Contents

Profile2

Consolidated Financial Highlights
Segment Information

3

4

Medium-Term Management Plan
Message from the President

12

14Special Feature: Tokuyama Malaysia
Research and Development
CSR Initiatives

18

21

Corporate Governance23

Business and Other Risks
Corporate Officers

28

Financial Section

30

26

Independent Auditor’s Report
Business Locations

16

61

62

Major Subsidiaries and Affiliates

64

Corporate Data and Stock Information

66

CAUTIONARY NOTES:FORWARD-LOOKING STATEMENTS
This annual report contains information about forward-looking statements related to such matters as the Company’s plans, strategies and businessresults. These forward-looking statements represent judgments made by the Company based on information available at the time of preparing thisreport, and are inherently subject to a variety of risks and uncertainties. The Company’s actual activities and business results could differ
significantly from the forward-looking statements due to changes including, but not limited to, those in the economic environment, businessenvironment, demand and exchange rates.

DISCLAIMER
This annual report is supplied to provide information of the Company, and is not intended as a solicitation for investment or other actions. The
Company assumes no responsibility whatever for any losses or deficits resulting from investment decisions based entirely on projections,numerical targets and other information contained in this report.

Tokuyama Corporation Annual Report 2014

1

Profile
Tokuyama Corporation was founded in 1918 to begin production in Japan of soda ash, also known as sodium carbonate,
which was being imported at that time. As a fundamental material for industry, soda ash was indispensable forfacilitating the country's industrial development in the early 20th century.
The company has gone on to produce and supply a wide range of chemical products. Building on this foundation,
Tokuyama is currently expanding its main businesses globally, with a special focus on its information and electronics
business, which markets semiconductor-related products, the life and healthcare business, which includes eyeglass lensmaterials, dental materials and other products, and the environment and energy business, which handles polycrystalline
silicon for solar cells as well as recycling and environment-related operations. Our products and technologies are being
used in a vast array of goods that are useful in people's everyday lives.
Tokuyama's 100th anniversary is February 16, 2018. As this major milestone approaches, everyone at the TokuyamaGroup is committed to living up to the ideals of the Centennial Vision: "As a prominent manufacturer, we will continue
to be responsive to society and help create a better future through the vitality of our human resources and the creativityof chemistry." As we work to expand our business globally, we will channel the collective capabilities of the TokuyamaGroup toward creating new businesses and also improving and strategically reorganizing existing businesses.

Company History
1918～1944

Establishment and specialization in soda production
Nihon Soda Kogyo Co., Ltd. (currently Tokuyama Corporation) was established to produce
February 1918
soda ashMarch 1938
Commenced cement business
January 1940

1945～1960

Further expansion of inorganic chemicals business

March 19521961～1974

Expansion of inorganic chemicals business
Commenced electrolytic chlor-alkali business

Entry into petrochemicals business

July 1964

Commenced petrochemicals business

September 1966

Commenced polyvinyl chloride business

March 1967

Commenced ion exchange membrane business

March 1970

Commenced polypropylene business

1975～1989

Entry into specialty and processing business

January 1976

Commenced polyolefin film business

March 1978

Commenced dental materials and equipment businessFebruary 1981

Commenced building materials business

April 1982

Commenced life-related businessAugust 1982

Commenced fine chemicals businessAugust 1983

Commenced IC chemicals business (high-purity chemicals for electronics manufacturing)

December 1983

Commenced medical diagnosis systems business

July 1984

Commenced electronic materials business (polycrystalline silicon)

April 1985

Commenced aluminum nitride business

December 1985

Commenced gas sensors business1990～2004

Strengthening and restructuring of business
Established Sun • Tox Co., Ltd. as a joint venture for manufacture and sale of polyolefin film
February 1992
July 1995
August 2000

Established Shin Dai-ichi Vinyl Corporation as a joint concern for manufacture and sale ofpolyvinyl chloride
Commenced recycling & environment-related business

2005～

Aiming toward raising corporate value
Established Tokuyama Malaysia Sdn. Bhd. in Malaysia as a manufacturing and sales company
August 2009of polycrystalline silicon

Tokuyama Corporation Annual Report 20142

Consolidated Financial Highlights
Years ended March 31

Tokuyama Corporation and Consolidated Subsidiaries

Thousands of
U.S. dollars

Millions of yen(Note1)

2010

2011

2012

2013

2014

2014

Net sales

273,154289,786

282,381258,632

287,330

2,789,614

Operating income

16,483

20,144

13,720

6,772

20,270196,802

Net income (loss)

7,458

9,765

9,351

(37,916)

10,21899,208Net income (loss)

23.52

28.06

26.87

(108.98)

29.37

0.285

Cash dividends

6.00

6.00

6.00

3.00

6.00

0.058

Net assets

682.03693.18716.39625.29660.18

6.409

Total assets

452,893474,708

501,181518,251

576,315

5,595,297

Net assets

243,606

247,656

255,460

223,871

236,453

2,295,663

Cash flows from operating activities

29,38037,04327,06017,071

34,105331,121

Cash flows from investing activities(36,468)(88,508)(57,666)(60,673)(64,402)(625,264)

Cash flows from financing activities

46,99023,994

20,791

36,46545,939446,014

Cash and cash equivalents at end of the year

95,945

68,62458,47652,431

69,973679,357

Capital expenditures

26,55735,80777,602

97,54961,051

592,734

Depreciation and amortization (Note 2)

37,68831,47628,492

23,242

16,770162,825

R&D expenses

11,817

11,46911,704

10,076

8,709

84,557

Shareholders' equity ratio (in percentage)

52.4

50.8

49.7

42.0

39.9

-

Return on equity (in percentage)

3.5

4.1

3.8

(16.2)

4.6-

Number of employees

5,444

5,493

5,506

5,651

5,756

-

Consolidated subsidiaries

49

50

48

49

53

-

Per share amounts (in yen, dollars)Note 1: U.S. dollar amounts above and elsewhere in this annual report are converted from Japanese yen, for convenience only, at the rate of ¥103=US$1.
Note 2: Depreciation and amortization includes amortization of long-term prepaid expenses.

Tokuyama Corporation Annual Report 2014

3

Segment Information

CHEMICALS
Tokuyama's Chemicals segment handles basic chemicals used as raw
materials for an array of products that are essential for people's
livelihoods. Among these are soda ash, which Tokuyama has been
producing since its founding in 1918, and caustic soda, a material
which is said to be “essential for the manufacture of products infactories.” These and other chlorine derivatives are used in a very
wide range of applications and are essential for all kinds of industries.
The caustic soda business also plays an additional role in Tokuyama's
earnings platform, as its manufacturing process generates chlorine andhydrogen that are used in processes for producing the Company's
polycrystalline silicon. In addition, Yamaguchi Liquid Hydrogen
Corporation, a joint venture for liquid hydrogen production,commenced operations in 2013. Through these operations, theCompany’s hydrogen is also used for rocket fuel at the Tanegashima
Space Center of Japan Aerospace Exploration Agency (JAXA). In thisway, the segment is contributing to the development of space
exploration.

26.6%

With the goal to continue ensuring that Tokuyama is the preferred choice of customers, the Chemicals segment oversees
three business units and Group companies while working to provide a stable supply of products and services that meetthe expectations and needs of customers in a timely manner.
Business Unit

Major Products

Soda Ash and Calcium Chloride

Soda ash, Calcium chloride, Sodium silicate and Sodium bicarbonate

Chlor-Alkali and Vinyl Chloride

Caustic Soda, Vinyl chloride monomer, Propylene oxide and Methylene chloride

New Organic Chemicals

Isopropyl alcohol (IPA)

Group Companies

Polyvinyl chloride (PVC) [Shin Dai-ichi Vinyl Corp.]

Operating Results for the Fiscal Year ended March 31, 2014
With regard to vinyl chloride monomer (VCM), sales increased compared with the previous fiscal year. In addition to
the fact that difficulties at the Company’s VCM plant, which occurred in the previous fiscal year, were overcome, thiswas attributable to a rise in export prices resulting from the weaker yen.
With regard to caustic soda, the facility utilization rate of the electrolysis plant rose, as the above-mentioned difficulties
at the VCM plant were overcome. Due to this factor, domestic sales volume recovered.
With regard to polyvinyl chloride (PVC), we worked to revise selling prices to absorb a rise in the price of domestic
naphtha.
As a result of the above, segment net sales increased 11.8% compared with the previous fiscal year, to ¥86.4 billion andoperating income increased 424.1% to ¥2.2 billion. The segment reported higher earnings on higher sales.

26.8%

Tokuyama Corporation Annual Report 20144

Strategies
In addition to recording stable profits and providing the underlying strength to support the Company’s earnings as awhole, we will work toward further growth by reviewing the business portfolio. To achieve this end, we will undertakethe following priority measures.
■Soda Ash and Calcium Chloride BusinessTokuyama reached an agreement with Central Glass Co., Ltd. to establish a joint-venture business (TOKUYAMA &CENTRAL SODA Inc.) while transferring and consolidating marketing activities in connection with the sales of soda
ash and calcium chloride. The production of soda ash in Japan will be undertaken only by Tokuyama from June 2015.
In this manner, we will work to improve profits in the soda ash business.
■Chlor-Alkali and Vinyl Chloride Business
The production of liquid hydrogen began at Yamaguchi Liquid Hydrogen Corporation, a joint venture formed with
Iwatani Corporation, in June 2013. In addition to rocket fuel, liquid hydrogen is used in the manufacture of solar cells
and LEDs. Looking ahead, demand is projected to expand substantially as use is extended to such areas as fuel-cell
powered vehicles. While liquefaction capacity currently stands at 3,000L/h, sights are being set on enhancing capacity.
Against the backdrop of such factors as the recovery in automobile production in Asia, steps will be taken to expand
production facilities of propylene oxide, a major chlorine derivative with various applications including as a raw
material in urethane, in July 2014. Plans are in place to increase production capacity by 10,000 tonnes to 89,000 tonnes
per year.

Tokuyama Corporation Annual Report 2014

5

SPECIALTY PRODUCTS
The Specialty Products segment offers products for a wide range offields including energy, electronics and the environment. Our
high-purity polycrystalline silicon is used for semiconductors andsolar cells. Tokuyama is one of the leading companies in the world's
polycrystalline silicon market. Fumed silica, which is produced froma by-product of polycrystalline silicon manufacture, is used forsilicone rubber, copier toner and other applications. Aluminum nitride,
which boasts excellent heat dissipation properties, is used forsemiconductor production equipment and energy-saving applications
such as inverters and LEDs. Our high-purity chemicals for electronics
manufacturing are used chiefly for production of semiconductors and
LCD panels. The Specialty Products segment will continue to build
on its advanced chemical technologies to create unique products thatare useful to society.

26.6%

Business Unit

Major ProductsElectronic Materials

Polycrystalline silicon

Fumed Silica

Fumed silica

SHAPAL

Aluminum nitride

IC Chemicals

High-purity chemicals for electronics manufacturing

Cleaning System

Methylene chloride for metal cleaning
Polycrystalline silicon [Tokuyama Malaysia Sdn. Bhd.]

Group Companies

Fumed silica [Tokuyama Chemicals (Zhejiang) Co., Ltd.]
Aluminum nitride [Tokuyama-Dowa Power Materials Co., Ltd.]

Operating Results for the Fiscal Year ended March 31, 2014
With regard to semiconductor-grade polycrystalline silicon, although market conditions were about level with those of
the previous fiscal year, sales decreased due to a price slump in the supply chain. With regard to solar cell-grade
polycrystalline silicon, the market remained sluggish due to excess supply. Against this backdrop, we adopted a sales
strategy that focused on profits and as a result, sales volume was low. Despite the above, earnings in the polycrystalline
silicon business increased compared with the previous fiscal year, due largely to a decrease in depreciation expenses
after the impairment of manufacturing facilities in the previous fiscal year.
With regard to fumed silica and high-purity chemicals for electronics manufacturing, we revised selling prices in order
to absorb the rise of raw material and fuel prices. In addition to this, due to a rise in export prices arising from theweaker yen, sales of these products increased compared with the previous fiscal year.
As a result of the above, segment net sales decreased 0.7% compared with the previous fiscal year, to ¥52.4 billion,
while operating income was ¥6.0 billion. The segment reported higher earnings on lower sales.

26.8%

16.3%

Tokuyama Corporation Annual Report 20146

Strategies
We will promote a sales strategy that serves to maximize profits in line with demand while building an optimal
production structure. To achieve this end, we will undertake the following priority measures.
■Polycrystalline Silicon BusinessAlthough the market is on the path of recovery in both semiconductor and solar cell fields, the polycrystalline siliconbusiness is forecast to confront a persistently harsh operating environment due to the glut in supply. Every effort will bemade to maximize profits by promoting an optimal polycrystalline silicon production balance at Tokuyama Factory. At
Tokuyama Malaysia, we will commence sales of solar cell-grade polycrystalline silicon around the middle of 2014. We
will also endeavor to optimize production conditions of semiconductor-grade polycrystalline silicon while initiating
shipments of samples for customer certification as quickly as possible.
■Fumed Silica BusinessWe will work toward optimizing business operations of fumed silica, a co-product with polycrystalline silicon, at thetwo bases of Tokuyama Factory and Tokuyama Chemicals (Zhejiang) Co., Ltd. The decision was made to transfer a
portion of Tokuyama Factory’s annual production capacity of 2,000 tonnes to Tokuyama Chemicals (Zhejiang) with theaim of further expanding the rapidly growing fumed silica (surface treatment grade) business in China and other Asianmarkets. Operations are to commence in June 2015. Fumed silica (surface treatment grade) has a wide range ofapplications including as a viscosity control agent, an anti-settling agent, and an agent to improve the flow of paint,
adhesives, ink, and other products. Looking ahead, this product is expected to enjoy an increase in demand.

Tokuyama Corporation Annual Report 20147

CEMENT
Tokuyama launched its cement business in 1938 out of a desire toefficiently make use of by-products produced at the Tokuyama
Factory, an environmental approach that was ahead of its time inJapan. The segment produces cement and such related products as
cement-type soil solidifiers at the Nanyo Plant of the Tokuyama
Factory. These products are used for ready-mixed concrete andsecondary concrete items, which in turn are used to help build
infrastructure essential for people's lives, including residences,buildings, structures which support essential utilities, andtransportation facilities such as ports, bridges, and roads.

26.6%

In the cement production process, we accept a large volume of waste
matter, including waste plastic and household garbage incineration
ash from outside the Company as well as inside the Company, andutilize it as raw materials or fuel sources. In this way, the segment is
promoting a recycling approach that is responsive to the needs ofsociety, thereby helping promote a recycling-oriented society that
effectively makes use of resources as much as possible.
Tokuyama Mtech Corporation manufactures and sells a various types of building material products including
cement-type products and mortar-type products. Moreover, the Cement segment strives to develop products that cancreate new business possibilities. For example, it has applied Tokuyama's proprietary plaster sheet-making technology
to develop interior design materials and Fresco Giclee, a plaster-coated paper for inkjet printers.

Business Unit

Major Products

CementPortland cement, Portland blast furnace slag cement and Cement-type soil solidifier

Recycling and Environment

Recycling of wastes

Group Companies

Ready-mixed concrete [Tokyo Tokuyama Concrete Co., Ltd., etc.]

Operating Results for the Fiscal Year ended March 31, 2014
With regard to cement, sales volume increased due to the recovery in demand in Japan. In addition, the Company madeTokuyama Nouvelle Calédonie S.A. a subsidiary in June 2013. Due to these factors, sales increased compared with theprevious fiscal year.
In the recycling and environment-related business, the Company accepted a larger volume of waste as a result of its
higher cement production.
As a result of the above, segment net sales increased 12.9% compared with the previous fiscal year, to ¥78.9 billion andoperating income increased 25.3% to ¥6.6 billion. The segment reported higher earnings on higher sales.

24.5%

Tokuyama Corporation Annual Report 20148

Strategies
We will put in place an optimal production, sales, and distribution structure that is capable of addressing changes in thebusiness environment while cultivating and strengthening overseas as well as new businesses. To achieve this end, we
will undertake the following priority measures.
■Cement BusinessWe will expand transportation capacity in Japan with the addition of two new tanker ships. Moreover, we will establish
a clinker export structure and ensure stable operations at Tokuyama Nouvelle Calédonie S.A. as a part of our overseas
operations. In order to help develop and maintain social infrastructure, we will upgrade and expand our repair andreinforcement business through Tokuyama Mtech Corporation.
■Recycling and Environment-related Business
Operations commenced at Tokuyama Chiyoda Gypsum Co., Ltd., a business that engages in the recycling of waste
gypsum boards, in 2013. For the most part, the growing volume of waste gypsum board is subject to landfill disposal.
As a result, recycling is a major issue. In addition to solving a major social issue, this initiative is also expected toprovide gypsum board makers with a valuable source of supply of raw material gypsum. Plans are in place to expand
the business on a nationwide basis going forward.

Tokuyama Corporation Annual Report 20149

LIFE & AMENITY
The Life & Amenity segment oversees Group companies manufacturing
and selling polyolefin films, plastic window sashes, medical diagnosis
systems, dental materials and equipment, gas sensors, ion exchange
membranes and other products, and is also in charge of Tokuyama's finechemicals business and NF business. From April 2013, the Advanced
Components segment was renamed the Life & Amenity segment.

26.6%

In the fine chemicals business, utilizing our organic synthetic technology
to advantage, we are expanding this business with eyeglass lens materials,
active pharmaceutical ingredients for generic drugs, and intermediates as
our main products. In the NF business, we manufacture and sell
air-permeable films (microporous films) that repel water but allow air andmoisture to penetrate.
Shanghai Tokuyama Plastics Co., Ltd., one of the Group companies weare responsible for, manufactures and sells air-permeable films used for
disposable diapers, demand for which is climbing rapidly in China and other emerging countries.
Business Unit

Major Products

Fine Chemicals

Plastic lens-related materials, Active pharmaceutical ingredients and intermediates

NF

Microporous film

Group Companies

Polyolefin film [Sun • Tox Co., Ltd.]
Plastic window sashes [Excel Shanon Corp.]
Medical diagnosis systems [A&T Corp.]
Dental materials/equipment [Tokuyama Dental Corp.]
Gas sensors [Figaro Engineering Inc.]
Ion exchange membranes [ASTOM Corp.]

