Annual Report
Year Ended March 31, 2016

2016

The Road to Growth

Profile
In business for more than a century, Taiyo Nippon Sanso Corporation is Japan’s leading industrial gases producer. The Company
has built a broad business portfolio encompassing a diverse range of industrial gases, as well as related equipment, facilities andtechnologies, worthy of its corporate slogan, “The Gas Professionals,” through which it has contributed to the advancement ofboth industry and humanity. Looking ahead, Taiyo Nippon Sanso will continue working to ensure safe and stable supplies ofindustrial gases, with the aim of helping realize a healthy and prosperous society.

Management Philosophy“Market-driven collaborative innovation:
improving the future through gases”
Long-Term Vision
Net sales of ¥1 trillion, an operating margin of 10%, a return on capital employed (ROCE) of at least 10%,and an overseas sales ratio of 50% or higher by fiscal year 2023.

CONTENTS
To Our Stakeholders

1

Special Feature

2

Strategic Perspectives

14

Business Portfolio

18

Corporate Governance21

Messages from Outside Directors

23

Members of the Board of Directors,
Audit & Supervisory Board Members
and Executive Officers

24

Efforts to Enhance Stakeholder Understanding
Information on our environmental and social initiatives can be accessed by visiting the CSR section of our corporate website.
https://www.tn-sanso.co.jp/en/csr/index.html

Disclaimer Regarding Forward-Looking Statements
This annual report contains forward-looking statements. These statements reflect management’s assumptions and beliefs based on information available as of the date of this document’s publication and inherently involverisks and uncertainties. Actual results may differ substantially from these statements.

To Our Stakeholders

The global economy continues to reflect a more pronounced downshift in

In April 2014, we embarked on a new medium-term business plan,

China, the impact of which has spread to neighboring countries in Asia.

Ortus Stage 1, which we have positioned as the first step in our drive to

Notwithstanding concerns over the slowing of other key economies, theattain the targets of our long-term vision, formulated in the same year—

pace of recovery in the United States remains steady against a backdrop of

consolidated net sales of ¥1 trillion, an operating margin of 10%, a return

improving labor market conditions. Despite forecasts for a gradual recovery

on capital employed (ROCE) of at least 10% and an overseas sales ratio ofin Europe, the risk of a downturn caused by political turmoil has emerged

50% or higher—by fiscal year 2023. Our targets for fiscal year 2017, theas a concern, underscoring the importance of maintaining a close eye on

final year of Ortus Stage 1, are consolidated net sales of ¥600 billion, an

the impact of the situation on the global economy and on financial andoperating margin of 7.5%, a ROCE of at least 8% and an overseas salesforeign exchange markets. The Japanese economy continues to stagnate,ratio of 40% or higher. Determined to achieve these targets, we will con-owing to a persistently strong yen, as well as to a downward trend in sharetinue to promote transformation and growth strategies, as well as to imple-

prices and sluggish consumer spending.

ment measures aimed at further enhancing corporate value. In all of our

In fiscal year 2016, ended March 31, 2016, we reported a decline inconsolidated net sales in Japan, as plummeting crude oil prices drove down

efforts, we look forward to the continued support and guidance of our
stakeholders.

sales of liquefied petroleum gas (LP gas), although consolidated operating
income increased, underpinned by initiatives to transform our business

June 2016

structure implemented in line with our medium-term business plan.
Overseas, net sales climbed ¥51.3 billion and operating income advanced¥2.9 billion, owing to a change in the accounting period of certain subsidiaries in the United States and Asia, which resulted in the inclusion of 15

Yujiro Ichihara

months of results for these companies. Even discounting this factor, sales in

President and CEO

the Gas Business in the United States segment increased, bolstered by firmsales of bulk, packaged and electronics materials gases, although operating
income fell, as a glut of helium worldwide pushed down profitability. Bothsales and operating income in the Gas Business in Asia and Oceania
segment were up, even excluding the positive impact of the accounting
period change, thanks to robust results in electronics-related businesses
in China, Taiwan and South Korea, and to acquisitions in Thailand andAustralia. Sales and operating income in the Thermos and Other Businesses
segment increased sharply, as biannual product launches and risingdemand from tourists in Japan pushed up sales of stainless steel vacuum
bottles. These factors contributed to a 14.7% increase in net sales and a
22.8% gain in operating income, with both results reaching record highs.
In light of our solid performance, we increased our year-end dividend
for fiscal year 2016 by ¥2.00, to ¥9.00 per share. Recognizing the provision of fair returns to shareholders as a key management responsibility, we
continue to place a high priority on maintaining stable dividends while atthe same time ensuring that dividends are commensurate with ourconsolidated operating results.

Taiyo Nippon Sanso Corporation | Annual Report 20161

Special Feature 1

The Road to Growth | Medium-Term Business Plan: Year 2

Long-term vision
In May 2014, we announced our long-term vision, the targets of which areconsolidated net sales of ¥1 trillion, an operating margin of 10%, a returnon capital employed (ROCE) of at least 10% and an overseas sales ratio of
50% or higher, by fiscal year 2023. Although we currently enjoy a 40%
market share in Japan and have established an unshakeable position as aleading supplier of industrial gases, we remain some distance from the fourso-called major players in the global industry, which are based in North
America or Europe. These companies each boast average annual sales inexcess of ¥1–¥2 trillion. In contrast, our net sales in fiscal year 2016 were¥641.5 billion. Achieving the targets of our long-term vision is thus essential for us to be considered in the same class as these companies.
Yujiro Ichihara
President and CEO

The annual global industrial gases market is estimated at approximately ¥10 trillion. Net sales of ¥1 trillion thus represent a 10% global
market share. Sustaining a business of that scale requires the ability to

Quantitative Targets of Ortus Stage 1 and Our Long-Term VisionYears ended/ending March 31 (Billions of yen)

1,000

Net sales (left scale)(%)

Operating margin (right scale)

10.0

750

7.5

500

5.0

250

Long-term
visionOrtus Stage 1

2.5

0

0
2014
Actual2015
Actual2016
Actual2017
Forecast*

2023
TargetNet sales¥522.7¥559.3 (+¥9.3)¥641.5 (+¥71.5)¥610.0¥1,000Operating income¥ 31.4¥ 35.2 (+¥0.2)¥ 43.3 (+¥5.3)¥ 52.0¥ 100

Operating margin

6.0%

6.3%

6.8%

8.5%

10.0%

Overseas sales ratio

31.4%

35.0%

44.4%

41.4%

50% or higher

ROCE

6.2%

6.2%

7.4%

8.6%

10.0% or higher

Transformation, growth strategies

Optimization,
expansion of scale

Notes: 1. In fiscal year 2016, subsidiaries Matheson Tri-Gas, Inc., in the United States, and Leeden National Oxygen Ltd., in Singapore, changed their fiscal year end from December 31 to March 31, resulting in a 15-month transitional
accounting period for the settlement of accounts on a provisional basis using the extended period.
2. Effective from the fiscal year 2017 first quarter (the three months ended June 30, 2016), the Group has adopted the International Financial Reporting Standards (IFRS). Accordingly, targets for fiscal year 2017 have been calculated
based on IFRS.

2

Taiyo Nippon Sanso Corporation | Annual Report 2016

compete with other major players in terms of, among others, supply chain,market in the 1980s. Three-plus decades later, we have operations incost competitiveness and sales strategies. Also, while the aforementioned

18 countries and territories. We will continue working to expand our over-

North American and European firms have been globally active for manyseas operations and accelerate growth with the aim of earning our place

years, we first began exploring growth opportunities beyond our homeamong the major global players.

Progress under Ortus Stage 1
Concurrent with our long-term vision, we formulated a new medium-term

promising growth businesses overseas. In fiscal year 2016, the second

business plan, Ortus Stage 1, which we have positioned as the first step inyear of Ortus Stage 1, we met our targets for both consolidated net sales

our drive to attain the targets of our vision. The principal objectives of Ortus

and operating income.
Our operating environment has changed from early 2014, owing to a

Stage 1 are to create a new earnings base and revamp key configurations.
The plan sets forth four core strategic policies, summarized simply as

variety of factors, including tax system revisions in Japan, plummeting“transformation,” “innovation,” “globalization” and “M&A.” In line with these

crude oil prices, fluctuating currency rates and uncertainty in the Chinese

policies and having recognized that significant future growth in the domes-

economy. Nonetheless, we continue to implement measures in line with thetic industrial gases market is unlikely, we are taking steps to reinforce ourfour strategic policies set forth in Ortus Stage 1, which remain highly

operating foundation in Japan and promoting targeted investments inrelevant, as we press toward our targets for the final year of the plan.

Basic Policy of Ortus Stage 1

Ensuresustainability

Transformation

Principal targets• Reduce fixed costs

Innovation• Create next-generation core businesses• Accelerate the commercialization of forward-looking new products

Overseas markets
Globalization• Promote the strategic allocation of resources in the United States and emerging
economies with the long-term goal of achieving an overseas sales ratio of 50%(fiscal year 2023)

Growth markets

M&A• Cultivate and establish a presence in new global markets and accelerate businessexpansion

Taiyo Nippon Sanso Corporation | Annual Report 20163

Special Feature 1

The Road to Growth | Medium-Term Business Plan: Year 2

Our industrial gases business in Japan accounts for approximately 60% of our consolidated net sales.

Transformation

Although we have built a robust domestic earnings base, significant growth in the domestic market isimprobable over the medium term. The goal of our transformation strategy is thus to ensure profitability
in an era of low growth by reassessing management resources, particularly in domestic businesses, andreconfiguring organizations so that they are capable of generating value.
In April 2014, Taiyo Nippon Sanso introduced special incentives for employees taking early retirement, a measure designed to optimize human resources in existing businesses. We have also promoted
the reallocation of personnel in Japan to new businesses, including the newly established SI Innovation
Center, which has reinforced our stable isotopes business; hydrogen stations, for which orders remain
brisk; and our on-site business. We are also redeploying personnel to promising businesses overseas,
including those acquired through M&A activities.
On the operational front, our main focus is on strengthening our supply chains. In the carbon dioxide
gas business, raw materials sources have dwindled, owing to a decline in the operation of oil refineries
and the termination of ammonia production by a number of manufacturers. As a result, we must depend
on supplies transported over long distances or imported from overseas. In the Chugoku region, we
responded by recovering low-density CO2 emitted by Mitsubishi Chemical Corporation’s Mizushima Plant,
which is located in Okayama Prefecture,and resolved to build a plant for the productionof high-density carbon dioxide gas. To ensure thesustainability of our carbon dioxide gas business,
we took steps to guarantee stable supplies tocustomers, and lower procurement and logistics
costs. We are also gradually replacing superannuated plants in the Chubu and northern Kanto

SI Innovation Centerregions with state-of-the-art facilities. The newplants are power-efficient, use less energy,
and eliminate the need for frequent repairs, anissue with our older plants. All of these attributes
will help reduce costs.
New plant (Northern Kanto region)

Transforming the Taiyo Nippon Sanso Group

Current reality• Growth in domestic businesses remains low• Overseas businesses are expanding

4

Objectives• Maintain a stable earnings foundation• Capitalize on sound growth opportunities

Taiyo Nippon Sanso Corporation | Annual Report 2016

Measures• Increase efficiency and optimize domestic
businesses• Promote the targeted allocation of resourcesin overseas businesses

By “innovation,” we mean the creation of truly original value based on pioneering technologies and ideas.

Innovation

Efforts in line with this strategic policy center on developing groundbreaking products and promoting
open innovation.
In the area of groundbreaking products, for example, we proceeded with efforts to promote sales ofhydrogen stations, notably the Hydro Shuttle, a mobile unit developed in August 2013. As of March 31,
2016, we had sold a total of 15 of these stations. In the medical business, we doubled our production
capacity for stable isotope Water-18O, a starting material for diagnostic agents used in positron emission
tomography (PET) diagnostics, by building a new plant in the Shunan area of Yamaguchi Prefecture.
Shipments from the plant commenced in February 2016 and are expected to contribute to operating
results in the coming years.
To promote open innovation, we pressed ahead with efforts to add high-value-added products to ourportfolio, investing in U.S. firm SulfaTrap LLC in January 2016 and Chinese firm Jilin OLED Material TechHydro Shuttle mobile hydrogen station

Co., Ltd. the following month. SulfaTrap is engaged in the development and production of desulfurization
sorbents, which are used by customers in the energy field, including fuel cell manufacturers and petroleum refiners. We will promote SulfaTrap’s products to companies in these industries, as well as seek tosecure orders for gas supplies. Jilin OLED is one of China’s top manufacturers of organic electroluminescent materials. We will supply these products together with gases to customers in the growing OLED
devices industry.
In the energy field, we will continue to seek opportunities to enter new businesses. To maximize
synergies with Mitsubishi Chemical Holdings, we will continue to leverage our sales networks to expand
sales of Mitsubishi Chemical Holdings Group products. The aforementioned recovery of CO2 emitted by
Mitsubishi Chemical’s Mizushima Plant for use in high-grade carbon dioxide gas is another example ofGroup synergies at work. Over the medium to long term, we also look forward to benefiting in the

Third plant for Water-18O(Shunan area, Yamaguchi Prefecture)

healthcare field from collaboration with fellow Group company Mitsubishi Tanabe Pharma Corporation.

Next-generationcore businesses

Innovation
Profitablecommercialization

Innovation• Hydrogen station• Water-18O (stable isotope)• MOCVD equipment• Investment in SulfaTrap LLC and Jilin OLED Material Tech Co., Ltd. (open innovation)• Entry into new energy businesses• R&D alliance with Mitsubishi Chemical Holdings Corporation

Taiyo Nippon Sanso Corporation | Annual Report 20165

Special Feature 1

The Road to Growth | Medium-Term Business Plan: Year 2

To accelerate the expansion of our overseas operations, we have begun a review of our management
structures in different regions and have strengthened our on-site plant business. In July 2014, we

Globalization

established a holding company in Singapore, while in April 2015 we created a holding company inChina, in which we vested responsibility for overseeing all of our businesses in that country. In November
2015, we changed the management structure of our subsidiary in India from indirect investment via a
U.S. subsidiary to direct investment. Recent years have seen a sharp increase in Japanese firms setting
up operations in India. Direct investment will position us to lock in demand from such companies.
We recently secured an order from Sasol Chemicals (USA) LLC to build a major air separation unit
and supply piped gas for a large-scale ethane cracker project in the United States, as well as orders fortwo such plants from a Japanese manufacturer in Indonesia and another two from an electronics-related
firm in the Philippines.
Excluding the impact of changes in the accounting period by certain overseas subsidiaries, ouroverseas sales ratio in fiscal year 2016 was close to 40%, bolstered by active investment in overseas
markets. In fiscal year 2017, we expect this ratio to rise to 41.4%. We will continue to promote theexpansion of our overseas operations. In fiscal year 2023, we anticipate an overseas sales ratio inexcess of 50%.

Sales in Overseas Markets
Years ended/ending March 31 (Billions of yen)

300

Asia and Oceania(%)

United States

50

Overseas sales ratio
41.4%
39.6%

250

40

35.0%
31.4%

200

30

27.6%
24.3%
150

22.8%

23.6%
20

100
10

50

0

0
2010

2011

2012

2013

2014

Note: Figures for fiscal year 2016 exclude the impact of a change in fiscal year end by certain subsidiaries in the United States and Asia.

6

Taiyo Nippon Sanso Corporation | Annual Report 2016

2015

2016

2017
(Forecast)In May 2015, we acquired additional shares in Thai equity method subsidiary Air Products Industry Co.,

M&A

Ltd., transforming it into a wholly owned subsidiary. In July 2015, we entered the Australian industrial
gases market with the acquisition of Renegade Gas Pty Ltd, a LP gas and industrial gas distributor inAustralia. As we did not previously have a production base in Oceania, this move has given us a footholdin this important market. In addition to maximizing synergies by selling Taiyo Nippon Sanso Group products through our sales network in eastern Australia, we will continue to expand our operations by
establishing new production bases.
We also continued our program of strategic U.S. acquisitions with the purchase of Texas-based 3D
Welding & Industrial Supply Inc. Subsidiary Matheson Tri-Gas, Inc., has five air separation units in Texas,
giving us a solid operating foundation in the state. The new acquisition will add further depth to our local
operations and position us to further expand our presence in this key market.
Going forward, we will continue seeking to take advantage of promising M&A opportunities that will
enable us to expand or deepen our operations and add new products to our portfolio.

Assertive M&A Activities
United States (Texas) November 2015
Acquired distributor 3D Welding & Industrial Supply Inc., one of thelargest distributors in central Texas.

Japan

India
China

Southeast Asia
Thailand May 2015
Acquired industrial gases
company Air Products
Industry Co., Ltd.

Australia July 2015
Acquired distributor
Renegade Gas Pty Ltd

Guided by our medium-term business plan, we will press ahead with a variety of transformation initia-

The Road Ahead

tives, particularly in Japan, and with measures based on the plan’s growth-oriented strategic policies,
summarized simply as, “innovation,” “globalization” and “M&A.” Despite sharply declining energy prices,
our operating environment has not changed significantly since 2014, when the plan was launched.
Accordingly, we have maintained the four key strategic policies of the plan and modified initiatives asnecessary in response to change.
Fiscal year 2017 is the final year of Ortus Stage 1. We will continue working to ensure we meet theplan’s targets as we move toward realizing our long-term vision, which will conclude in fiscal year 2023.

Taiyo Nippon Sanso Corporation | Annual Report 20167

Special Feature 2

Expanding our U.S. Industrial Gases Operations

Message from Scott Kallman, President and CEO of Matheson Tri-Gas, Inc.
Growth strategy of the US industrial gas
business by Matheson Tri-Gas, Inc.

Scott Kallman
President and CEO,Matheson Tri-Gas, Inc.

and profit performance. 2) The second objective is to build density in markets
in which we already have distribution channels. Multiple acquisitions and/orWith the strong support of ourinvestments in targeted markets increases the operating leverage of ourparent company, Taiyo Nippon

business by reducing unit costs related to purchasing, production andSanso, the United States anddistribution. 3) The third objective is product line extension. We look for

MATHESON have become key

products that require the same operations competencies and/or complement

growth engines for the Taiyo

our existing product line. Acquisitions of Western International Gas &Nippon Sanso Group. We actively

Cylinders in 2010 and Continental Carbonic Products in 2014 are prime

promote M&A and capital invest-

examples of this M&A strategy objective.

ments with the aim of expanding

We also focus on large scale onsite and pipeline capital projects thatboth our geographical coverage

provide stable revenue over an extended period due to take or pay volumes

and vertically integrating ouror fixed fee long term contracts. These projects typically include the produc-

operations in order to bettertion of liquid products that ensure high reliability of supply to the onsite andserve our Customers resulting

pipeline Customer but also provide a source of liquid products for the sur-in increased revenues androunding merchant liquid market. Also, Taiyo Nippon Sanso’s state-of-the-art

operating income.

plants reduce power costs and optimize operating overhead costs further

Our M&A strategy includes

enhancing our competitiveness and profitability.

three overlapping objectives. 1) The first is to broaden our packaged gas

These capital investments combined with distribution channels alreadyfootprint through the acquisition of privately-owned or independent packagedin place or secured through our aggressive M&A activities results in thegas distributors. This allows entry into markets in which we have yet tocompletion of our vertical integration strategy. This allows MATHESON toestablish a presence allowing us to diversify our portfolio either geographi-

serve the marketplace via cylinders, bulk liquid or onsite and pipelines ascally or by industry and customer type which can reduce volatility in our sales

we expand in the world largest industrial gas market.

