand) and¥62 million with an aggregate gain on sales of ¥0 million($0 thousand) and ¥19 million for the years ended
March 31, 2010 and 2009, respectively, and an aggregate

loss on sales of ¥0 million ($0 thousand) and nil for theyears ended March 31, 2010 and 2009.
Carrying amounts of non-marketable securities
classified as other securities at March 31 2009 wereas follows:

Other securities:

Millions of yen
2009

Unlisted securities (except for OTC securities)
Preferred stock¥2,796
1,000

standard and the guideline are applicable to financial
instruments and related disclosures effective from the
beginning of the fiscal year, April 1, 2009; therefore,
the information above regarding other securities is not
required for the year ended March 31, 2010 and isdisclosed only for the year ended March 31, 2009.

There are no securities with maturity dates
classified as other securities at March 31 2009.
As described in Note 14. “Financial Instruments,”
the Company and certain consolidated subsidiaries
have applied “Accounting Standard for Financial
Instruments” and “Guideline on Disclosures about
Fair Value of Financial Instruments.” The accounting
5. Notes and Accounts Receivable(a) Notes and accounts receivable liquidated at March 31, 2010 and 2009 were as follows:
Millions of yen
2010
2009

Accounts receivable transferred by liquidation
Notes receivable transferred by liquidation¥2,8002,327¥10,280
7,726

Thousands of
U.S. dollars
2010$30,095
25,011(b) Notes receivable discounted at March 31, 2010 and 2009 were as follows:
Millions of yen
2010
2009

Notes receivable discounted¥—

Thousands of
U.S. dollars
2010

¥20

$—

6. Short-Term Loans Payable, Long-Term Loans Payable and Lease Obligations
At March 31, 2010 and 2009, short-term loans payable
and the current portion of long-term loans payable

consisted of the following:
Millions of yen
2010
2009

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

¥17,825
29,604—¥47,429

The average interest rates applicable to short-termloans payable outstanding at March 31, 2010 and 2009were 1.51% and 2.93%, respectively.

¥24,581
9,914
15,000¥49,495

Thousands of
U.S. dollars
2010$191,584
318,186—$509,770

Long-term loans payable at March 31, 2010 and2009 consisted of the following:
Millions of yen
2010
2009

Loans from banks due through 2018 at average interest rate of
1.96% in 2010 and 1.93% in 2009
1.81% unsecured bonds, payable in yen, due 2011
1.58% unsecured bonds, payable in yen, due 2012
1.13% unsecured bonds, payable in yen, due 2014

At March 31, 2009, commercial paper (¥1,000
million) with a borrowing rate of 0.54% was included inother current liabilities. Short-term lease obligations at¥161,197
15,00010,00015,000¥201,197¥110,659
15,00010,000—¥135,659

Thousands of
U.S. dollars
2010$1,732,556
161,221
107,481
161,221$2,162,479

March 31, 2010 and 2009 included in other current
liabilities were ¥1,525 million ($16,391 thousand) and¥966 million, respectively.

36

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The annual maturities of long-term loans payable
subsequent to March 31, 2010 are summarized asfollows:

The annual maturities of lease obligations subsequent
to March 31, 2010 are summarized as follows:

Years ending March 31

Millions of yen

Thousands of
U.S. dollars

Years ending March 31

Millions of yen

Thousands of
U.S. dollars

2011
2012
2013
2014
2015
2016 and thereafter¥ 29,604
24,565
16,88840,02049,961
29,763¥190,801$ 318,186
264,026
181,513430,138
536,984
319,895$2,050,742

2011
2012
2013
2014
2015
2016 and thereafter¥ 1,525
3,804
1,354
1,417
381
2,000
¥10,481$ 16,391
40,886
14,553
15,2304,095
21,496$112,650

7. Pledged Assets
Assets pledged as collateral for short-term loans payableof ¥136 million ($1,462 thousand) and ¥72 million,
long-term loans payable of ¥714 million ($7,674

thousand) and ¥697 million, and accounts payable-tradeof ¥307 million ($3,300 thousand) and ¥136 million atMarch 31, 2010 and 2009, respectively, were as follows:
Millions of yen
2010
2009

Property, plant and equipment, at net book value¥2,110¥3,176

Thousands of
U.S. dollars
2010$22,678

8. Assets Replaced by National Subsidy
Assets replaced by national subsidy at March 31, 2010 and 2009 were as follows:
Millions of yen
2010
2009

Property, plant and equipment

¥411

¥411

Thousands of
U.S. dollars
2010$4,417

9. Income Taxes
Significant components of the Company’s deferred
tax assets and liabilities at March 31, 2010 and 2009were as follows:

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

Millions of yen
2010
2009

Current deferred tax assets and liabilities
Deferred tax assets:
Accrued bonus
Loss from valuation of inventory
Accrued expenses
Other
Deferred tax assets—subtotal
Valuation allowance
Deferred tax assets—net
Deferred tax liabilities
Net deferred tax assets
Deferred tax liabilities:
Adjustment of allowance for doubtful accounts
Deferred tax liabilities—subtotal
Offset by deferred tax assets
Net deferred tax liabilities

Thousands of
U.S. dollars
2010¥2,134
313
2,153
1,975
6,577
(171)
6,405
(46)
¥6,359¥2,000
310
1,346
2,538
6,196
(184)
6,012
—
¥6,012$22,9363,364
23,141
21,227
70,690(1,838)68,841(494)$68,347¥ (134)(134)
46¥ (88)¥$ (1,440)(1,440)494$ (946)

¥

(24)
(24)
—
(24)

37

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Millions of yen
2010
2009

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

A reconciliation between the normal effective statutory tax rate and the actual effective tax rate reflected inThousands of
U.S. dollars
2010¥ 1,571
1,335
130
7,946
10,983(4,659)6,324(4,075)
2,248¥ 1,579
1,533
86
8,145
11,343(4,763)
6,580(4,079)2,501$ 16,885
14,3491,397
85,404
118,046(50,075)
67,971(43,798)
24,162(7,553)(5,846)(145)(270)(10,634)(11,929)(36,380)
4,075¥(32,305)(2,230)(6,731)(182)(142)(5,542)(7,889)(22,718)
4,079¥(18,639)(81,180)(62,833)(1,558)(2,902)(114,295)(128,214)(391,015)
43,798$(347,216)

the accompanying consolidated statements of income forthe year ended March 31, 2009 was as follows:2009

Statutory tax rate
Entertainment expenses and others not deductible permanently
Dividends received and others
Valuation allowance for deferred tax assets
Undistributed earnings of affiliates
Other
Effective tax rate

The reconciliation was omitted for the year ended
March 31, 2010 because the difference was less than 5%

40.69%
1.57(2.55)
2.47(9.70)(0.58)
31.90%of the statutory tax rate.

10. Shareholders’ Equity(a) Dividends(b) Increases/decreases and transfer of common
stock, reserve and surplus

Under the Act, companies can pay dividends at any time
during the fiscal year in addition to the year-end dividend upon resolution at the shareholders’ meeting. For
companies that meet certain criteria, such as: (1) having
a Board of Directors, (2) having independent auditors,(3) having a Board of Corporate Auditors, and (4) theterm of serviceof the directors is prescribed as one year rather than two
years of normal term by its articles of incorporation, theBoard of Directors may declare dividends (except for
dividends in kind) if the Company has prescribed so in
its articles of incorporation.
The Act permits companies to distribute dividendsin-kind (non-cash assets) to shareholders subject to acertain limitation and additional requirements.
Semiannual interim dividends may also be paid oncea year upon resolution by the Board of Directors if thearticles of incorporation of the Company so stipulate.

The Act requires that an amount equal to 10% of dividends must be appropriated as a legal reserve (a component of retained earnings) or as additional paid-in capital(a component of capital surplus) depending on theequity account charged upon the payment of such dividends until the total of aggregate amount of legal reserve
and additional paid-in capital equals 25% of the common stock. Under the Act, the total amount of additional paid-in capital and legal reserve may be reversed
without limitation.
The Act also provides that common stock, legal
reserve, additional paid-in capital, other capital surplus
and retained earnings can be transferred among theaccounts under certain conditions upon resolution of
the shareholders.

38

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acquisition rights, which were previously presented as aliability, are now presented as a separate component ofshareholders’ equity.
The Act also provides that companies can purchaseboth treasury stock acquisition rights and treasury stock.
Such treasury stock acquisition rights are presented as aseparate component of shareholders’ equity or deducted
directly from stock acquisition rights.

(c) Treasury stock and treasury stock acquisitionrightsThe Act also provides for companies to purchasetreasury stock and dispose of such treasury stock byresolution of the Board of Directors. The amount oftreasury stock purchased cannot exceed the amountavailable for distribution to the shareholders, which isdetermined by specific formula. Under the Act, stock
11. Leases

consolidated balance sheet if finance lease accounting had been applied to the finance lease transactions
currently accounted for as operating leases:(a) The following pro forma amounts represent theacquisition costs, accumulated depreciation and net
book value of leased property at March 31, 2010
and 2009, which would have been reflected in theMillions of yen
2010
2009

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

Thousands of
U.S. dollars
2010¥7,699325¥8,026¥9,578408¥9,987$82,7493,493$86,264¥5,608227¥5,835¥6,058248¥6,307$60,275
2,440$62,715¥2,09198¥2,190¥3,519160¥3,680$22,474
1,053$23,538

Lease payments relating to finance lease transactions
accounted for as operating leases amounted to ¥1,254
million ($13,478 thousand) and ¥1,621 million, whichwere equal to the depreciation expense of the leased

assets computed by the straight-line method over therespective lease terms for the years ended March 31,
2010 and 2009, respectively.