Operating Results for the Fiscal Year ended March 31, 2014
Sales volumes of plastic lens-related materials increased owing to the recovery from damage to the supply chain causedby the flooding in Thailand, which occurred in 2011.
With regard to polyolefin film, we revised selling prices to absorb price increases in raw materials and worked to
expand sales. Due to these efforts, sales increased compared with the previous fiscal year.
With regard to dental materials and equipment, sales increased due largely to sales expansion of products shipped tooverseas markets and a rise in export prices arising from the weaker yen.
With regard to plastic window sashes, sales volume increased due to business reconstruction and sales expansion on theback of the recovery in housing starts.
As a result of the above, segment net sales increased 11.9% compared with the previous fiscal year, to ¥57.0 billion andoperating income increased 65.8% to ¥4.8 billion. The segment reported higher earnings on higher sales.

17.7%

Tokuyama Corporation Annual Report 201410

Strategies
We will expand our business by establishing and strengthening a customer-oriented development, production and sales
structure while obtaining an advantageous position in the domestic and international markets, thereby contributing to
the enhancement of people’s quality of life (QOL). To achieve this end, we will undertake the following priority
measures.
■Fine Chemicals BusinessWe will increase orders for active pharmaceutical ingredients for generic drugs and expand market share in
photochromic dye materials for use in eyeglass lenses.
■NF Business
Addressing the rapid increase in the usage of disposable diapers, a main application of microporous films, in China andother Asian countries, we will expand microporous film manufacturing capacity of the Group’s manufacturing base inShanghai and Tianjin. We will capture rapidly growing demand steadily by promoting ties with disposable diaper
manufacturers, who possess factories in China.
■Polyolefin Film Business (Sun • Tox)
We will increase profits by expanding sales of products for use in everyday items, which continue to enjoy robust
growth at convenience stores, tapping into new markets, and reducing costs.
■Plastic Window Sash Business (Excel Shanon)
We will expand market share by strengthening alliances with building contractors and major home builders and promoteincreased use of plastic window sashes.
■Dental Materials/Equipment Business (Tokuyama Dental)
We will develop new products and accelerate the pace of overseas business development.

Tokuyama Corporation Annual Report 201411

Medium-Term Management Plan

February 2008 marked Tokuyama’s 90th anniversary. As we work toward our 100th anniversary, we have put in place a
Centennial Vision that identifies the ideal scenario for the Group together with its basic strategies and support structure.
Against this backdrop and despite commencing the Three-Year Management Plan, which was positioned as the second
step to achieve our Centennial Vision, in April 2012, the polycrystalline silicon business, a core earnings pillar,
witnessed a rapid deterioration in market conditions. Under these circumstances, the Group recorded a consolidated net
loss for fiscal 2012, the fiscal year ended March 31, 2013.
In order to break free from this negative spiral and rebuild a profitable platform, in February 2013 we decided to pull
together measures aimed at improving profits, Profit Improvement Plan, including efforts to reconstruct thepolycrystalline silicon business. The Profit Improvement Plan also incorporates a mechanism under which we closely
reexamine initiatives each year on a constant three-year rolling cycle. The Company will promote its Profit
Improvement Plan by implementing three rolling three-year plans that begin in fiscal 2013, 2014 and 2015 respectively.
The rolling three-year plan focuses on implementing structural reforms, putting in place growth strategies, and returning
Tokuyama to its true position and form.
We set numerical targets for fiscal 2017, the final year of the Profit Improvement Plan ending March 2018, including
net sales of ¥358 billion and operating income of ¥25 billion. In the rolling three-year plan (fiscal 2014–2016) thatbegins in the current fiscal year, the Company is confident that it can achieve the numerical targets through to fiscal
2017 outlined in the Profit Improvement Plan by steadily promoting revised initiatives. Accordingly, these numericaltargets remain unchanged.

Profit Improvement Plan
Tokuyama is carrying forward its endeavors to promote the three core pillars of its Profit Improvement Plan.
Accordingly, the Company is taking ongoing steps to reconstruct the polycrystalline silicon business, improve profits inexisting and new businesses, and improve Companywide profitability. Extending well beyond the scope of emergency
countermeasures, we will push forward structural reforms that increase the productivity of not only business divisions,but also back-office and functional divisions as well as our affiliated companies, and work to improve our financial
condition as a part of efforts to secure enduring profits.

Tokuyama Corporation Annual Report 201412

(1) Reconstruct the Polycrystalline Silicon BusinessIn fiscal 2012, Tokuyama incurred an extraordinary loss in its polycrystalline silicon business, which exhibited amarked deterioration in profit due to the downturn in market conditions. This loss was largely due to the impairment ofTokuyama Factory’s manufacturing facilities for polycrystalline silicon and concurrent fumed silica. Looking ahead, theCompany will place a particular emphasis on securing an optimal production balance between polycrystalline silicon,
fumed silica, and silane gas at Tokuyama Factory as a part of efforts to maximize profits.
Meanwhile, in an effort to strengthen and expand the polycrystalline silicon business, we constructed a new factory
within the Samalaju Industrial Park located in the suburban area of Bintulu, Sarawak, Malaysia to serve as a second
polycrystalline silicon manufacturing base. The strengths of the factory include: (1) the ability to purchase cost effective
and stable amounts of energy required to power manufacturing activities through abundant and clean sources ofhydroelectricity, and: (2) the ability to garner the cooperation of federal and provincial governments with respect totaxation incentives as well as licenses and public authority approvals. As a result, this factory boasts considerable
global-scale competitive advantage in terms of cost. Looking ahead, we will focus energies toward further reducing
costs by adopting such wide-ranging initiatives as the diversification of raw material procurement and the enhancementof productivity. Through these means, we will overcome and excel in what is expected to become an increasingly
intense cost competitive market. Accordingly, we will endeavor to secure full production and sales at the Malaysia
factory at the earliest possible opportunity.
(2) Improve Profits in Existing/New Businesses
We will secure 10 or more projects that are each capable of generating profits of between ¥0.5 and ¥1.0 billion by thefiscal year ending March 31, 2018 by creating new businesses and promoting the structural reform of existing
businesses.
In the Chemicals segment, we launched a liquid hydrogen business in June 2013 while restructuring our soda ash andcalcium chloride activities. In the Cement segment, we will take steps to place the waste gypsum board recycling
business, which commenced operations last year, on a firm track, while further developing our cement businessoverseas. In the Life & Amenity segment, we will accelerate growth by placing the utmost emphasis on
customer-oriented solution proposals and developing products that resolve customers’ problems.
Focusing on research and development themes, we will look to commercialize materials for fuel cell use and aluminum
nitride single crystals.
(3) Improve Companywide Profitability
Looking ahead, steps will be taken to cut back on recruiting activities as well as new hires across the Group as a whole,
thereby downsizing staff. In addition to streamlining back-office and functional divisions at the headquarters level inline with the size of business, we will promote optimal staff redeployment both within and outside the Group. Moreover,
we will endeavor to secure permanent reductions in expenses by continuing to review overhead and other expenses,
improve productivity and promote structural reforms.
From an R&D perspective, we will strive to curtail expenses by ensuring the stringent selection of themes.
We will hold capital expenditure to less than 75% of depreciation expenses, while making thoroughgoing efforts tocontrol inventories. Through these means, we will focus on improving cash flows.

Tokuyama Corporation Annual Report 201413

Message from the President“Keeping a Tight Rein and Ensuring Our Maximum Effort on Business Structural Reforms”
Business Results for Fiscal 2013
In fiscal 2013, the fiscal year ended March 31, 2014, economic
conditions continued to exhibit a mild recovery. Buoyed by theincreasingly visible flow-on effects of aggressive economic policy
measures and ongoing efforts to ease monetary conditions implemented
by the Abe administration in Japan, this positive trend was largely
reflected in improvements in corporate-sector earnings and particularly abroad spectrum of automotive-related industries, which benefited fromthe weak yen.
Under these circumstances, Tokuyama has carried forward its endeavors
to promote the three core pillars of its Profit Improvement Plan from lastyear. Accordingly, the Company took ongoing steps to reconstruct thepolycrystalline silicon business, improve profits in existing and new
businesses, and improve Companywide profitability.
In the fiscal year under review, each and every employee remainedcommitted to reducing costs. As a part of efforts to improve
Companywide profitability, Tokuyama called on the support of suppliers
and subcontractors to bring forward cutbacks in expenses. Thanks to thesecollective efforts, the Company achieved a substantial increase inearnings.

Kazuhisa Kogo
President

Despite these positive trends, Tokuyama continues to confront a harsh operating environment. With the exception of
cement, the downturn in domestic demand for its mainstay products remains unchecked. With regard to polycrystalline
silicon, while semiconductor and solar cell applications are enjoying a modest recovery, conditions are expected toremain difficult due to the persistent glut in supply.

Progress under the Profit Improvement Plan
Under the Profit Improvement Plan formulated during the previous year, Tokuyama has adopted a three-year rollingmechanism that allows the Company to closely reexamine and modify measures each year. Under this framework, weare better positioned to flexibly and swiftly respond to changes in the business environment in the lead up to ourcentennial celebrations in the fiscal year ending March 31, 2018.
In the rolling three-year plan that begins in the current fiscal year, the Company is confident that it can achieve thenumerical targets through to fiscal 2017 outlined in the Profit Improvement Plan by promoting the following initiatives.
Accordingly, these numerical targets remain unchanged.
(1) Reconstruct the Polycrystalline Silicon Business
Market conditions for solar cell-grade polycrystalline silicon are showing a slight improvement. Against this backdrop,
we will bring online the Tokuyama Malaysia second plant (PS-2) around the middle of the year and work toward
quickly contributing to profits. The Tokuyama Malaysia first plant (PS-1), which is scheduled to manufacture
semiconductor-grade polycrystalline silicon, is experiencing delays in startup operations. This is largely attributable totroubles associated with plant equipment and facilities as well as difficulties in implementing measures aimed atmeeting high-quality specifications. By modifying machinery and equipment and dispatching highly qualified engineersfrom Japan, the entire Group will work in unison to ensure the successful start of operations.
During the period under review, the decision was made to transfer a portion of Tokuyama Factory’s annual production
capacity of fumed silica, a co-product with polycrystalline silicon, to Tokuyama Chemicals (Zhejiang) Co., Ltd. in
China. By steadfastly carrying out this transfer, the Group will bolster its business activities by cultivating new
applications at locations that are in close proximity to customers.

Tokuyama Corporation Annual Report 201414

(2) Improve Profits in Existing and New Businesses
In the Chemicals segment, operations at Yamaguchi Liquid Hydrogen Corporation, a company that manufactures liquidhydrogen, commenced in June last year. In the soda ash business, which continues to suffer under narrowing domestic
demand, the Company established TOKUYAMA & CENTRAL SODA Inc., a joint-venture business with Central GlassCo., Ltd., to rebuild a business structure that is more in line with the market’s scale. Operations are scheduled tocommence in October 2014 with the production of soda ash in Japan undertaken only by Tokuyama from June 2015.
Through these means, the Tokuyama Group is looking to improve profitability in the soda ash business. Turning topropylene oxide, a major chlorine derivative, the export environment for our customers was robust. Under thesecircumstances, the Company has decided to increase production capacity by 10,000 tonnes.
In the Cement segment, operations commenced at Tokuyama Chiyoda Gypsum Co., Ltd., a business that engages in therecycling of waste gypsum boards, from last year. After acquiring an equity stake in Tokuyama Nouvelle Calédonie S.A.
in June 2013, plans are in place to establish a shipping facility in October 2014. Thereafter, we will commence theexport of clinker.
In the Group’s Life & Amenity segment, Excel Shanon Corporation, which is active in the manufacture and sale ofplastic window sashes, returned to the black in the fiscal year under review thanks to successful business restructuring
endeavors. In microporous films used in disposable diapers, efforts to expand our business operations were buoyed by
the commencement of operations at a manufacturing facility in Tianjin last year complementing existing activities inShanghai. Looking ahead, we will work to expand sales in China where demand growth is expected.
Each of these businesses will play an important part in changing the profit structure of the Company. By actively
promoting growth strategies, I am confident that each business will contribute significantly to increasing the Group’s
earnings.
(3) Improve Companywide Profitability
Each and every employee is working in unison to curtail overhead, purchasing and personnel expenses. In the fiscal
year under review, we were successful in cutting back expenses by more than ¥7.0 billion compared with the previous
fiscal year, contributing significantly to an increase in profits.
Moving forward, we will not only work to reduce expenses, but also enhance productivity while promoting structuralreforms. Through these means, we will transform the Company to a lean and robust entity.
As stated above, we will quickly start up operations at Tokuyama Malaysia PS-1 and PS-2, swiftly rebuild thepolycrystalline silicon business, and improve profits in existing and new businesses. One by one, we will build up abusiness portfolio whose components are capable of individually generating profits of between ¥0.5 and ¥1.0 billion. As
we work toward our centennial celebrations in fiscal 2017, we will achieve operating income of ¥25 billion.

In Closing
In allocating profits to shareholders, Tokuyama maintains the basic policy of paying continuous and stable dividends
while taking into consideration performance trends and both medium- and long-term business plans. Based on this basic
policy, the Company paid a year-end dividend of ¥3 per share.
In the fiscal year under review, Tokuyama was able to secure an increase in profits by bringing forward the reduction of
expenses. However, the Company is only halfway to carrying out its Profit Improvement Plan which includes
rebuilding the polycrystalline silicon business. With this in mind, it is vital that we keep a tight rein on completing
structural reforms. As we work toward achieving our goals, we kindly request the continued support of all stakeholders.

Kazuhisa Kogo
President
June 2014

Tokuyama Corporation Annual Report 201415

【SPECIAL FEATURE】Tokuyama Malaysia
Tokuyama Corporation has established a wholly owned subsidiary, Tokuyama Malaysia Sdn. Bhd., and constructed
plants for the production of polycrystalline silicon at the Samalaju Industrial Park, which is located northeast of central
Bintulu, Sarawak, Malaysia. Trial operations are currently being conducted at the plants. (As of June 2014)

Fulfilling Responsibilities as the New President of Tokuyama Malaysia
The course ahead for Tokuyama Malaysia
I see my role as steering the plants to an early start-up. Moving forward, it is importantthat we quickly commence the production and sales of competitive products, thereby
putting the polycrystalline silicon business in Malaysia on a firm footing.
However, operating conditions in the polycrystalline silicon business remain difficultand it is imperative that we carry out the following measures if we are to secure a steadystream of earnings.
1. Drawing on the technologies and experience of Tokuyama Factory, we must ensurehigh quality while adhering strictly to a policy of cost reduction.
2. We must work closely with Tokuyama Corporation in Japan as well as Tokuyama
Chemicals (Zhejiang) Co., Ltd. in China in order to maximize the Group’s synergies.
3. We must focus on local employee education and training while promoting thetransfer of technology and minimizing the number of personnel dispatchedfrom Japan.

Takeo Suzuki
Managing Executive Officer,
Tokuyama Corporation
President of Tokuyama Malaysia

Overcoming issues in the leadup to production

With the exception of certain facilities, construction at the first plant (PS-1) was completed in February 2013. However,difficulties with ancillary facilities and defects in new facilities adopted to enhance competitive advantage havecombined with other factors to delay the startup of operations compared with original plans.
We have taken steps to clearly ascertain the causes of this delay and to implement appropriate measures. Accordingly,
we are well on our way to overcoming each issue and are in the final
Overview of Tokuyama Malaysia
stages of implementation while actually engaging in plant operations.
Product
Production
methodAnnualproduction
capacity
Investment（Plan）

Polycrystalline silicon
Siemens method
1st plant: 6,200 tonnes
2nd plant: 13,800 tonnes
1st plant: Approx. ¥80 billion
2nd plant: Approx. ¥120 billion

Project History
Nov 2008
Aug 2009

Feb 2011
May 2011
Feb 2012
Feb 2013
Jan 2014

Tokuyama Corporation Annual Report 201416

Announced the outlines of the plan
Decided to construct PS-1
Established Tokuyama Malaysia Sdn.
Bhd.
Commenced construction of PS-1
Decided to construct PS-2
Commenced construction of PS-2
Completed construction of PS-1
Commenced trial operations
Completed construction of PS-2
Commenced trial operations

Taking into consideration our experiences with the PS-1 construction project, construction at the second plant (PS-2)
was completed essentially in line with plans in January 2014. We are currently engaging in trial operations. All relatedparties are working tirelessly toward the start of production and sales around the middle of this year.

Future aspirations
Our goal is to become an independent force that contributes to the overall earnings of the Group as a second mainstay
polycrystalline silicon production base. Moreover, we are looking to support the local community through economic
and technological investments as well as the development of human resources.
In addition, we are setting our sights on genuinely protecting the global environment by manufacturing the principal
solar power generation material used in the creation of renewable energy by utilizing hydroelectric power, which isrenewable energy itself.

Tokuyama Corporation Annual Report 201417

Research and Development
Research and Development Principles and Policies
Based on the principle that research and development should contribute to the advancement of society throughchemistry, Tokuyama engages in R&D with the aim of 1) creating novel, best-in-class technologies through therefinement of its core technologies and their fusion with new technologies, and 2) creating proprietary products thatincorporate market needs, centered on its technologies.
With regard to the former, Tokuyama proactively pursues open innovation through joint research with universities andpartnerships with external research institutions and other organizations, based on extensive technologies it has
accumulated over many years as a chemical maker in such areas as inorganic and organic materials synthesis,
refinement, crystallization, electrochemistry, and high-polymer chemistry. With regard to the latter, Tokuyama continues
to rapidly develop technologies and products that address social issues and needs, such as the creation of new materials
for the clean energy and energy conservation fields.
In accordance with this R&D policy, Tokuyama concentrates the investment of its R&D resources on key fields thatprovide new value, materials and services in line with changes in society, such as the graying of society and ageing of
infrastructure. On this basis, Tokuyama aims to accelerate the pace at which it creates innovative technologies andproducts that cannot be matched by other companies.