M&A Strategy (Growth Strategy)

Pursue acquisitions toincrease operating rates
for air separation units andbuild density

M&A
Install air separation units inmarkets in which we haveestablished sales channels
through acquisitions• Enter markets in which we do not have apresence• Build density in markets in which we alreadyhave distribution channels• Enhance our product lineup (acetylene,carbon dioxide gas)

Expand operations
Installation of air
separation units

8

Large-scale onsite projects

Taiyo Nippon Sanso Corporation | Annual Report 2016

Create backup supply
configuration tofacilitate entry into
market for large-scale
on-site plants

Our History in the U.S. and Recent Development
As part of the terms of an agreement permitting the Air Liquide Group’s

Our expansion into the U.S. industrial
gases market

acquisition of the German, U.K. and U.S. gas businesses of Germany’s

Efforts to enter the U.S. market, which began in 1980 with the establish-

Messer Griesheim GmbH, in 2004 the U.S. Federal Trade Commission (FTC)

ment of Japan Oxygen, Inc., took a significant step forward in 1983 whenrequired Air Liquide to divest Messer’s operations in the southern and west-

we acquired Matheson Gas Products, Inc., a specialty gases firm head-ern United States. Shortly thereafter, we reached an agreement to purchasequartered in New Jersey with 12 production facilities in the United States

seven Messer air separation units on six sites from Air Liquide, a move thatand Canada. With this acquisition, we gained access to Matheson Gas

substantially reinforced our operating foundation in the south and enabled

Products’ specialty gas production technologies, as well as its U.S. sales

us to enter key western states, creating a supply network that stretched

network, reinforcing our position in the specialty gases business in Japan

from southern California to Florida.

and overseas.

The acquisition in 2006 of Linweld, Inc., a medium-sized privately held

While our U.S. operations focused on specialty gases and relatedindustrial gases producer headquartered in Nebraska, allowed us to extend

equipment for close to a decade thereafter, in 1992 we acquired Tri-Gas,

our reach into the U.S. Midwest. In 2009, we acquired Valley National Gases

Inc., an industrial gases manufacturer based in Irving, Texas, with operations

LLC, the largest privately held distributor of industrial gases in the Unitedin Texas, New Mexico and Florida. This positioned us to expand our portfolio

States. With a network extending from the Midwest to the Northeast, Valley

to include oxygen, nitrogen, argon and other general industrial gases andNational Gases gave us a strong launch pad from which to expand ourmarked the start of our efforts to build an industrial gases supply network inindustrial gases operations across the entire continental United States.

the southern United States. In 1999, we merged Matheson Gas Products
and Tri-Gas to create Matheson Tri-Gas, Inc., an integrated specialty andindustrial gases manufacturer.

An Expanded Presence in the United States

Corporate headquarters
Air separation units (prior to 2004)
Air separation units (acquired from Air Liquide Group in 2004)
Air separation units (installed/acquired subsequent to 2004)
Sales offices
Linweld, Inc. (acquired in 2006)
Valley National Gases LLC (acquired in 2009)
Western International Gas & Cylinders, Inc. (acquired in 2010)
Continental Carbonic Products, Inc. (acquired in 2014)

Taiyo Nippon Sanso Corporation | Annual Report 20169

Special Feature 2

Expanding our U.S. Industrial Gases Operations

Thanks to our strategy of promoting expansion through select acquisi-

Strategic M&A activities also enabled us to enhance our product lineup.

tions, we currently have approximate 300 sites spanning 43 states. A paral-

In 2010, we acquired Western International Gas & Cylinders, Inc., a leading

lel strategy focused on the installation of air separation units to reinforce our

U.S. manufacturer and wholesaler of acetylene, while in 2014 we acquired

position as a manufacturer, as a result of which we installed units in Vernon,

Continental Carbonic Products, Inc., a manufacturer of carbon dioxide gas

California in 2007; Des Moines, Iowa in 2009; San Antonio, Texas in 2010;

and the number two supplier of dry ice in the U.S. market, positioning us toLakeland, Florida and Dickinson, North Dakota in 2013; and Mesa, Arizona

respond to firm demand, particularly from food and beverage manufacturers.

(2014). Today, we have 18 air separation units in the United States, princi-

In addition to expanding the scale of our operations, this acquisition

pally in the south, and are currently in the process of building three more:

solidified our position as a full-line industrial gases manufacturer.

our second unit in Vernon, California and our third and fourth units in
Westlake, Louisiana.

Taiyo Nippon Sanso in the United States
1980

Established Japan Oxygen, Inc. and entered the U.S. market

1983

Acquired specialty gases producer Matheson Gas Products, Inc.

1992

Acquired industrial gases producer Tri-Gas, Inc.

1999

Merged Matheson and Tri-Gas to create Matheson Tri-Gas, Inc.

2004

Acquired the gas business of Messer Griesheim GmbH in the Southern and Western
United States from the Air Liquide Group2006

Acquired Linweld, Inc., a medium-sized industrial gases producer headquartered in the
U.S. Midwest

2009

Linweld, Inc.

Acquired Valley National Gases LLC, the largest privately held distributor of industrial gasesin the United States

2010

Acquired Western International Gas & Cylinders, Inc., the top U.S. manufacturer and wholesaler ofacetylene

2014

Acquired Continental Carbonic Products, Inc., a leading manufacturer of carbon dioxide gas

2016

Acquired 18 air separation units in the Eastern and Midwestern United States from the Air Liquide Group

Valley National Gases LLC

10

Western International Gas & Cylinders, Inc.

Taiyo Nippon Sanso Corporation | Annual Report 2016

Continental Carbonic Products, Inc.

Efforts to expand our on-site business
In Japan, our on-site plant business dates back to the 1960s. However, in
the United States we were not organized to compete for large-scale on-site& pipeline projects despite our 2004 acquisition of the Westlake, Louisiana
pipeline network. In 2010 we established the MATHESON On-site & Pipeline
Business Development Team. Within twelve months we were awarded the
supply of tonnage gaseous oxygen to a major titanium dioxide producer. In
January, 2015 we were awarded the gaseous oxygen supply for the Sasol
Ethane Cracker project in the Westlake area. This award required thereplacement of existing Westlake plants with new large-scale air separation
units, which almost tripled our previous gaseous oxygen production capacity.
Since the Sasol win, the Team has competed for multiple on-site andLarge-scale air separation unit on its way to Sasol Chemicals (USA)pipeline proposals to opportunities across the United States. Most recently
we were awarded the on-site gaseous oxygen supply to a major steel
producer in the Southern United States and expect to be awarded additionalsignificant business in the course of this coming four year plan.

The Taiyo Nippon Sanso Group’s air separation units are built at the Keihin Plant (Plant Engineering Center) for
shipments across Japan

Taiyo Nippon Sanso Corporation | Annual Report 201611

Special Feature 2

Expanding our U.S. Industrial Gases Operations

Recent developments
In May 2016, the FTC approved the Air Liquide Group’s acquisition of Airgas,
Inc., a prominent U.S. industrial gases company, with the requirement thatthe group divest certain assets. Matheson Tri-Gas subsequently entered into
an agreement with the Air Liquide Group to purchase 18 air separation units
in 16 locations within the Eastern and Midwestern United States, four liquefied carbon dioxide gas plants (two of which include dry ice plants), threepackaged gas retail stores in Alaska, two nitrous oxide plants, and a numberof related assets. This acquisition, combined with its existing network,makes Matheson Tri-Gas a nationwide, vertically integrated industrial
gases company.

Operations in the United States

Corporate headquarters
Air separation units
Sales offices

Packaged gases network(Acquired three sales offices)

Industrial gases supply network(Acquired 18 air separation units)

Matheson Tri-Gas’ robust industrial
gases supply network

12

Taiyo Nippon Sanso Corporation | Annual Report 2016

Special Feature 3

Investment Strategy

Our current medium-term business plan, Ortus Stage 1, which kicked off

minimal growth in the market. Another focus of investment is innovation,in April 2014, calls for the allocation of ¥200 billion over three years to

notably in our Water-18O stable isotope business.

investments in M&A activities, venture capital investments, major capitalIn the United States, the world’s largest industrial gases market, we will

expenditures and rationalization. In the first two years of the plan, weinvest in the establishment of new air separation units, the acquisition of

invested ¥130 billion in total, including in M&A activities. In fiscal year

distributors and the construction of new major on-site plants, against a

2017, we plan capital expenditures of ¥60 billion, as a result of which we

backdrop of steady economic growth. We will also promote assertive capital

expect total investments over the course of the plan to be largely in line

expenditures and acquisitions in high-growth markets in Asia and Oceania

with our original estimate.

with the goal of further expanding our operations.

In Japan, where significant market growth is unlikely, investments will

We currently envision a 1:3 ratio for domestic and overseas invest-

continue to be focused on rationalization, including the replacement ofments as we prioritize selected investments in high-growth overseas

existing air separation units with high-efficiency units. We also recently

markets.

formed a joint venture with a leading steelmaker—a major demand source
which to date has produced its own industrial gases—whereby we will
replace the company’s existing plant. These developments underscore thefact that our domestic industrial gases business continues to grow despite

Investment Strategy: Investments and Write-Offs
Years ended/ending March 31 (Billions of yen)100

Investments and financing

Capital investments

Goodwill

Amortization and depreciation

Ortus Stage 1
80
32.9
60
35.7

7.3

40
8.0

2.4

5.6

3.6

2.7

5.7

4.9
53.6

20
31.4

30.4

31.7

29.4

32.5

33.5

35.2

59.0
44.8

42.5

35.5

0
2012

2013

2014

2015

2016

2017
(Forecast)

Notes: 1. We have not disclosed a forecast for investments and financing in fiscal year 2017.
2. With the adoption of IFRS, effective from fiscal year 2017, goodwill will no longer be amortized.

Taiyo Nippon Sanso Corporation | Annual Report 201613

Strategic Perspectives

Gas Business in Japan

Total Sales and Operating Income

As Japan’s leading manufacturer of industrial gases, we have an extensive nationwide network

Years ended/ending March 31 (Millions of yen)of production and sales bases, enabling us to provide industrial gases to a wide range of cus-

500,000

35,000400,000

28,000300,000

21,000rated gases directly via pipeline; and tanker trucks, which enable us to supply liquid gases

200,000

14,000in bulk. Sales in Japan account for approximately 60% of the Taiyo Nippon Sanso Group’s

100,000

7,000

CAGR Total sales –1.1% Operating income –0.7%

tomers, including manufacturers in the steel, chemicals, electronics and transportationequipment industries. Formats for delivering gases include on-site plants, that is, air separation units built on or adjacent to customers’ production facilities from which we supply sepa-

overall sales.

0

0
2011

Taiyo Nippon Sanso was created in 2004 through the merger of Nippon Sanso2012

Total sales

Corporation and Taiyo Toyo Sanso Co., Ltd. While our domestic industrial gases business has

2013

2014

2015

2016

2017
(Forecast)

Operating income

Note: Forecasts for fiscal year 2017 are based on IFRS.

grown fairly steadily since, demand was hit hard in 2008 by the global economic downturnand again in 2011 by the Great East Japan Earthquake. The impact on our electronics-related

businesses, which enjoy a strong competitive advantage, was especially severe. Since then, we have seen a gradual recovery in domestic demand, but we
recognize that a return to robust economic growth is unlikely in the near future.
In fiscal year 2015, we embarked on a new medium-term business plan that focuses on transformation, the goal of which is to ensure profitability in an eraof low economic growth, as well as on innovation, through which we will endeavor to attract new demand.

Breakdown of fiscal year 2016 sales by business segment(Billions of yen)

Industrial Gas (229.4)

51.8%

Bulk/on-site supplies(126.9)of total

Packagedgases and hard
goods
(35.2)(¥332.2 billion)

Plants andequipment(42.7)

Gases(48.1)

Medicalgases(24.4)

Business sites in Japan

Head office
Branches
Branch offices/sales offices
R&D facilities
Sanso centers/liquid oxygen facilities
Semiconductor gas production facilities

14

Electronics (72.8)

Taiyo Nippon Sanso Corporation | Annual Report 2016

Energy (29.9)
Gases(27.0)

Equipment
and installation(24.7)
Equipment(2.8)

Gas Business in the United States

Total Sales and Operating Income

Efforts to expand our U.S. presence, which began in the 1980s with the acquisition of a local

Years ended/ending March 31 (Millions of yen)

company, initially focused on the southern states. Since 2004, we have reinforced our opera-

200,000

12,000160,000

9,600

120,000

7,200

a change in accounting period by certain subsidiaries, which resulted in the inclusion of 15

80,0004,800

months of results for these companies.

40,0002,400

CAGR Total sales 10.4% Operating income 15.7%

tions across the country through strategic acquisitions of varying scales and the constructionof plants. These moves have helped us more than triple our annual sales of industrial gases in
the United States, to approximately ¥150 billion in fiscal year 2016, discounting the impact of

Our principal business in the United States is the supply of packaged and bulk gases. We

0

0
2011

also provide a range of original cutting and welding equipment and other related items, anotherTotal sales

area in which we have secured a substantial market share. In recent years, we have diversified

2012

2013

2014

2015

2016

2017
(Forecast)

Operating income

Note: Forecasts for fiscal year 2017 are based on IFRS.

our product lineup through the acquisition of acetylene and carbon dioxide gas producers.
We continue to expand our U.S. operations through a two-pronged strategy of M&A activi-

ties and active investments. We start by acquiring a distributor in a new area. Once we have secured a market position, we install air separation units and commence sales of products through our local sales channels. Multiple subsequent acquisitions and/or investments increase the density of our operations, helping
to reduce costs related to production, purchasing and transport, and enhancing our competitiveness and profitability in that area. Thanks to these efforts, as ofMarch 31, 2016, we had bases in 43 states and 18 air separation units. We are also taking steps to grow our distribution networks, thereby increasing our presence and positioning us to accept major on-site orders. In January 2015, we accepted our first such order in the United States, from Sasol Chemicals (USA) in
Louisiana. Looking ahead, we will work to further grow our U.S. operations by capitalizing on M&A opportunities to expand our customer reach, installing new air
separation units and securing additional major on-site orders.

Breakdown of fiscal year 2016 sales by business segment(Billions of yen)

Industrial Gas (174.4)

29.4%

Bulk/on-site supplies(62.8)of total

Electronics (14.0)
Packagedgases and hard goods(110.6)(¥188.5 billion)

Gases(11.9)

Plants and equipment(1.0)
Equipment
and installation(2.1)

Business sites in the United States

Corporate headquarters
Air separation units
R&D facilities
Filling stations and distribution facilities

HawaiiTaiyo Nippon Sanso Corporation | Annual Report 201615

Gas Business in Asia and Oceania

Total Sales and Operating Income

Our operations in Asia center on the supply of industrial gases to manufacturers in Southeast

Years ended/ending March 31 (Millions of yen)Asia, China and India, and on electronics-related businesses in China, Taiwan and South

100,000

10,00080,0008,000

60,0006,000

gases in both countries in terms of production capacity, an achievement facilitated by the

40,0004,000

creation of a robust operating infrastructure. We continue to seek out promising investment

20,0002,000

CAGR Total sales 23.5% Operating income 36.0%

Korea. We entered the Singaporean market in the early 1980s by establishing National Oxygen
Pte. Ltd. Since then, we have gradually expanded our presence across the region. We alsoestablished a presence in the Philippines and Vietnam and are now the top producer of liquid

opportunities in this region that will position us to capitalize on opportunities arising from

0

0
2011

brisk economic growth.

Total sales

In 2012, we acquired Singapore-based Leeden Limited, a company with a broad
Southeast Asia-wide network. In addition to packaged gases, Leeden is also a leading provider

2012

2013

2014

2015

2016

2017
(Forecast)

Operating income

Note: Forecasts for fiscal year 2017 are based on IFRS.

of cutting and welding equipment and safety-related products. We merged Leeden andNational Oxygen in September 2014, integrating the extensive networks of these two companies and strengthening our industrial gases business in Singapore
and Malaysia. We have also broadened our geographic reach. In February 2014, we established a base in Indonesia, Southeast Asia’s largest market for industrial gases. In May 2015, we transformed a Thai affiliate into a consolidated subsidiary, while in July of the same year we acquired a distributor in Australia.
Going forward, we will pursue additional decisive measures—including acquisitions—aimed at expanding our operations in this strategically important region.

Breakdown of fiscal year 2016 sales by business segment(Billions of yen)

Industrial Gas (53.8)

14.5%
of total

Bulk/on-site supplies(28.1)

Packagedgases and hard goods(15.3)

Electronics (39.2)
Plants andequipment(10.3)

Gases(34.6)(¥93.1 billion)

Equipment(4.5)

Business sites in Asia and Oceania

Regional headquarters
Branches and sales offices
Air separation units

16

Taiyo Nippon Sanso Corporation | Annual Report 2016

Thermos and Other Businesses
Our Thermos business dates back to 1978, when predecessor Nippon Sanso, seeking to diversify
into new businesses in which it could leverage its existing technologies, developed a stainlesssteel high vacuum insulated bottle. In 1989, Nippon Sanso acquired the Thermos Group from a
U.S. firm and commenced sales of Thermos-brand stainless steel vacuum insulated bottles.
In the years since, Thermos K.K. has promoted effective advertising that has increased
brand recognition and conferred highly positive status on Thermos-brand products. Thermos has
also leveraged its outstanding product development capabilities to launch a steady stream of
attractive new products. Today, new products account for approximately 30% of the company’s

Total Sales and Operating Income
Years ended/ending March 31 (Millions of yen)

CAGR Total sales 11.9% Operating income 23.4%

annual production. These efforts have enabled Thermos to continue posting outstanding growth.

30,00010,00024,0008,000

18,000

6,000

12,000

4,000

6,000

2,000

Today, Thermos boasts production facilities in Malaysia, China and the Philippines, giving it arobust manufacturing configuration, from which it supplies products to markets around the world,
including Japan, the United States and China.
Looking ahead, Thermos will commence operations at a new production facility in thePhilippines in the near future, further reinforcing its global production capabilities. The company
will also continue to stimulate demand in the market by implementing regular product launches00with the aim of achieving further growth.

2011

Total sales

2012

2013

2014

2015

2016

2017
(Forecast)

Operating income

Note: Forecasts for fiscal year 2017 are based on IFRS.