Future minimum lease payments (including theinterest portion thereon) subsequent to March 31, 2010

and 2009 for finance lease transactions accounted for as
operating leases are summarized as follows:Year ending March 31

2010
2011
2012 and thereafter
Total
2009
2010
2011 and thereafter
Total

Millions of yen

Thousands of
U.S. dollars

¥ 910
1,280
¥2,190$ 9,781
13,758$23,538¥1,4002,279¥3,68039

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operating leases are summarized as follows:(b) Future minimum lease payments subsequent toMarch 31, 2010 and 2009 for non-cancelableYear ending March 31

2010
2011
2012 and thereafter
Total
2009
2010
2011 and thereafter
Total

Millions of yen

Thousands of
U.S. dollars¥ 2,113
8,532¥10,646$ 22,711
91,702$114,424¥ 1,809
6,572¥ 8,381

12. Pension and Severance Indemnities
Certain consolidated overseas subsidiaries have adefined contribution benefit plan.
The funded status and amounts recognized in theaccompanying consolidated balance sheets at March 31,
2010 and 2009 and the components of net retirement
benefit expenses recognized in the accompanying
consolidated statements of income for the years ended
March 31, 2010 and 2009 are summarized as follows:

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

Thousands of
U.S. dollars
2010

Millions of yen
2010
2009

Projected benefit obligation
Plan assets at fair market value
Unfunded retirement benefit liabilities
Net unrecognized actuarial losses
Difference at change of accounting standard
Unrecognized prior service cost
Prepaid pension cost
Allowance for employees’ retirement benefits¥ 34,450(29,494)4,956(12,209)(2,312)
2,131
11,230(3,796)¥ 33,865(27,975)
5,890(14,043)(2,777)
2,372
12,518(3,960)$ 370,271(317,003)
53,267(131,223)(24,850)
22,904
120,701(40,800)(b) Net retirement benefit expenses

Thousands of
U.S. dollars
2010

Millions of yen
2010
2009

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

(c) The principal assumptions used in determining
retirement benefit obligations and other components¥1,411
583
(660)
1,271
466
(241)
¥2,831786¥3,617¥1,360
594
(786)
707
466
(241)
¥2,100745¥2,846$15,166
6,266(7,094)
13,661
5,009(2,590)$30,4288,448$38,876

for the Company and certain consolidated domestic
subsidiaries plans are shown below:

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

2010

2009

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

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

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13. Contingent Liabilities
reguarantees by joint investors amounting to ¥649 million ($6,975 thousand) and ¥785 million and commitments to guarantees amounting to ¥777 million ($8,351
thousand) and ¥1,058 million, respectively.

At March 31, 2010 and 2009, the Company and certain
consolidated subsidiaries had contingent liabilities as
guarantor of indebtedness, amounting to ¥8,442 million($90,735 thousand) and ¥9,214 million, which included
14. Financial Instruments

manage the risk by preparing cash management plansmonthly.
Short-term loans payable are raised mainly for shortterm capital and long-term loans are mostly taken out
principally for the purpose of making capital investments
and long-term capital. Someof those loans with variable interest rates are exposed tointerest rate fluctuation risk. However, to reduce suchrisk and fix interest expense for those loans bearing interest at variable rates, the Group utilizes interest-rate swap
transactions for each loan contract to hedge such risks
and to fix interest expenses.
Regarding derivatives, the Group enters into forward
foreign exchange contracts to reduce the foreign currency
exchange risk arising from the trade receivables and payables denominated in foreign currencies. The Group also
enters into interest-rate swap transactions to reduce fluctuation risk deriving from interest payable for loans andbonds bearing interest at variable rates.
Information regarding the method of hedge accounting, hedging instruments and hedged items, hedging
policy, and the assessment of the effectiveness of hedging
activities is found in Note 2. (p) “Derivative and hedging
transactions.”
In conducting derivative transactions, the division in
charge of each derivative transaction follows the internal
policies and the Group enters into derivative transactions
only with financial institutions which have a soundcredit profile.

Effective from the beginning of the fiscal year, April 1,
2009, the Company and certain consolidated subsidiaries have applied “Accounting Standard for Financial
Instruments” (Financial Accounting Standard No. 10,
issued by the Accounting Standards Board of Japan on
March 10, 2008) and “Guideline for on Disclosuresabout Fair Value of Financial Instruments” (Financial
Accounting Standard Implementation Guideline No. 19,
issued by the Accounting Standards Board of Japan on
March 10, 2008).
(a) Policy for financial instruments

In consideration of plans for capital investment, theCompany and consolidated subsidiaries (collectively, the“Group”) raise funds through bank loans or bond issues.
The Group manages temporary cash surpluses throughbank loans. The Group operates funds only throughshort-term deposits. The Group uses derivatives only forthe purpose of reducing risk and does not enter into
derivatives for speculative or trading purposes.
(b) Types of financial instruments and related risk
and risk management