Research and Development Bases
Tokuyama’s two-pronged R&D structure in eastern and western Japan comprises the Tsukuba Research Laboratory in
Tsukuba City, Ibaraki Prefecture, and the Tokuyama Research Laboratory in Shunan City, Yamaguchi Prefecture.

Tsukuba Research Laboratory
The Tsukuba Research Laboratory is situatedin the peaceful setting of Tsukuba Science Cityin Ibaraki Prefecture. This laboratory conducts
research on fundamental and advanced
technologies from a medium- to long-term
perspective while promoting research inmedical products and organic fine chemicals.
Also, the laboratory goes beyond thedevelopment and provision of functional
materials, performing applied R&D forsystems and services.

Tsukuba Research Laboratory

Tokuyama Research Laboratory

Tokuyama Research Laboratory
Located within the Tokuyama Factory site, the Tokuyama Research Laboratory is in charge of the Company’s core
R&D. Taking advantage of its close proximity to manufacturing facilities of the Tokuyama Factory, this laboratory
incorporates requests from business divisions into its product development in a timely manner. Covering wide-ranging
fields—from basic chemicals to cement—the laboratory undertakes basic and applied research as well as processdevelopment.

R&D Activities in Fiscal 2013
The Research & Development Division develops new products and refines the Company’s technologies in line with its
mission to create new products and businesses for the next stage of growth at Tokuyama. We have formed partnerships
with many external research institutions in order to accelerate R&D and increase development efficiency. Of thenumerous possible R&D themes, we have been focusing our development energies on technologies with strong
commercial feasibility, such as materials for anion exchange membrane fuel cells, deep ultraviolet light emitting diodes(DUV-LEDs) based on single crystal aluminum nitride, and high-performance neutron detection scintillator materials.
In the development of materials for fuel cells, Tokuyama has concentrated on the development of materials for anion
exchange membrane fuel cells, which do not require platinum-based catalysts. We aim to commercialize these materials
based on feedback from our customers. In the development of deep ultraviolet light emitting diodes (DUV-LEDs),
through joint research with external institutions, Tokuyama has succeeded in the development of light emitting diodes
which are capable of generating wavelengths in the 260nm range and boast the world-leading output capacity in thisTokuyama Corporation Annual Report 201418

range. Currently, mercury lamps are typically used as a source of deep ultraviolet light. The development of a
DUV-LED would make much more compact equipment a distinct possibility, raising expectations for its deployment ina variety of fields, including the environment, healthcare and agriculture. Tokuyama began shipping samples in fiscal
2013 and aims to commercialize DUV-LEDs by fiscal 2016. In the development of high-performance neutron detection
scintillator materials, Tokuyama has discovered that special fluoride single crystal containing lithium 6 (6Li), which ishighly sensitive to neutron, is a promising alternative to helium 3 (3He) gas, which is becoming more difficult to obtain
due to resource depletion, as a material for high-performance neutron detection scintillators. We are currently
developing highly selective neutron beam sensors with high energy research bodies around the world with an eye
toward commercialization by fiscal 2015. Moreover, we are also developing new application in partnership withresearch institutions across the world.
In fiscal 2013, the fiscal year ended March 31, 2014, the Tokuyama Group’s R&D spending totaled ¥8,709 million,
including ¥3,053 million for basic research expenditures that are not allocable to a specific segment.

Aluminum nitride single-crystal substrates(Deep ultraviolet light emitting diode)

Fluoride single crystal for scintillators

Below is a description of R&D projects underway and spending by segment.
Chemicals Segment
R&D is aggressively pursued in this segment to strengthen the competitiveness of existing product lineups and todevelop new applications for these products. Focusing on the development of processes, research into catalysts and thedevelopment of environmentally conscious products, R&D strengthens our technological prowess and contributes tobusiness. In polyvinyl chloride resin, we continued to reduce costs, improve production technologies, and develop
various grades and upgrade them to meet the specific requirements of our customers. In crystalline-layered sodium
silicate, progress was made on developing applications as a builder for commercial and industrial detergents and as amaterial for functional materials.
R&D expenditures totaled ¥535 million in the Chemicals segment.
Specialty Products Segment
In polycrystalline silicon, Tokuyama has advanced process development to increase the production efficiency of silicon
at its existing plants in order to reduce costs amid a slump in the polycrystalline silicon market. Regarding silica, theCompany developed new silica in response to customers’ requests. In aluminum nitride, efforts focused on thedevelopment of high heat dissipation sheets for use as heat dissipation materials for such devices as power
semiconductors and power LEDs and aluminum nitride fillers targeting heat-dissipating adhesive materials.
R&D expenditures came to ¥1,551 million in the Specialty Products segment.
Cement Segment
Tokuyama has continued to aggressively pursue R&D in the use of various wastes as raw materials and fuels for the
production of cement. On this front, the Company concentrated on the development of technologies for processing
waste gypsum boards and coal ash. In waste gypsum boards, Tokuyama commenced recycling operations at Tokuyama
Chiyoda Gypsum Co., Ltd. after establishing technology for producing gypsum dihydrate, which has an equivalent levelof quality to raw material gypsum, from waste gypsum through crystallization. The Company also made progress inbasic research for cement and concrete, contributing to production technologies and an improvement in quality. In
addition, Tokuyama improved and developed various grades of cement-related products, such as cement-type soil
solidifiers, grout materials, and self-leveling materials. Moreover, the Company focused on the development andTokuyama Corporation Annual Report 201419

improvement of various products for repairing and reinforcing concrete structures, such as cross section repairing
materials.
Meanwhile, Tokuyama has also been working to develop environmentally conscious plaster material and broaden its
application. As a part of these endeavors, we developed and improved a new grade of printing media called Fresco
Giclee for inkjet printers.
R&D expenditures were ¥680 million in the Cement segment.
Life & Amenity Segment
We made progress developing next-generation photochromic materials for eyeglass lenses. We also worked on thedevelopment of processes for active pharmaceutical ingredients. In the healthcare and clinical testing fields, marked
progress was made on the integrated development of products including diagnostic reagents and laboratory information
systems, clinical analyzers, and laboratory automation systems. In gas sensors, we advanced the development of various
sensors and applied products in the alarm device and air quality fields. In the dental care field, continued steps weretaken to develop products such as restorative composite resins and orthodontic adhesives. In ion exchange membranes,
progress was made on the development of high-efficiency bipolar membrane electrodialysis technology, highly
functional ion exchange membranes, and other products.
R&D expenditures totaled ¥2,888 million in the Life & Amenity segment.

Tokuyama Corporation Annual Report 201420

CSR Initiatives

Tokuyama approaches and promotes its CSR activities in accordance with its CSR management basic philosophy andbasic CSR policy of engaging in corporate management that is responsive to society. In this manner, we work diligently
to establish and develop stronger relationships with stakeholders.
At the same time, we place particular emphasis on building an optimally balanced CSR platform. Recognizing thatinternal control systems provide the foundation for CSR, we make every effort to promote proper corporate governanceand compliance, strengthen risk management, and pursue responsible care (RC), an important activity given our status
as a chemical manufacturer.
In order to realize sustainable growth as the corporate group of choice for our customers, we have put in place theTokuyama Group Code of Conduct as well as the Tokuyama Group’s Five Conscience Clauses for each and every
executive and employee. In order to ensure that all executives and employees are fully aware of both this Code of
Conduct and Conscience Clauses, posters are displayed at the Group’s business establishments and offices and ahandbook distributed to all staff. Moreover, we have issued the Tokuyama Group Guidelines for Business Activities asa means to clarify the principles for actions taken by members of the Tokuyama Group and to establish parameters for a
relationship with each stakeholder.

Involvement in the Environment
One of our most important corporate social responsibilities is to actively protect the global environment. Tokuyama
practices environmental management with an emphasis on environmental perspectives in all of its business activities.

Tokuyama’s Environmental Performance for Fiscal 2013
Tokuyama strives to obtain accurate data on the input and output of materials and substances in its business activities
and reduce the environmental impact of these activities to meet its environmental targets.
In fiscal 2013, among targets for reducing environmental impact, Tokuyama did not meet its target for COD, owing toan increased burden at treatment facilities as a result of the higher operating rates of facilities subject to environmental
regulations, nor its target for unit energy consumption, owing to a decline in the Tokuyama Factory’s overall facility
operating rate. However, Tokuyama achieved its targets for soot and dust, water pollutant reductions (nitrogen andphosphorus), PRTR, recycling, and zero emissions.

*Result for Fiscal 2013 (Non-consolidated)

Tokuyama Corporation Annual Report 201421

Involvement in Society
Tokuyama places great importance on communication with its stakeholders as a means of remaining a company neededby communities and society as a whole.

Process Safety, Disaster Prevention and Occupational Health and Safety
Tokuyama believes that safety is an essential part of business activities and that ensuring safety is the first step inachieving coexistence with society. In taking this stance on safety, Tokuyama thoroughly conducts process safety anddisaster prevention activities as well as occupational health and safety efforts. By doing so, the Company endeavors toprevent accidents and disasters while striving to provide a favorable working environment.

For more information on Tokuyama's CSR initiatives, see the Company's CSR Report and Corporate Profile or theCompany's website:
http://www.tokuyama.co.jp/eng/csr/index.html

Tokuyama Corporation Annual Report 201422

Corporate GovernanceTokuyama believes that corporate governance is an important foundation for maximizing its corporate value. The
Company also believes that it must conduct daily inspections and periodic reviews to ensure its corporate governancesystems always function appropriately.
At the same time, Tokuyama is working consistently to strengthen its compliance with corporate ethics, laws andregulations as a means of enhancing its corporate value. Furthermore, we believe that we can gain the trust of
stakeholders—including shareholders, customers, trading partners, employees and local communities—by accurately
understanding our social responsibility and pursuing corporate management that is responsive to society.

Corporate Governance Structure
Tokuyama is a company with a board of corporate auditors (audit & supervisory board). Looking at the function of
directors and in order to bolster the supervisory function of the Board of Directors, the Company appointed an external
director to its Board of Directors in June 2011. From an audit perspective, two of the four Audit & Supervisory Board
members are appointed from outside the Company. In this manner, every effort is being made to maintain soundmanagement by ensuring the transparency and fairness of Tokuyama’s corporate management. Meanwhile, theCompany adopted an executive officer system in April 2011 for the purpose of separating the supervisory function fromthe business execution function.
The Company's present structure and systems ensure the function of swift decision-making as well as adequate
supervisory and auditing functions as a company with an audit & supervisory board. Through these structure andsystems, we believe that we can improve our corporate governance.
Below are main organizations and committees that compose the Company's corporate governance structure.

Board of Directors and Executive Officer System
As of June 25, 2014, Tokuyama’s Board of Directors comprised eight members, including two external directors. The
Company has appointed external directors in order to reinforce the supervisory function of the Board. The term of officeof directors is set at one year in order to ensure clear accountability as well as the ability to swiftly address changes in
the operating environment.
In addition to deliberating and making resolutions on important matters relating to business execution, the Board of
Directors supervises business execution. During fiscal 2013, the Board of Directors met on 17 occasions. Tokuyama
adopted an executive officer system in April 2011 with the aim of separating the supervisory and executive functions forbusiness operations. As of June 25, 2014, the Company had 18 executive officers. Based on a resolution of the Board of
Directors, executive officers are empowered with the specific delegated authority to carry out business operations.

Tokuyama Corporation Annual Report 201423

Audit & Supervisory Board
The Company’s Audit & Supervisory Board consists of four members, two of whom are appointed from outside theCompany. The Audit & Supervisory Board holds meetings to report on, discuss and make resolutions on importantmatters. Audit & Supervisory Board members attend meetings of the Board of Directors and various other key meetings
to listen carefully to reports on the status of business execution. Members of the Audit & Supervisory Board also gather
information through other methods, thereby overseeing the execution of duties by directors. During fiscal 2013, theAudit & Supervisory Board met on 14 occasions.

Human Resources Committee
The Human Resources Committee consists of representative directors and external directors. This committee holds
discussions on such matters as the remuneration for directors and executive officers and the selection of director andexecutive officer candidates before Board of Directors meetings take place.

Executive Committee
Members of the Executive Committee are selected by the president from among the Company’s executive officers. In
principle, the committee meets twice a month and serves as an advisory body to the president. In response to requests
for advice from the president, the committee deliberates on such matters as management plans and important strategies
in line with the basic policies determined by the Board of Directors and reports directly to the president. Taking thisadvice into consideration, the president then makes decisions regarding the execution of business operations.

Strategy Committee
Members of the Strategy Committee are selected by the president from among the Company’s executive officers. The
committee meets once a month and serves as an advisory body to the president. The committee discusses important
projects including the launch and discontinuation of businesses and the undertaking of large-scale investments,
deliberating on whether or not to green-light projects and the manner in which they should be implemented. Throughthese deliberations, the president determines the overall direction of policies concerning business execution.

CSR Promotion Council
Chaired by the president, the CSR Promotion Council is comprised of all executive officers working in Japan. The
Council sets policies on CSR and lays out the goals of our CSR activities, facilitating the execution and attainment of all
such activities and goals. The Council focuses on maintaining appropriate corporate governance and internal control,
which together are the foundations of CSR. It also discusses important matters regarding internal control.

Risk Management and Compliance Committee
Tokuyama’s Risk Management and Compliance Committee, chaired by the director supervising the Corporate Social
Responsibility Division, operates under the CSR Promotion Council. The Committee takes the initiative in promoting
risk management and compliance, which are central to effective internal control.

Helpline Committee
The Helpline Committee is responsible for the administration of Tokuyama’s helpline (whistle-blowing) system, which
has been established for the purpose of enabling the internal reporting of legally questionable actions and behavior byGroup executives and employees.

Departments Responsible for Internal Auditing
Tokuyama has established the Auditing Department and the RC Management Department, which are responsible forinternal auditing. These departments perform internal audits of individual divisions and departments of the Company aswell as of Group companies.

Compensation Paid to Directors and Corporate Auditors
In fiscal 2013, a total of ¥209 million, ¥39 million and ¥44 million was paid to nine directors, three corporate auditors(Audit & Supervisory Board members) and four external officers, respectively.

Tokuyama Corporation Annual Report 201424

The aforementioned compensation paid to directors includes retirement benefits totaling ¥48 million paid to one
director, who resigned as of the close of the Company’s 149th Ordinary General Meeting of Shareholders held on June25, 2013.
In addition to the aforementioned compensation, an amount of ¥39 million was paid as salaries to four employees, whohold the concurrent position of director.

Anti-takeover Measures
Tokuyama recognizes the need to put in place appropriate countermeasures to protect both the interests of theCompany’s shareholders and the Company’s corporate value from large-scale purchases of its shares (hereinafterreferred to as a “Large-Scale Purchase”) by another party (hereinafter referred to as a “Large-Scale Purchaser”) in cases
where the Large-Scale Purchase is judged to significantly damage the common interests of Tokuyama’s shareholders
and Tokuyama’s corporate value.
Accordingly, the Company established a set of large-scale purchase rules to ensure that these interests and theCompany’s corporate value are preserved. Under these rules, each Large-Scale Purchaser is required to provide anadequate amount of information to Tokuyama’s Board of Directors prior to undertaking a Large-Scale Purchase.
Moreover, an appropriate amount of time must be set aside to allow the Company’s Board of Directors to assess andconsider the terms and conditions of the Large-Scale Purchase and to put forward its opinion as well as alternative
proposals.
In the event that a Large-Scale Purchaser fails to comply with the large-scale purchase rules or when a Large-Scale
Purchaser complies with the large-scale purchase rules, but is deemed to significantly damage the common interests of
the Company’s shareholders and the Company’s corporate value, Tokuyama may undertake appropriate
countermeasures to protect the common interests of the Company’s shareholders and the Company’s corporate value. In
specific terms, Tokuyama shall take such countermeasures as issuing new shares and/or issuing subscription rights toshares under the authority of the Company’s Board of Directors under the provisions prescribed under Japan’sCompanies Act, other relevant legislation and the Company’s Articles of Incorporation. The decision regarding which
particular countermeasure shall be applied shall be determined according to the option deemed appropriate at the time.
Specific details outlined above were collated into the Company’s “Policy regarding Large-scale Purchases of Tokuyama
Corporation's Company Shares (Anti-Takeover Measures).” This policy was approved by the Company’s shareholders
at the 148th Ordinary General Meeting of Shareholders held on June 26, 2012.
Details of the Policy have been posted on the Company’s website:
URL: http://www.tokuyama.co.jp/eng/company/governance/anti_takeover.html

Tokuyama Corporation Annual Report 201425

Business and Other Risks

Set out below are those matters relevant to the Tokuyama Group’s business status and financial conditions that could
potentially have a significant influence on investor decisions. Please note that the matters listed do not cover all risks
relevant to the Tokuyama Group, and it is thought that there are risks other than those matters listed that could
potentially influence investor decisions.
The matters listed are those regarded as relevant as at June 26, 2014.

(1) Procurement/Market Conditions of Raw Materials and Fuels, etc.
The Tokuyama Group procures the raw materials and fuels essential to the carrying out of its production operations
from all over the world. Moreover, for some of its products, the Group uses special raw materials and materials thathave limited numbers of suppliers.
With regard to the procurement of raw materials and fuels, the Company engages in long-term, stable, low-costprocurement by combining, for example, medium- to long-term contracts and purchases on spot markets. However, inthe event that a soaring market or resource nationalism give rise to the tight supply of raw materials and fuels or todelivery delays, or were the Group’s production operations to be seriously compromised or manufacturing costs to rise
drastically, there is the possibility that any such situation may greatly affect the Group’s business performance andfinancial condition.

(2) Dependence on Electronic Materials Business
The operating income from the Tokuyama Group’s Electronic Materials Business has an important bearing on theoperating income of the Group as a whole. In the event that pronounced peaks and troughs in the information andelectronics industry markets lead in turn to a deterioration in the Electronics Materials Business earnings, there is thepossibility that any such situation may greatly affect the Group’s business performance and financial condition.