Breakdown of fiscal year 2016 sales by business segment(Billions of yen)

Other (27.5)

4.3%

Thermos(24.8)

Other
(2.6)

of total(¥27.5 billion)

The Thermos Group’s global network

Head office
Sales office
Production facilities

Taiyo Nippon Sanso Corporation | Annual Report 201617

Business Portfolio

Industrial Gas BusinessWe have industrial gas production and supply capabilities in Japan, the UnitedCompetitive advantages

States, Asia—including in China and India—and Oceania. This enables us to ensure• Top share of Japan’s market for industrial gases; optimal production
and supply configuration, facilitating safe and stable supplies
We enjoy a 40% share of Japan’s market for industrial gases. Our extensive
domestic distribution network includes more than 30 liquid gas production
facilities and 200 filling stations. At our liquid gas production facilities, weare steadily replacing equipment with state-of-the-art, high-efficiency air
separation units. We have recently secured new orders for on-site supplies
for, among others, Nippon Steel & Sumitomo Metal Corporation’s Yawata
Works, JFE Steel Corporation’s West Japan Works (Kurashiki Area).
• A growing network of air separation units in the United States and Asia
We expect to complete construction of air separation units in Vernon,
California, and Sabah, Malaysia, in December 2016.
• Increased overseas market thanks to acquisition of U.S. industrial
gases companies
In the United States, we recently acquired a gas business and related assets,
including air separation units, from Air Liquide. In Australia, we acquired
distributor Renegade Gas Pty Ltd, securing a bridgehead into Oceania.
• Establishment of new carbon dioxide gas production facilities inJapan and Singapore
With raw materials sources declining in Japan, we are in the process ofbuilding a plant for the production of carbon dioxide at Mitsubishi Chemical
Corporation’s Mizushima Plant.

safe and stable supplies to a wide range of customers in the manner that best suits
their particular needs, thereby contributing to enhanced quality and productivity, as
well as to the safety and security of their operations.
Our distinctive gas technologies continue to earn us high marks from customers
in a wide range of industries, including steel, chemicals, automobile, construction,
shipbuilding, food, medicine and aerospace.

Breakdown by productYears ended March 31 (Billions of yen)

Percentage of net sales
2015

2016

Bulk gases¥131.6¥159.8On-site gases

59.3

58.1

Packaged gases

64.2

83.7

Hard goods

66.9

77.5

Gas equipment
Total

34.5

41.7

¥356.8¥421.0¥421.0 billion(Fiscal year 2016)

65%

Plants and Engineering BusinessWe have built an extensive lineup of plants, which underpins our industrial gases

Competitive advantages

business, ranging from ultrahigh-purity gas manufacturing equipment for customers• Top share of Japan’s market for air separation units

in the electronics industry to large-scale plants for steelmakers and specialized• A wealth of accumulated cryogenic and adsorption technologies,

containers for the cryogenic transport of helium; we enjoy a favorable reputation forwhich we are leveraging to reduce consumption of electricity andall products both in Japan and overseas. We also provide space-simulation cham-cost per unit of production, as well as to increase the quality and size

bers, large-scale helium refrigeration systems and other cutting-edge offerings,of plants

which we market primarily for use in space development and in R&D in the area of• Cutting-edge simulation technologies that ensure the optimal operation of air separation units in response to different requirements

superconductive technologies.

• One of only three helium container manufacturers worldwide and theonly one in JapanWe are expanding our manufacturing containers that facilitate theBreakdown by productYears ended March 31 (Billions of yen)

Percentage of net sales
2015

2016

Plant engineering

¥13.3

¥12.3

Total

¥13.3

¥12.3

cryogenic transport of helium over long distances to capitalize on rising
global demand.

¥12.3 billion(Fiscal year 2016)

2%18

Taiyo Nippon Sanso Corporation | Annual Report 2016

Electronics-related Business
Operating in an industry that is increasingly characterized by global-scale competi-Competitive advantages

tion and cooperation, electronics manufacturers today strive constantly to enhance• World-class total gas and equipment solutions made possible byboth the efficiency and stability of their production processes. To provide electronics

stringent quality control and clean technologies

manufacturers with a wide range of materials gases, as well as with a huge volume

Solutions include high-purity gas piping systems.

of high-purity nitrogen gases, we install Total Gas Centers (TGCs), which enable us• Supply structure encompassing key global markets

to respond to customer needs around-the-clock. We also manufacture and sell refin-

Our supply structure covers Japan, East Asia (South Korea, China anding and exhaust gas abatement equipment and metal organic chemical vapor depo-

Taiwan), Southeast Asia and the United States. Our global network enables

sition (MOCVD) systems, used in the production of compound semiconductors, as

us to optimize production, procurement and transport.
• Rising sales of MOCVD systems in cutting-edge fields

well as construct piping to deliver high-purity gases.

We recently provided a fully integrated SR-4000HT MOCVD system to
Sandia National Laboratories, a global leader in research in the area ofcompound semiconductors. In addition, we delivered an MOCVD system for

Breakdown by productYears ended March 31 (Billions of yen)

Gases
Equipment and installation
Total

2015

¥ 78.22016¥ 94.625.3

31.4¥103.6¥126.1

Percentage of net sales

use in R&D to the University of California’s Solid State Lighting & Energy¥126.1 billion

Electronics Center and a next-generation system for research applications(Fiscal year 2016)

to Nagoya University (Professor Hiroshi Amano).

20%

LP Gas Business
Our LP gas, supplied to customers across Japan through a proprietary network,
is an environment-friendly fuel with minimal emissions of CO2, a key cause of
global warming,
In the event of a major natural disaster, LP gas supplies can be restarted more
quickly than many other lifelines. We provide safe supplies of LP gas to production
facilities for industrial applications and to fueling stations for taxis and other vehicles,
as well as for use as propellants for insecticides and other aerosols and for various
purposes by restaurants and other commercial customers and residential users.
Our operations also include sales of a variety of related products, including gas
heat pumps and other air conditioning equipment, fuel cells for household use, andhot water heaters, as well as a full range of engineering, installation and after-sales
services for supply facilities such as LP gas filling dispensers.
Breakdown by productYears ended March 31 (Billions of yen)

LP gas
LP gas equipment
Total

Competitive advantages• Ranked seventh in Japan in terms of market share, with an annual LP
gas supply capacity of 360,000 tons
• Ability to provide stable LP gas supplies to approximately 100,000
households; increasingly strong and efficient network in Japan for
supplying commercial users thanks to the integration and/or
expansion of sales and delivery sites
We merged five LP gas subsidiaries to create Taiyo Nippon Sanso Energy
Corporation, a move aimed at reinforcing our operating foundation andexpanding our operations in this area.

Percentage of net sales
2015

2016

¥36.0

¥27.0

3.2

2.8

¥39.3

¥29.9

¥29.9 billion(Fiscal year 2016)

5%

Taiyo Nippon Sanso Corporation | Annual Report 201619

Medical BusinessIn addition to providing stable supplies of high-quality medical gases, we develop,

Competitive advantages

manufacture, sell and provide maintenance services for gas supply systems used in• A world-class 600 kg annual production capacity for stable isotope

hospitals, as well as in home healthcare.

Water-18O, a starting material for agents used in positron emission

Applying our advanced gas technologies, we provide products for the biotechnology field, including cryopreservation containers for living cells, vaccines, and blood

tomography (PET) cancer diagnostics produced through theapplication of air separation technologies

products, among others, as well as stable isotopes for use in advanced diagnostics

The recent start of operations at a third plant in Japan has expanded theand medical treatment.

scale of our stable isotopes business.
• Leading market position in Japan for liquid nitrogen dewars for cryopreservation, which are crucial to the biotechnology field, as well as
for cell banking systems and auto-pick-up cryopreservation systems(trade name: CryoLibrary), used in various cutting-edge areas• Japan’s largest network of production bases, filling facilities, andBreakdown by productYears ended March 31 (Billions of yen)

Percentage of net sales
2015

2016

¥24.4 billion(Fiscal year 2016)

distribution and maintenance bases, ensuring stable supplies ofhigh-grade medical gases and equipment nationwide• Rising sales of OXYMED-brand medical gas supply equipment andMedical gases

¥ 7.9

¥ 7.6

Medical gases equipment

16.5

16.8

systems for hospitals, developed through an integrated process

Total

¥24.4

¥24.4

that encompasses design, manufacturing, and testing andmaintenance services

4%

Thermos and Other Businesses
Thermos K.K., a subsidiary in Japan, is recognized as a pioneer in the stainless steel

Competitive advantages

vacuum bottle industry. Leveraging its outstanding vacuum insulation and metal pro-• Products that are developed in Japan, manufactured in Southeast

cessing technologies, Thermos manufactures a wide range of stainless steel vacuum

Asia and sold in approximately 120 countries and territories world-

bottles, vacuum-insulated cooking pots and other items for home and commercial

wide; a reputation for unconditional commitment to quality and ause. The company has established its own stringent quality standards and createdsolid top global market sharean integrated production system that encompasses planning, development, manu-

Against a backdrop of rising demand for compact, ultralight steel vacuum

facturing and sales, positioning it to further enhance brand value and expand sales.

bottles, we commenced production at a new facility in the Philippines, which
has expanded our annual production capacity to 50 million units.
• Ultralight tumbler that has swept markets worldwide thanks to its
lightness, compact size and superb design• Entry into the market for insulated wireless portable speakers thanks

Breakdown by productYears ended March 31 (Billions of yen)

Percentage of net sales
2015

2016

Thermos

¥19.1

¥24.8

Others

2.6

2.6

Total

¥21.7

¥27.5

to the application of our vacuum insulation technologies in this area

¥27.5 billion(Fiscal year 2016)

4%20

Taiyo Nippon Sanso Corporation | Annual Report 2016

Corporate GovernancePrinciples of Corporate Governance• Basic philosophy
From the perspective of ensuring sustainable growth for the Taiyo Nippon
Sanso Group and increasing corporate value over the long term, and taking
into account the positions of shareholders, customers, employees and local
communities, we strive to guarantee the transparency and fairness of management. We believe that the essence of corporate governance is ensuring
the effective use of available management resources, while at the same time
bolstering the strength of management through prompt and decisive decision
making. In October 2015, we adopted the following principles of corporate
governance.
• Ensuring shareholder rights and equality
With the aim of giving shareholders sufficient time to consider proposals to bevoted on at the ordinary general meeting of shareholders and enabling themto exercise their voting rights appropriately, we will send a notice of convocation approximately three weeks prior to the date of the meeting. We will also
post this notice on our corporate website.
• Ethical standards
In discharging their various duties, directors, auditors, executive officers andemployees are required to observe our Code of Conduct, which sets forth
guidelines that enable them to act in accordance with relevant laws and ethical principles. Individuals can anonymously report any illegal or unethical acts
to the Chief Compliance Officer (CCO), the Audit & Supervisory Board or adesignated law office. In principle, the Board of Directors receives an accountof the substance of such reports and the results of subsequent investigations
once every six months.
• Composition and role of the Board of Directors
Our Board of Directors is composed of no fewer than three and no more than
15 members, at least two of whom are independent outside directors.
Executive matters requiring a resolution by the Board of Directors include
major M&As, significant capital investments and sizeable loans. Decisions onother executive matters are the responsibility of the president (CEO). To
ensure the separation of supervisory and executive functions, the position ofchairman of the Board of Directors is filled by a director other than the CEO.
• Establishment of the Advisory Committee on Appointments
and Remuneration
The Board of Directors has established the Advisory Committee on
Appointments and Remuneration, a discretionary advisory body that ischarged with advising the Board on the appointment of and remuneration formembers. The committee consists of the chairman, the president (CEO) andthe independent outside directors.

• Period of appointment for independent outside directors andrestrictions on concurrent appointments
Outside directors who have served on the Board of Directors and auditors
who have served on the Audit & Supervisory Board for more than eight years
shall not be considered for the position of independent outside director orindependent outside auditor. Independent outside directors and independent
outside auditors must not serve concurrently in the same capacity at morethan three other listed companies.
• Selection of candidates for the position of director, auditor andexecutive officer
In selecting candidates for the position of director, auditor and executive officer, the Board of Directors consults with the Advisory Committee on
Appointments and Remuneration. The committee draws up a list of candidates for these positions, giving due consideration to the composition of theBoard of Directors and the Audit & Supervisory Board and to the qualities
required of directors, auditors and executive officers, which it submits to theBoard of Directors.
• Succession plan for the CEO
The president (CEO) takes care to ensure that potential successors are able tocultivate the necessary knowledge, experience and abilities. The Board of
Directors supervises this process to ensure that due steps are being taken.
Should the president (CEO) resign from the position, the Board of Directors
consults directly with the Advisory Committee on Appointments andRemuneration, which submits the name of a candidate for successor.
• Setting the agenda for meetings of the Board of Directors andother issues
At a meeting held on an appropriate date, the chairman of the Board of
Directors, having consulted with the president (CEO) and taken into accountproposals and opinions put forth by other directors, determines importantmatters pertaining to business strategies, risk management and internal controls to be addressed at the meetings of the Board of Directors in the subsequent year.
• Access to internal information by independent outside directors
and auditors
When necessary, independent outside directors and auditors may demandthat internal directors, executive officers or employees submit an explanation,
report or relevant internal materials.
• Evaluation by the Board of Directors
Based on self-evaluations conducted by individual directors, the Board of
Directors conducts an annual analysis and evaluation of its overall effectiveness. The results of this evaluation are disclosed publicly in a timely manner.

Taiyo Nippon Sanso Corporation | Annual Report 201621

• Remuneration for directors
Compensation for directors is determined by the president (CEO) in accordance with internal regulations governing the activities of the Board of
Directors. Before it makes any revisions to these internal regulations, theBoard of Directors consults with the Advisory Committee on Appointments
and Remuneration, which submits a draft of proposed changes to the Board.
Remuneration for independent outside directors reflects the time commitment
and responsibilities of the individual and does not include stock-related orother performance-linked compensation.

the transparency and objectivity of decision making. In addition, we haveestablished a Management Committee, which meets as necessary, helping
to facilitate swift management decisions.

Auditing Structure and Internal Control System
To ensure adequate monitoring capabilities, our Audit & Supervisory Board
has four members, three of whom satisfy the requirements of outside auditors, including two who are independent. In fiscal year 2016, the three outside
auditors attended all 14 meetings of the Board of Directors. The Audit &Supervisory Board members meet with the independent auditors 12 times
annually and accompany the independent accountants on their periodic site
audits. This enables them to keep abreast of the implementation status and to
exchange opinions with the independent accountants on key aspects of theauditing process and on the assessment of internal control risks associatedwith auditing. They are briefed on audit plans and audit results by the
Corporate Audit Office, an internal auditing body, as well as by the TechnicalAudit Office on annual safety plans and their implementation. They also
oversee management appropriateness and efficiency.

• Dialogue with shareholders
We have established and published our disclosure policy, a basic policy on
creating a framework and undertaking initiatives aimed at encouraging
constructive dialogue with shareholders.

Management Structure
We have adopted an internal auditing system and clarified accountability on afiscal year basis by setting the term of office for our directors at one year. In
fiscal year 2016, our Board of Directors met 14 times to discuss importantmatters and hear reports on the status of business activities. We also established the Advisory Committee on Appointments and Remuneration, a discretionary committee under the Board of Directors consisting of the chairman of
the Board of Directors, the president (CEO) and independent outside directors.
The Board of Directors consults with the Advisory Committee on
Appointments and Remuneration to select candidates for the position of
director, Audit & Supervisory Board member and executive officer andcandidates to succeed the president (CEO), as well as regarding revisions to
the internal regulations governing the Board of Directors, thereby ensuring

Remuneration for Directors
In fiscal year 2016, remuneration for 20 directors totaled ¥625 million, whilethat for four auditors totaled ¥105 million (including remuneration for nine
directors who retired during the period). From fiscal year 2017 forward,
remuneration for directors will consist of basic remuneration and performance-linked bonuses (medium- and short-term). Medium-term
performance-linked bonuses are tied to degree of achievements of mediumterm business plan targets, while short-term performance-linked bonuses aretied to year-on-year improvements in consolidated operating results.

Auditing and Risk Management Structure
General Meeting of Shareholders
Appointment/dismissal

Advisory Committee on
Appointments andRemuneration

Audit & Supervisory Board
Four members
three of whom are outside

Appointment/dismissal

Consultation

Response

Audit of operations
Audit of accounts

Appointment/dismissal

Board of Directors

Reporting

Independent auditors

10 members
two of whom are outside

Appointment/dismissal

Supervision

Audit of accounts

President and Representative Director/CEO
Management Committee
Coordination

Coordination

Compliance Committee
Chairperson: CCO

Risk Management Committee
Chairperson: Individual responsible for Groupwide internal
control management

Corporate Audit OfficeInternal audit

Technological Risk Management Committee
Chairperson: General Manager of the Technological Affairs
Division

Divisions and Group companies

22

Taiyo Nippon Sanso Corporation | Annual Report 2016

Coordination

Messages from Outside Directors

Changes in Taiyo Nippon Sanso’s
operating environment reflect swings
in the operating environment ofcompanies on the demand side.
I am particularly impressed with
the Company’s efforts to implementtransformation initiatives so thatthey are not driven by trends in theJapanese economy and to promote
the expansion of their high-growthoverseas business.
Akio Yamada
In 2015, an issue concerning theOutside Directortransmission of nonpublic information
within the Company led to a violation of insider trading regulations. The
independent third-party committee investigating the incident published its
report in May 2015. I also appreciate that the Company has accepted thereport’s analysis of factors behind the violation and suggestions formeasures to prevent recurrence and that management and employees
are working as one to reform the corporate culture.
Since 2015, the Board of Directors has encouraged active debate withthe aim of clarifying and strengthening corporate governance. This resulted
in the formulation of new principles of corporate governance. Concurrently,
we have reviewed and revamped other rules and practices.
To guarantee the separation of execution and supervision, we haverevised the Rules for Directors and formulated rules governing the dispatchof directors to affiliated companies in a bid to improve management
efficiency and transform the corporate culture. Rigorous recommendations
from the Audit & Supervisory Board were very helpful in this process. The
Board of Directors is also promoting the free and candid exchange of
opinions on the evaluation of its performance and implementing reforms
to ensure it functions as it should.
The Board of Directors encourages outside directors to speak freely
from their own perspectives and takes our proposals and requests very
seriously. I offer opinions from the perspective of shareholders and users of
the Company’s products and services. I have ample opportunity to exchange
opinions with the chairman of the board and the president. I am keenly
aware that the Company expects a great deal from its outside directors andI will continue to do my best to respond.
Taiyo Nippon Sanso is striving to achieve sustainable growth as a
global concern by expanding its overseas operations and promoting thestrategic allocation of management resources. The Company is currently
taking steps to broaden its footprint in the United States, Asia and Australia.
Accordingly, enhancing its global organization and management configuration and fostering human resources have become an increasingly criticalchallenge, as have creating standards of conduct suitable for a global
corporation and auditing adherence thereto, and controlling overall risk. I
look forward to pointing out issues and offering proposals from my particularperspective at meetings of the Board of Directors and whenever else theopportunity arises.