Notes and accounts receivable–trade are exposed tocredit risk in relation to customers. In accordance with
the internal policies of the Group for managing credit
risk arising from receivables, each related division monitors credit worthiness of their main customers periodically, and monitors due dates and outstanding balancesby individual customer.
Investment securities are exposed to market risk.
Those securities are composed of mainly the shares ofcommon stock of other companies with which theGroup has business relationships. The Group also
reviews their fair value quarterly.
Notes and accounts payable–trade have payment due
dates within one year. Although the Group is exposed toliquidity risk arising from those payables the Group(c) Fair value of financial instruments

The fair value of financial instruments is based on theirmarket price, if available. When there is no market priceavailable, fair value is reasonably estimated. In addition,
the notional amounts of derivatives in Note 15.
“Derivative and Hedging Activities” are not necessarily
indicative of the actual market risk involved in derivativetransactions.

41

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(1) Fair value of financial instruments
Carrying amount on the consolidated balance sheet as of March 31, 2010 and estimated fair value and differences offinancial instruments were as follows:
Millions of yen

Cash and deposits
Notes and accounts receivable–trade
Investment securities:
Other securities
Total assets
Notes and accounts payable–trade
Short-term loans payable
Long-term loans payable
Total liabilities

Carrying
amountFair value

Difference¥ 24,029
127,687¥ 24,029
127,687¥

41,183¥192,899¥ 67,926
17,825
230,802¥316,554

41,183¥192,899¥ 67,926
17,825
234,035¥319,787

—
—

—
—
—
—
3,233
¥3,233¥¥Thousands of U.S. dollars

Cash and deposits
Notes and accounts receivable–trade
Investment securities:
Other securities
Total assets
Notes and accounts payable–trade
Short-term loans payable
Long-term loans payable
Total liabilities

Carrying
amountFair value$ 258,265
1,372,388$ 258,265
1,372,388$

442,638$2,073,291$ 730,073
191,584
2,480,675$3,402,343

442,638$2,073,291$ 730,073
191,584
2,515,423$3,437,092————
34,748$34,748

Difference

—
—

$
$

payable shown as “Short-term loans payable” in consolidated balance sheet are included in “Long-term loans
payable” in the table above.

The table above does not include financial instruments for which it is extremely difficult to determine thefair value. For information on those items, please refer tonote (2) below. The current portion of long-term loans

Valuation method of fair value of financial instruments and information on investment securities and derivativetransactions were as follows:
Cash and deposits and notes and accounts
receivable–tradeLong-term loans payable

The fair value of bonds is measured at the quoted market price. The fair value of long-term loans payable
other than bonds is based on the present value of thetotal of principal and interest discounted by the interest rate combined of the risk free rate and credit
spread. Interest-rate swap transactions are utilized formost variable rate loans to fix interest expense. Allinterest-rate swap transactions meet the criteria for the
short-cut method of interest-rate swap transactions andare integrally processed with those loans. Therefore,
the fair value of those loans is based on the present
value of the total of principal and interest processedwith interest-rate swap discounted by the rate above.

Since these items are settled in a short period of time,
their carrying amount approximates fair value.
Investment securities

The fair value of stocks is based on quoted market pricesof the stock exchange. For information on securities
classified by holding purpose, please refer to Note 4.
“Investment securities.”
Notes and accounts payable–trade and short-termloans payable

Since these items are settled in a short period of time,
their carrying amount approximates fair value.

(2) Financial instruments for which it is extremely difficult to determine the fair value
Unlisted stocks
Preferred stocks

Millions of yen

Thousands of
U.S. dollars¥19,995
1,000$214,908
10,74842

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(3) Redemption schedule for financial assets with maturities subsequent to March 31, 2010
Millions of yen

Thousands of
U.S. dollars

Due in one year or less

Cash and deposits
Notes and accounts receivable–trade¥ 24,029
127,687(5) Unused overdraft agreement and loan commitmentline were ¥52,555 million ($564,865 thousand) as
of March 31, 2010.

(4) Redemption schedule for long-term loans payable
Years ending March 31

Millions of yen

Thousands of
U.S. dollars

2011
2012
2013
2014
2015
2016 and thereafter¥ 29,606
39,611
26,87240,00464,94429,761¥230,802$ 318,207
425,742
288,822429,966
698,022
319,873$2,480,675$ 258,265
1,372,388

15. Derivative and Hedging Activities
The Company and certain consolidated subsidiaries
have established rules for the authorization of derivativetransactions and related risk management rules, which
stipulate the limits on derivative transactions for eachcontract amount. All derivative transactions have beenentered into in compliance with these rules.
Risk management for derivative transactions has
been under the control of the Finance Department of
the Company, which reports regularly or as necessary to
the responsible officer.