(3) Environmental Regulations, etc.
The Tokuyama Group operates a range of businesses that use natural resources and energy in large quantities. For thatreason, the Group enhances both capital expenditures designed to reduce its environmental impact and its resource
recycling systems, and accepts waste as alternative fuel and raw materials. At the same time, the Group also works to
reduce its environmental impact by, for example, promoting Zero Emission initiatives and improving its unit energy
consumption centered on energy conservation. However, in the event of a situation arising that requires the making of
more stringent environment-related regulations or demands a new social responsibility for environmental protection,
there is the possibility that any such situation may greatly affect the Group’s business performance and financial
condition.

(4) Contractual Disputes/Litigation
Centered on its Legal & Credit Management Department and Intellectual Property Department, the Tokuyama Grouptakes day-to-day precautions against patent or contract disputes and litigation. However, with regard to both its
domestic and overseas businesses, there exists the possibility of the Company becoming the subject of a legal dispute or
litigation. Moreover, in the event of a major lawsuit being filed, there is the possibility that such a situation may greatly
affect the Group’s business performance and financial condition.

(5) Effect of Disasters/Accidents
To minimize the adverse effects from any disruption to its production operations, the Tokuyama Group performs
day-to-day and periodic facility maintenance. Such maintenance, however, is unable to completely prevent or reduce theadverse effects on production facilities from disasters or accidents (including earthquakes and other natural disasters).
Moreover, the Group also has products for which alternative production arrangements could not be immediately made.
Should events lead to a significant decrease in production volume or, in the worst case, the Company be forced to
discontinue production for a protracted period, there is the possibility that any such situation may greatly affect the

Tokuyama Corporation Annual Report 201426

Group’s business performance and financial condition.

(6) Product Liability
The Tokuyama Group makes all-out efforts in quality control so that it is able to ensure proper quality in accordancewith product characteristics. However, in the event that, due to unexpected circumstances, a quality problem leads to afree product recall or a product safety-related product liability (PL) issue arises, there is the possibility that any suchsituation may greatly affect the Group’s business performance and financial condition.

(7) Market Economic Trends/Conditions
The supply of and demand for Tokuyama Group products are subject to the trends of their respective markets, which areprimarily the chemicals industry, the construction and construction materials industries as well as the information andelectronics industries. Sold mainly in Japan, the United States, Asia, and Europe, the economic conditions in eachcountry exert a great influence on sales of the Group’s products. The Group targets production improvements and higher
quality and also promotes cost reductions, but a fall in demand in these markets and industries or an economic
slowdown in a sales area may greatly affect the Group’s business performance and financial condition.

(8) Price CompetitivenessIn each of the businesses that the Tokuyama Group is developing, competitors that supply similar products to those of
the Group are present throughout the world. Maintaining a competitive advantage in terms of quality and price, theGroup supplies products to its customers. In the event of low-cost imports flooding a market or a price war breaking out
between rival companies due to unforeseen circumstances, and were that situation to continue for a prolonged period oftime and cause a lowering of the Group’s profitability, there is the possibility that any such situation may greatly affect
the Group’s business performance and financial condition.

(9) Effect of Plastic Window Sash Issue
Following the incident concerning “Plastic Window Sashes (fireproof and fire-resistant grade) with Different
Specifications from Individually Authorized Fireproof and Fire-resistant Specifications,” which was made public on
January 8, 2009, the Company recorded cost estimates for repairs and improvements as allowance for loss oncompensation for building materials. As the provision of detailed advice on repair methods to customers is ongoing,
there is the possibility that the repair and improvements costs could increase or decrease.
As the Company is at the present time unable to rationally estimate the compensation payments related to this incident,
in the event of a large lawsuit being filed without the costs having been recorded, there is the possibility that such asituation may greatly affect the Group’s business performance and financial condition.

(10) Overseas Business Development
The new polycrystalline silicon factory that the Tokuyama Group has built in the Malaysian state of Sarawak iscomparatively larger in scale than the Group’s existing overseas bases. In the event of a discrepancy arising in theplant’s stable operation or sales strategy, of unexpected changes being made to systems, laws and regulations, or oflabor-management problems arising, there is the possibility that any such situation may greatly affect the Group’sbusiness performance and financial condition.

(11) Financing Arrangements
The Tokuyama Group arranges financing through loans or the issue of unsecured bonds, but the cost of financing
arrangements could increase due to changes in the market environment, such as in interest rates. There is thus thepossibility that such a situation may greatly affect the Group’s business performance and financial condition. Moreover,in arranging financing through a new loan from a financial institution or the issue of unsecured bonds, there is no
guarantee of the Company being able to perform under the same conditions. In the event of the Group being unable toraise funds in a timely manner by means of loans from financial institutions or by issuing unsecured bonds, there is thepossibility that any such situation may greatly affect the Group’s financing arrangements.

Tokuyama Corporation Annual Report 201427

Corporate Officers(As of June 25, 2014)

Directors

Kazuhisa Kogo

Tatsuo Segawa

Representative Director,
President and Executive Officer

Representative Director,
Senior Managing Executive Officer

Yukio Muranaga

Katsuyuki Masuno

Hisashi Yasui

Takeshi Nakahara

Director,
Managing Executive Officer

Director,
Managing Executive Officer

Director,
Managing Executive Officer

Director,
Managing Executive Officer

Akio Fujiwara

Takeru Ishibashi

External Director

External Director

Audit & Supervisory Board
Masaki Akutagawa

Youji Miyamoto

Ryuji Hori

Shin Kato

Standing Auditor

Audit & Supervisory Board Member

External Auditor

External Auditor

Tokuyama Corporation Annual Report 201428

Executive Officers
President and Executive Officer

Kazuhisa Kogo

Senior Managing Executive Officer

Tatsuo Segawa

Assistant to the PresidentManaging Executive Officer

Yukio Muranaga

General Manager of T&M Business Promotion Div.

Katsuyuki Masuno

General Manager of MOT Div.

Hidenori Okamoto

Deputy General Manager of MOT Div., General
Manager of Technology Management Center

Executive Officer

Hisashi Yasui

General Manager of Chemicals Business Div.

Hideyoshi Koya

General Manager of Cement Business Div.

Takeshi Nakahara

General Manager of Corporate Planning Div.

Takeo Suzuki

President of Tokuyama Malaysia Sdn. Bhd.

Hideki Adachi

General Manager of Tokuyama Factory

Akihiro Hamada

General Manager of Corporate Administration Div.,Management Support Center

Masao Fukuoka

General Manager of General & Personnel Affairs
Div.

Hiroshi Terao

General Manager of Manufacturing Technology Div.

Fuminori Sekiguchi

General Manager of Osaka Branch

Hiroya Yamashita

General Manager of Research & Development Div.,
Tsukuba Research Lab.

Ryo Sugiyama

General Manager of Life & Amenity Business Div.

Toshihiko Annaka

General Manager of Corporate Social Responsibility
Div., Legal & Credit Management Dept.

Hiroshi Yokota

General Manager of Specialty Products BusinessDiv.,

Tokuyama Corporation Annual Report 201429

Financial Section

Financial Review

31

Consolidated Balance Sheets

35

Consolidated Statements of Income

37

Consolidated Statements of Comprehensive Income

38

Consolidated Statements of Changes in Net Assets

39

Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements

Tokuyama Corporation Annual Report 2014

40
41

30

Financial Review

Income Analysis
In the fiscal year ended March 31, 2014 (April 1, 2013 to March 31, 2014), despite the instability of emerging nations’economies, the global economy was on track for a gradual recovery. In addition to the recovery in private demand on
the back of the firm employment situation in the U.S., this was largely attributable to signs of recovery in the European
economy.
On the other hand, with regard to the Japanese economy, production and employment recovered on the back ofcorrection of the yen appreciation and higher stock prices. Under such situations, the economy was headed for a gradual
recovery led by robust domestic demand which was mainly personal consumption.
Under these circumstances, the Tokuyama Group reported a substantial increase in both net sales and operating income
compared with the previous fiscal year. This was attributable to polycrystalline silicon business reconstruction, an
improvement in profits in existing and new businesses, and Companywide profitability improvement.
Despite such negative factors as decreased sales volumes of polycrystalline silicon, consolidated net sales for the fiscal
year under review increased 11.1%, or ¥28,698 million compared with the previous fiscal year, to ¥287,330 million(US$2,789 million). In addition to increased sales volumes of cement and its related products, this was largely
attributable to revisions to the selling price of petrochemicals and the increase in sales volume after overcoming
difficulties at the Company’s vinyl chloride monomer (VCM) plant.
Despite decreased sales volumes of polycrystalline silicon, Companywide thoroughgoing cutbacks in costs and otherfactors, cost of sales increased 8.1%, or ¥15,495 million compared with the previous fiscal year, to ¥206,989 million(US$2,009 million), due chiefly to increased sales volumes of such products as VCM and cement as well as domestic
naphtha price hikes.
Despite such negative factors as higher distribution costs as a result of increased sales volumes of cement and its related
products, SG&A expenses decreased 0.5%, or ¥296 million compared with the previous fiscal year, to ¥60,069 million(US$583 million), due mainly to Companywide thoroughgoing cutbacks in costs.
Operating income increased 199.3%, or ¥13,498 million compared with the previous fiscal year, to ¥20,270 million(US$196 million), due chiefly to Companywide thoroughgoing cutbacks in costs. The operating margin (the ratio of
operating income to net sales) was 7.1%, an increase of 4.4 percentage points compared with the figure of 2.6%
recorded in the previous fiscal year.

Non-operating income/expenses deteriorated by ¥1,765 million compared with the previous fiscal year, due chiefly toborrowing costs which arose from the procurement of funds through a subordinated loan. As a result of this, ordinary
income improved by ¥11,732 million compared with the previous fiscal year, to ¥14,965 million (US$145 million) (up363.0% year on year).

Tokuyama Corporation Annual Report 201431

Extraordinary income/losses improved by ¥29,272 million compared with the previous fiscal year. This was largely
attributable to the fact that in the fiscal year under review the Company posted neither impairment loss on
polycrystalline silicon and concurrent fumed silica manufacturing facilities nor loss from inventory revaluation, both ofwhich were posted in the previous fiscal year.
As a result of the above, income/loss before income taxes and minority interests improved by ¥41,005 million comparedwith the previous fiscal year, to income of ¥12,939 million (US$125 million).
Income/loss before minority interests improved by ¥48,074 million from the previous fiscal year, to income of ¥10,493
million (US$101 million), mainly because the Company did not post a reversal of deferred tax assets in the fiscal year
under review, which was posted in the previous fiscal year. After deducting minority interests, the Company recorded
net income of ¥10,218 million (US$99 million). Net income/loss improved by ¥48,135 million from the previous fiscal
year.
Net income per share was ¥29.37 (US$0.285), up from net loss per share of ¥108.98 in the previous fiscal year.
Dividends per share were ¥6.00 (US$0.058).
Return on equity (ROE) and return on assets (ROA) were 4.6% and 1.8%, respectively, compared with -16.2% and-7.3% in the previous fiscal year.

Segment Information
The Tokuyama Group is composed of the parent company, Tokuyama Corporation (“the Company”), 54 subsidiaries
and 33 affiliated companies. The Group’s operations are divided into the four business segments of Chemicals,
Specialty Products, Cement, and Life & Amenity. For accounting purposes, 53 of the Company’s subsidiaries areconsolidated, while nine affiliates are accounted for using the equity method.
Chemicals
The Chemicals segment includes the operations of the Company and three consolidated subsidiaries.
With regard to vinyl chloride monomer (VCM), sales increased compared with the previous fiscal year. In addition to
the fact that difficulties at the Company’s VCM plant, which occurred in the previous fiscal year, were overcome, thiswas attributable to a rise in export prices resulting from the weaker yen.
With regard to caustic soda, the facility utilization rate of the electrolysis plant rose, as the above-mentioned difficulties
at the VCM plant were overcome. Due to this factor, domestic sales volume recovered.
With regard to polyvinyl chloride (PVC), we worked to revise selling prices to absorb a rise in the price of domestic
naphtha.
As a result of the above, segment net sales increased 11.8% compared with the previous fiscal year, to ¥86,457 million(US$839 million) and operating income increased 424.1% to ¥2,235 million (US$21 million). The segment reported
higher earnings on higher sales.

Tokuyama Corporation Annual Report 201432

Specialty Products
The Specialty Products segment includes the operations of the Company, five consolidated subsidiaries and one
equity-method affiliate.
With regard to semiconductor-grade polycrystalline silicon, although market conditions were about level with those of
the previous fiscal year, sales decreased due to a price slump in the supply chain. With regard to solar cell-grade
polycrystalline silicon, the market remained sluggish due to excess supply. Against this backdrop, we adopted a sales
strategy that focused on profits and as a result, sales volume was low. Despite the above, earnings in the polycrystalline
silicon business increased compared with the previous fiscal year, due largely to a decrease in depreciation expenses
after the impairment of manufacturing facilities in the previous fiscal year.
With regard to fumed silica and high-purity chemicals for electronics manufacturing, we revised selling prices in order
to absorb the rise of raw material and fuel prices. In addition to this, due to a rise in export prices arising from theweaker yen, sales of these products increased compared with the previous fiscal year.
As a result of the above, segment net sales decreased 0.7% compared with the previous fiscal year, to ¥52,483 million(US$509 million), while operating income was ¥6,090 million (US$59 million). The segment reported higher earnings
on lower sales.
Cement
The Cement segment comprises the operations of the Company, 17 consolidated subsidiaries and three equity-method
affiliates.
With regard to cement, sales volume increased due to the recovery in demand in Japan. In addition, the Company madeTokuyama Nouvelle Calédonie S.A. a subsidiary in June 2013. Due to these factors, sales increased compared with theprevious fiscal year.
In the recycling and environment-related business, the Company accepted a larger volume of waste as a result of its
higher cement production.
As a result of the above, segment net sales increased 12.9% compared with the previous fiscal year, to ¥78,981 million(US$766 million) and operating income increased 25.3% to ¥6,682 million (US$64 million). The segment reported
higher earnings on higher sales.
Life & Amenity
The Life & Amenity segment includes the operations of the Company, 15 consolidated subsidiaries and twoequity-method affiliates.
Sales volumes of plastic lens-related materials increased owing to the recovery from damage to the supply chain causedby the flooding in Thailand, which occurred in 2011.
With regard to polyolefin film, we revised selling prices to absorb price increases in raw materials and worked to
expand sales. Due to these efforts, sales increased compared with the previous fiscal year.
With regard to dental materials and equipment, sales increased due largely to sales expansion of products shipped tooverseas markets and a rise in export prices arising from the weaker yen.
With regard to plastic window sashes, sales volume increased due to business reconstruction and sales expansion on theback of the recovery in housing starts.
As a result of the above, segment net sales increased 11.9% compared with the previous fiscal year, to ¥57,057 million(US$553 million) and operating income increased 65.8% to ¥4,863 million (US$47 million). The segment reported
higher earnings on higher sales.

Financial Position and Liquidity
As of March 31, 2014, total assets amounted to ¥576,315 million (US$5,595 million), an increase of ¥58,064 million
from the figure of ¥518,251 million as of the previous fiscal year-end.
Current assets increased 3.0% compared with the previous fiscal year-end to ¥191,623 million (US$1,860 million). Thiswas due primarily to an increase in securities. Current liabilities fell 17.8% to ¥99,297 million (US$964 million). This

Tokuyama Corporation Annual Report 201433

mainly reflected a decrease in current portion of long-term loans payable. As a result, the current ratio was up to 1.93
times, from 1.54 times as of the previous fiscal year-end.
Property, plant and equipment increased 17.8% in comparison with the previous fiscal year-end to ¥323,100 million(US$3,136 million). This was due chiefly to an increase in construction in progress.
Intangible assets and investments and other assets rose 6.6% over the previous fiscal year-end to ¥61,591 million(US$597 million). This was primarily due to an increase in goodwill.
As of March 31, 2014, total liabilities amounted to ¥339,862 million (US$3,299 million), an increase of 15.5%
compared with the previous fiscal year-end figure of ¥294,380 million. The main contributory factor was an increase inlong-term loans payable. Interest-bearing debt increased 28.3% from ¥187,706 million as of the previous fiscal year-end
to ¥240,767 million (US$2,337 million).
Minority interests increased 7.4% from ¥6,316 million as of the previous fiscal year-end to ¥6,785 million (US$65
million). Net assets increased 5.6% compared with the previous fiscal year-end, from ¥223,871 million to ¥236,453
million (US$2,295 million). This was due chiefly to a decrease in retained earnings. The ratio of shareholders’ equity tototal assets was 39.9%, down from 42.0% as of the previous fiscal year-end. The amount of net assets per share was¥660.18 (US$6.410), up from ¥625.29 as of the previous fiscal year-end.

Capital Expenditures
Capital expenditures totaled ¥61,503 million (US$597 million), a decrease of 37.8% compared with the previous fiscal
year’s figure of ¥98,908 million.

Cash FlowsNet cash provided by operating activities totaled ¥34,105 million (US$331 million). Principal items included income
before income taxes and minority interests of ¥12,939 million (US$125 million), up from loss of ¥28,065 million in theprevious fiscal year, and depreciation and amortization of ¥16,642 million (US$161 million), down from ¥23,099
million in the previous fiscal year.
Net cash used in investing activities totaled ¥64,402 million (US$625 million). Major contributory factors werepurchase of property, plant and equipment, from ¥33,970 million in the previous fiscal year to ¥29,907 million (US$290
million), and net expenditure for money held in trust of ¥30,807 million (US$299 million) (¥24,980 million in theprevious fiscal year).
Net cash provided by financing activities came to ¥45,939 million (US$446 million). This was primarily attributable toproceeds from long-term loans payable of ¥68,829 million (US$668 million), up from ¥50,729 million in the previous
fiscal year, and repayments of long-term loans payable of ¥22,623 million (US$219 million) (¥12,530 million in theprevious fiscal year).
As a result of the above, cash and cash equivalents increased by ¥17,542 million (US$170 million) compared with theprevious fiscal year-end, to ¥69,973 million (US$679 million).