Taiyo Nippon Sanso has achieved
tremendous growth to date throughan aggressive program of mergers
with affiliates and competitors,
particularly in the industrial gases
business, and reorganization. Today,
the Company is a multifacetedorganization with an extensive groupof subsidiaries and affiliates in Japan,
as well as in the United States, Asiaand elsewhere. By providing a stable
Mitsuhiro Katsumaru
supply of industrial gases, theOutside Director
Company supports a wide range ofbusiness activities. These efforts also support advanced medicine andenvironmental preservation and thus play a crucial role in society.
Japan’s new Corporate Governance Code took effect June 2015. Taiyo
Nippon Sanso responded promptly, setting its own internal corporate
governance rules in October. Incorporating opinions expressed by theoutside directors to a significant extent, the Company also established rules
governing the dispatch of directors to affiliated companies, thereby
improving the level of governance across the Taiyo Nippon Sanso Group.
Strengthening overall governance is all the more important because this isan extensive Group with a long history.

Outside directors have multiple roles, but their key role is to create an
atmosphere that encourages the free exchange of opinions at the Board of
Directors’ meetings. It is sometimes (always?) said that the opinions ofoutside directors tend to be off the mark; if that is the case, I want directors
to chime in with their views, because diversity of opinion drives positivechange. A particularly memorable episode occurred at a Board of Directors’
meeting in March 2016, during a debate pertaining to board evaluationreviews. While the chairman of the Company, who is also chairman of theBoard of Directors, proposed the debate, I was particularly impressed to seeeach of the directors state their opinions passionately and purposefully, as
the president listened intently. The Board of Directors is without a doubt
more lively and active than it was in the past and is contributing positively
to ensuring continued compliance.
Taiyo Nippon Sanso’s overseas operations will continue to expand in theyears ahead. CSR initiatives are also taking on increasing importance.
Achieving sustainability and bolstering corporate value over the medium tolong term will depend to a considerable degree on the Company’s ability toensure accurate disclosure of information both within the Group and toexternal audiences, and to enhance internal controls for the Group as awhole. Beyond that, the Company must be willing to take risks. I lookforward to playing a role in helping to manage the Company in a manner
worthy of the confidence of shareholders and other stakeholders.

Taiyo Nippon Sanso Corporation | Annual Report 201623

Members of the Board of Directors, Audit & Supervisory Board Members
and Executive Officers(As of June 21, 2016)

Members of the Board of Directors

Executive Officers

Member of the Board, Chairman

Managing Executive Officers

Executive Officers

Shotaro Yoshimura

Akihiko Umekawa

Shigeyuki Osawa

Shinichiro Hiramine

Masahisa Kanzaki

Member of the Board, Vice Chairman

Yuki Hajikano

Kunihiro Kobayashi

Kunishi Hazama

Jun Ishikawa

Junzo Tai

Representative Director, President
and Chief Executive Officer

Senior Executive Officers

Masami Myobatake

Shigenobu Somaya

Yasuhiko Kawano

Yujiro Ichihara

Mikio Yamaguchi

Yuki Endo

Masahiro Sakamoto

Toshikazu Kurishita

Representative Director, Executive
Vice President

Hiroyuki Tanizawa

Satoshi Wataru

Norikazu Ishikawa

Tsutomu Moroishi

Tadashige Maruyama

Kou Matsumoto

Toshihiro Fukagawa

Hirohisa Yanagida

Toyoyuki Sato

Members of the Board, Senior
Managing Executive Officers

Masahiro Uehara

Yasushi Nagaoka

Haruhiko Yasuga

Shigeru Amada

Masaharu Takagi

Kenji Nagata

Nobuaki Kobayashi

William J. Kroll
Hiroshi Katsumata
Members of the Board
Akio Yamada*
Mitsuhiro Katsumaru*
Masanori Karatsu
Audit & Supervisory Board Members
Yasufumi Miyazaki**
Kinji Mizunoe
Kazunari Higuchi**Naoya Fujimori**
Note: *Outside Director**Outside Auditor

24

Taiyo Nippon Sanso Corporation | Annual Report 2016

Six-Year Summary
Taiyo Nippon Sanso Corporation and Consolidated Subsidiaries

Millions of yen
Years ended March 31

2016

2015

2014

2013

2012

2011

¥641,516¥559,373¥522,746¥468,387¥477,451¥483,620

43,36235,29731,48924,88431,06735,468of the parent

25,845

20,764

20,194(2,071)

21,20012,736

Capital expenditures

53,61135,201

32,532

31,71531,452

31,991

Investments and loans

32,941

5,710

35,749

5,672

8,035

15,171

Depreciation and amortization

44,86435,56833,507

29,40030,471

32,167

Amortization of goodwill

7,352

4,959

3,668

2,719

2,472

3,635

Research and development expenses

3,348

3,430

3,170

3,177

3,458

3,924

Interest-bearing debt

274,424

266,276

278,063

253,424

241,121

256,358

Net interest-bearing debt

223,638

212,855

219,727

228,681

206,524

211,808

Total net assets

337,974

341,207

298,475

224,253

219,611

207,416

Total assets

783,248782,357

731,677

615,820

607,024

617,676

For the year:
Net sales
Operating income
Net income (loss) attributable to owners

At year-end:

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

28.4%

26.7%

26.4%

26.8%

26.3%

26.1%

Return on equity 1 (%)

8.2%

7.0%

8.4%

(1.0)%

10.8%

6.5%

Return on capital employed (%)

7.4%

6.2%

6.2%

5.5%

7.0%

7.8%

Net debt-to-equity (times)

0.71

0.67

0.80

1.12

1.03

1.10

2

Yen

Amounts of per share of common stock:
Net income (loss) 3¥59.72¥47.98¥49.42¥ (5.25)¥53.33¥31.86

Cash dividends

16.00

13.00

12.00

12.00

12.00

12.00

Dividends payout ratio (%)

26.8%

27.1%

24.3%

—%

22.5%

37.7%

Price earnings ratio (times)

17.88

34.16

16.43

—

10.95

21.75

1

Return on equity is computed as net income (loss) divided by average shareholders’ equity.
Return on capital employed is computed as operating income (loss) divided by capital employed (average shareholders’ equity + average interest-bearing debt).
3
Net income per share is computed based on the weighted average number of shares of common stock outstanding during each year, as adjusted retroactively forfree share distributions made during the period.
2

Taiyo Nippon Sanso Corporation | Annual Report 201625

Management’s Analysis of Operating Results and Financial Position

Change in Fiscal Year End of Certain Consolidated Subsidiaries
In fiscal year 2016, ended March 31, 2016, subsidiary
Matheson Tri-Gas, Inc. and its 15 consolidated subsidiaries,
Leeden National Oxygen Ltd. and its 49 consolidated subsidiaries, and Taiyo Nippon Sanso (China) Investment Co., Ltd.,and its seven consolidated subsidiaries changed their fiscal
year end from December 31 to March 31, resulting in a
15-month transitional accounting period for the settlementof accounts on a provisional basis using the extended period.
Operating results for the period under review thus include 15
months of results for these companies, as a result of which
consolidated net sales and consolidated operating income
were ¥51,374 million and ¥2,976 million higher, respectively,
than they would have been if this change had not occurred.

Operating Results
In fiscal year 2016, consolidated net sales rose 14.7%, to¥641,516 million. Cost of sales increased 11.0%, to ¥416,102
million and selling, general and administrative expenses wereup 22.1%, to ¥182,051 million. As a consequence, operating
income advanced 22.8%, to ¥43,362 million, while the operating margin improved 0.5 percentage points, to 6.8%. Net
income attributable to owners of the parent climbed 24.5%, to¥25,845 million, bolstered by equity in earnings of affiliatesof ¥2,626 million. Net income per share amounted to ¥59.72,
an increase of ¥11.74, while return on capital employed(ROCE), at 7.4%, was up 1.2 percentage points.

Net Sales

Operating Income

Net Income (Loss) Attributableto Owners of the Parent(Billions of yen)(%)(Billions of yen)(%)(Billions of yen)

750

50

50

40

28

60

600

40

40

32

21

45

450

30

30

24

14

30

300

20

20

16

7

15

150

10

10

8

0

0

0

0

0

–7

0

2012

2013

2014

2015

2016

Gas Business in Japan
Gas Business in the United States
Gas Business in Asia and Oceania
Thermos and Other Businesses
Overseas sales as a percentage of
total (right scale)26

At the general meeting of shareholders held on June 21,
2016, shareholders approved a proposal to pay a year-end
dividend of ¥9.00 per share, an increase of ¥2.00, bringing
cash dividends for the period, comprising interim and yearend dividends, to ¥16.00 per share. This represented a payout
ratio of 26.8%, or 28.3% discounting the impact of a changein accounting period by certain subsidiaries.
Capital expenditures, on a final acceptance basis, totaled¥53,611 million, an increase of ¥18,410 million. Depreciation
and amortization, at ¥44,864 million, was up ¥9,296 million.
Research and development expenses declined ¥82 million,to ¥3,348 million, equivalent to approximately 0.5% ofconsolidated net sales.

2012

2013

2014

2015

2016

Overseas operating income as apercentage of total (right scale)Taiyo Nippon Sanso Corporation | Annual Report 2016

2012

2013

(Yen)

2014

2015

2016

Net income per share (right scale)–15

Results by Segment
Gas Business in Japan
In the area of industrial gases, sales of our core separated
gases (oxygen, nitrogen and argon) were down, despite firm
demand from the shipbuilding and transportation equipment
industries, as demand from the steel and chemicals industries
declined. Sales of gas equipment rose substantially, withresults particularly strong for hydrogen stations. Amongelectronics-related products, sales of electronics materials
gases fell below the level of the previous year, owing to adecrease in demand from electronics, liquid crystal display(LCD) and semiconductor manufacturers. Sales of equipment
and installation services for the electronics industry were up,
supported by several major orders. In the energy field, salesof LP gas fell sharply, owing to declining import prices. Owing
to these and other factors, segment sales declined 3.6%, to¥332,247 million. In contrast, operating income rose 10.0%,
to ¥27,539 million, thanks in part to cost reductions resulting
from falling crude oil prices.
Gas Business in the United States
Sales of industrial gases were affected by declines in salesof packaged gases and hard goods. In electronics-related
products, sales of electronics materials gases reflected robust
shipments to key customers in the United States, as well as
brisk exports. Foreign exchange translation gains and theinclusion of 15 months of results for Matheson Tri-Gas, owing
to a change in the company’s fiscal year, also pushed sales
up significantly above the fiscal year 2015 level. Segment
sales jumped 44.0%, to ¥188,566 million. Operating income
advanced 17.6%, to ¥6,812 million.
Gas Business in Asia and Oceania
Robust sales in Vietnam and the Philippines pushed up sales
in the area of industrial gases. During the period, Air Products
Industry Co., Ltd. in Thailand and Renegade Gas Pty Ltd inAustralia were made consolidated subsidiaries in May andJuly 2015, respectively. Sales in the area of electronics-related
products rose substantially, underpinned by persistently strong
demand in Taiwan, China and South Korea, which pushed
up sales of electronics materials gases and gas equipment.
The inclusion of 15 months of results for Singapore subsidiary
Leeden National Oxygen also affected segment sales, which
climbed 50.3%, to ¥93,174 million, and operating income,which soared 80.7%, to ¥4,461 million.
Thermos and Other Businesses
Sales of Thermos products remained strong, led by new products, underpinning a substantial increase in segment sales,
which rose 26.5%, to ¥27,528 million. Operating income grew
74.3%, to ¥5,993 million.

Financial Position
Total assets as of March 31, 2016, amounted to ¥783,248
million, an increase of 0.1%. The appreciation of the yen,which was ¥7.87 higher against the U.S. dollar on March 31,
2016, than on the same day a year earlier, had a negative
impact of approximately ¥24,300 million. The current ratio
was 122%, down 23.0 percentage points. Property, plant andequipment, net, rose 4.4%, to ¥339,096 million, owing largely
to increases in construction in process. Total investments andother assets declined 3.8%, to ¥182,260 million, primarilyreflecting a decrease in investment securities.
Total current liabilities advanced 16.0%, to ¥214,145
million, as short-term loans payable increased ¥27,461 million.
Total noncurrent liabilities were ¥231,128 million, down 9.9%,

a result mainly of decreases in long-term loans payable of¥21,321 million and deferred tax liabilities of ¥8,522 million. As
a consequence, total interest-bearing debt rose ¥8,148 million, to ¥274,424 million. Total net assets stood at ¥337,974
million, a decrease of ¥3,233 million. Principal factors behind
this result were a ¥19,954 million increase in retained earnings, to ¥210,911 million, reflecting changes in net income
attributable to owners of the parent and dividends fromsurplus, and a ¥14,989 million decline in foreign currencytranslation adjustments, to ¥5,078 million, owing to yen
appreciation. As a consequence, the equity ratio edged down
0.5 percentage points, to 40.0%, while net assets per sharedecreased ¥8.71, to ¥724.33.

Taiyo Nippon Sanso Corporation | Annual Report 201627

Financial Strategy
We continue to adjust the balance of short-term funds flexibly
through the issue of commercial paper and short-term loans
payable while promoting the procurement of low-cost funds.
Strategies for long-term funds focus on borrowings and theissue of corporate bonds, while we hedge interest rate risk bychoosing fixed rates.
Our current medium-term business plan, Ortus Stage 1,
anticipates cash generated by operating activities of ¥180
billion in over three years. Accordingly, even if investments
require the entire ¥200 billion envisioned under the plan,
obliging us to raise funds, there is no fear of our financial
health deteriorating. Should we need to raise funds for a major

acquisition, for example, we will be selective in the methods
we use to minimize the financial impact thereof. Net cash provided by operating activities amounted to approximately ¥60
billion in fiscal year 2015 and around ¥80 billion in fiscal year
2016, exceeding our initial Ortus Stage 1 forecasts. Owing
to an increase in shareholders’ equity, our net debt-to-equity
ratio began showing signs of improvement, reaching 0.71
times in fiscal year 2016.
Going forward, we will continue to make decisive investments in growth while continuing to prioritize an abundant
cash flow from operating activities and a stable financial base.

Business Risks
Management Policy- and 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 maintainand upgrade these facilities. Accordingly, interest rate trends
could have a material impact on the Company’s businessperformance.

Manufacturing Costs
Electricity is the major component of the cost for 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
the Company may be unable to reflect in the pricing of its
products.

Cash FlowsNet Debt-to-Equity Ratio(Billions of yen)(%)(Billions of yen)

100

40

400

28.0

75
50

13.2

25

30

350

20

300

10

250

0

200

(Times)
1.2

1.12
1.03

1.0
0.80
0.67

1.4
0

–10

150

–50

–20

100

–75

–30

50

–40

0

–100
2012

2013

2014

Cash ﬂows from operating activities
Cash ﬂows from investing activities
Cash ﬂows from ﬁnancing activities
Free cash ﬂow (right scale)

28

0.8
0.6

–0.5

–3.3

–25

0.71

2015

2016

0.4
0.2
0.0
2012

2013

2014

EquityNet interest-bearing debt
Net debt-to-equity ratio (right scale)Taiyo Nippon Sanso Corporation | Annual Report 2016

2015

2016

Overseas Factors
The Company maintains operations overseas, particularly in
the United States and Asia. Political and economic changes
in countries where the Company has operations may have an
adverse impact on its business performance.
Technological and Safety Factors
Technological Development
The Company actively promotes technological development
activities aimed at facilitating future business expansion.
However, the creation of new products and technologies
entails various risks.
Intellectual Property
The Company’s business depends on proprietary technological development. The Company endeavors to obtain
intellectual property rights as necessary for its proprietary
technologies. However, there are no guarantees that its
technologies are completely protected.
Product Defects
The Company sells high-pressure gas-related products,
including toxic and flammable gases used in semiconductor
fabrication. While the Company strives to ensure the effective
management of related risks, it cannot guarantee that all of its
products are free of defects.
Financial Risks and Other Factors
Foreign Exchange Risk
The Company exports products for sale outside of Japan. The
Company strives to hedge foreign exchange risks by entering
into forward exchange contracts and other derivative transactions. However, the Company may not be able to respond tosudden fluctuations in currency rates, which therefore may
have an adverse impact on its business performance.
Retirement Benefit Liabilities
A sudden deterioration in retirement plan returns resulting in
an increase in retirement benefit costs may have an adverse
impact on the Company’s business performance.
Natural Disasters and Contingencies
The occurrence of earthquakes or other natural disasters inareas where the Company has manufacturing facilities may

damage these facilities. In particular, damage to the Company’s
large-scale manufacturing facilities may lead to a significant
decline in production capacity and incur major recovery costs.
Such factors may adversely affect the Company’s businessperformance. Major accidents occurring as a result of contingencies, including those attributable to human factors, mayalso adversely affect the Company’s business performance.
Legal Issues
Unanticipated changes to existing laws and the introductionof new laws—particularly in countries overseas where theCompany maintains operations—may adversely affect theCompany’s business performance. 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 business performance.
Because the Company does business both in Japan andoverseas, there is the risk of becoming involved in legal
disputes or the subject of investigations and/or legal action
by relevant authorities in the markets in which it operates.
Such legal and regulatory action may adversely affect theCompany’s operations, business performance, financial
condition, reputation and reliability.
Medium-Term Business Plan
The Company’s ability to meet the targets of its medium-termbusiness plan may be adversely affected by a number offactors, including changes in the operating environment.
Capital Alliance with Mitsubishi Chemical Holdings
Mitsubishi Chemical Holdings Corporation owns a 50.57%
stake in the Company (indirect holding: 14.07%). With theaim of further strengthening the capital alliance, establishedon May 13, 2014, and enhancing corporate value, the twocompanies have agreed that Mitsubishi Chemical Holdings
will maintain its stake in the Company at the current level.
Accordingly, the Company does not at present anticipate
any increase or decrease in the percentage of its shares heldby Mitsubishi Chemical Holdings. However, there is still achance that the capital alliance between the two companies
will change. Any such change has the potential to significantly
affect the Company’s financial condition and businessperformance.