The Company and certain consolidated subsidiaries haveused foreign exchange forward contracts and interest-rate
swap agreements and currency swap agreements to hedge
against the risk of fluctuations in interest rates and currency exchange relating to their short-term receivables
and payables and long-term loans payable.
No market risk is anticipated as such derivatives havebeen entered into to offset or mitigate gains or losses
resulting from the hedged loan and other transactions.
The Company and consolidated subsidiaries do not
anticipate nonperformance by any of the counterparties
to the above transactions, all of whom are leading financial institutions, which are deemed highly creditworthy.

Derivative transactions for which hedge accounting is applied for the year ended March 31, 2010 were as follows:(a) Currency-related

Contract
amountHedged item

Deferral hedge accounting
Foreign exchange forward contracts:
Sell:
USD
TWD
Buy:
USD
EUR
GBP
CHF
SGD
TWD
Foreign currency swaps:
Sell:
USD
Buy:
SGD
Total

Millions of yen
2010
Due after
one year

Fair
value

Accounts receivable–trade
¥ 104
6

¥

—
—

Accounts payable–trade
3,769
200
22
655
12
380

—
—
—
—
—
—

350

350

1,888
¥7,390872¥1,223*Long-term loans payable* The estimated fair value of the foreign exchange forward contracts and foreign currency swaps is included in the fair value of thereceivables/payables as the hedged items.

43

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Thousands of U.S. dollars
2010
Contract
Due after
Fair
amountone yearvalue

Hedged item

Deferral hedge accounting
Foreign exchange forward contracts:
Sell:
USD
TWD
Buy:
USD
EUR
GBP
CHF
SGD
TWD
Foreign currency swaps:
Sell:
USD
Buy:
SGD
Total

Accounts receivable–trade$ 1,118
64

$

—
—

*

Accounts payable–trade
40,509
2,150
236
7,040
129
4,084

—
—
—
—
—
—

3,762

3,762

20,292$79,428

9,372$13,145

Long-term loans payable* The estimated fair value of the foreign exchange forward contracts and foreign currency swaps is included in the fair value of the receivables/
payables as the hedged items.

(b) Interest-related

Short-cut method
Interest-rate swap agreements:
Receive floating/Pay fix

Hedged item

Millions of yen
2010
Contract
Due after
amountone yearLong-termloans payable¥61,109¥49,520

Fair
value

*

Thousands of U.S. dollars
2010
Contract
Due after Fairamountone year value$656,804$532,244** The estimated fair value of the interest-rate swap agreements is included in the fair value of the long-term loans payable as the hedged items.

disclosures effective from the beginning of the fiscal year,
April 1, 2009; therefore, the required information
regarding currency-related and interest-related derivatives
is disclosed only for the year ended March 31, 2010.
There were no interest-related derivatives at March
31, 2009.

As described in Note 14. Financial Instruments, theCompany and certain subsidiaries have applied“Accounting Standard for Financial Instruments” and“Guideline on Disclosures about Fair Value of Financial
Instruments.” The accounting standard and the guideline
are applicable to financial instruments and related
16. Research and Development Costs
Research and development costs included in cost of sales
and selling, general and administrative expenses for theyears ended March 31, 2010 and 2009 totaled ¥4,137

million ($44,465 thousand) and ¥3,936 million,
respectively.

17. Gain and Loss on Sale and Retirement of Noncurrent Assets
Significant components of the gain on sales of noncurrent assets of ¥151 million ($1,623 thousand) and ¥354
million for the years ended March 31, 2010 and 2009,
respectively, were as follows:
Millions of yen
2010
2009

Land

¥151

¥354

Significant components of the loss on sales andretirement of noncurrent assets of ¥1,146 million($12,317 thousand) and ¥916 million for the years
ended March 31, 2010 and 2009, respectively, wereas follows:

Thousands of
U.S. dollars
2010

Millions of yen
2010
2009

$1,623Land
Machinery

¥ —
631

¥118
398

Thousands of
U.S. dollars
2010

$ —
6,782

44

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18. Impairment Lossmillion and buildings accounts for ¥41 million) for theyears ended March 31, 2010 and 2009, respectively, due
to lack of recovery provability of market value or recovery provability in the near future. Recoverable amounts
for relevant assets are net selling price (selling price basedon contract, valuation by property tax or valuation byinheritance tax).