Tokuyama Corporation Annual Report 201434

Consolidated Balance Sheets
Tokuyama Corporation and Consolidated Subsidiaries

Years ended March 31, 2014 and 2013

M illions of yen
2013
2014
Assets :Current assets :Cash and deposits (Note 5)
Notes and accounts receivable - trade (Note 5)
Securities (Note 5, Note 15)
M erchandise and finished goods
Work in process
Raw materials and supplies
Deferred tax assets (Note 6)
Other
Allowance for doubtful accounts
Total current assets
Noncurrent assets :Property, plant and equipment :Buildings and structures (Note 5)
Accumulated depreciation
Buildings and structures, net
M achinery, equipment and vehicles (Note 5)
Accumulated depreciation
M achinery, equipment and vehicles, net
Tools, furniture and fixtures
Accumulated depreciation
Tools, furniture and fixtures, net
Land (Note 5)
Lease assets
Accumulated depreciation
Lease assets, net
Construction in progress
Total property, plant and equipment
Intangible assets
Goodwill
Lease assets
Other
Total intangible assets
Investments and other assets
Investment securities (Note 4 , Note 5)Long-term loans receivable
Deferred tax assets (Note 6)
Net defined benefit asset (Note 7)
Other (Note 7)
Allowance for investment loss
Allowance for doubtful accounts
Total investments and other assets
Total noncurrent assets
Total assets

See notes to consolidated financial statements

Tokuyama Corporation Annual Report 201435

Thousands of
U.S. dollars(Note 2)
2014

27,60567,49543,05014,131
9,896
17,878
1,068
10,635(138)
191,623

44,89765,371
8,310
20,275
13,277
17,110547
16,528(205)
186,114

268,015655,292
417,961
137,195
96,086
173,577
10,376103,253(1,341)
1,860,417

102,709(71,685)
31,024
441,874(392,062)
49,812
23,002(21,360)
1,642
32,667
2,156
(895)
1,261
206,692
323,100

100,129(68,452)
31,676
451,758(401,103)
50,65523,044(21,086)
1,958
32,895
1,482
(685)
796
156,388274,370

997,180(695,974)
301,206
4,290,043(3,806,428)
483,615
223,322(207,379)
15,943
317,163
20,937(8,690)12,246
2,006,724
3,136,899

3,608
29
6,493
10,131

175
22
7,757
7,955

35,031
289
63,03998,36033,334
3,473
839
7,804
6,264
(21)
(233)
51,460384,692
576,315

31,476
4,017
965
13,710(21)(337)
49,811
332,137
518,251

323,632
33,7238,145
75,76860,821(203)(2,268)499,619
3,734,879
5,595,297

Consolidated Balance Sheets
Tokuyama Corporation and Consolidated Subsidiaries

Years ended March 31, 2014 and 2013

M illions of yen
2013
2014
Liabilities :Current liabilities :Notes and accounts payable - trade
Short-term loans payable (Note 5)
Commercial papers (Note 5)
Current portion of long-term loans payable (Note 5)
Lease obligations (Note 5)
Income taxes payable (Note 6)
Deferred tax liabilities (Note 6)
Provision for bonuses
Provision for repairs
Provision for product warranties
Provision for restructuring
Other
Total current liabilities
Noncurrent liabilities :Bonds payable (Note 5)Long-term loans payable (Note 5)
Lease obligations (Note 5)
Deferred tax liabilities (Note 6)
Provision for retirement benefits (Note 7)
Provision for directors' retirement benefits
Provision for repairs
Allowance for loss on compensation for building materials
Provision for environmental measures
Net defined benefit liability (Note 7)
Asset retirement obligations
Other
Total noncurrent liabilities
Total liabilities

Thousands of
U.S. dollars(Note 2)
2014

40,08912,347
4,000
8,811
376
1,865
1
2,056
1,429
132
13
28,17399,29738,152
8,912
4,000
22,144
338
948
1,377
1,949
1,755
94
29
35,923
115,626

389,216
119,883
38,83485,547
3,653
18,113
12
19,965
13,8771,283
132273,529
964,050

50,000164,278
953
7,338
207
2,747
842
131
1,112
5
12,946
240,565
339,862

50,000101,796
514
5,993
969
214
2,687
1,276
156
5
15,138
178,753294,380

485,436
1,594,938
9,258
71,246
2,011
26,6768,183
1,281
10,80451
125,695
2,335,583
3,299,634

53,45857,67053,45857,670519,019559,904

107,155

99,0581,040,346(1,428)
216,856(1,414)
208,773(13,869)
2,105,401

8,369
749
2,710
982
12,811
6,785
236,453
576,315

7,566
2,238
(1,023)8,781
6,316
223,871518,251

81,254
7,277
26,315
9,536
124,382
65,8782,295,663
5,595,297

Contingent liabilities (Note 17)
Net assets :S hareholders' equity (Note 12) :Capital stock
Authorized：
700,000,000 shares
Issued：349,671,876 shares
Capital surplus
Retained earnings
Treasury stock2013 ：
1,742,749 shares2014 ：
1,782,644 shares
Total shareholders' equity
Accumulated other comprehensive income :Valuation difference on available-for-sale securities
Deferred gains or losses on hedges
Foreign currency translation adjustment
Remeasurements of defined benefit plans
Total accumulated other comprehensive income
Minority interests
Total net assets
Total liabilities and net assets

See notes to consolidated financial statements

Tokuyama Corporation Annual Report 201436

Consolidated Statements of Income
Tokuyama Corporation and Consolidated Subsidiaries

Years ended March 31, 2014 and 2013

Net sales
Cost of sales (Note 10)
Gross profit
S elling, general and administrative expenses (Note 9) :Selling expenses
General and administrative expenses (Note 10)
Total selling, general and administrative expenses
Operating income
Non-operating income :Interest income
Dividends income
Equity in earnings of affiliates
Foreign exchange gains
Technical support fee
OtherTotal non-operating income
Non-operating expenses :Interest expenses
Cost of idle operations
Borrowing cost
Other
Total non-operating expenses
Ordinary income
Extraordinary income :Gain on sales of noncurrent assets
Gain on sales of investment securities
State subsidy
Other
Total extraordinary income
Extraordinary loss :Loss on sales of noncurrent assets
Impairment loss (Note 11)
Loss on disaster
Loss on reduction of noncurrent assets
Loss on disposal of noncurrent assets
Loss on sales of investment securities
Loss on sales of shares of subsidiaries and associates
Cost of compensation for building materials
Other
Total extraordinary losses
Income (loss) before income taxes and minority interests
Income taxes (Note 6) :Current
Deferred
Total income taxes
Income (loss) before minority interests
Minority interests in income
Net income (loss)

M illions of yen
2013
2014
287,330
258,632
206,989
191,494
80,34067,13735,275
24,79460,06920,27034,131
26,23460,365
6,772

342,478
240,723
583,201
196,802

45
552
519
432
373
1,143
3,067

73
496
433
459
135
1,447
3,044

444
5,365
5,044
4,200
3,622
11,10029,778

2,755
2,309
1,916
1,390
8,372
14,965

2,364
2,778
1,442
6,584
3,232

26,751
22,426
18,607
13,50381,289145,291

212
379
3
96
692

692
156
184
1,033

2,063
3,688
34
939
6,725

84
374
120
1
1,671
1
78
336
49
2,717
12,939485
27,260
9
161
564
32
3,816
32,330(28,065)

818
3,635
1,166
17
16,229
12
761
3,264
480
26,386125,630

2,870
(423)
2,446
10,493274
10,218

1,850
7,665
9,515
(37,580)336(37,916)

27,865(4,111)
23,753
101,876
2,667
99,208Yen
2014
Per share amounts :Net income (loss)
Cash dividends

29.37
6.00

See notes to consolidated financial statements

Tokuyama Corporation Annual Report 201437

Thousands of
U.S. dollars(Note 2)2014
2,789,614
2,009,609
780,0042013(108.98)
3.00

U.S. dollars
2014
0.285
0.058

Consolidated Statements of Comprehensive Income
Tokuyama Corporation and Consolidated Subsidiaries

Years ended March 31, 2014 and 2013

Income (loss) before minority interests
Other comprehensive income
Valuation difference on available-for-sale securities
Deferred gains or losses on hedges
Foreign currency translation adjustment
Share of other comprehensive income of entities accounted for using equity
Total other comprehensive income
Total comprehensive income
Attributable to:
Owners of parent
M inority interests

See notes to consolidated financial statements

Tokuyama Corporation Annual Report 201438

M illions of yen
2013
2014
10,493(37,580)

Thousands of
U.S. dollars(Note 2)
2014
101,876816(1,488)
3,540
392
3,261
13,754

3,606
1,727
1,731
271
7,337
(30,243)

7,931(14,455)
34,375
3,811
31,662
133,538

13,265488(30,644)400

128,795
4,742

Consolidated Statements of Changes in Net Assets
Tokuyama Corporation and Consolidated Subsidiaries

Years ended March 31, 2014 and 2013
Millions of yen
Accumulated other comprehensive income[2014]
Shareholders' equity

Balance at beginning of year
Changes during the fiscal year
Cash dividends
Net income (loss)
Purchase of treasury stock
Disposal of treasury stock
Change of scope of consolidation
Net changes of items other thanshareholders' equity
Total changes of items during the period
Balance at end of year

Capitalstock

CapitalsurplusRetainedearnings

Treasurystock

53,45857,67099,058(1,414)(2,087)
10,218
(14)
0

(0)
(33)

53,45857,6708,097
107,155(13)(1,428)

Total

208,773

8,083
216,856

Shareholders' equity

Balance at beginning of year
Changes during the fiscal year
Cash dividends
Net income (loss)
Purchase of treasury stock
Disposal of treasury stock
Change of scope of consolidation
Net changes of items other thanshareholders' equity
Total changes of items during the period
Balance at end of year

CapitalsurplusRetainedearnings

Treasurystock

53,45857,670138,040(1,416)(1,043)(37,916)
(3)
5

(4)
(16)

53,45857,670(38,982)
99,0582(1,414)

Total

247,753(38,980)
208,773

Shareholders' equity

Balance at beginning of year
Changes during the fiscal year
Cash dividends
Net income (loss)
Purchase of treasury stock
Disposal of treasury stock
Change of scope of consolidation
Net changes of items other thanshareholders' equity
Total changes of items during the period
Balance at end of year

Capitalstock

CapitalsurplusRetainedearnings

519,019559,904

961,733(13,733) 2,026,923(20,267)
99,208(20,267)
99,208
(143)
4
(323)

(4)
(323)

519,019559,904

78,613
1,040,346(143)
8

Tokuyama Corporation Annual Report 2014

Total

(135)
78,478(13,869) 2,105,401

See notes to consolidated financial statements

39

2,238

Foreign
Remeasurements
currencyof definedtranslation
benefit plansadjustment(1,023)

-

Total

8,781

Minority
interests

Total
net assets

6,316

223,871(2,087)
10,218
(14)
0
(33)

802

(1,488)

3,733

982

4,029

469

4,499

802
8,369

(1,488)
749

3,733
2,710

982
982

4,029
12,811

469
6,785

12,582
236,453

Minority
interests

Total
net assets

6,198

255,460

Millions of yen
Accumulated other comprehensive income
Valuationdifference
DeferredForeign
Remeasurementsongains orcurrencyof defined
availablelosses
translation
benefit plansfor-saleon hedges adjustment
securities
3,965
510
(2,966)
-

Total

1,509

(1,043)(37,916)
(3)
1
(16)

[2014]

Treasurystock

Deferred
gains orlosseson hedges(2,087)
10,218(14)
0(33)[2013]

Capitalstock

Valuationdifferenceonavailablefor-salesecurities
7,566(1,043)(37,916)
(3)
1
(16)
3,601

1,727

1,943

-

7,272

117

7,390

3,601
7,566

1,727
2,238

1,943
(1,023)

-

7,272
8,781

117
6,316

(31,589)
223,871

Minority
interests

Total
net assets

61,322

2,173,505

Thousands of U.S. dollars (Note 2)
Accumulated other comprehensive income
Valuationdifference
DeferredForeign
Remeasurementsongains orcurrencyof defined
availablelosses
translation
benefit plansfor-saleon hedges adjustment
securities
73,461
21,733(9,934)-

Total

85,259(20,267)
99,208
(143)
4
(323)
7,793

(14,455)

36,2499,536

39,123

4,556

43,6797,793
81,254(14,455)
7,277

36,24926,315

9,536
9,536

39,123
124,382

4,556
65,878122,157
2,295,663

Consolidated Statements of Cash Flows
Tokuyama Corporation and Consolidated Subsidiaries

Years ended March 31, 2014 and 2013
Thousands of
U.S. dollars(Note 2)Millions of yen
2013
2014

2014

Ne t cash provide d by (use d in) ope rating activitie s
Income (loss) before income taxes and minority interests
Depreciation and amortization
Increase (decrease) in allowance for loss on compensation for building materials
Increase (decrease) in other provision
Increase(decrease) in net defined benefit liability
Increase(decrease) in net defined benefit asset
Interest and dividends income
Foreign exchange losses (gains)
Loss (gain) on sales of property, plant and equipment
Loss (gain) on sales of investment securities
Loss (gain) on sales of shares of subsidiaries and associates
Equity in (earnings) losses of affiliates
Subsidy income
Interest expenses
Borrowing cost
Loss on reduction of noncurrent assets
Impairment loss
Loss (gain) on disposal of noncurrent assets
Decrease (increase) in notes and accounts receivable - trade
Decrease (increase) in inventories
Decrease (increase) in other current assets
Increase (decrease) in notes and accounts payable - trade
Increase (decrease) in other current liabilities
Other, net
SubtotalInterest and dividends income received
Interest expenses paid
Income taxes paid
Ne t cash provide d by (use d in) ope rating activitie s

12,93916,642
(433)
(260)
118
629
(598)
(78)
(128)
(378)
78
(519)
(3)
2,755
1,800
1
374
1,671
(484)
9,485
(1,619)710(1,290)(3,310)38,100498(2,153)(2,340)34,105(28,065)
23,099(1,169)(1,277)
(569)
148
(207)
(156)
(433)
(184)
2,364
161
27,260564
4,939(2,080)(534)(3,581)
1,544(2,638)19,184891(2,333)(670)
17,071

125,630
161,579(4,208)(2,529)1,149
6,106(5,809)(761)(1,245)(3,675)761(5,044)(34)
26,751
17,47517
3,635
16,229(4,707)
92,091(15,723)
6,897(12,532)(32,141)
369,911
4,843(20,905)(22,727)
331,121

Ne t cash provide d by (use d in) inve sting activitie s
Payments into time deposits
Proceeds from withdrawal of time deposits
Purchase of property, plant and equipment
Proceeds from sales of property, plant and equipment
Purchase of investment securities
Proceeds from sales of investment securities
Purchase of shares of subsidiaries resulting in change in scope of consolidation
Payments of long-term loans receivableCollection of long-term loans receivable
Purchase of money held in trust
Proceeds from cancellation of money held in trust
Proceeds from subsidy income
Other, net
Ne t cash provide d by (use d in) inve sting activitie s

(37)
211
(29,907)
520
(812)
984
(4,115)(15)
257(34,300)
3,492
3
(682)
(64,402)(72)
540(33,970)
3,039
(706)
350
(416)
326
(25,000)
19
184(4,967)(60,673)

(364)
2,055
(290,361)
5,052(7,892)
9,555(39,958)
(153)
2,498
(333,009)
33,90634(6,625)(625,264)

Ne t cash provide d by (use d in) financing activitie s
Increase (decrease) in short-term loans payable
Proceeds of long-term loans payable
Repayment of long-term loans payable
Cash dividends paid
Cash dividends paid to minority shareholders
Decrease (increase) in treasury stock
Other, net
Ne t cash provide d by (use d in) financing activitie s

2,668
68,829(22,623)(2,080)
(397)
(97)
(359)
45,939(56)
50,729(12,530)(1,047)
(283)
(2)
(343)
36,46525,908668,242(219,649)(20,195)(3,863)(942)(3,485)446,014

1,485
17,12752,431641(6,493)58,476

14,418166,291
509,041

Effe ct of e xchange rate change on cash and cash e quivale nts
Ne t incre ase (de cre ase ) in cash and cash e quivale nts
Cash and cash e quivale nts at be ginning of pe riod
Incre ase (de cre ase ) in cash and cash e quivale nts re sulting from change of scopeof consolidation
Cash and cash e quivale nts at e nd of pe riod

See notes to consolidated financial statements

Tokuyama Corporation Annual Report 2014

40

414

448

4,024

69,97352,431

679,357

Notes to Consolidated Financial Statements
Tokuyama Corporation and Consolidated Subsidiaries

1. BASIS OF FINANCIAL STATEMENTS
The accompanying consolidated financial statements have been prepared from accounts and records maintained by
Tokuyama Corporation (the “Company”) and its subsidiaries. The Company and its consolidated domestic subsidiaries
have maintained their accounts and records in accordance with the provisions set forth in the Companies Act (the“Act”) and the Financial Instruments and Exchange Act and in conformity with accounting principles and practices
generally accepted in Japan, which are different from the accounting and disclosure requirements of International
Financial Reporting Standards.
The accounts of consolidated overseas subsidiaries are based on their accounting records maintained in conformity withgenerally accepted accounting principles and practices prevailing in the respective countries of domicile.
The consolidated financial statements are not intended to present the consolidated financial position, results ofoperations and cash flows in accordance with accounting principles and practices generally accepted in countries andjurisdictions other than Japan.
2. U.S. DOLLAR AMOUNTSThe U.S. dollar amounts included in the consolidated financial statements and notes represent the arithmetic results oftranslating Japanese yen to U.S. dollars at the rate of ¥103=US$1, the approximate exchange rate on March 31, 2014.
The U.S. dollar amounts are included solely for the convenience of readers outside Japan, and are not intended to imply
that the assets and liabilities that originated in yen have been or could be readily converted, realized, or settled in U.S.
dollars at this or at any other rate.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESCONSOLIDATION:
The consolidated financial statements include the accounts of the Company and its 53 significant subsidiaries (49 in2013). Significant intercompany transactions and accounts have been eliminated in consolidation.
In total, 17 subsidiaries are consolidated on the basis of their original fiscal years ended at December 31. Material
differences in intercompany transactions and accounts arising from the use of the different fiscal year-end areappropriately adjusted in consolidation.
Investments in 9 affiliates (9 in 2013) are accounted for by the equity method. Investments in unconsolidated
subsidiaries and affiliates not accounted for by the equity method are carried at cost.
The excess of investment cost over equity in net assets acquired is amortized on a straight-line basis over five years.
FOREIGN CURRENCY TRANSACTIONS:
Revenue and expenses items denominated in foreign currencies are translated into Japanese yen at the rates ofrespective transaction dates. Monetary assets and liabilities denominated in foreign currencies are translated into yen at
the exchange rate in effect at the balance sheet date and the resulting exchange gains or losses are credited or charged toincome as incurred.
FOREIGN CURRENCY FINANCIAL STATEMENTS (ACCOUNTS OF OVERSEAS SUBSIDIARIES AND
AFFILIATES):
All assets and liabilities are translated into yen at the exchange rate in effect at the balance sheet date except forshareholders’ equity, which is translated at the historical exchange rates. Revenue and expense accounts of theconsolidated overseas subsidiaries are translated at the average rates of exchange prevailing during the year. The
resulting translation adjustments are shown as “Foreign currency translation adjustments” in net assets.
CASH AND CASH EQUIVALENTS:
Cash and cash equivalents include all highly liquid time deposits with maturities of three months or less, and certificatesof deposit included in securities.