Taiyo Nippon Sanso Corporation | Annual Report 201629

Consolidated Balance Sheets
Taiyo Nippon Sanso Corporation and Consolidated Subsidiaries

Millions of yen
March 31

2016

2015

AssetsCurrent assets:
Cash and deposits (Notes 15 and 21)
Notes and accounts receivable—trade (Notes 6 and 15)
Merchandise and finished goods
Work in process
Raw materials and supplies
Deferred tax assets (Note 10)
Other
Allowance for doubtful accounts
Total current assets¥ 50,785
146,460
30,877
11,406
10,8274,467
9,130(2,063)261,891¥ 53,420
150,552
30,252
8,758
9,782
8,387
9,470
(2,520)268,105$

Property, plant and equipment (Notes 8, 9 and 20)
Accumulated depreciation
Property, plant and equipment, net

868,802(529,706)
339,096

828,957(504,115)
324,8427,710,348(4,700,976)
3,009,372

Investments and other assets:
Investment securities (Notes 5 and 15)
Long-term loans receivable
Goodwill (Notes 20 and 23)
Other intangible assets
Net defined benefit asset (Note 13)
Deferred tax assets (Note 10)
Other
Valuation allowance for investments
Allowance for doubtful accounts
Total investments and other assets
Total assets

60,2753,421
75,323
22,827
6,499
2,302
12,038(20)(406)
182,260¥ 783,248

75,377
1,199
66,47125,701
8,396
2,073
10,542(20)(333)
189,408¥ 782,357

534,922
30,360668,468
202,583
57,677
20,430106,834(177)(3,603)
1,617,501$ 6,951,083

See notes to consolidated financial statements.

30

Thousands of
U.S. dollars(Note 4)

Taiyo Nippon Sanso Corporation | Annual Report 2016

2016

450,701
1,299,787
274,024
101,225
96,086
39,64381,026(18,308)2,324,201

Millions of yen
March 31

Thousands of
U.S. dollars(Note 4)

2016

2015

2016

Liabilities and net assets
Current liabilities:
Notes and accounts payable—trade (Note 15)
Short-term loans payable (Notes 7, 8 and 15)
Income taxes payable (Note 10)
Other (Notes 7, 8 and 10)
Total current liabilities¥ 72,987
93,207
8,199
39,752
214,145¥ 77,036
65,746
7,113
34,673
184,570$ 647,737
827,183
72,764
352,787
1,900,470

Noncurrent liabilities:
Long-term loans payable (Notes 7 and 15)
Provision for directors’ and corporate auditors’ retirement benefits
Net defined benefit liability (Note 13)
Deferred tax liabilities (Note 10)
Lease obligations (Note 7)
Other
Total noncurrent liabilities

172,583
1,312
3,867
34,9295,813
12,621
231,128

193,904
1,230
3,824
43,451
4,779
9,387
256,579

1,531,621
11,64434,318309,984
51,589112,0072,051,189

Contingent liabilities (Note 14)
Total liabilities

445,274

441,149

3,951,668

37,34455,537
210,911(244)
303,549

37,34455,955
190,957(232)
284,025

331,416
492,874
1,871,770(2,165)
2,693,903

5,445
(62)
5,078
(546)
9,916
24,508337,974¥783,248

12,777(461)
20,067835
33,21923,963
341,207¥782,357

48,323(550)
45,066(4,846)88,001
217,501
2,999,414$6,951,083

Net assets (Notes 11 and 24):
Shareholders’ equity:
Common stock:
Authorized—1,600,000,000 shares
Issued—433,092,837 shares in 2016 and 2015
Capital surplus
Retained earnings
Treasury stock
Total shareholders’ equity
Accumulated other comprehensive income:
Valuation difference on available-for-sale securities
Deferred gains or losses on hedges
Foreign currency translation adjustments
Remeasurements of defined benefit plans (Note 13)
Total accumulated other comprehensive income
Non-controlling interests
Total net assets
Total liabilities and net assets

Taiyo Nippon Sanso Corporation | Annual Report 201631

Consolidated Statements of Income
Taiyo Nippon Sanso Corporation and Consolidated Subsidiaries

Millions of yen

Years ended March 31
Net sales (Note 20)
Cost of sales (Note 17)
Gross profit
Selling, general and administrative expenses (Note 17)
Operating income
Other income (expenses):
Interest and dividend income
Interest expenses
Amortization of negative goodwill
Loss on sales and retirement of noncurrent assets
Subsidy income
Gain on sales of investment securities
Equity in earnings of affiliates
Impairment loss (Notes 18 and 20)
Gain on step acquisitions
Loss on reduction of property, plant and equipment
Other
Income before income taxes
Income taxes (Note 10):
Current
Deferred
Net income
Net income attributable to non-controlling interests
Net income attributable to owners of parent

2016¥641,516
416,102
225,413
182,051
43,362

2015¥559,373
374,923
184,449
149,151
35,2972016$5,693,255
3,692,776
2,000,470
1,615,646
384,824

1,316(4,214)—(1,122)
572
287
2,626
(1,654)
1,813
(572)
1,201
254
43,616

1,259(3,508)
23
(832)
—
2,491
2,500
(2,266)
—
—
(457)
(789)
34,507

11,679(37,398)—(9,957)
5,076
2,547
23,305(14,679)
16,090(5,076)
10,6592,254
387,078

17,419(1,199)16,21927,396
1,551¥ 25,845

12,856(482)
12,373
22,133
1,369¥ 20,764

154,588(10,641)
143,939
243,131
13,765$ 229,366
U.S. dollars(Note 4)

Yen

Amounts per share:
Net assets
Net income attributable to owners of parent
Cash dividends

Thousands of
U.S. dollars(Note 4)¥724.33
59.72
16.00

¥733.04
47.98
13.00

$6.43
0.53
0.14

See notes to consolidated financial statements.

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

Millions of yen
Year ended March 31

Net income
Other comprehensive income (Note 19):
Valuation difference on available-for-sale securities
Deferred gains or losses on hedges
Foreign currency translation adjustments
Remeasurements of defined benefit plans
Share of other comprehensive income (loss) of associates accounted for using the equity method
Total other comprehensive income (loss)
Comprehensive income
Total comprehensive income attributable to:
Owners of parent
Non-controlling interests
See notes to consolidated financial statements.

32

Taiyo Nippon Sanso Corporation | Annual Report 2016

Thousands of
U.S. dollars(Note 4)

2016

2015

2016

¥ 27,396¥22,133$ 243,131(7,328)399(15,453)(1,403)(586)(24,372)¥ 3,024

5,547
(454)
21,5592,764
1,416
30,831¥52,965(65,034)
3,541(137,141)(12,451)(5,201)(216,294)$ 26,837¥ 2,543481¥50,660
2,305$ 22,568
4,269

Consolidated Statements of Changes in Net Assets
Taiyo Nippon Sanso Corporation and Consolidated Subsidiaries
Millions of yen
Shareholders’ equity
Number of shares ofcommon stock

Balance at April 1, 2014
Cumulative effects of changes in accounting policies
Restated balance at April 1, 2014
Dividends from surplus
Net income attributable to owners of parent
Change of scope of consolidation
Purchase of treasury stock
Disposal of treasury stock
Change in treasury shares of parent arising fromtransactions with non-controlling shareholders
Change in treasury stock arising from change in equity inentities account for using equity method
Net changes of items other than shareholders’ equity
Balance at March 31, 2015
Dividends from surplus
Net income attributable to owners of parent
Change of scope of consolidation
Purchase of treasury stock
Disposal of treasury stock
Change in treasury shares of parent arising fromtransactions with non-controlling shareholders
Net changes of items other than shareholders’ equity
Balance at March 31, 2016

433,092,837—
433,092,837
—
—
—
—
—

Treasury stock

Total
shareholders’ equity

Common stock

Capital surplus

Retained earnings¥37,344—¥37,344—————¥56,478—¥56,478————
12¥177,269(1,539)¥175,730(5,196)
20,764(341)——¥(108)—¥(108)
—
—
—
(148)
31

¥270,983(1,539)¥269,444(5,196)
20,764
(341)
(148)
43

—

—

(534)

—

—

(534)

—
—
433,092,837
—
—
—
—
—

—
—
¥37,344
—
—
—
—
—

—
—
¥55,955
—
—
—
—
0

—
—
¥190,957(6,060)25,845
169
—
—

(6)
—
¥(232)
—
—
—
(11)
0

(6)
—
¥284,025(6,060)25,845
169
(11)
0

—
—
433,092,837——¥37,344(418)—¥55,537——¥210,911——¥(244)(418)—¥303,549

Millions of yen
Accumulated other comprehensive income
Valuation difference
on available-for-salesecurities

Balance at April 1, 2014
Cumulative effects of changes in accounting policies
Restated balance at April 1, 2014
Dividends from surplus
Net income attributable to owners of parent
Change of scope of consolidation
Purchase of treasury stock
Disposal of treasury stock
Change in treasury shares of parent arising fromtransactions with non-controlling shareholders
Change in treasury stock arising from change in equity inentities account for using equity method
Net changes of items other than shareholders’ equity
Balance at March 31, 2015
Dividends from surplus
Net income attributable to owners of parent
Change of scope of consolidation
Purchase of treasury stock
Disposal of treasury stock
Change in treasury shares of parent arising fromtransactions with non-controlling shareholders
Net changes of items other than shareholders’ equity
Balance at March 31, 2016

¥ 7,257—¥ 7,257—————

Deferred gains orlosses on hedges¥

Foreign currencytranslation
adjustments

Total
Remeasurements of accumulated otherdefined benefit
comprehensive
plansincomeNon-controllinginterests

Total net assets

(7)
—
¥ (7)
—
—
—
—
—

¥ (2,035)—¥ (2,035)
—
—
—
—
—

¥(1,891)—¥(1,891)—————¥ 3,323—¥ 3,323—————¥24,168(47)¥24,120—————¥298,475(1,587)¥296,888(5,196)
20,764
(341)
(148)
43

—

—

—

—

—

—

(534)

—
5,520
¥12,777
—
—
—
—
—

—
(454)
¥(461)——————
22,103¥ 20,067
—
—
—
—
—

—
2,727
835
—
—
—
—
—

—
29,895¥ 33,219
—
—
—
—
—

—
(157)
¥23,963
—
—
—
—
—

(6)
29,738¥341,207(6,060)25,845
169
(11)
0

—
(7,331)¥ 5,445—399¥ (62)—(14,989)¥ 5,078—(1,381)¥ (546)—(23,302)¥ 9,916—544¥24,508(418)(22,757)¥337,974¥

Thousands of U.S. dollars (Note 4)
Shareholders’ equity

Balance at April 1, 2015
Dividends from surplus
Net income attributable to owners of parent
Change of scope of consolidation
Purchase of treasury stock
Disposal of treasury stock
Change in treasury shares of parent arising fromtransactions with non-controlling shareholders
Net changes of items other than shareholders’ equity
Balance at March 31, 2016

Treasury stock

Total
shareholders’ equity

Common stock

Capital surplus

Retained earnings$331,416—————$496,583————
0$1,694,684(53,781)229,366
1,500——$(2,059)
—
—
—
(98)
0

$2,520,634(53,781)229,366
1,500
(98)
0

—
—
$331,416(3,710)—$492,874——$1,871,770——$(2,165)(3,710)—$2,693,903

Thousands of U.S. dollars (Note 4)
Accumulated other comprehensive income

Balance at April 1, 2015
Dividends from surplus
Net income attributable to owners of parent
Change of scope of consolidation
Purchase of treasury stock
Disposal of treasury stock
Change in treasury shares of parent arising fromtransactions with non-controlling shareholders
Net changes of items other than shareholders’ equity
Balance at March 31, 2016

Total
Remeasurements of accumulated otherdefined benefit
comprehensive
plansincomeValuation difference
on available-for-salesecurities

Deferred gains orlosses on hedges

Foreign currencytranslation
adjustments$113,392—————$(4,091)—————$ 178,088
—
—
—
—
—

$ 7,410—————$ 294,808
—
—
—
—
—

$212,664—————$3,028,106(53,781)229,366
1,500
(98)
0

—
(65,060)$ 48,323—
3,541$ (550)—(133,023)$ 45,066—(12,256)$ (4,846)—(206,798)$ 88,001—
4,828$217,501(3,710)(201,961)$2,999,414

Non-controllinginterests

Total net assets

See notes to consolidated financial statements.

Taiyo Nippon Sanso Corporation | Annual Report 201633

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

Millions of yen
Years ended March 31
Operating activities
Income before income taxes
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 step acquisitions
Loss on reduction of property, plant and equipment
Subsidy income
Decrease (increase) in notes and accounts receivable—trade
Increase in accounts receivable—other
Decrease in advance payments
Increase in inventories(Decrease) increase in notes and accounts payable—trade
Increase in accrued expenses
Increase in advances received
Decrease in net defined benefit liability(Increase) decrease in net defined benefit asset
Other, net

2016

2015

2016

Interest and dividends income received
Interest expenses paid
Payments for early extra retirement payments
Income taxes paid
Net cash provided by operating activities¥ 43,616
44,864
1,654
7,352(1,316)
4,214(2,626)794(287)(1,813)
572
(572)
6,079
(541)
499
(3,632)(4,932)
2,098
873
(18)
(217)
829
97,492
3,584(4,242)—(15,278)
81,555¥ 34,507
35,5682,266
4,959(1,259)3,508(2,500)634(2,506)———(11,080)(175)
53(3,931)
4,979
2,203
876
(43)
489
2,424
70,9732,851(3,521)(1,398)(10,290)
58,615$ 387,078
398,154
14,67965,247(11,679)
37,398(23,305)
7,047(2,547)(16,090)
5,076(5,076)53,949(4,801)
4,428(32,233)(43,770)
18,6197,748(160)(1,926)
7,357
865,21131,807(37,646)—(135,588)
723,775

Investing activities
Decrease in time deposits
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
Purchases of shares of subsidiaries resulting in change in scope of consolidation (Note 21)
Payments of loans receivable
Payments for assets purchase (Note 21)
Proceeds from subsidy income
Other, net
Net cash used in investing activities247(52,556)
1,592
(590)
(1,060)1,373(25,429)(2,536)(1,690)572(2,051)(82,130)804(33,357)
2,035
(886)
(3,038)6,411—(1,084)(78)—(1,389)(30,583)

2,192(466,418)
14,129(5,236)(9,407)
12,185(225,674)(22,506)(14,998)
5,076(18,202)(728,878)

Financing activities
Net increase in short-term loans payable
Proceeds from long-term loans payable
Repayment of long-term loans payable
Redemption of bonds
Purchases of investments in subsidiaries not resulting in change in scope of consolidation
Repayments of lease obligations
Proceeds from share issuance to non-controlling shareholders
Purchase of treasury stock
Proceeds from sales of treasury stock
Proceeds from disposal of treasury stock
Cash dividends paid
Cash dividends paid to non-controlling interests
Net cash used in financing activities
Effect of exchange rate change on cash and cash equivalents
Net decrease 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
Cash and cash equivalents at end of period (Note 21)

2,034
49,878(42,816)—(2,224)(2,213)
242
(16)
0
—
(6,060)(650)(1,825)(174)(2,575)51,547307¥ 49,279

7,265
36,987(53,339)(15,000)(1,586)(2,049)
—
(182)
12
21
(5,196)(799)(33,866)
1,287(4,546)56,0885¥ 51,547

18,051
442,652(379,979)—(19,737)(19,640)
2,148
(142)
0
—
(53,781)(5,769)(16,196)(1,544)(22,852)
457,464
2,725$ 437,336

See notes to consolidated financial statements.

34

Thousands of
U.S. dollars(Note 4)

Taiyo Nippon Sanso Corporation | Annual Report 2016

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

1. Basis of Consolidated Financial Statements
The accompanying consolidated financial statements of TAIYONIPPON SANSO CORPORATION (the “Company”) and consolidated
subsidiaries are prepared on the basis of accounting principles
generally accepted in Japan (“Japanese GAAP”), which are different
in certain respects as to application and disclosure requirements ofInternational Financial Reporting Standards, and are compiled fromthe consolidated financial statements prepared by the Company as
required by the Financial Instruments and Exchange 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 notnecessarily agree with the sums of the individual amounts.
Certain amounts previously reported have been reclassified toconform to the current year presentation.

2. Summary of Significant Accounting Policies(a) Consolidation
The accompanying consolidated financial statements include theaccounts of the Company and its 163 significant subsidiaries. All
significant intercompany accounts and transactions have been
eliminated in consolidation.
From the year ended March 31, 2016, Matheson Tri-Gas, Inc.
and its 15 consolidated subsidiaries, Leeden National Oxygen Ltd.
and its 49 consolidated subsidiaries and Taiyo Nippon Sanso (China)
Investment Co., Ltd. and its 7 consolidated subsidiaries, which
previously closed their accounts at December 31, either changed thefiscal year-end to March 31 or changed the method of consolidation
to provisional close of accounts complying regular settlement ofaccounts performed at March 31, which is the consolidated fiscal
year-end.
As a result, financial statements of the above consolidated
subsidiaries for 15 months from January 1, 2015 to March 31, 2016
were consolidated for the year ended March 31, 2016, and the effectsof this change is adjusted in the consolidated statements of income.
Net sales, operating income and income before income taxes for theperiod from January 1, 2015 to March 31, 2015 of the consolidated
subsidiaries which changed fiscal year-end were ¥51,374 million($455,928 thousand), ¥2,976 million ($26,411 thousand), and ¥2,522
million ($22,382 thousand), respectively.
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 forby the equity method of accounting.
The differences at the dates of acquisition between the cost andthe underlying net equity in investments in consolidated subsidiaries
and the companies accounted for by the equity method are amortized
equally over the years for which their effect are reasonably estimated.
Investments in unconsolidated subsidiaries and affiliates otherthan those which are accounted for by the equity method are
principally stated at cost.
(b) Cash equivalents
For purposes of the statements of cash flows, the Company considers all highly liquid instruments with maturity of three months or lesswhen purchased to be cash equivalents.
(c) Investment securities
Investments in securities are classified into three categories: trading
securities, held-to-maturity securities and available-for-sale securities.
The Company and certain consolidated subsidiaries have marketablesecurities classified as available-for-sale securities, which are carriedat fair value with any changes in valuation difference on availablefor-sale securities, net of the applicable income taxes, reported asa separate component of net assets. Cost of marketable securities
sold is determined by the moving-average method. Non-marketablesecurities classified as available-for-sale securities are carried at cost
determined by the moving-average method. Under the Companies
Act of Japan (the “Act”), unrealized gain or loss on available-for-salesecurities, net of the applicable income taxes, is not available for
distribution as dividends.
(d) Inventories
Inventories are stated at cost, determined by the average method,
specific identification method or the moving-average method (lower
than book value due to decline in profitability).
(e) Property, plant and equipment (except for the leased assets)
Property, plant and equipment is stated at cost, and for the Company
and its consolidated domestic subsidiaries, depreciation is principally
computed by the straight-line method.
The useful lives are as follows:
Buildings
3 to 50 years
Machinery
3 to 20 years
As for consolidated overseas subsidiaries, depreciation is also
principally computed by the straight-line method based on theestimated useful lives of the respective assets.
(f) Intangible assets
Intangible assets are stated at cost. As for the Company and its consolidated domestic subsidiaries, software is amortized by the straightline method over its estimated useful life of 5 years. Consolidated
subsidiaries in the United States apply the Accounting Standards
Codification 350, issued by the Financial Accounting Standards Board(“Intangibles-Goodwill and Other”).
(g) Leases
Leased assets are initially accounted for at their acquisition costs anddepreciated over the leased term by the straight-line method with noresidual value.
Finance leases contracted on or before March 31, 2008 that do
not deem to transfer ownership of the leased property to the lessee
are accounted for as operating lease transactions.