The Company and its consolidated 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 fair market
value of land the book values are written down to therecoverable amount and such write-downs were recorded
as impairment loss of ¥570 million ($6,126 thousand)and ¥141 million (of which land accounts for ¥99
19. Segment Information
The business, geographical and overseas segment information of the Company and its consolidated subsidiaries

for the years ended March 31, 2010 and 2009 issummarized as follows:(a) Business Segments

Year ended or as of March 31, 2010

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

Year ended or as of March 31, 2009

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

Millions of yen
Plant and gas Housewares
equipment
businessbusinessand others
Total

Eliminations
or corporate

Consolidated¥300,451
5
300,457
278,014¥ 22,443¥113,997
10,012
124,009117,362¥ 6,646¥18,941
34
18,976
15,563¥ 3,412¥433,390
10,052
443,442
410,940¥ 32,502¥—(10,052)(10,052)(5,105)¥ (4,946)¥433,390—
433,390
405,834¥ 27,556¥464,741¥ 28,044¥—¥ 32,425¥ 70,939¥ 1,811¥—¥ 5,875¥21,641¥ 748¥—¥ 1,442¥557,322¥ 30,604¥—¥ 39,743¥ 59,893¥ (461)¥570¥ (1,377)¥617,215¥ 30,143¥570¥ 38,366

Gas
business

Plant and gas
equipment
business

Eliminations
or corporate

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

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

Millions of yen
Housewares
businessand others
Total

45

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Year ended or as of March 31, 2010

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

Plant and gas
equipment
business

Thousands of U.S. dollars
Housewares
businessand others
Total$3,229,267
54
3,229,331
2,988,113$ 241,219$1,225,247
107,610
1,332,857
1,261,414$ 71,432$4,995,067$ 301,419$—$ 348,506$ 762,457$ 19,465$—$ 63,145

Eliminations
or corporate

Consolidated$203,579
365
203,955
167,272$ 36,672$4,658,104 $—
108,040(108,040)
4,766,144(108,040)
4,416,810(54,869)$ 349,334 $ (53,160)$4,658,104—
4,658,104
4,361,930$ 296,174$232,599$ 8,040$—$ 15,499$5,990,133$ 328,934$—$ 427,160$6,633,867$ 323,979$
6,126$ 412,360$ 643,734$ (4,955)$ 6,126$ (14,800)

Notes: 1. The business segments are classified into “Gas business,” “Plant and gas equipment business” and “Housewares business andothers” on the basis of the kind and character of products and merchandise.
2. The amounts of the operating costs and expenses included in the column “Eliminations or corporate” for the fiscal years ended
March 31, 2010 and 2009 were ¥3,541 million ($38,059 thousand) and ¥3,645 million, respectively, which mainly consisted of theexpenses in business administration department.
3. The amounts of the corporate assets included in the column “Eliminations or corporate” as of March 31, 2010 and 2009 were¥86,215 million ($926,644 thousand) and ¥75,135 million, respectively, which mainly consisted of surplus working funds,
investment securities and the assets in the business administration department.
4. As described in Note 2. Summary of Significant Accounting Policies, until the year ended March 31, 2009, the percentage-ofcompletion method was applied to recognize revenues for long-term (over one year) construction contracts over one billion yen.
Effective from the beginning of the fiscal year, April 1, 2009, the Company and certain consolidated subsidiaries have applied the“Accounting Standard for Construction Contracts” (Financial Accounting Standard No. 15, issued by the Accounting Standards
Board of Japan on December 27, 2007) and the “Guideline on the Accounting Standard for Construction Contracts” (Financial
Accounting Standard Implementation Guideline No. 18, issued by the Accounting Standards Board of Japan on December 27,2007). Under the new accounting standard and guideline, revenues and costs of construction contracts that commenced on orafter April 1, 2009, of which the percentage of completion can be reliably estimated, are recognized by the percentage-ofcompletion method. The percentage of completion is calculated at the cost incurred as a percentage of the estimated total cost.
The completed-contract method continues to be applied for contracts for which the percentage of completion cannot be reliably
estimated. There was no effect as a result of this change on net sales, operating income and income before income taxes andminority interests for the year ended March 31, 2010.
5. As described in Note 2. Summary of Significant Accounting Policies, effective from the beginning of the fiscal year, April 1, 2009,
the Company has adopted “Partial Amendments to Accounting Standard for Retirement Benefits (Part 3)” (Financial AccountingStandard No. 19, issued by the Accounting Standards Board of Japan on July 31, 2008). There was no effect of this change on
operating income for the year ended March 31, 2010.

(b) Geographical Segments
Millions of yen
Othercountries
Total

Year ended or as of March 31, 2010

Japan

North
America

Sales:
Sales to third parties
Intersegment sales
Total sales
Operating costs and expenses
Operating income
Assets¥334,444
3,390
337,834
313,802¥ 24,031¥332,399¥ 77,554
5,776
83,331
78,369¥ 4,962¥163,106¥21,391
3,136
24,52822,934¥ 1,594¥35,898

Year ended or as of March 31, 2009

Japan

North
America

Millions of yen
Othercountries
Total

Sales:
Sales to third parties
Intersegment sales
Total sales
Operating costs and expenses
Operating income
Assets¥383,936
7,177
391,114368,386¥ 22,728¥324,729¥ 82,006
9,985
91,992
83,462¥ 8,529¥102,332¥29,802
3,298
33,101
31,513¥ 1,587¥34,653¥433,390
12,303445,694
415,106¥ 30,587¥531,404¥495,746
20,461
516,208
483,362¥ 32,846¥461,715