Tokuyama Corporation Annual Report 201441

MARKETABLE AND INVESTMENT SECURITIES:
Securities are classified into four groups: trading securities, held-to-maturity debt securities, securities of subsidiaries
and affiliates, and available-for-sale securities. Trading securities are stated at fair market value, held-to-maturity debt
securities at amortized cost, and securities of subsidiaries and affiliates are stated at cost determined by themoving-average method. Available-for-sale securities with a quoted current price are stated at fair value, and those
without a quoted current price are stated at cost determined by the moving-average method. Net unrealized gains orlosses of available-for-sale securities are stated as “Valuation difference on available-for-sale securities” in net assets
after applying tax effect accounting. The Company and its subsidiaries do not hold trading securities.
INVENTORIES:
Inventories held for sale in the ordinary course of business are stated at cost determined mainly by the moving-averagemethod. The balance sheet value of the inventories is determined by write-down based on their decreased profitability.
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment are stated at cost. Depreciation is computed mainly by the straight-line method forbuildings, and mainly by the declining-balance method for property, plant and equipment other than buildings at rates
based on the estimated useful lives of assets prescribed by the Corporation Tax Act. The range of estimated useful lives
is principally from 3 to 75 years for buildings and structures, and from 2 to 20 years for machinery, equipment andvehicles.
Significant renewals and betterments are capitalized. Maintenance expenses are charged to income as incurred.
RESEARCH AND DEVELOPMENT EXPENSES:
Research and development expenses are charged to income as incurred.
DERIVATIVES AND HEDGE ACCOUNTING:
All derivative financial instruments, except hedging instruments, are stated at fair value. For the method of hedge
accounting, in general, the deferral hedge accounting is applied. Among hedging instruments, Interest rate swaps that
fulfill the requirement for preferential treatment are subjected to the preferential treatment. The Company uses forward
exchange contracts and interest rate swaps in hedging instruments subject to hedge accounting.
The Company utilizes financial derivative transactions only for the purpose of hedging foreign exchange risk arisingfrom normal operating activities and for managing interest rate risks. The Company does not hold or issue derivatives
for dealing or speculative purposes. All derivative transactions are performed and controlled by the financial section.
Directors in charge approve all derivative transactions entered into.
As the counterparties to these derivative transactions are limited to major financial institutions with high credit
standings, the Company does not anticipate nonperformance by the counterparties to these agreements, and no material
losses are expected.
LEASES:
Leased assets related to finance lease transactions that do not transfer ownership are depreciated by the straight-line
method using the lease term as the useful life and until the residual value becomes zero.
With respect to finance lease transactions that do not transfer ownership whose starting date was on or before March 31,
2008, the accounting treatment similar to that applicable to ordinary rental transactions continues to be applied.
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
The allowance for doubtful accounts of the Company and its consolidated subsidiaries is provided in amounts sufficient
to cover possible losses on collection. In determining the allowance for doubtful accounts for normal receivables,
regard is taken of the historical default rate. With receivables where there is an acknowledged credit risk, allowances for
doubtful accounts are provided for taking account of collectability on a case-by-case basis.
INCOME TAXES:
The tax effects of temporary differences between the carrying amounts of assets and liabilities for tax and financial
reporting is recognized as deferred tax assets (liabilities). The provision for income taxes is computed based on thepretax income included in the consolidated statement of income. The asset and liability approach is used to recognize

Tokuyama Corporation Annual Report 201442

deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax
purposes.
RETIREMENT BENEFITS:(i) Employees
Recognition of accrued retirement benefits for employees for the fiscal year under review is based on actual valuationof projected benefit obligations and plan assets at the end of the fiscal year.
Prior service costs are charged to income as incurred.
Actuarial differences are amortized by using the straight-line method over a period of time within the average remaining
service period of employees (mainly 16 years), from the subsequent fiscal year when they are incurred.
(ii) Directors and corporate auditors
Certain consolidated subsidiaries record accrued retirement benefits for directors and corporate auditors on the basis of
the amounts required as of the end of the fiscal year under review based on internal rules.
ACCOUNTING FOR CONSUMPTION TAX:
Consumption tax and local consumption tax are accounted for using the tax-excluded method. The consumption tax
amount not subject to tax credit is classified as a period expense.
NET INCOME PER SHARE:
Net income per share is computed by dividing net income available to common stockholders by the weighted average
number of common shares outstanding during each fiscal year. Diluted net income per share is calculated based on theassumption that all diluted convertible bonds were converted at the beginning of the fiscal year. Diluted net income pershare for the fiscal years ended March 31, 2014, 2013 and 2012 was not presented because there was no dilutive effecton any assumed conversion of convertible bonds for the fiscal years ended March 31, 2014, 2013 and 2012.
ADOPTION OF THE ACCOUNTING STANDARD FOR RETIREMENT BENEFITS:
Effective from the end of the fiscal year under review, the Company adopted the “Accounting Standard for Retirement
Benefits” (ASBJ Statement No. 26, issued on May 17, 2012; hereinafter “Retirement Benefits Accounting Standard”)
and the “Guidance on Accounting Standard for Retirement Benefits” (ASBJ Guidance No. 25, issued on May 17, 2012;
hereinafter “Retirement Benefits Implementation Guidance”); except for, however, the provisions specified under themain clause of Section 35 of Retirement Benefits Accounting Standard and the main clause of Section 67 of Retirement
Benefits Implementation Guidance. Under the new accounting policy, the amount of benefit obligations less plan assets
is recorded as net defined benefit liabilities (in case that the amount of plan assets exceeds benefit obligations, it isrecorded as net defined benefit assets), and the unrecognized actuarial differences were recorded in net defined benefit
liabilities.
Retirement Benefits Accounting Standard and Retirement Benefits Implementation Guidance are adopted in accordancewith the transitional treatment as provided for in Section 37 of the Retirement Benefits Accounting Standard, and theeffects associated with this change were reflected by adding or subtracting an amount from remeasurements of defined
benefit plans under accumulated other comprehensive income in the fiscal year under review.
As a result, as of the end of the fiscal year under review, net defined benefit assets of ¥7,804 million (US$75 million)
and net defined benefit liabilities of ¥1,112 million (US$10 million) were recorded, and accumulated othercomprehensive income increased by ¥982 million (US$9 million).
Net assets per share increased by ¥2.82 (US$0.027).

Tokuyama Corporation Annual Report 201443

4. SECURITIES
Held-to-maturity debt securities at March 31, 2014 were as follows:

Millions of yen
Fair value

Book value
Held-to-maturity debt securities :Government and municipal bonds
Corporate bonds
Other
Total

3
3

Unrealized gain
3
3-

Thousands of U.S. Dollars
Book value
Fair value
Unrealized gain
Held-to-maturity debt securities :Government and municipal bonds
Corporate bonds
Other
Total

33
33

33
33

-

Millions of yen
Acquisition cost

Unrealized gain

13,92813,92812,945
12,945

Available-for-sale securities at March 31, 2014 were as follows:Book value
Available-for-sale securities:
Equity securities
Total

26,874
26,874

Thousands of U.S. Dollars
Book value
Acquisition cost Unrealized gain
Available-for-sale securities:
Equity securities
Total

260,919
260,919

135,230
135,230

125,688
125,688

The sales amount of available-for-sale securities for the fiscal year ended March 31, 2014 was as follows:

Millions of yen
Gain on sales

Proceeds
Available-for-sale securities sold during 2014 :Equity securities
Debt securities
Government and municipal bonds
Corporate bonds
Other
Other
Total

Loss on sales

921

379

1

921

379

1

Thousands of U.S. Dollars
Proceeds
Gain on sales
Loss on sales
Available-for-sale securities sold during 2014 :Equity securities
Debt securities
Government and municipal bonds
Corporate bonds
Other
Other
Total
Tokuyama Corporation Annual Report 2014

44

8,944

3,688

12

8,944

3,688

12

5. BORROWINGS
Bonds payable at March 31, 2014 and 2013 were as follows:

Millions of yen
2014
2013
0.537% unsecured bonds in yen
due September 9, 2015
0.575% unsecured bonds in yen
due September 8, 2016
1.760% unsecured bonds in yen
due March 10, 2020
1.478% unsecured bonds in yen
due September 9, 2020
1.371% unsecured bonds in yen
due September 8, 2021
Total

Thousands of
U.S. Dollars

2014

5,000

5,000

48,543

10,00010,00097,087

10,00010,00097,087

15,00015,000145,631

10,00010,00097,08750,00050,000485,436

The aggregate annual maturities at March 31, 2014 are summarized as follows:
Millions of yen

Thousands of
U.S. Dollars

5,000
10,00035,00050,00048,54397,087
339,805
485,436

Year ending March 31
2015
2016
2017
2018
2019
Thereafter
Total

Loans payable at March 31, 2014 and 2013 were as follows:

Short-term loans payable (1.39%)
Current portion of long-term loans payable(1.64%)
Current portion of lease obligations
Long-term loans payable, due in 2015-2074(1.99%)
Lease obligations, due in 2015-2020
Commercial papers (0.10%)
Total

Tokuyama Corporation Annual Report 2014

Millions of yen
2014
2013
12,347
8,912

Thousands of
U.S. Dollars

2014
119,883

8,811

22,14485,547

376

338

3,653

164,278

101,796

1,594,938

953
4,000
190,767514
4,000
137,706

9,258
38,834
1,852,115

45

The aggregate annual maturities of long-term loans payable at March 31, 2014 are summarized as follows:
Millions of yen

Thousands of
U.S. Dollars

8,811
17,111
9,171
7,071
10,208120,715
173,090

85,547
166,133
89,04468,652
99,112
1,171,995
1,680,486

Year ending March 31
2015
2016
2017
2018
2019
Thereafter
Total

The aggregate annual maturities of lease obligations at March 31, 2014 are summarized as follows:
Millions of yen

Thousands of
U.S. Dollars

376
242
191
172
162
184
1,329

3,653
2,355
1,855
1,675
1,577
1,793
12,911

Year ending March 31
2015
2016
2017
2018
2019
Thereafter
Total

Assets pledged as collateral for certain loans and other liabilities at March 31, 2014 and 2013 are summarized asfollows:

Millions of yen
2014
2013
Pledged Assets
Cash and deposits
Notes and accounts receivable - trade
Securities
Buildings and structures
Machinery, equipment and vehicles
Land
Investment securities
Total

Tokuyama Corporation Annual Report 2014

228
18
2,245
2,332
785
3
5,613

46

227
51
10
2,268
2,643
890
3
6,095

Thousands of
U.S. Dollars

2014
2,222
174
21,80322,6447,624
33
54,504

The Company has a loan commitment agreement with eight banks in order to procure operating capital efficiently.
The balance of unexecuted loans under this agreement at March 31, 2014 and 2013 was as follows:

Lines of credit
Credit used
Available credit

Millions of yen
2014
2013
15,00015,00015,00015,000Thousands of
U.S. Dollars

2014
145,631
145,631

The Company has an agreement for a term-out medium-term commitment line with The Bank of Tokyo-Mitsubishi UFJ,
Ltd. in order to efficiently raise funds for its polycrystalline silicon second plant construction project in Malaysia.
The balance of unexecuted loans under this agreement at March 31, 2014 and 2013 was as follows:

Lines of credit
Credit used
Available credit

Millions of yen
2014
2013
50,00050,00050,00050,000Thousands of
U.S. Dollars

2014
485,436
485,436

6. INCOME TAXESThe Company and its domestic consolidated subsidiaries are subject to a number of income taxes that, in the aggregate,
indicate a statutory tax rate in Japan for the respective fiscal years. Overseas subsidiaries are subject to income taxes ofcountries where they are domiciled.
The significant differences between the statutory tax rate and effective tax rate for consolidated financial statement
purposes for the fiscal years ended March 31 were summarized as follows.

Statutory tax rate
Increase (decrease) in income taxes resulting from：
Change in valuation allowance allocated to income tax
expenses
Inter-company eliminations of allowance for investment loss
Permanent difference
Equity in earnings of affiliates
Effect of tax credits
Amortization of goodwill
Inter-company eliminations of provision for loss on businessof subsidiaries and affiliates
Retained earnings of subsidiaries and affiliates
Difference tax rate of recovery special tax
Unrealized intercompany profits
Lower tax rates of overseas consolidated subsidiaries
Inter-company eliminations of allowance for doubtful
accounts
Inter-company eliminations of dividends income
Other
Effective income tax rate
Tokuyama Corporation Annual Report 2014

47

2014
2013
37.8 % This informationis omitted, as thecompany posted(34.9)
a loss before
income taxes(7.2)
during the period(6.1)
under review.
(1.4)
(1.4)
1.1
1.1
1.2
2.1
3.1
5.1
7.1
8.1
3.3
18.9 %

Significant components of deferred tax assets and liabilities at March 31, 2014 and 2013 were as follows:

Millions of yen
2014
2013

Thousands of U.S.
Dollars

2014

Deferred tax assets：
Deficits
Property, plant and equipment
Provision for repairs
Provision for bonuses
Other
SubtotalLess valuation allowance
Total deferred tax assets

9,122
8,618
1,313
735
947
20,738(18,389)
2,348

9,845
10,971
1,487
742
2,108
25,156(23,021)2,135

88,564
83,67812,7557,140
9,203
201,343(178,541)
22,801

Deferred tax liabilities：
Valuation difference of available-for-sale securities
Appropriations for advanced depreciation
Retained earnings of subsidiaries and affiliates
Other
Total deferred tax liabilities
Net deferred tax assets/(liabilities)(4,554)(1,581)(776)(867)(7,780)(5,431)(4,143)(1,544)(531)(1,773)(7,993)(5,858)(44,220)(15,355)(7,543)(8,419)(75,539)(52,737)

7. RETIREMENT AND SEVERANCE PLAN
The Company and its consolidated domestic subsidiaries have lump-sum severance benefits plans and defined benefit
pension plans as vested benefits system (DB scheme). They also have defined contribution pension plans as DC
scheme.
The Company and its consolidated domestic subsidiaries may pay, under certain circumstances, extra retirement
allowances when their employees leave the Companies.
The Company has a retirement benefit trust.
Benefit obligations for the fiscal year ended March 31, 2013 were as follows:

Millions of yen
2013(18,832)
23,203
4,371
1,553
5,924
6,894
(969)

Project benefit obligation
Fair value of plan assets
Funded status
Unrecognized actuarial loss
Net amount shown on balance sheets
Prepaid pension expense
Provision for retirement benefits

Benefit costs for the fiscal year ended March 31, 2013 were as follows:

Millions of yen
2013
Service cost
Interest cost
Recognized actuarial loss
Benefit cost
Other
Total
Tokuyama Corporation Annual Report 2014

916
386
582
1,884
462
2,347
48

Assumptions used in the actuarial calculation for the fiscal year ended March 31, 2013 were as follows:

Period allocation method for
estimated retirement benefits
Discount rate
Expected return on plan assets
Period of amortization of priorservice cost
Period of amortizing actuarial
differences

Straight-line method for the period
Mainly 2.0%
Mainly 0.0%
Charge off all at once
Mainly 16 years

The reconciliation of beginning and ending balances of benefit obligations for the fiscal year ended March 31, 2014 was
as follows:

Balance of defined benefit obligations at beginning of year
Service cost
Interest cost
Occurrence of actuarial loss
Payments of retirement benefits
Occurrence of prior service cost
Other
Balance of defined benefit obligations at end of year

Millions of yen
2014
18,832
860
358
(190)
(1,609)642
18,301Thousands of U.S.
Dollars

2014
182,8378,353
3,484(1,846)(15,624)66
413
177,684

The reconciliation of beginning and ending balances of plan assets for the fiscal year ended March 31, 2014 was asfollows:

Millions of yen
2014
23,203
3
2,533
699(1,447)
24,992

Balance of plan assets at beginning of year
Expected return on plan assets
Occurrence of actuarial loss
Corporation's contributions
Payments of retirement benefits
Balance of plan assets at end of year

Tokuyama Corporation Annual Report 201449

Thousands of U.S.
Dollars2014
225,274
33
24,597
6,792(14,048)242,648

As at March 31, 2014, the reconciliation of the ending balance of benefit obligations and plan assets to net defined
benefit liabilities and net defined benefit assets recorded on the balance sheet was as follows:
Thousands of U.S.
Dollars

Unfunded defined benefit obligations

Millions of yen
2014
17,283(24,992)(7,709)1,018

Net amount shown on balance sheets(6,691)(64,963)

Net defined benefit liability
Net defined benefit asset

1,112(7,804)

10,804(75,768)

Net amount shown on balance sheets(6,691)(64,963)

Funded defined benefit obligations
Plan assets

2014
167,798(242,648)(74,850)
9,886

Benefit costs and a breakdown of the benefit costs for the fiscal year ended March 31, 2014 were as follows:

Millions of yen
2014
860
358
(3)
350
6
53
1,626

Service cost
Interest cost
Expected return on plan assets
Recognized actuarial loss
Amortization of prior service cost
Other
Periodic benefit costs of retirement benefit plan

Thousands of U.S.
Dollars

2014
8,353
3,484
(33)
3,398
66
523
15,793

The remeasurements of defined benefit plans for the fiscal year ended March 31, 2014 were as follows:

Millions of yen
2014(1,519)(1,519)Unrecognized actuarial loss
Total

Thousands of U.S.
Dollars

2014(14,756)(14,756)

Principal items of plan assets for the fiscal year ended March 31, 2014 were as follows:

31 %
19
17
7
23
3
100

Domestic stocks
Foreign stocks
Domestic bonds
Foreign bonds
Insurance product (General account)
Other
Total

(Note) The total of plan assets includes the retirement benefit trust, which has been established for the Company’s
pension plans, of 10%.