Taiyo Nippon Sanso Corporation | Annual Report 201635

(h) Translation of foreign currency transactions
All monetary assets and liabilities denominated in foreign currencies
other than receivables and payables hedged by qualified foreignexchange forward contracts, are translated into yen at the exchange
rates prevailing as of the fiscal year-end, and resulting gains andlosses are included in income.
The accounts of the overseas consolidated subsidiaries aretranslated into yen at the year-end exchange rates, except for net
assets, which are translated at historical rates, and income statement
items are translated into yen at average exchange rates during
the year. Differences arising from the translations are stated under“Foreign currency translation adjustments” and “Non-controllinginterests” in the accompanying consolidated balance sheet.
(i) Pension and severance indemnities
The benefit formula method is used as the method of attributing
expected benefits to periods through the end of the fiscal year ended
March 31, 2016 in calculating the projected benefit obligation.
Actuarial gains or losses and prior service cost are recognized foreach defined benefit plan over a period not exceeding the expected
average remaining service years of the employees participating in
the plan. The Company and its consolidated domestic subsidiaries
amortize actuarial gains or losses using the straight-line method over
12 to 16 years following the respective fiscal years when such gains
or losses are recognized. Prior service cost is amortized using thestraight-line method over 13 to 16 years.
Certain consolidated domestic subsidiaries apply the simplified
method, which assumes projected benefit obligations to be equal tothe benefit payable assuming the voluntary retirement of all employees
at fiscal year-end, in computing net defined benefit liability andretirement benefit expenses.
(j) Provision 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 amount which 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 ¥801 million ($7,109 thousand) and¥810 million for directors and corporate auditors at March 31, 2016
and 2015, respectively, and included ¥510 million ($4,526 thousand)and ¥420 million for corporate officers at March 31, 2016 and 2015,
respectively.
(k) Research and development expenses
Research and development expenses are charged to operations as
incurred.
(l) Income taxes
Deferred tax assets and liabilities are determined based on the
differences between financial reporting and the tax bases of assets
and liabilities and are measured using the enacted tax rates and laws
which will be in effect when the differences are expected to reverse.

(n) Allowance for doubtful accounts
To cover possible losses on collection of receivables, the Company
and its consolidated subsidiaries provided for an allowance based on
historical bad debt ratios for ordinary receivables, and based on estimated write-off amounts, after considering the likelihood of recovery
on an individual basis for specific debts of which recovery is doubtful.
(o) Valuation allowance for investments
To state the investment amount fairly, the allowance is provided byconsidering the related parties’ assets and other factors.
(p) Derivative and hedging transactions
The Company and certain consolidated subsidiaries have used
foreign exchange forward contracts solely in order to hedge against
risks of fluctuations in foreign currency exchange rates relating to its
receivables and payables denominated in foreign currencies, and haveused interest-rate swap agreements solely to hedge against risks offluctuations in interest rates relating to its long-term loans payable.
Also, currency exchange swap agreements have been used solely tohedge against risks of fluctuations in foreign exchange of long-termloans payable denominated in foreign currencies, in compliance with
the internal rules of respective companies.
Under the “Accounting Standard for Financial Instruments”(Statement No. 10, issued by the Accounting Standards Boardof Japan (“ASBJ”) on March 10, 2008) derivative transactions arevalued at market prices, except for hedging transactions whose gains
or losses are deferred and recorded in the balance sheet until thehedged transactions are settled. Moreover, if interest-rate swaps inJapan are specifically tied to the hedged loan transactions, unrealized
gains or losses on those swaps are not recognized in the consolidated financial statements as such gains or losses are to be offset
with those on the hedged transactions. Deferred hedge accounting isapplied to currency swaps.
Receivables and payables hedged by qualified foreign exchange
forward contracts are translated at the corresponding foreignexchange forward contract rates.
(q) Recognition of revenues and costs of construction contracts
Revenues and costs of construction contracts of which the percentage of completion can be reliably estimated, are recognized by thepercentage-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.
(r) Change in presentation
Effective from the year ended March 31, 2016, the Company has
adopted the Paragraph 39 of the “Revised Accounting Standard forConsolidated Financial Statements” (ASBJ Statement No. 22, issued
on September 13, 2013). As a result, the Company changed thepresentation of net income and the term “non-controlling interests” isused instead of “minority interests”. Certain comparative information
for the prior year was reclassified to reflect such changes in thecurrent year presentation.

(m) Amounts per share
Presentation of diluted net income attributable to owners of parent per
share is not applicable as there were no potentially dilutive securities
for the years ended March 31, 2016 and 2015.

36

Taiyo Nippon Sanso Corporation | Annual Report 2016

3. Accounting Standards Issued but Not Yet Effective
On March 28, 2016, the ASBJ issued “Implementation Guidance on
Recoverability of Deferred Tax Assets” (ASBJ Guidance No. 26).
(a) Overview
Following the framework in Auditing Committee Report No. 66 “Audit
Treatment regarding the Judgment of Recoverability of Deferred Tax
Assets”, which prescribes estimation of deferred tax assets according
to the classification of the entity by one of five categories, thefollowing treatments were changed as necessary:(1) Treatment for an entity that does not meet any of the criteria in
categories 1 to 5;(2) Criteria for categories 2 and 3;(3) Treatment for deductible temporary differences which an entity
classified as category 2 is unable to schedule;(4) Treatment for the period which an entity classified as category 3 isable to reasonably estimate with respect to future taxable income
before consideration of taxable or deductible temporary
differences that exist at the end of the current fiscal year; and(5) Treatment when an entity classified as category 4 also meets thecriteria for categories 2 or 3.
(b) Expected application date and effect of application
The Company does not plan to adopt this implementation guidanceas the Group voluntarily adopts the International Financial ReportingStandards (“IFRS”) effective from the first quarter of the year ending
March 31, 2017. The effects of applying this implementation guidanceon its consolidated financial statements are not evaluated.

4. U.S. Dollar Amounts
The translation of Japanese yen amounts into U.S. dollar amounts is
included solely for convenience, as a matter of arithmetical computation only, at the rate of ¥112.68 = U.S.$1, the approximate rate ofexchange at March 31, 2016. The translation should not be construed

as a representation that Japanese yen have been, could have been,or could in the future be converted into U.S. dollars at the above or
any other rate.

5. Investment Securities
At March 31, 2016 and 2015, information with respect to available-for-sale securities for which market prices were available was summarized
as follows:

Unrealized gain items: Stock
Unrealized loss items: Stock
Total

Unrealized gain items: Stock
Unrealized loss items: Stock
Total

Carrying
amountMillions of yen
2016
Acquisition
cost¥19,981
10,746¥30,728¥ 8,881
13,851¥22,733

Carrying
amountMillions of yen
2015
Acquisition
cost

Unrealized
gain (loss)¥41,480
191¥41,672¥22,483
228¥22,712¥18,996(36)¥18,959

Proceeds from sales of securities classified as available-for-salesecurities amounted to ¥1,237 million ($10,978 thousand) and ¥6,198
million with an aggregate gain on sales of ¥421 million ($3,736 thousand) and ¥2,535 million for the years ended March 31, 2016 andUnrealized
gain (loss)¥11,099(3,105)¥ 7,994

Thousands of U.S. dollars
2016
Carrying
Unrealized
amountAcquisition cost gain (loss)$177,325
95,367$272,701$ 78,816
122,923$201,748$ 98,500(27,556)$ 70,944

2015, respectively, and an aggregate loss on sales of ¥0 million ($0thousand) and nil for the years ended March 31, 2016 and 2015,
respectively.

6. Notes and Accounts Receivable(a) Notes and accounts receivable liquidated at March 31, 2016 and 2015 were as follows:
Thousands of
U.S. dollars
2016

Millions of yen
2016
2015

Notes receivable transferred by liquidation¥1,720¥1,791$15,264(b) Notes receivable discounted at March 31, 2016 and 2015 were as follows:
Thousands of
U.S. dollars
2016

Millions of yen
2016
2015

Notes receivable discounted¥—

Taiyo Nippon Sanso Corporation | Annual Report 2016

¥2

$—

37

7. Short-Term Loans Payable, Long-Term Loans Payable and Lease Obligations
As of March 31, 2016 and 2015, short-term loans payable and the current portion of long-term loans payable consisted of the following:
Millions of yen
2016
2015

Bank loans
Current portion of long-term loans payable
0.55% unsecured bonds, payable in yen, due 2017
Total

¥30,678
52,52810,000¥93,207

Thousands of
U.S. dollars
2016¥28,827
36,919—¥65,746$272,258
466,170
88,747$827,183

The average interest rates applicable to bank loans outstanding at March 31, 2016 and 2015 were 1.41% and 1.10%, respectively.
Long-term loans payable at March 31, 2016 and 2015 consisted of the following:
Millions of yen
2016
2015

Loans from banks due through 2035 at average interest rates of 1.33% in 2016 and 1.32% in 2015
0.55% unsecured bonds, payable in yen, due 20170.44% unsecured bonds, payable in yen, due 20170.32% unsecured bonds, payable in yen, due 2019
0.56% unsecured bonds, payable in yen, due 2021

¥137,583—
10,00015,00010,000¥172,583¥148,904
10,00010,00015,00010,000¥193,904

Thousands of
U.S. dollars
2016$1,221,006—
88,747133,12088,747$1,531,621

Short-term lease obligations at March 31, 2016 and 2015 included in other current liabilities were ¥2,820 million ($25,027 thousand) and ¥1,843
million, respectively.
The annual maturities of long-term loans payable subsequent toMarch 31, 2016 are summarized as follows:

Years ending March 31

Millions of yen

Thousands of
U.S. dollars

2017
2018
2019
2020
2021
2022 and thereafter¥ 52,528
36,67430,32830,11030,5989,870¥190,112$ 466,170
325,470
269,152
267,217
271,548
87,593$1,687,185

The annual maturities of lease obligations subsequent toMarch 31, 2016 are summarized as follows:

Years ending March 31

Millions of yen

Thousands of
U.S. dollars

2017
2018
2019
2020
2021
2022 and thereafter¥2,820
2,354
1,464
1,059
203
731
¥8,633$25,027
20,891
12,993
9,398
1,802
6,487
$76,615

8. Pledged Assets
Assets pledged as collateral for short-term loans payable of nil and ¥10 million and other of ¥18 million ($160 thousand) and ¥31 million atMarch 31, 2016 and 2015, respectively, were as follows:
Millions of yen
2016
2015

Property, plant and equipment, at net book value¥102

Thousands of
U.S. dollars
2016

¥491

$905

9. Assets Replaced by National Subsidy
Assets replaced by national subsidy at March 31, 2016 and 2015 were as follows:
Millions of yen
2016
2015

Property, plant and equipment

¥983

¥411

Thousands of
U.S. dollars
2016$8,724

The amount of the reduction from the acquisition cost of property, plant and equipment, which were newly acquired during the year ended
March 31, 2016, was ¥572 million ($5,076 thousand) for machinery and equipment.

38

Taiyo Nippon Sanso Corporation | Annual Report 2016

10. Income Taxes
Income taxes applicable to the Company comprise corporation,enterprise and inhabitants’ taxes, which, in the aggregate, resulted
in statutory tax rates of 33.06% and 35.64% for the years ended
March 31, 2016 and 2015, respectively.

Significant components of the Company’s deferred tax assets andliabilities at March 31, 2016 and 2015 were as follows:

Current deferred tax assets and liabilities
Deferred tax assets:
Accrued bonus
Loss from valuation of inventory
Accrued expenses
Net operating loss carryforward for tax purposes
Other
Deferred tax assets—subtotal
Valuation allowance
Deferred tax assets—net
Offset by deferred tax liabilities
Net deferred tax assets
Deferred tax liabilities:
Other
Deferred tax liabilities—subtotal
Offset by deferred tax assets
Net deferred tax liabilities

Millions of yen
2016
2015

Thousands of
U.S. dollars
2016¥ 2,203
13
1,097
23
1,152
4,491
(23)
4,467
(0)
¥ 4,467¥ 2,100
26
4,220
97
2,256
8,701
(312)
8,389
(1)
¥ 8,387$ 19,551
115
9,736
204
10,22439,856(204)
39,643(0)$ 39,643

¥

¥

$

¥

Noncurrent deferred tax assets and liabilities
Deferred tax assets:
Depreciation
Net defined benefit liability
Other
Deferred tax assets—subtotal
Valuation allowance
Deferred tax assets—net
Offset by deferred tax liabilities
Net deferred tax assets
Deferred tax liabilities:
Valuation difference on available-for-sale 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

(0)
(0)
0
(0)

¥

(1)
(1)
1
—

(0)
(0)
0
(0)

$

¥ 2,144
1,290
11,873
15,308(4,803)
10,505(8,203)¥ 2,302¥ 2,191
1,168
7,211
10,570(4,082)
6,488(4,414)¥ 2,073$ 19,027
11,448105,369
135,854(42,625)
93,229(72,799)$ 20,430¥ (2,460)(3,133)—(586)(28,373)(8,578)(43,132)
8,203¥(34,929)¥ (6,120)(3,471)(55)(656)(29,750)(7,811)(47,865)
4,414¥(43,451)$ (21,832)(27,804)—(5,201)(251,802)(76,127)(382,783)
72,799$(309,984)

Reconciliation between the statutory tax rate and the effective tax rate reflected in the accompanying consolidated statements of income for theyear ended March 31, 2016 was as follows:
2016

Statutory tax rate
Entertainment expenses and others not deductible permanently
Dividends received and others
Valuation allowance for deferred tax assets
Gain on step acquisitions
Amortization of goodwill
Difference in tax rates for overseas consolidated subsidiaries
Income tax rate changes
Other
Effective tax rates

Taiyo Nippon Sanso Corporation | Annual Report 201633.06%
0.65(0.24)
0.99(1.37)
1.89
1.11(0.33)
1.43
37.19%

39

The reconciliation of the difference between the statutory tax rate
and the effective tax rate for the year ended March 31, 2015 was
not presented since the difference was less than 5% of the statutory
tax rate.
The “Act on Partial Revision of the Income Tax Act” (Act No. 15
of 2016) and the “Act on Partial Revision of Local Tax Act” (Act No.
13 of 2016) were passed by the National Diet on March 29, 2016 andincome tax rates will be reduced effective from years beginning on orafter April 1, 2016. Accordingly, the normal effective statutory tax rateused to measure the Company’s deferred tax assets and liabilities
was changed from 32.34% to 30.86% and 30.62% for the temporary

differences expected to be realized or settled from years beginning
April 1, 2016 and 2017, and from years beginning April 1, 2018,
respectively.
As a result, deferred tax liabilities, net of deferred tax assets, asof March 31, 2016 decreased by ¥279 million ($2,476 thousand) andincome taxes—deferred, deferred gains on hedges and remeasurements of defined benefit plans decreased by ¥144 million ($1,278
thousand), ¥1 million ($9 thousand) and ¥6 million ($53 thousand),
respectively, and valuation difference on available-for-sale securities
increased by ¥143 million ($1,269 thousand) as of and for the year
ended March 31, 2016.

11. Shareholders’ Equity(a) Dividends
Under the Act, companies can pay dividends at any time during the
fiscal year in addition to the year-end dividend upon resolution at theshareholders’ meeting. For companies that meet certain criteria, suchas: (1) having a Board of Directors, (2) having independent auditors,(3) having a Board of Corporate Auditors, and (4) the term of serviceof the directors is prescribed as one year rather than two years of normal term by its articles of incorporation, the Board of Directors may
declare dividends (except for dividends in kind) if the Company hasprescribed so in its articles of incorporation.
The Act permits companies to distribute dividends-in-kind(non-cash assets) to shareholders subject to a certain limitation andadditional requirements.
Semiannual interim dividends may also be paid once a year upon
resolution by the Board of Directors if the articles of incorporation of
the Company so stipulate.
(b) Increases/decreases and transfer of common stock,reserve and surplus
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 the equity account charged upon the payment of such
dividends until the total of aggregate amount of legal reserve andadditional paid-in capital equals 25% of the common stock.
The Act also provides that common stock, legal reserve, additional paid-in capital, other capital surplus and retained earnings canbe transferred among the accounts under certain conditions upon
resolution of the shareholders.
(c) Treasury stock and treasury stock acquisition rights
The Act also provides for companies to purchase treasury stock anddispose of such treasury stock by resolution of the Board of Directors.
The amount of treasury stock purchased cannot exceed the amountavailable for distribution to the shareholders, which is determined by
specific formula. Under the Act, stock acquisition rights, which werepreviously presented as a liability, are now presented as a separate
component of shareholders’ equity.
The Act also provides that companies can purchase both treasury
stock acquisition rights and treasury stock. Such treasury stockacquisition rights are presented as a separate component ofshareholders’ equity or deducted directly from stock acquisition rights.

12. Leases(a) The following pro forma amounts represent the acquisition costs,
accumulated depreciation and net book value of leased property
at March 31, 2016 and 2015, which would have been reflected in
the consolidated balance sheets if finance lease accounting had
been applied to the finance lease transactions currently
accounted for as operating leases:
Millions of yen
2016
2015

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

Thousands of
U.S. dollars
2016

¥580

¥993

$5,147

494

859

4,384

¥ 86

¥133

$ 763

Future minimum lease payments (including the interest portion
thereon) subsequent to March 31, 2016 and 2015 for finance leasetransactions accounted for as operating leases are summarized
as follows:
Years ending March 31

2016
2017
2018 and thereafter
Total
2015
2016
2017 and thereafter
Total

Lease payments relating to finance lease transactions accounted
for as operating leases amounted to ¥53 million ($470 thousand) and¥59 million, which were equal to the depreciation expense of theleased assets computed by the straight-line method over the respective lease terms for the years ended March 31, 2016 and 2015,
respectively.

40

Taiyo Nippon Sanso Corporation | Annual Report 2016

Millions of yen

Thousands of
U.S. dollars

¥ 51
34
¥ 86

$453
302
$763

¥ 51
82
¥133

(b) Future minimum lease payments subsequent to March 31, 2016
and 2015 for non-cancelable operating leases are summarized
as follows:
Years ending March 31

2016
2017
2018 and thereafter
Total
2015
2016
2017 and thereafter
Total

Millions of yen

Thousands of
U.S. dollars¥ 2,732
10,984¥13,716$ 24,246
97,480$121,725¥ 2,607
9,971¥12,579

13. Pension and Severance Indemnities
The Company and certain consolidated subsidiaries have funded
and unfunded cash balance plans (market-linked pension plans) anddefined contribution benefit plans for future retirement benefits. The
other consolidated domestic subsidiaries have a lump-sum retirement
benefit plan as a defined benefit plan. Certain consolidated overseas
subsidiaries have a defined contribution benefit plan.
A lump-sum amount or pension are paid based on salary andservice period of employees under the defined benefit corporate
pension plans.
Certain defined benefit corporate pension plans establish
retirement benefit trusts.