Eliminations
or corporate¥

Consolidated—(12,303)(12,303)(9,271)¥ (3,031)¥ 85,810¥433,390—
433,390
405,834¥ 27,556¥617,215

Eliminations
or corporate

Consolidated¥—(20,461)(20,461)(16,779)¥ (3,682)¥ 72,635¥495,746—
495,746466,582¥ 29,164¥534,350

46

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Year ended or as of March 31, 2010

Japan

North
America

Sales:
Sales to third parties
Intersegment sales
Total sales
Operating costs and expenses
Operating income
Assets$3,594,626
36,436
3,631,062
3,372,764$ 258,287$3,572,646$ 833,555
62,081
895,647
842,315$ 53,332$1,753,074

Thousands of U.S. dollars
Othercountries
Total

Eliminations
or corporate

Consolidated$229,912
33,706263,629
246,496$ 17,132$385,834$—(132,233)(132,233)(99,645)$ (32,577)$ 922,291$4,658,104—
4,658,104
4,361,930$ 296,174$6,633,867$4,658,104
132,233
4,790,348
4,461,586$ 328,751$5,711,565

Notes: 1. Main countries or areas other than Japan
North America: the United States
Other countries: Singapore, Malaysia, Philippines, China, Taiwan, etc.
2. The amounts of the operating costs and expenses included in the column “Eliminations or corporate” for the fiscal years ending
March 31, 2010 and 2009 were ¥3,541 million ($38,059 thousand) and ¥3,645 million, respectively, which mainly consisted of theexpenses in business administration department.
3. The amounts of the corporate assets included in the column “Eliminations or corporate” as of March 31, 2010 and 2009 were¥86,215 million ($926,644 thousand) and ¥75,135 million, respectively, which mainly consisted of surplus working funds,
investment securities and the assets in the business administration department.
4. As described in Note 2. Summary of Significant Accounting Policies, previously the percentage-of-completion method was applied
to recognize revenues for long-term (over one year) construction contracts over one billion yen. Effective from the beginning of the
fiscal year, April 1, 2009, the Company and certain consolidated subsidiaries have applied the “Accounting Standard forConstruction Contracts” ((Financial Accounting Standard No. 15, issued by the Accounting Standards Board of Japan on
December 27, 2007) and the “Guideline on the Accounting Standard for Construction Contracts” (Financial Accounting Standard
Implementation Guideline No. 18, issued by the Accounting Standards Board of Japan on December 27, 2007). Under the new
accounting standard and guideline, revenues and costs of construction contracts that commenced on or after April 1, 2009, of
which the percentage of completion can be reliably estimated, are recognized by the percentage-of-completion method. The
percentage of completion is calculated at the cost incurred as a percentage of the estimated total cost. The completed-contract
method continues to be applied for contracts for which the percentage of completion cannot be reliably estimated. There was noeffect as a result of this change on net sales, operating income and income before income taxes and minority interests for the year
ended March 31, 2010.
5. As described in Note 2. Summary of Significant Accounting Policies, effective from the beginning of the fiscal year, April 1, 2009,
the Company has adopted “Partial Amendments to Accounting Standard for Retirement Benefits (Part 3)” (Financial AccountingStandard No. 19, issued by the Accounting Standards Board of Japan on July 31, 2008). There was no effect of this change on
operating income for the year ended March 31, 2010.

sales (other than exports to Japan) of its overseas consolidated subsidiaries, for the years ended March 31, 2010
and 2009 are summarized as follows:(c) Overseas Sales

Overseas sales, which include export sales of theCompany and its domestic consolidated subsidiaries andMillions of yen
Year ended or as of March 31, 2010

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

North
America

Other

Total

¥67,634¥37,448¥105,082
433,390

15.6%

8.6%

Thousands of U.S. dollars
North
America
Other
Total

$726,935$402,494$1,129,428
4,658,104

24.2%

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

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

North
America

Other

Total

¥69,124¥48,406¥117,531
495,746

13.9%

9.8%

23.7%

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

47

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20. Supplementary Cash Flow Information
reported in the consolidated balance sheet as follows:

Cash and cash equivalents as of the years ended March
31, 2010 and 2009 were reconciled to the accounts

Millions of yen
2010
2009

Cash and deposits
Time deposits with maturities of more than three months
Cash and cash equivalents¥24,029(306)¥23,723

Acquisition cost and net payments for assets andliabilities of Valley National Gases WV L.L.C. and VNG
Propane L.L.C., acquired through stock purchase by

Thousands of
U.S. dollars
2010¥29,208(432)¥28,776$258,265(3,289)$254,976

Matheson Tri-Gas, Inc., a consolidated subsidiary of theCompany, for the year ended March 31, 2010 wereas follows:

Current assets
Noncurrent assets
Goodwill
Current liabilities
Noncurrent liabilities
Acquisition cost of assets
Cash and cash equivalents
Purchase of investments in subsidiaries resulting in change
in scope of consolidation

Millions of yen

Thousands of
U.S. dollars¥ 6,526
31,83931,393(2,752)(10,206)(56,800)
699$ 70,142
342,208
337,414(29,579)(109,695)(610,490)
7,513¥(56,100)$(602,966)

subsidiary of the Company, for the year ended
March 31, 2010 were as follows:

The acquisition cost and net payments for assets
and liabilities of ETOX, Inc., acquired through anasset purchase by Matheson Tri-Gas, Inc., a consolidated

Millions of yen

Current assets
Noncurrent assets
Goodwill
Current liabilities
Noncurrent liabilities
Acquisition cost of assets
Cash and cash equivalents
Payments for asset purchase

2010

2010

697
1,634
221
(127)
(41)
(2,384)247¥(2,137)$ 7,491
17,562
2,375(1,365)(441)(25,623)
2,655$(22,969)¥

The acquisition cost and net payments for assets andliabilities of Aeris and Advanced Gas Technologies,
acquired through an asset purchase by Matheson

Thousands of
U.S. dollars

Tri-Gas, Inc., a consolidated subsidiary of the Company,
for the year ended March 31, 2009 were as follows:

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

Millions of yen

Thousands of
U.S. dollars

2009

2010

¥

858
2,110
2,086
986
¥ 6,042
¥ 164
269
¥ 434
¥(5,459)33¥(5,425)48

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Sales amount and proceeds from stock sales, andassets and liabilities of Tri-Gas Technologies which were

excluded from consolidation upon stock sales for theyear ended March 31, 2010 were as follows:
Millions of yen

Current assets
Noncurrent assets
Current liabilities
Noncurrent liabilities
Minority interests
Foreign currency translation adjustments
Gain on sales of subsidiaries stocks
Sales amount of stocks
Cash and cash equivalents
Proceeds from sales of investments in subsidiaries resulting in change
in scope of consolidation¥

Thousands of
U.S. dollars

657
1,071
(313)
(575)
(283)
(55)
1,225
1,725
(177)

$ 7,061
11,511(3,364)(6,180)(3,042)(591)
13,166
18,540(1,902)¥(1,547)$(16,627)

21. Subsequent Events(c) Name, business and total assets of the company
acquiredName:
Western International Gas &Cylinders Inc.
Business:
Production and wholesale of Acetylene,
Propylene and Cylinder Gas
Total assets (as of April 30, 2010): $68 million(d) Acquisition cost: $110 million(e) Percentage of shares owned after acquisition
100% shares of WIGCI owned by MTG(1) The Company completed the acquisition ofWestern International Gas & Cylinders, Inc.
(“WIGCI”) through a stock purchase by Matheson
Tri-Gas, Inc. (“MTG”), a consolidated subsidiary,on April 30, 2010.

(a) Purpose of acquisition
Through the acquisition of WIGCI, whichis the largest producer and wholesaler ofacetylene in the U.S., the Company pursues
profit improvement through expanding its
business and products and recognizing synergies
with MTG.
(b) Counter party
Owner of WIGCI, Dan Hord III (WIGCICEO) and Hord family

2010, were approved at the shareholders’ meeting heldon June 29, 2010:(2) Appropriation of retained earnings

The following appropriations of retained earnings, whichhave not been reflected in the accompanying consolidated financial statements for the year ended March 31,
Cash dividends—¥6.00 ($0.064) per share

Millions of yen

Thousands of
U.S. dollars¥2,399$25,78549

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Report of Independent Auditors

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Investor Information(At March 31, 2010)

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

9,631

Date of Incorporation:

October 1910

Number of Shares:

Authorized—1,600,000,000

Issued—403,092,837

Minimum Trading Unit:

1,000 shares

Number of Stockholders:

24,521

Transfer Agent for Shares:

Mizuho Trust & Banking Co., Ltd.
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)
The Master Trust Bank of Japan, Ltd. (Trust Account)
Dai-ichi Mutual Life Insurance Company
The Norinchukin Bank
The Bank of Tokyo-Mitsubishi UFJ, Ltd.

60,94725,254
17,47916,491
14,484
11,838
10,19810,037
10,0005,343
182,075

Percentage of
Total

15.12%
6.26
4.33
4.09
3.59
2.93
2.52
2.48
2.48
1.32
45.17%

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

1,250

100,000

1,000

80,000750

60,000Common Stock Price Range

40,000500
Trading Volume

20,000250

00
1st Quarter 2nd Quarter 3rd Quarter
Fiscal year 2009

4th Quarter

1st Quarter 2nd Quarter 3rd Quarter

4th Quarter

Fiscal year 201051

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215

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

TAIYO NIPPON SANSO Corporation
Annual Report 2010

Printed in Japan