Tokuyama Corporation Annual Report 2014

50

Method for setting the expected long-term rate of return
The expected long-term rate of return on plan assets has been set based on the allocation of the plan assets as well as thecurrent and expected rate of return from each category of the plan assets.
Items regarding the basis for calculation used in the actuarial calculation for the fiscal year ended March 31, 2014 wereas follows:

Discount rate
Expected long-term return on plan assets

Mainly 2.0%
Mainly 0.0%

Defined contribution scheme
The amount which the Company and its consolidated subsidiaries were required to contribute to the defined
contribution scheme was ¥529 million (US$5 million).

8. LEASES(1)Lessee(i)Finance lease
Lease payments on finance lease contracts that do not transfer ownership for the fiscal year ended March 31, 2014
amounted to ¥36 million (US$350 thousand). Lease payments corresponding to depreciation expenses for the fiscal
year ended March 31, 2014, which were computed by the straight-line method over a period up to the maturity of therelevant lease contracts with no residual value, amounted to ¥15 million (US$150 thousand).
If the leases were capitalized, the acquisition cost of assets and accumulated depreciation etc. at March 31, 2014 and2013 would be as follows:

Machinery, equipment and vehicles
Tools, furniture and fixtures
Less accumulated depreciation
Less accumulated impairment
Total

Millions of yen
2014
2013
56
324
(345)
(20)
14

Thousands of
U.S. Dollars

2014-

The future lease payments on finance leases at March 31, 2014 and 2013 were as follows:

Due within one year
Due beyond one year
Total

Millions of yen
2014
2013
28
7
35

Thousands of
U.S. Dollars

2014-(ii) Operating lease
The future lease payments on noncancellable operating lease transactions at March 31, 2014 and 2013 were as follows.

Due within one year
Due beyond one year
Total

Tokuyama Corporation Annual Report 2014

Millions of yen
2014
2013
491
491
689
1,180
1,180
1,671

51

Thousands of
U.S. Dollars

2014
4,767
6,693
11,461

(2) Lessor(i) Operating lease
The future lease payments on noncancellable operating lease transactions at March 31, 2014 and 2013 were as follows.

Millions of yen
2014
2013
9
9
141
151
151
161

Due within one year
Due beyond one year
Total

Thousands of
U.S. Dollars

2014
93
1,375
1,469

9. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling expenses for the fiscal years ended March 31, 2014 and 2013 were as follows:

Millions of yen
2014
2013
Selling expenses :Freight-out expenses
Salaries and bonuses
Shipping charges
Provision for bonuses
Retirement benefit expenses
Provision of allowance for doubtful accounts
Provision for repairs

19,413
4,947
4,739
264
165
22
0

18,667
4,900
4,755
251
197
(88)
2

Thousands of U.S.
Dollars

2014
188,482
48,03346,015
2,564
1,609
217
6

General and administrative expenses for the fiscal years ended March 31, 2014 and 2013 were as follows:

Millions of yen
2014
2013
General and administrative expenses :Technical research expenses
Salaries and bonuses
Provision for bonuses
Retirement benefit expenses
Provision for directors' retirement benefits

7,816
5,146
291
231
59

8,905
5,159
281
280
55

Thousands of U.S.
Dollars

2014
75,891
49,964
2,834
2,249
574

10. RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses for the fiscal years ended March 31, 2014 and 2013 were as follows:

Millions of yen
2014
2013
Research and development
expenses

Tokuyama Corporation Annual Report 2014

8,709

10,07652

Thousands of U.S.
Dollars

2014
84,557

11. IMPAIRMENT LOSSThe Company’s Group groups its assets mainly according to the smallest units independently generating cash flows
based on business categories. During the fiscal year ended March 31, 2014, the Group recorded impairment losses forthe following asset groups.

Use

Location

Demonstration
facilities forsapphire
substrate

Misato-cho,Senboku-gun,
Akita

Asset category

Thousands of U.S.
Dollars

Millions of yen
2014

2014

Buildings and structures

144

1,401

Machinery, equipment and vehicles

59

576

Tools, furniture and fixtures
Total

16
220

164
2,142

Because the Company decided to discontinue the commercialization of sapphire single crystal wafers, the book value ofthe assets of this business was written down to the recoverable value, and the amount of the write-downs was accounted
for as an impairment loss in the extraordinary loss.
The recoverable value was measured based on the net selling value, and was valued based on the planned sales value.

Use
Land to let

Location
Imabari-shi,
Ehime

Asset category
Land

Thousands of U.S.
Dollars

Millions of yen
2014

2014

148

1,439

With regard to land located in Imabari, Ehime Prefecture, because there was a significant difference between the bookvalue and the market value due to a drop in the price of land, the book value of this asset was written down to therecoverable value, and the amount of the write-downs was accounted for as an impairment loss in the extraordinaryloss.
The recoverable value was measured based on the net selling value. The net selling value was valued based on theappraisal evaluated by a real estate appraiser.

Use
Idle fixed
assetsLocation
Hakuba-mura,
Kitaazumi-gun,
NaganoAsset category
Land

Thousands of U.S.
Dollars

Millions of yen
2014

2014
5

54

With regard to idle land owned by Figaro Engineering Inc., because there was a significant difference between the bookvalue and the market value due to a drop in the price of land, the book value of this asset was written down to therecoverable value, and the amount of the write-downs was accounted for as an impairment loss in the extraordinaryloss.
The recoverable value was measured based on the net selling value. The net selling value was valued based on theappraisal evaluated by a real estate appraiser.

12. SHAREHOLDERS’ EQUITYThe “Act” provides that an amount equal to 10% of dividends from surplus shall be appropriated and set aside as a legal
reserve until the total amount of legal reserve and additional paid-in capital equals 25% of capital stock.
On condition that the total amount of legal reserve and additional paid-in capital remains being equal to or exceeding
25% of capital stock, they are available for distributions and certain other purposes by the resolution of the shareholders’meeting.

Tokuyama Corporation Annual Report 2014

53

The legal reserve is included in the retained earnings and is not allowed to show separately in the accompanying
consolidated financial statements.

13. ASSET RETIREMENT OBLIGATIONS
Since the amount of asset retirement obligations at the fiscal year-end under review was immaterial, the preparation ofan asset retirement obligations schedule was omitted.

14. SEGMENT INFORMATION
BUSINESS SEGMENT INFORMATION(1) Summary of reportable segments
The reportable segments in the Company Group are defined as individual units, where separate financial information isavailable and which are subject to regular review to evaluate their results and decide the allocation of management
resources by the board of directors of the Company.
The Company has business divisions by product group, and the Company Group conducts business operations througheach business division devising its comprehensive product strategy for domestic and overseas markets.
The Company Group is, therefore, composed of segments by product group based on business divisions, and has four
reportable segments, “Chemicals,” “Specialty Products,” “Cement,” and “Life & Amenity.”
Main products and services of each reportable segment are as follows:
Chemicals: Caustic soda, soda ash, calcium chloride, sodium silicate, vinyl chloride monomer, polyvinyl chloride resin,
propylene oxide, isopropyl alcohol and methylene chloride
Specialty Products: Polycrystalline silicon, fumed silica, aluminum nitride, metal cleaning solvent, high-purity
chemicals for electronics manufacturing, and environment-related equipment
Cement: Ordinary Portland cement, high early strength Portland cement, Portland blast-furnace slag cement,
ready-mixed concrete, cement-type soil solidifier and waste treatment
Life & Amenity: Polyolefin film, plastic window sashes, medical diagnosis systems, dental materials and equipment, gassensors, ion exchange membranes, active pharmaceutical ingredients and intermediates, plastic lens-related materials
for glasses, and microporous film

(2) Calculation of sales, income (loss), assets and other financial items by reportable segment
The accounting treatment methods applied to reportable segments are identical to those stated in “3. SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES.”
Inter-segment sales or transfer are based on market prices.
Reportable segment’s income (loss) is based on operating income.
[2014]

Millions of yen
Chemicals

Specialty
Products

CementLife &
Amenity

Others*1

Total

Adjustment*2

Consolidated*3

Sales
Sales to customers
Inter-segment sales/transfer
Total sales
Segment income
Segment assets
Other items

85,385
1,071
86,4572,235
55,421

41,89010,59352,483
6,090
256,736

78,814
166
78,981
6,682
58,05855,552
1,505
57,057
4,863
51,13325,687
21,59447,281
4,168
28,374

287,330
34,931
322,262
24,041
449,724(34,931)(34,931)(3,770)126,590

287,330
287,330
20,270576,315

Depreciation and amortization

2,967

1,676

2,776

2,005

1,349

10,774

5,868

16,642

Increase in tangible andintangible fixed assets

1,142

53,871

2,824

2,309

1,239

61,386

117

61,503Tokuyama Corporation Annual Report 2014

54

(Note 1) The “Others” segment comprises businesses other than those of the reportable segments. Concretely, thesegment includes overseas sales companies, a distribution company, a real estate business, etc.
(Note 2) The segment income adjustment amount consists mainly of basic R&D expenses that are not allocable to a
specific reportable segment. Included in the segment assets adjustment amount are corporate assets that are notallocated to a specific reportable segment (¥145,249 million).
(Note 3) With regard to segment income, operating income in the consolidated financial statements has been calculated
by making an adjustment to the sum total of the reportable segments’ income and the “Others” segment’s income.
[2013]

Millions of yen
Chemicals

Specialty
Products

CementLife &
Amenity

Others*1

Total

Adjustment*2

Consolidated*3

Sales
Sales to customers
Inter-segment sales/transfer
Total sales
Segment income
Segment assets
Other items

76,384968
77,352426
52,664

44,235
8,608
52,844391
212,008

69,776
184
69,961
5,333
48,79749,267
1,742
51,0092,932
44,887

18,96821,18740,1562,615
26,563

258,632
32,691
291,324
11,699384,922(32,691)(32,691)(4,927)
133,328

258,632
258,632
6,772
518,251

Depreciation and amortization

3,498

7,176

2,628

1,795

1,260

16,358

6,741

23,099

Increase in tangible andintangible fixed assets

2,234

86,582

3,013

3,601

824

96,256

2,652

98,908(Note 1) The “Others” segment comprises businesses other than those of the reportable segments. Concretely, thesegment includes overseas sales companies, a distribution company, a real estate business, etc.
(Note 2) The segment income adjustment amount consists mainly of basic R&D expenses that are not allocable to a
specific reportable segment. Included in the segment assets adjustment amount are corporate assets that are notallocated to a specific reportable segment (¥150,319 million).
(Note 3) With regard to segment income, operating income in the consolidated financial statements has been calculated
by making an adjustment to the sum total of the reportable segments’ income and the “Others” segment’s income.
[2014]

Thousands of U.S. Dollars
Chemicals

Specialty
Products

CementLife &
Amenity

Others*1

Total

Adjustment*2

Consolidated*3

Sales
Sales to customers
Inter-segment sales/transfer
Total sales
Segment income
Segment assets
Other items

828,986
10,406
839,393
21,708538,073

406,702102,845
509,548
59,1342,492,589

765,1881,620
766,808
64,879563,673

539,341
14,619553,960
47,220496,444249,395
209,652
459,047
40,469275,4782,789,614
339,144
3,128,758
233,411
4,366,259(339,144)(339,144)(36,608)
1,229,037

2,789,614
2,789,614
196,8025,595,297

Depreciation and amortization

28,806

16,274

26,95919,466

13,100104,606

56,973

161,579

Increase in tangible andintangible fixed assets

11,090523,019

27,422

22,423

12,029595,985

1,137

597,123(Note 1) The “Others” segment comprises businesses other than those of the reportable segments. Concretely, thesegment includes overseas sales companies, a distribution company, a real estate business, etc.
(Note 2) The segment income adjustment amount consists mainly of basic R&D expenses that are not allocable to a
specific reportable segment. Included in the segment assets adjustment amount are corporate assets that are notallocated to a specific reportable segment (US$1,410 million).
(Note 3) With regard to segment income, operating income in the consolidated financial statements has been calculated
by making an adjustment to the sum total of the reportable segments’ income and the “Others” segment’s income.

Tokuyama Corporation Annual Report 201455

RELATED INFORMATION
Information by Region(1) Sales

Japan
Asia
Others
Total

Millions of yen
2014
2013
233,557
216,496
40,176
31,13813,596
10,997287,330
258,632

Thousands of U.S.
Dollars

2014
2,267,545
390,061
132,0072,789,614(2) Property, plant and equipment

Japan
Malaysia
Others
Total

Millions of yen
2014
2013
107,398
112,203201,256
151,383
14,445
10,784
323,100
274,370

Thousands of U.S.
Dollars

2014
1,042,704
1,953,950
140,244
3,136,899

INFORMATION ON IMPAIRMENT LOSS OF NON-CURRENT ASSETS BY REPORTABLE SEGMENT[2014]

Millions of yen
Specialty
Products

Chemicals

Impairment loss-

Life &
Amenity

Cement--[2013]

Others5

Adjustment
-

Total

368

374

Millions of yen
Specialty
Products

Chemicals

Impairment loss-

Life &
Amenity

Cement26,631-[2014]

Others38

Adjustment
-

590

Total
27,260Thousands of U.S. Dollars
Specialty
Products

Chemicals

Impairment loss

Tokuyama Corporation Annual Report 2014-

Life &
Amenity

Cement--56

Others54

Adjustment
-

3,581

Total
3,635

INFORMATION ON AMORTIZATION OF GOODWILL AND UNAMORTIZED BALANCE BYREPORTABLE SEGMENT[2014]

Millions of yen
Specialty
Products

Chemicals

Amortization of goodwill
Unamortized balance-Life &
Amenity

Cement
-

419
3,622

[2013]

Others0-

Adjustment
-

-

Total
419
3,622

Millions of yen
Specialty
Products

Chemicals

Amortization of goodwill
Unamortized balance-Life &
Amenity

Cement-65
218[2014]

Others3-

Adjustment
-

Total

-

69
218

Thousands of U.S. Dollars
Specialty
Products

Chemicals

Amortization of goodwill
Unamortized balance-Life &
Amenity

Cement-4,070
35,172[2014]

Others0-

Adjustment
-

-

Total
4,070
35,172Millions of yen
Specialty
Products

Chemicals

Amortization of negative
Unamortized balance-Life &
Amenity

Cement-29
14[2013]

Others-Adjustment
-

Total

-

29
14

Millions of yen
Specialty
Products

Chemicals

Amortization of negative
Unamortized balance-Life &
Amenity

Cement-29
43[2014]

Others-Adjustment
-

Total

-

29
43

Thousands of U.S. Dollars
Specialty
Products

Chemicals

Amortization of negative
Unamortized balance-

Cement-282
141

Life &
Amenity

Others-Adjustment
-

-

Total
282
141

15. FINANCIAL INSTRUMENTS(1) Management policy on financial instruments
The Company’s Group raises necessary funds (mainly with bank loans and by the issuance of corporate bonds) in linewith its business investment program to implement its growth strategies, such as “Further select and concentrate foraggressive business expansion,” “Create new businesses for us to win in the global markets,” and “Reinforce
competitiveness by improving productivity” based on two basic strategies, “Strengthen strategically growing businesses”
and ”Bolster our international competitiveness.”
The Group invests occasional spare cash in financial assets with high safety, and raises short-term operating capital withbank loans and CP (commercial paper). We use derivatives only to hedge against risks, and have a management policy

Tokuyama Corporation Annual Report 201457

of not implementing derivative transactions for speculative purposes.
(2)Fair value of financial instruments
As at March 31, 2014, the book value of financial instruments, their fair value, and the differences between the twowere as follows. The financial instruments whose fair value is extremely difficult to estimate are not given in the tablebelow.