A lump-sum amount is paid based on salary and service periodof employees as retirement benefits under the lump-sum retirement
benefit plan.
Certain consolidated domestic subsidiaries apply the simplified
method in computing net defined benefit liability and retirement benefit
expenses for their defined benefit corporate pension plans andlump-sum payment plans.
The tables below include plans to which the simplified method
is applied.

Defined benefit plans(a) The changes in projected benefit obligations for the years ended March 31, 2016 and 2015 were as follows:
Millions of yen
2016
2015

Balance at beginning of the year
Cumulative effects of changes in accounting policies
Restated balance at beginning of the year
Service cost
Interest cost
Actuarial loss
Retirement benefits paid
Other
Balance at end of the year

¥32,982—¥32,982
1,361
253
553
(1,856)—¥33,294¥31,669
2,319¥33,9881,435
350
2(2,814)19¥32,982

Thousands of
U.S. dollars
2016$292,705—$292,705
12,0782,245
4,908(16,471)—$295,474

Note: Certain consolidated domestic subsidiaries apply the simplified method in computing projected benefit obligations.

(b) The changes in plan assets for the years ended March 31, 2016 and 2015 were as follows:
Millions of yen
2016
2015

Balance at beginning of the year
Expected return on plan assets
Actuarial (loss) gainContributions from the employer
Retirement benefits paid
Other
Balance at end of the year

¥37,554625(1,882)
1,256(1,627)—¥35,926

Taiyo Nippon Sanso Corporation | Annual Report 2016

¥34,810
837
3,110
1,122
(2,327)
2¥37,554

Thousands of
U.S. dollars
2016$333,280
5,547(16,702)
11,147(14,439)—$318,832

41

(c) The reconciliation between the balances of projected benefit obligation and plan assets and net defined benefit liability and the funded net
defined benefit asset recorded on the consolidated balance sheets as of March 31, 2016 and 2015 was as follows:
Millions of yen
2016
2015

Thousands of
U.S. dollars
2016

Funded projected benefit obligation
Plan assets at fair market value¥ 29,808(35,926)¥ 29,725(37,554)$ 264,537(318,832)

Unfunded retirement benefit liabilities
Net liability and asset recorded on the consolidated balance sheet
Net defined benefit liability
Net defined benefit asset
Net liability and asset recorded on the consolidated balance sheet(6,118)3,486¥ (2,631)¥ 3,867(6,499)¥ (2,631)(7,829)3,257¥ (4,572)¥ 3,824(8,396)¥ (4,572)(54,295)
30,937$ (23,349)$ 34,318(57,677)$ (23,349)(d) The components of retirement benefit expenses for the years ended March 31, 2016 and 2015 were as follows:
Millions of yen
2016
2015

Service cost
Interest cost
Expected return on plan assets
Amortization of actual loss
Amortization of prior service cost
Net loss on change in accounting standard for employees’ retirement benefits
Total¥1,361
253
(625)
612
(226)
—
¥1,375¥1,435
350
(837)
891
(226)
461
¥2,074

Thousands of
U.S. dollars
2016$12,078
2,245(5,547)5,431(2,006)—$12,203

Note: The above table includes retirement benefit expenses of certain consolidated subsidiaries which apply the simplified method.

(e) The components of remeasurements of defined benefit plans (before applicable tax effects) in other comprehensive income for the years ended
March 31, 2016 and 2015 were as follows:
Millions of yen
2016
2015

Actuarial (loss) gain
Prior service cost
Effect of change in accounting standard
Other
Total
(f)

¥(1,823)(226)——¥(2,050)¥3,999
(226)
423
(74)
¥4,121Thousands of
U.S. dollars
2016$(16,179)(2,006)——$(18,193)

The components of remeasurements of defined benefit plans (before applicable tax effects) in accumulated other comprehensive income as ofMarch 31, 2016 and 2015 were as follows:
Millions of yen
2016
2015

Net unrecognized actuarial gain (loss)
Unrecognized prior service cost
Total

¥1,219(558)¥ 660

Thousands of
U.S. dollars
2016¥ (604)(785)¥(1,389)$10,818(4,952)$ 5,857

2016

2015

40%
16
10
33
—
100%

33%
25
31
2
9
100%

(g) Information on plan assets for the years ended March 31, 2016 and 2015 was as follows:(1) Components of plan assets as of March 31, 2016 and 2015 were as follows:
Debt securities
Equity securities
Life insurance general accounts
Cash and cash equivalents
OthersTotal

The retirement benefit trusts established for defined benefit corporate pension plans hold 15% and 17% of plan assets as of March 31, 2016
and 2015, respectively.

42

Taiyo Nippon Sanso Corporation | Annual Report 2016

(2) Expected long-term rate of return
The expected long-term rate of return on plan assets is determined considering current and expected distribution of plan assets and the long-term
rate of return derived from various components of the plan assets.
(h) The principal assumptions used for the actuarial calculation for the years ended March 31, 2016 and 2015 were as follows:
2016

Discount rates
Expected long-term rate of return on plan assets
Expected rate of salary increase2015

Mainly 0.6% Mainly 0.9%
Mainly 2.5% Mainly 3.0%
Mainly 5.3% Mainly 5.3%

Defined contribution benefit plan
The required contributions to the defined contribution benefit plan were ¥2,460 million ($21,832 thousand) and ¥1,285 million for the years ended
March 31, 2016 and 2015, respectively.

14. Contingent Liabilities
At March 31, 2016 and 2015, the Company and certain consolidated
subsidiaries had contingent liabilities as guarantor of indebtedness,amounting to ¥2,359 million ($20,935 thousand) and ¥2,473 million,
which included reguarantees by joint investors amounting to ¥173
million ($1,535 thousand) and ¥163 million and commitments toguarantees amounting to ¥79 million ($701 thousand) and ¥39 million,
and guarantees for employees’ bank loans based on employees’
house ownership discount policy amounting to ¥959 million ($8,511
thousand) and ¥970 million, respectively.

15. Financial Instruments(a) Policy for financial instruments
In consideration of plans for capital investment, the Company andconsolidated subsidiaries (collectively, the “Group”) raise funds
through bank loans or bond issues. The Group manages temporary
cash surpluses through short-term deposits and obtains necessary
borrowings through short-term loans. The Group uses derivatives only
for the 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 to credit risk inrelation to customers. In accordance with the internal policies of theGroup for managing credit risk arising from receivables, each related
division monitors credit worthiness of their main customers periodically, and monitors due dates and outstanding balances by individual
customer.
Investment securities are exposed to market risk. Those securities
are composed of mainly the shares of common stock of other companies with which the Group has business relationships. The Groupalso reviews their fair value quarterly.
Notes and accounts payable—trade have payment due dates
within one year. Although the Group is exposed to liquidity risk arisingfrom those payables the Group manages the risk by preparing cash
management plans monthly.
Short-term loans payable are raised mainly for short-term capitaland long-term loans are mostly taken out principally for the purposeof making capital investments and long-term capital. Some ofthose loans with variable interest rates are exposed to interest rate
fluctuation risk. However, to reduce such risk 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 suchrisks and to fix interest expenses.
Regarding derivatives, the Group enters into forward foreignexchange contracts to reduce the foreign currency exchange risk
arising from the trade receivables and payables denominated inforeign currencies. The Group also enters into interest-rate and foreign
currency swap transactions to reduce fluctuation risk deriving frominterest payable for loans and bonds 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). Derivativeand hedging transactions.
In conducting derivative transactions, the division in charge ofeach derivative transaction follows the internal policies and the Group
enters into derivative transactions only with financial institutions whichhave a sound credit profile.
(c) Fair value of financial instruments
The fair value of financial instruments is based on their market price, if
available. When there is no market price available, fair value is reasonably estimated. In addition, the notional amounts of derivatives in Note
16. “Derivative and Hedging Activities” are not necessarily indicative of
the actual market risk involved in derivative transactions.

Taiyo Nippon Sanso Corporation | Annual Report 201643

(1) Fair value of financial instruments
Carrying amount on the consolidated balance sheets as of March 31, 2016 and 2015 and estimated fair value and differences of financial
instruments were as follows:

Cash and deposits
Notes and accounts receivable—trade
Investment securities:
Available-for-sale securities
Total assets
Notes and accounts payable—trade
Short-term loans payable
Long-term loans payable
Total liabilities

Cash and deposits
Notes and accounts receivable—trade
Investment securities:
Available-for-sale securities
Total assets
Notes and accounts payable—trade
Short-term loans payable
Long-term loans payable
Total liabilities

Carrying
amountMillions of yen
2016
Fair
value

¥ 50,785
146,460¥ 50,785
146,460¥——$ 450,701
1,299,787$ 450,701
1,299,787$

30,728¥227,974¥ 72,987
30,678235,112¥338,777

30,728¥227,974¥ 72,987
30,678238,391¥342,056

—
—
—
—
3,278
¥3,278272,701$2,023,198$ 647,737272,258
2,086,546$3,006,541

272,701$2,023,198$ 647,737272,258
2,115,646$3,035,641————
29,091$29,091

Carrying
amountMillions of yen
2015
Fair
value

¥ 53,420
150,552¥ 53,420
150,552¥

41,672¥245,645¥ 77,036
28,827
230,824¥336,688

41,672¥245,645¥ 77,036
28,827
232,437¥338,301

—
—
—
—
1,613
¥1,613Difference¥¥

Thousands of U.S. dollars
2016
Carrying
Fair
amountvalue
Difference

—
—

$
$

Difference

—
—

¥
¥

The table above does not include financial instruments for which it is extremely difficult to determine the fair value. For information on those
items, please refer to note (2) below. The current portion of long-term loans payable shown as “Short-term loans payable” in consolidated balance
sheets are included in “Long-term loans payable” in the table above.
Valuation method of fair value of financial instruments andinformation on investment securities and derivative transactions
were as follows:
Cash and deposits and notes and accounts receivable—trade
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 prices of thestock exchange. For information on securities classified by holding
purpose, please refer to Note 5 “Investment securities.”
Notes and accounts payable—trade and short-term loans payable
Since these items are settled in a short period of time, their carrying
amount approximates fair value.
Long-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 basedon the present value of the total of principal and interest discounted
by the interest rate combined of the risk free rate and credit spread.
Interest-rate swap transactions are utilized for most variable rateloans to fix interest expense. All interest-rate swap transactions
meet the criteria for the short-cut method of interest-rate swap
transactions and are 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 processed withinterest-rate swap discounted by the rate above.

44(2) Financial instruments as of March 31, 2016 and 2015 for which it
is extremely difficult to determine the fair value
Millions of yen
2016
2015

Unlisted stocks¥29,547¥33,705

Thousands of
U.S. dollars
2016$262,220(3) Redemption schedule for financial assets with maturities
subsequent to March 31, 2016 and 2015
Thousands ofMillions of yen
U.S. dollars
2016
2015
2016
Due in one year or less

Cash and deposits
Notes and accounts
receivable—trade¥ 50,785¥ 53,420$ 450,701

146,460

150,552

1,299,787(4) Redemption schedule for long-term loans payable is disclosed in
Note 7. “Short-Term Loans Payable, Long-Term Loans Payable
and Lease Obligations.”(5) Unused overdraft agreements and loan commitment lines were¥48,374 million ($429,304 thousand) and ¥56,376 million as ofMarch 31, 2016 and 2015, respectively.

Taiyo Nippon Sanso Corporation | Annual Report 2016

16. Derivative and Hedging Activities
Derivative transactions for which hedge accounting is applied for the years ended March 31, 2016 and 2015 were as follows:(a) Currency-related

Hedged item

Allocation method
Foreign exchange forward contracts:
Sell:
USD
TWD
Buy:
USD
EUR
CHF
SGD
TWD
Total

¥ 1,403
3

¥—
—

7,128
131
292
31
1,576
¥10,565

—
—
—
—
—
¥—

*

Accounts payable—trade

Contract
amountMillions of yen
2015
Due after
one year

Fair
value

Accounts receivable—trade¥5,705
664

¥—
—

1,275
157
46
4
1,624

—
—
—
—
—

50

—

30
¥9,559—¥—*Accounts payable—tradeLong-term loans payable

Hedged item

Allocation method
Foreign exchange forward contracts:
Sell:
USD
TWD
Buy:
USD
EUR
CHF
SGD
TWD
Total

Fair
value

Accounts receivable—trade

Hedged item

Allocation method
Foreign exchange forward contracts:
Sell:
USD
MYR
Buy:
USD
EUR
CHF
SGD
TWD
Foreign currency swaps:
Sell:
USD
Buy:
SGD
Total

Contract
amountMillions of yen
2016
Due after
one yearThousands of U.S. dollars
2016
Contract
Due after
Fair
amountone yearvalue

Accounts receivable—trade$12,451
27$——

63,259
1,163
2,591
275
13,987$93,761

—
—
—
—
—
$—

*

Accounts payable—trade* 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 thehedged items.

Taiyo Nippon Sanso Corporation | Annual Report 201645

(b) Interest-related
Millions of yen

Thousands of U.S. dollars

2016

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

Hedged item

Contract
amountDue after
one yearLong-term loans payable¥36,997 ¥27,480

2016
Fair
value

*

Contract
amountDue after
one year$328,337 $243,876

Fair
value

*

Millions of yen
2015

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

Hedged item

Contract
amountDue after
one yearLong-term loans payable¥47,252 ¥35,224

Fair
value

*

*The estimated fair value of the interest-rate swap agreements is included in the fair value of long-term loans payable as the hedged item.

17. Research and Development Costs
Research and development costs included in cost of sales and selling, general and administrative expenses for the years ended March 31, 2016 and2015 totaled ¥3,348 million ($29,712 thousand) and ¥3,430 million, respectively.

18. Impairment Loss
The Company and its consolidated subsidiaries categorize businessassets by business segmentation and idle assets without a specificfuture use are categorized separately.
Components of impairment loss for the years ended March 31,
2016 and 2015, respectively, were as follows:
Millions of yen
2016
2015

Buildings
Machinery
Land
Total

¥ —
1,386
267
¥1,654

¥ 113
2,152
—
¥2,266

Thousands of
U.S. dollars
2016

$
—
12,3002,370$14,679

For gas production facilities whose profitability has declined due
to changes in the business environment and whose future cash flows
have proven to be below their book values, the book values were
written down to the recoverable amounts and such write-downs wererecorded as impairment loss of ¥1,386 million ($12,300 thousand) for
the year ended March 31, 2016. The recoverable amounts of theseassets were measured by value in use, calculated by discounting thefuture cash flows at 10.1%.

46

For idle assets affected by a decrease in the fair market value ofland, the book values were written down to the recoverable amounts
and such write-downs were recorded as impairment loss of ¥267
million ($2,370 thousand) for the year ended March 31, 2016. The
recoverable amounts of these assets were measured based on the
net realizable value using publicly notified land price based on
property tax valuation.
For gas production facilities whose profitability has declined due
to changes in the business environment and whose future cash flows
have proven to be below their book values, the book values were
written down to the recoverable amounts and such write-downs wererecorded as impairment loss of ¥1,077 million for the year ended
March 31, 2015. The recoverable amounts of these assets were
measured by value in use, calculated by discounting the future cash
flows at 10.6 to 16%.
For idle assets whose recoverable amounts have proven to be
below their book values, the book values were written down to therecoverable amounts and such write-downs were recorded as
impairment loss of ¥1,189 million for the year ended March 31, 2015.
The recoverable amounts of these assets were measured based on
the net realizable value using market prices, etc.

Taiyo Nippon Sanso Corporation | Annual Report 201619. Other Comprehensive Income
Reclassification adjustments and tax effects allocated to each component of other comprehensive income for the years ended March 31, 2016 and2015 were as follows:

Valuation difference on available-for-sale securities:
Amount arising during the year
Reclassification adjustments for gains and losses included in net income
Amount before tax effects
Tax effects
Valuation difference on available-for-sale securities
Deferred gains or losses on hedges:
Amount arising during the year
Reclassification adjustments for gains and losses included in net income
Amount before tax effects
Tax effects
Deferred gains or losses on hedges
Foreign currency translation adjustments:
Amount arising during the year
Reclassification adjustments for gains and losses included in net income
Amount before tax effects
Tax effects
Foreign currency translation adjustments
Remeasurements of defined benefit plans:
Amount arising during the year
Reclassification adjustments for gains and losses included in net income
Amount before tax effects
Tax effects
Remeasurements of defined benefit plans
Share of other comprehensive income (loss) of associates accounted for using the equity method:Amount arising during the year
Reclassification adjustments for gains and losses included in net income
Share of other comprehensive income (loss) of associates accounted for using the equity method
Total other comprehensive income (loss)

Millions of yen
2016
2015

Thousands of
U.S. dollars
2016¥(10,968)(113)(11,081)
3,753(7,328)¥10,059(2,351)
7,707(2,160)5,547$ (97,338)(1,003)(98,340)
33,307(65,034)

(167)
770
602
(203)
399

(479)
(200)
(680)
225
(454)

(1,482)
6,834
5,343(1,802)
3,541(15,453)—(15,453)—(15,453)

21,559—21,559—21,559(137,141)—(137,141)—(137,141)(2,436)386(2,050)646(1,403)

3,033
1,088
4,121
(1,357)
2,764(21,619)
3,426(18,193)
5,733(12,451)

(91)
(494)
(586)
¥(24,372)

1,427
(11)
1,416
¥30,831(808)(4,384)(5,201)$(216,294)

20. Segment Information(a) Overview of reportable segments
The reportable segments of the Company are components for which
discrete financial information is available and whose operating results
are regularly reviewed by the Board of Directors to make decisions
about resource allocation and to assess performance.
The Company operates gas businesses in Japan and overseas,
mainly for customers in the steel, chemical and electronics industries,
and it has established sales and production platforms for its main
products in Japan, the United States, Asia and Oceania. The
Company also operates businesses including production and salesof household goods such as stainless steel thermos, and real estate
rental, etc. Therefore, the Company has determined its four reportablesegments as “Gas Business in Japan,” “Gas Business in the UnitedStates,” “Gas Business in Asia and Oceania” and “Thermos andOther Businesses.”

The Company has renamed its reportable segments from“Gas Business in Asia” to “Gas Business in Asia and Oceania” andfrom “Other Businesses” to “Thermos and Other Businesses” from theyear ended March 31, 2016. This was merely a change in the nameof the reportable segments and there were no impacts on segment
information.
Segment information for the year ended March 31, 2015 has
been disclosed under the new reportable segment names to conformto the new segmentation.
(b) Method of calculating net sales, income, assets, liabilities
and other items by reportable segment
Accounting policies of the reportable segments are consistent tothose described in Note 2. “Summary of Significant Accounting
Policies.” Segment income is based on operating income.
Intersegment sales or transfers are based on prevailing market price.

Taiyo Nippon Sanso Corporation | Annual Report 201647

(c) Net sales, income, assets, liabilities and other items by reportable segment

Gas Businessin JapanNet sales:
Sales to third parties
Intersegment sales or transfers
Total
Segment income (operating income)
Other item:
Depreciation expenses

Adjustments

Consolidated¥188,566
8,185
196,751¥ 6,812¥93,174
3,615
96,789¥ 4,461¥27,528632
28,160¥ 5,993¥641,516
20,226
661,742¥ 44,807¥—(20,226)(20,226)¥ (1,445)¥641,516—
641,516¥ 43,362¥ 16,619¥ 21,148¥ 6,503¥¥ 44,979¥(115)¥ 44,864

Adjustments

Consolidated

708

Millions of yen
2015
Reportable segments
Gas Business Thermos and
Gas Business inin Asia andOther
the United States
Oceania
Businesses

Total¥344,635
6,267
350,902¥ 25,045¥130,983
6,645
137,629¥ 5,795¥61,995
1,190
63,186¥ 2,468¥21,758656
22,414¥ 3,437¥559,373
14,759574,132¥ 36,747¥—(14,759)(14,759)¥ (1,449)¥559,373—
559,373¥ 35,297¥ 17,451¥ 13,405¥ 4,112¥¥ 35,658¥(89)¥ 35,568

Total

Adjustments

Consolidated

Gas Businessin JapanNet sales:
Sales to third parties
Intersegment sales or transfers
Total
Segment income (operating income)
Other item:
Depreciation expenses

Total¥332,247
7,792
340,039¥ 27,539

Gas Businessin JapanNet sales:
Sales to third parties
Intersegment sales or transfers
Total
Segment income (operating income)
Other item:
Depreciation expenses

Millions of yen
2016
Reportable segments
Gas Business Thermos and
Gas Business inin Asia andOther
the United States
Oceania
Businesses

688

Thousands of U.S. dollars
2016
Reportable segments
Gas Business Thermos and
Gas Business inin Asia andOther
the United States
Oceania
Businesses$2,948,589
69,152
3,017,741$ 244,400$1,673,465
72,6391,746,104$ 60,454$826,890
32,082858,972$ 39,590$244,302
5,609
249,911$ 53,186$5,693,255
179,499
5,872,755$ 397,648$—(179,499)(179,499)$ (12,824)$5,693,255—
5,693,255$ 384,824$ 147,488$ 187,682$ 57,712$$ 399,175$$ 398,154

6,283(1,021)

Notes: 1. Adjustments for segment income of ¥(1,445) million ($(12,824) thousand) and ¥(1,449) million for the years ended March 31, 2016 and 2015 include
intersegment eliminations of ¥58 million ($515 thousand) and ¥(72) million, and corporate general administration expenses which mainly consisted of basic
research and development expenses and are not allocable to each reportable segment of ¥(1,503) million ($(13,339) thousand) and ¥(1,377) million,
respectively.
2. The Company does not allocate assets to reportable segments.
3. As described in Note 2, “Summary of Significant Accounting Policies,” profit and loss of certain overseas consolidated subsidiaries for 15 months areconsolidated for the year ended March 31, 2016.

48

Taiyo Nippon Sanso Corporation | Annual Report 2016

(d) Information by geographical area
(1) Net sales

Japan(2) Property, plant and equipment
Millions of yen
2016
The United States
Others¥350,842

Japan¥180,327

Millions of yen
2015
The United States
Others¥354,241Japan$3,113,614¥110,346¥126,203¥78,928

Thousands of U.S. dollars
2016
The United States
Others$1,600,346$979,286

Total

Japan

¥641,516¥147,890

Total

Japan

¥559,373¥152,888

Total

Japan

$5,693,255$1,312,478

Millions of yen
2016
The United States
Others¥133,023¥58,182

Millions of yen
2015
The United States
Others¥130,231¥41,723

Thousands of U.S. dollars
2016
The United States
Others$1,180,538$516,347

Total¥339,096

Total¥324,842

Total$3,009,372(e) Information about major customers
Information about major customers is not disclosed since there are no outside customers that make up more than 10% of net sales on the consolidated statements of income.
(f) Information on impairment loss by reportable segments

Impairment loss

Impairment loss

Impairment loss

Gas Business inJapan

Gas Business in
the United States

¥267

¥—

Gas Business inJapan

Gas Business in
the United States¥—¥—

Gas Business inJapan

Gas Business in
the United States$ 2,370$—

Millions of yen
2016
Gas Business in Thermos and Other
Asia and Oceania
Businesses
Corporate/Eliminations¥1,386¥—¥—

Millions of yen
2015
Gas Business in Thermos and Other
Asia and Oceania
Businesses
Corporate/Eliminations¥2,266¥—¥—

Thousands of U.S. dollars
2016
Gas Business in Thermos and Other
Asia and Oceania
Businesses
Corporate/Eliminations$12,300

$—

$—

Total

¥1,654

Total¥2,266

Total$14,679(g) Information on amortization and unamortized balance of goodwill by reportable segments

Amortization
Unamortized balance

Amortization
Unamortized balance

Amortization
Unamortized balance

Gas Business inJapan

Gas Business in
the United States

¥ 796
1,991

¥ 5,976
58,165

Gas Business inJapan

Gas Business in
the United States

¥ 801
2,462

¥ 4,036
62,627

Gas Business inJapan

Gas Business in
the United States$ 7,064
17,670$ 53,035
516,196

Millions of yen
2016
Gas Business in Thermos and Other
Asia and Oceania
Businesses
Corporate/Eliminations¥

579
15,166¥——¥——

Millions of yen
2015
Gas Business in Thermos and Other
Asia and Oceania
Businesses
Corporate/Eliminations

¥ 144
1,381

¥–
–

¥–
–

Thousands of U.S. dollars
2016
Gas Business in Thermos and Other
Asia and Oceania
Businesses
Corporate/Eliminations$ 5,138
134,594

Taiyo Nippon Sanso Corporation | Annual Report 2016

$—
—

$—
—

Total

¥ 7,352
75,323

Total¥ 4,983
66,471

Total$ 65,247
668,46849

(h) Information on amortization and unamortized balance of negative goodwill which resulted from business combinations prior to April 1,2010 by reportable segments
There was no amortization and unamortized balance of negative goodwill which resulted from business combinations prior to April 1, 2010 for theyear ended March 31, 2016.

Amortization
Unamortized balance

Gas Business inJapan

Gas Business in
the United States

¥23
—

¥—
—

Millions of yen
2015
Gas Business in Thermos and Other
Asia and Oceania
Businesses
Corporate/Eliminations

¥—
—

¥—
—

¥—
—

Total

¥23
—

21. Supplementary Cash Flow Information
Cash and cash equivalents in the consolidated statements of cash
flows for the years ended March 31, 2016 and 2015 were reconciled to cash and deposits reported in the consolidated balance
sheets as of March 31, 2016 and 2015 as follows:
Millions of yen
2016
2015

Cash and deposits
Time deposits withmaturities of more than
three months
Cash and cash equivalents¥50,785(1,506)¥49,279¥53,420(1,873)¥51,547

Thousands of
U.S. dollars
2016$450,701(13,365)$437,336

The acquisition cost and net payments for assets and liabilities
of Renegade Gas Pty Ltd acquired through a stock purchase anda stock exchange, in the year ended March 31, 2016 wereas follows:

Current assets
Noncurrent assets
Goodwill
Current liabilities
Noncurrent liabilities
Acquisition cost of stock
Stock issued for stock exchange
Cash and cash equivalents
Purchase of shares of subsidiaries
resulting in change in scope of
consolidation

The acquisition cost and net payments for assets and liabilities
of Air Products Industry Co., Ltd., Sims Welding Supply Co., Inc., 3-D
Welding & Industrial Supply Inc. and Mega Mount Industrial Gases
Sdn. Bhd. acquired through a stock purchase in the year ended
March 31, 2016 were as follows:

Millions of yen
2016

Thousands of
U.S. dollars
2016¥ 1,954
8,487
10,939(1,796)(4,623)(14,961)
2,244
249$ 17,341
75,31997,080(15,939)(41,028)(132,774)
19,915
2,210¥(12,468)$(110,650)

Current assets
Noncurrent assets
Goodwill
Current liabilities
Noncurrent liabilities
Non-controlling interests
Acquisition cost of stock
Equity in earnings until theacquisition date
Gain on step acquisition
Cash and cash equivalents
Purchase of shares of subsidiaries
resulting in change in scope of
consolidation

Millions of yen
2016

Thousands of
U.S. dollars
2016¥ 5,265
7,339
9,451
(698)
(5,525)(124)(15,708)$ 46,725
65,131
83,875(6,195)(49,033)(1,100)(139,404)

486
1,813
448

4,313
16,0903,976¥(12,961)$(115,025)

There were no acquisitions through a stock purchase in the year
ended March 31, 2015.
The acquisition cost and net payments for assets and liabilities
of gas businesses in Hawaii of Air Liquide America, L.P. acquired by
Matheson Tri-Gas, Inc., a consolidated subsidiary of the Company,
through an asset purchase in the year ended March 31, 2016 wereas follows:
Millions of yen
2016

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

¥

303
1,192
195
(1,690)—¥(1,690)

Thousands of
U.S. dollars
2016$ 2,689
10,5791,731(14,998)—$(14,998)

The acquisition cost and net payments for assets and liabilities
through an asset purchase in the year ended March 31, 2015 were
not disclosed due to immateriality.

50

Taiyo Nippon Sanso Corporation | Annual Report 2016

22. Related Party Transactions
There were no related party transactions for the year ended March 31, 2016.
Related party transactions for the year ended March 31, 2015 are summarized as follows:
Related party

Transactions

Mitsubishi Chemical Holdings Corporation

Millions of yen
2015

Sale of parent company’s stock¥5,923Gain on sale of parent company’s stock

2,332

Notes: 1. Mitsubishi Chemical Holdings Corporation, the Company’s parent company, is listed on the Tokyo Stock Exchange.
2. The above transaction amounts do not include consumption taxes.
3. Transaction terms and their determination
The sales price of the parent company’s stock is based on the average closing price of the shares on the Tokyo Stock Exchange from January 5, 2015 throughFebruary 2, 2015.

23. Business Combinations(Business combination through acquisition)(a) Overview of business combination(1) Name and description of business of the acquired company
Name:
Renegade Gas Pty Ltd
Business description: Filling and selling LPG and various industrial gases, selling and renting related equipment(2) Principal reasons for the business combination
The Company is seeking opportunities for business expansion to new markets to expand the business area and in order to achieve globalization, which is one of the Company’s strategies under mid-term management plan “Ortus Stage 1”.
Australia has the 12th largest economy in the world by GDP. Its economic growth is expected to be around 3% per year for the next
several years due mainly to increases in housing investment and consumer spending. These trends are supported by an annual population
growth of 1-2% which is relatively high compared with other developed countries. The Industrial gas market in Australia is expected to growsteadily through construction and infrastructure developments. In addition, new industrial gas demand from mining and energy sectors is
also expected in Australia.
Through the acquisition of Renegade Gas Pty Ltd, the Company establishes the first footprint in the Australian and Oceanian industrial
gas market. The Company plans to increase sales of industrial gas products using Renegade Gas Pty Ltd’s existing distribution network andexpand its business by creating synergies with group companies. The Company aims to establish a firm presence in the market.
(3) Date of the business combination
July 31, 2015(4) Legal form of the business combination
Stock acquisition in exchange for a cash consideration and stock exchange in exchange for stock of TNSC (Australia) Pty Ltd. by TNSC
(Australia) Pty Ltd, a subsidiary of the Company.
(5) Company name after business combination
Renegade Gas Pty Ltd(6) Percentage of voting rights acquired
100.00%(7) Main reason to determine the acquiring company
TNSC (Australia) Pty Ltd, a subsidiary of the Company, acquired all of the outstanding shares of Renegade Gas Pty Ltd in exchange for acash consideration and stock exchange in exchange for stock of TNSC (Australia) Pty Ltd.
(b) Period of results of operations of the acquired company included in the consolidated statement of income
The fiscal year-end of the acquired company is June 30 and there is a nine-month difference with fiscal year-end of the consolidated financial
statements. The deemed acquisition date of the business combination is June 30, 2015, therefore, a provisional settlement of accounts has
been made and the operating results from July 1, 2015 to December 31, 2015 are included in the year ended March 31, 2016.
(c) Acquisition cost of the acquired company and details of consideration
Consideration for acquisition

Cash
Stock of TNSC (Australia) Pty Ltd

Acquisition cost

Taiyo Nippon Sanso Corporation | Annual Report 2016

Millions ofAustralian dollars

Millions of yen

Thousands of
U.S. dollars

$142
25
$167

¥12,717
2,244¥14,961$112,859
19,915$132,774

51

(d) Exchange ratio of stock by class, calculation method of the exchange ratio of stock and number of stock issued(1) Exchange ratio of stock by class
1 common stock of Renegade Gas Pty Ltd for 100 common stocks of TNSC (Australia) Pty Ltd(2) Calculation method of the exchange ratio of stock
The exchange ratio was calculated based on negotiations among the parties concerned with reference to stock value evaluation reports,
etc. obtained from third-party organizations.
(3) Number of stock issued
15,868,013 shares of TNSC (Australia) Pty Ltd(e) The details and the amount of major acquisition-related costs
Millions of yen

Thousands of
U.S. dollars

¥226
79

$ 2,006
701

Millions ofAustralian dollars

Millions of yen

Thousands of
U.S. dollars

$ 20
91
$111
$ 19
49
$ 68

¥ 1,9548,487¥10,441¥ 1,796
4,623¥ 6,419$17,341
75,319$92,661$15,939
41,028$56,967

Fees and commissions, etc. paid to financial advisories
Fees and commissions, etc. paid to lawyers(f) Amount of goodwill, reason that goodwill arose, method and period of amortization(1) Amount of goodwill
124 million Australian dollars (¥10,939 million ($97,080 thousand))(2) Reason that goodwill arose
Mainly excess earning power in the future expected from the business expansion(3) Method and period of amortization
Straight-line method over 20 years(g) Assets acquired and liabilities assumed at the date of the business combination
Current assets
Noncurrent assets
Total assets
Current liabilities
Noncurrent liabilities
Total liabilities(h) Estimated impact on the consolidated statement of income for the year ended March 31, 2016 as if the business combination had
been completed at the beginning of the fiscal year ended March 31, 2016 and the calculation method

Sales
Operating income
Income before income taxes
Net income attributable to owners of parent

Millions ofAustralian dollars

Millions of yen

Thousands of
U.S. dollars

$43
6
4
1

¥3,920630
426
128$34,789
5,591
3,781
1,136

(Calculation method of the estimated impact)
The estimated impact amounts were calculated as the difference between sales and other profits or losses assuming that the business combination
was completed at the beginning of the year ended March 31, 2016 and the Company’s sales and other profits or losses on the consolidated financial statement of income. The amortization of goodwill was calculated assuming that the goodwill, which was recognized at the date of the businesscombination, had arisen at the beginning of the year ended March 31, 2016.

52

Taiyo Nippon Sanso Corporation | Annual Report 2016

24. Subsequent Events(1) Appropriation of retained earnings
The following appropriations of retained earnings, which have not been reflected in the accompanying consolidated financial statements for the year
ended March 31, 2016, were approved at the shareholders’ meeting held on June 21, 2016.

Cash dividends—¥9.00 ($0.080) per share

Millions of yen

Thousands of
U.S. dollars¥3,896$34,576(2) Business acquisition from Air Liquide Industrial U.S. LP and Airgas, Inc.
At the Board of Directors’ meeting held on April 28, 2016, the acquisition of the industrial gas business in the U.S. and related business assets of Air
Liquide Industrial U.S. LP and Airgas, Inc. through Matheson Tri-Gas, Inc., a wholly-owned subsidiary of the Company, was resolved. Following thisresolution, the Company concluded the agreement.
On May 13, 2016, the U.S. Federal Trade Commission (“FTC”) approved the acquisition of Airgas, Inc. by American Air Liquide holdings, Inc.
under the condition that the acquired business shall be partially transferred to the third party. The execution of this business acquisition is subject to
FTC approval.
(a) Purpose of business acquisition
To establish our position as a nationwide supplier as well as strengthening our position as a manufacturer, and improving stable supply and credibility towards customers in the U.S. by expanding the industrial gas business in the U.S.
(b) Name of the counterparty of the business acquisition
Air Liquide Industrial U.S. LP and Airgas, Inc.
(c) Description of the acquiring businessSeparate gas business, carbon dioxide gas business, package gas business and nitrous oxide business(d) Amount of assets acquired and liabilities assumed pertaining to the acquiring business and consideration for the acquisition
Amount of assets and liabilities are currently not determined. Consideration for the acquisition is not disclosed according to non-disclosureagreement with the counterparty.
(e) Date of business acquisition
After the approval of FTC(f) Procurement of funds and payment method
The Company expects to use its own funds and external financing.

Taiyo Nippon Sanso Corporation | Annual Report 2016

53

Report of Independent Auditors

54

Taiyo Nippon Sanso Corporation | Annual Report 2016

Investor Information(At March 31, 2016)

Head Office:Toyo Building, 1-3-26, Koyama, Shinagawa-ku, Tokyo 142-8558, Japan
Number of Employees:
14,127
Date of Incorporation:
October 1910
Number of Shares:
Authorized—1,600,000,000

Issued—433,092,837

Minimum Trading Unit:
100 shares
Number of Stockholders:
17,921
Transfer Agent for Shares:
Mizuho Trust & Banking Co., Ltd.
Major Stockholders:Thousands ofShares Owned

Major Stockholders

Mitsubishi Chemical Holdings Corporation
Mitsubishi Chemical Corporation
Taiyo Nippon Sanso Client Shareholding Society
Mizuho Bank, Ltd.
JFE Steel Corporation
Meiji Yasuda Life Insurance Company
Japan Trustee Services Bank, Ltd. (Trust Account)
The Norinchukin Bank
The Master Trust Bank of Japan, Ltd. (Trust Account)
TAIYO NIPPON SANSO CORPORATION
Employee Shareholding Association

158,048
60,947
19,033
16,365
15,25410,007
7,169
7,000
5,291

Percentage of
Total

36.49%
14.07
4.39
3.78
3.52
2.31
1.66
1.62
1.22

3,640

0.84

302,760

69.91%

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

125,000

2,000
Common Stock Price Range
1,600

100,000

1,200

75,000800

50,000400

25,000
Trading Volume00
1st Quarter 2nd Quarter 3rd Quarter

4th Quarter

Fiscal year 2015

Taiyo Nippon Sanso Corporation | Annual Report 2016

1st Quarter 2nd Quarter 3rd Quarter

4th Quarter

Fiscal year 201655

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

Printed in Japan