Cash and deposits
Notes and accounts receivable - trade
Securities and Investment securities
Securities
Held-to-maturity debt securities
Available-for-sale securities
Long-term loans receivable
Total assets
Notes and accounts payable - trade
Short-term loans payable
Commercial papers
Bonds payable
Long-term loans payable
Total liabilities
Derivative financial instruments
In which hedge accounting is not applied
In which hedge accounting is applied
Total derivative financial instruments

43,0503
26,874
3,473
168,50243,0503
26,874
3,473
168,502-40,08912,3474,000
50,000173,090279,527

40,08912,3474,000
49,923
172,491
278,852

(76)
(598)
(675)

155
1,159
1,315

155
389
545

(770)
(770)

Difference-

Thousands of U.S. Dollars
Book value
Fair value
Difference
268,015
268,015655,292
655,292-

Cash and deposits
Notes and accounts receivable - trade
Securities and Investment securities
Securities
Held-to-maturity debt securities
Available-for-sale securities
Long-term loans receivable
Total assets
Notes and accounts payable - trade
Short-term loans payable
Commercial papers
Bonds payable
Long-term loans payable
Total liabilities
Derivative financial instruments
In which hedge accounting is not applied
In which hedge accounting is applied
Total derivative financial instruments

Tokuyama Corporation Annual Report 2014

Book value
27,60567,495

Millions of yen
Fair value
27,60567,49558

417,961
33
260,919
33,723
1,635,946

417,961
33
260,919
33,723
1,635,946-

389,216
119,883
38,834
485,436
1,680,486
2,713,857

389,216
119,883
38,834
484,694
1,674,672
2,707,301(742)(5,813)(6,556)

1,506
11,261
12,768

1,506
3,785
5,291

(7,476)(7,476)

16. DERIVATIVE FINANCIAL INSTRUMENTS
Derivative transactions to which hedge accounting is not applied(1) Currency-related derivatives
Notional value

Off-market transactions
Forward exchange agreements
Call
Euros

701
701

Appraised gains

-

155
155

Main hedging targets

Notional value

Millions of yen
Maturing after
one year

Forecast transaction in foreign
Forecast transaction in foreign
Forecast transaction in foreign
Forecast transaction in foreign

1,689
446
2,266
8
4,410

19
19

Total

Hedge accounting method
Principle-based accounting
Forward exchange agreements
Call
U.S. dollars
Euros
Ringgit malaysia
Singapore dollars

Millions of yen
Maturing after
one year
Fair value

Total

155
155

Fair value

579
55
522
2
1,159

(2) Interest-related derivatives
There are no interest-related derivative transactions to which hedge accounting is not applied

Derivative transactions to which hedge accounting is applied(1) Currency-related derivatives
Main hedging targets

Hedge accounting method
Special accounting procedures for interest
rate swaps
Interest rate swaps
Pay fixed rate, receive floating rate Long-term loans payable
Total

Notional value

Off-market transactions
Forward exchange agreements
Call
Euros

6,807
6,807

Total

Notional value

Millions of yen
Maturing after
one year

37,66037,66035,05435,054

Thousands of U.S. Dollars
Maturing after
one year
Fair value

-

1,506
1,506

Fair value

(770)
(770)

Appraised gains

1,506
1,506

(2) Interest-related derivatives
Main hedging targets

Hedge accounting method
Principle-based accounting
Forward exchange agreements
Call
U.S. dollars
Euros
Ringgit malaysia
Singapore dollars

Forecast transaction in foreign
Forecast transaction in foreign
Forecast transaction in foreign
Forecast transaction in foreign

Total

Tokuyama Corporation Annual Report 2014

59

Thousands of U.S. Dollars
Maturing after
Notional value
one year
Fair value

16,3994,332
22,00487
42,823

191
191

5,627
538
5,072
23
11,261

Main hedging targets

Thousands of U.S. Dollars
Maturing after
Notional value
one year
Fair value

Hedge accounting method
Special accounting procedures for interest
rate swaps
Interest rate swaps
Pay fixed rate, receive floating rate Long-term loans payable

365,636
365,636

Total

340,335
340,335(7,476)(7,476)

17. CONTINGENT LIABILITIESAs at March 31, 2014 and 2013, the Company and its consolidated subsidiaries were contingently liable as follows:

Notes discounted or endorsed
Loans guaranteed
Commitments to guarantee

Millions of yen
2014
2013
204
224
164
336
96
160

Thousands of
U.S. Dollars

2014
1,982
1,597
932

18. FINANCIAL COVENANTS
The Company has a syndicated loan agreement (issue date: December 22, 2011) with seven lenders with theDevelopment Bank of Japan Inc. as the lead manager. This agreement has the following financial covenants related to
the Company’s consolidated financial statements.
(1) The amount of total net assets at the end of each fiscal year, less minority interests and the items reported incomprehensive income, must not fall below 75% of the amount of total net assets at the end of the previous fiscal year,
less minority interests and the items reported in comprehensive income.
(2) There must not be two consecutive fiscal years of ordinary losses.
(3) The borrower must maintain a credit rating of at least BB+ from Rating and Investment Information, Inc.
The Company has a syndicated loan agreement (issue date: July 24, 2012) with six lenders with The Bank ofTokyo-Mitsubishi UFJ, Ltd. as the lead manager. The Company also has a syndicated loan agreement (issue date:
September 26, 2012) with nine lenders with Sumitomo Mitsui Trust Bank, Limited as the lead manager. These
agreements have the following financial covenants.
(1) The borrower firmly promises to not let the amount of total net assets on its consolidated balance sheet at the end ofeach fiscal year, less any amounts of subscription rights to shares, minority interests, deferred gains or losses on hedges,
foreign currency translation adjustment, or valuation difference on available-for-sale securities, fall below 75% of thelarger of either the identically calculated amount as of the end of the preceding fiscal year or the identically calculated
amount as of March 31, 2012.
(2) The borrower firmly promises to not record two consecutive fiscal years of ordinary losses on its consolidated
statements of income.
The Company has an agreement (issue date: September 30, 2011) for a term-out medium-term commitment line withThe Bank of Tokyo-Mitsubishi UFJ, Ltd. This agreement has the following financial covenant.
The borrower must not let the amount of total net assets on its consolidated balance sheet at the end of the first half andsecond half of each fiscal year, less any amounts of subscription rights to shares, minority interests, deferred gains orlosses on hedges, foreign currency translation adjustment, or valuation difference on available-for-sale securities, fall
below 75% of identically calculated amounts at the end of the first half and second half of the preceding fiscal year.

19. SUBSEQUENT EVENTSAt the annual shareholders’ meeting of the Company held on June 25, 2014, the appropriation of retained earnings forthe fiscal year ended March 31, 2014 was approved as follows:

Cash dividends（￥3.00 per share)
Tokuyama Corporation Annual Report 2014

Millions of yen
2014
1,043
60

Thousands of U.S.
Dollars

2014
10,132

Independent Auditor’s Report

TO THE BOARD OF DIRECTORS OF TOKUYAMA CORPORATION
We have audited the accompanying consolidated balance sheet of Tokuyama Corporation and consolidated subsidiaries
as of March 31, 2014, and the related consolidated statements of income, comprehensive income, changes in net assets,
and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory
information, all expressed in Japanese yen.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements inconformity with accounting principles generally accepted in Japan, and for such internal control as management
determines is necessary to enable the preparation of consolidated financial statements that are free from material
misstatements, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted
our audit in conformity with auditing standards generally accepted in Japan. Those standards require that we plan andperform the audit to obtain reasonable assurance about whether the consolidated financial statements are free frommaterial misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated
financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks ofmaterial misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk
assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of theconsolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but notfor the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes
evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made bymanagement, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit
opinion.
OpinionIn our opinion, the consolidated financial statements referred to above present fairly, in all material respects, theconsolidated financial position of Tokuyama Corporation and consolidated subsidiaries as of March 31, 2014, and theconsolidated results of their operations and their cash flows for the year then ended in conformity with accounting
principles generally accepted in Japan.
Convenience Translation
Our audit also comprehended the translation of Japanese yen amounts into U.S. dollar amounts and, in our opinion,such translation has been made in conformity with the basis stated in Note 2. Such U.S. dollar amounts are presented
solely for the convenience of readers outside Japan.

YAMAGUCHI Audit Corporation
Shunan, Japan
June 12, 2014

Tokuyama Corporation Annual Report 2014

61

Business Locations
JAPANTokyo Head Office
Kasumigaseki Common Gate West Tower, 2-1, Kasumigaseki 3-chome, Chiyoda-ku, Tokyo 100-8983, Japan
TEL: +81-3-6205-4800
FAX: +81-3-6205-4886
Domestic Offices:
Osaka, Hiroshima, Takamatsu, Fukuoka, Sendai, Nagoya
Tokuyama Factory [Registered Address]
1-1, Mikage-cho, Shunan, Yamaguchi 745-8648, Japan
TEL: +81-834-34-2000
FAX: +81-834-33-3790
Kashima Factory
26 Sunayama, Kamisu, Ibaraki 314-0255, Japan
TEL: +81-479-46-4700
FAX: +81-479-46-1933
Tsukuba Research Lab
40 Wadai, Tsukuba, Ibaraki 300-4247, Japan
TEL: +81-29-864-6000
FAX: +81-29-864-6050

Asia/Oceania
Tokuyama (Shanghai) Co., Ltd.
1003, Shanghai International Group, Mansion, 511 WeiHai Road, Shanghai China 200041
TEL: +86-21-6218-1177
FAX: +86-21-5382-2894
Tokuyama Trading (Shanghai) Co., Ltd.
1003, Shanghai International Group, Mansion, 511 WeiHai Road, Shanghai China 200041
TEL: +86-21-6218-1177
FAX: +86-21-5382-2894
Tokuyama Chemicals (Zhejiang) Co., Ltd.
No.555 Yashan West Road, Economic Development Zone, Zhapu Port, Jiaxing, Zhejiang China 314201
TEL: +86-573-8552-7887
FAX: +86-573-8552-3355
http://www.tokuyama.net.cn/
Shanghai Tokuyama Plastics Co., Ltd.
138 Xintao Road, Qingpu Industrial Zone, Shanghai China 201707
TEL: +86-21-5970-5669
FAX: +86-21-5970-3756
http://www.tokuyama.com.cn/
Tianjin Tokuyama Plastics Co., Ltd.
Building 2, No.1, XEDA North 3rd Road, Xiqing Economic Development Area, Tianjin China 300385
TEL: +86-22-8720-2155
FAX: +86-22-8720-2156
Tianjin Figaro Electronic Co., Ltd.
No.19, Weishan Road, Tianjin Economic-Technological Development Area, Tianjin China 300457
TEL: +86-22-6629-7458
FAX: +86-22-2532-5908
Email: tfyyb@tjfigaro.com
Tokuyama Korea Co., Ltd.
#415 Korea Air City Terminal Bldg., 22, Teheran-ro 87-gil, Gangnam-gu, Seoul 135-728，Korea
TEL: +82-2-517-3851
FAX: +82-2-517-3856
Hantok Chemicals Co., Ltd.
Samsung Fine Chemical Research Center 4th Fl., Electronics Material Research Park,
130 Samsung-Ro, YoungTong-Gu, Gyeonggi-Do, Suwon 443-803 Korea
TEL: +82-31-8061-3890
FAX: +82-31-8061-3899

Tokuyama Corporation Annual Report 2014

62

Taiwan Tokuyama Corporation
21 Shi Jian Road,Hsin Chu Industrial Park, Hu Kou, Hsin Chu 303,Taiwan, R.O.C.
TEL: +886-3-597-9108
FAX: +886-3-597-9208
Tokuyama Asia Pacific Pte. Ltd.
61 Robinson Road, #14-02 Robinson Centre Singapore 068893
TEL: +65-6533-5258
FAX: +65-6533-5256
http://www.tokuyama-asia.com/
Tokuyama Electronic Chemicals Pte. Ltd.
21 Gul Road, Singapore 629355
TEL: +65-6862-1081
FAX: +65-6862-1267
Tokuyama Malaysia Sdn. Bhd.
Lot 600, 6th Floor Wisma Bukit Mata Kuching, Jalan Tunku Abdul Rahman 93100 Kuching, Sarawak, Malaysia
TEL: +60-82-422-705
FAX: +60-82-427-708
http://www.tokuyama.com.my/
Tokuyama Nouvelle Calédonie S.A.
Pointe Kuari, Baie de Numbo - BP 310 98845 NOUMÉA, Nouvelle Calédonie
TEL: +687-24-32-95
FAX: +687-28-18-12

AmericaTokuyama America Inc.
121 South Wilke Road, Suite 300, Arlington Heights, IL 60005, U.S.A.
TEL: +1-847-385-2195
FAX: +1-847-832-1705
http://www.tokuyama-a.com/
Figaro USA, Inc.
121 South Wilke Road, Suite 300, Arlington Heights, IL 60005, U.S.A.
TEL: +1-847-385-1701
FAX: +1-847-832-1705
http://www.figarosensor.com/

EuropeTokuyama Europe GmbH
Oststrasse 10, 40211 Düsseldorf, Germany
TEL: +49-211-1754480
FAX: +49-211-357379
http://www.tokuyama-europe.com/

Tokuyama Corporation Annual Report 2014

63

Major Subsidiaries and Affiliates（As of March 31, 2014）

Company

Capital(millions ofyen, local
currency inthousands)

Ownership
Scope

（%）

Chemicals
Shin Dai-ichi Vinyl Corporation

2,000

71.0

Production and sale of polyvinyl chloride

Sun Arrow Kasei Co., Ltd.

98

100

Production and sale of polyvinyl chloride compounds

Tokuyama Siltech Co., Ltd.

200

100

Production and sale of layered sodium silicate

Category also includes another unconsolidated subsidiary and 4 affiliates
Specialty Products
Tokuyama Chemicals (Zhejiang) Co., Ltd.

CNY
351,200

100

Production and sale of fumed silica

Tokuyama-Dowa Power Materials Co., Ltd.

250

65.0

Production and sale of aluminum nitride

Tokuyama Electronic Chemicals Pte. Ltd.
Taiwan Tokuyama Corporation

SGD
11,000TWD
200,000

100
100

Production of high purity chemicals for electronics
manufacturing
Production and sale of high purity chemicals forelectronics manufacturing

Tokuyama Malaysia Sdn. Bhd.

129,998

100

Production and sale of polycrystalline silicon*Hantok Chemicals Co., Ltd.

KRW
4,500,000

50.0

Production of photoresist developer

Tokyo Tokuyama Concrete Co., Ltd.

80

99.9

Production and sale of ready-mixed concrete andconcrete products

Seibu Tokuyama Ready Mixed Concrete Co., Ltd.

100

100

Production and sale of ready-mixed concrete

Kyushu Tokuyama Ready Mixed Concrete Co., Ltd.

50

100

Production and sale of ready-mixed concrete

Chugoku Ready Mixed Concrete Co., Ltd.

80

52.3

Production and sale of ready-mixed concrete

Notsuharu Co., Ltd

3

100

Production and sale of ready-mixed concrete

Tokuyama Tsusho Trading Co., Ltd.

95

100

Sale of cement and ready-mixed concrete

Kansai Tokuyama Trading Co., Ltd.

80

100

Sale of cement and ready-mixed concrete

Tokusho Co., Ltd.

40

100

Sale of cement and ready-mixed concrete

Tokushin Co., Ltd.

40

100

Sale of cement and ready-mixed concrete

Tokuyama Mtech Corporation

50

100

Processing and sale of building materials

XPF
210,000

74.1

Production and sale of cement

CementTokuyama Nouvelle Calédonie S.A.

Category also includes another 6 consolidated subsidiaries, 3 equity method affiliates and 13 affiliates
Life & Amenity
Shanghai Tokuyama Plastics Co., Ltd.
Tianjin Tokuyama Plastics Co., Ltd.

CNY
85,689CNY
70,515100

Production and sale of microporous film

100

Production and sale of microporous film

Sun•Tox Co., Ltd.

1,600

100

Production and sale of polyolefin films

A&T Corporation

577

40.2

Production and sale of diagnostic reagents, analyzers
and systems

Figaro Engineering Inc.

99

100

Production and sale of sensor devices

Tokuyama Corporation Annual Report 201464

Company
Tianjin Figaro Electronic Co., Ltd.
Figaro USA, Inc.

Capital(millions ofyen, local
currency inthousands)
CNY
23,670USD
200

Ownership
Scope

（%）
55.7

Production and sale of sensor devices

100

Production and sale of sensor devices
Production and sale of dental and medical materials

Tokuyama Dental Corporation

100

100

ASTOM Corporation

450

55.0

Eurodia Industrie S.A.

EUR
1,360

60.2

Excel Shanon Corporation

495

100

Production and sale of plastic window sashes

Tohoku Shanon Co., Ltd.

300

72.0

Production of plastic window sashes

CNY
60,00049.0

Production and sale of diagnostic reagents, analyzers
and systems*Neusoft A&T Diagnostics Co., Ltd.

Production and sale of ion-exchange membranes andrelated equipment
Production and sale of ion-exchange membranes related
equipment

Category also includes another 3 consolidated subsidiaries, 1 equity method affiliates and 2 affiliates
Other
Tokuyama Asia Pacific Pte. Ltd.
Tokuyama Europe GmbH
Tokuyama Trading (Shanghai) Co., Ltd.
Tokuyama (Shanghai) Co., Ltd.

SGD
800
EUR
255
CNY
5,258
CNY
12,339100

Sale of Tokuyama’s products

100

Sale of Tokuyama’s products

100

Sale of Tokuyama’s products

100Management company to provide services for othergroup companies in China

Tomitec Co., Ltd.

100

60.0

Production and sale of plastic molded products

Shunan System Sangyo Co., Ltd.

151

100

Real estate, civil engineering, construction

Tokuyama Logistics Corporation

100

100

Transportation and warehousing

Tokuyama Information Serivce Corporation

20

100

Information processing services

Shunan Bulk Terminal Co., Ltd.

150

72.2

Warehouse operations for bulk cargoes of coal etc.

* Covalent Materials Tokuyama Corporation

100

30.0

Production and sale of ceramics and electrochemical
products* Tokuyama Polypropylene Co., Ltd.

500

50.0

Production and sale of polypropylene* Nishinihon Resicoat Co., Ltd.

50

50.0

Production of metal parts and anti-rust surface coating
materials

Category also includes another 4 consolidated subsidiaries and 5 affiliates

Tokuyama Corporation Annual Report 201465

Corporate Data and Stock Information（As of March 31, 2014）

Composition of Shareholders
Company Name:

Tokuyama Corporation

Established:

February 16, 1918

Capital:¥53,458 million

Employees:

5,756 (Consolidated)

Fiscal Year:

From April 1 to March 31

General Meeting of
Shareholders:

June

Stock Listing:Tokyo

Minimum Number of
Shares per Trade:

1,000 shares

Stock:

4043

Major Shareholders
Number of Shares
Held (Thousands)

Percentage ofTotal Shares

The Master Trust Bank of Japan, Ltd. (trust account)

24,411

6.98

Japan Trustee Services Bank, Ltd. (trust account)

16,104

4.61

Nippon Life Insurance Company

13,204

3.78

CBNY DFA INTL SMALL CAP VALUE PORTFOLIO

9,375

2.68

The Yamaguchi Bank, Ltd.

8,246

2.36

Meiji Yasuda Life Insurance Company

7,442

2.13

The Bank of Tokyo-Mitsubishi UFJ, Ltd.

7,095

2.03

Sojitsu Corporation

6,484

1.85

Sumitomo Metal Mining Co., Ltd.

5,904

1.69

Mitsubishi UFJ Trust and Banking Corporation

5,852

1.67

Name

Stock Chart

Tokuyama Corporation Annual Report 201466