ASAHI KASEI CORP
Annual Report 2006

Plain-text annual report

Annual Report 2006 ASAHI KASEI CORPORATION 00 Basic Credo of the Asahi Kasei Group Basic tenets We the Asahi Kasei Group, through constant innovation and advances based in science and the human intellect, will contribute to human life and human livelihood. Guiding precepts We will create new value, thinking and working in unison with the customer, from the perspective of the customer. We will respect the employee as an individual, and value teamwork and worthy endeavor. We will contribute to our shareholders, and to all whom we work with and serve, as an international, high earnings enterprise. We will strive for harmony with the natural environment and ensure the safety of our products, operations, and activities. We will progress in concert with society, and honor the laws and standards of society as a good corporate citizen. CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS The statements contained in this annual report with respect to Asahi Kasei’s estimated future revenues and profits, strategies, tenets, financial forecasts, and other statements that are not historical facts are forward-looking statements. Such forward-looking statements are based on management’s judgments, predictions, and forecasts in light of information currently available and involve many potential risks and uncertainties that could cause actual results to differ materially from the content of these statements. Accordingly, undue reliance should not be placed on such forward-looking statements. Annual Report 2006 01 C o n t e n t s Consolidated Financial Highlights ........................................... 02 To Our Shareholders ................................................................. 03 Growth Action – 2010 ................................................................. 04 Positioned for Growth .............................................................. 06 Operating Segments ................................................................. 11 At a Glance .............................................................................. 12 Operating Segments ................................................................ 14 New Business Development and Intellectual Property ........... 31 Research & Development and New Operations ........................... 32 Intellectual Property ................................................................. 34 Governance and Responsibility ................................................. 35 Corporate Governance ............................................................. 36 Corporate Social Responsibility .................................................. 38 Directors, Auditors, Executive Officers ....................................... 40 Financial Section ....................................................................... 41 Major Subsidiaries and Affiliates ............................................. 72 Corporate Profile ...................................................................... 74 Investors Information ................................................................ 75 02 Consolidated Financial Highlights Asahi Kasei Corporation and consolidated subsidiaries Fiscal year beginning April 1 2005 ¥ billion 2004 2003 For the year Net sales Operating profit Income before income taxes and minority interest Net income Capital expenditure Depreciation and amortization R&D expenditures At year-end Total assets Shareholders’ equity ￥1,498.6 108.7 ￥1,377.7 115.8 ￥1,253.5 60.9 94.5 59.7 66.3 69.4 51.5 91.1 56.5 68.5 71.5 50.7 54.8 27.7 86.4 64.4 48.4 ￥1,376.0 594.2 ￥1,270.1 511.7 ￥1,249.2 450.5 Fiscal year beginning April 1 2005 ¥ 2004 2003 Per share Net income Shareholders’ equity** Cash dividends ￥ 42.46 ￥ 40.16 ￥ 19.62 424.34 10.00 365.43 8.00 321.41 6.00 US$ million* 2005 ＄12,809 929 808 510 567 593 440 ＄11,761 5,079 US$* 2005 ＄0.36 3.63 0.09 * U.S. dollar amounts in this annual report are translated from Japanese yen, for convenience only, at the rate of ¥117=US$1 as described in Note 3 of Notes to Consolidated Financial Statements. ** At fiscal year end. Fiscal year beginning April 1 2005 2004 2003 Key indexes Operating profit margin ROE Shareholders’ equity to total assets D/E ratio 7.3 % 10.8 % 43.2 % 0.40 8.4 % 11.7 % 40.3 % 0.49 4.9 % 6.4 % 36.1 % 0.62 Net Sales and Operating Profit Margin Net Income and ROE Total Assets and Shareholders’ Equity Net sales, left scale Operating profit margin, right scale % 10 1,499 1,378 1,254 8.4 7.3 ¥ billion 1,500 1,000 500 4.9 0 0 2003 2004 Fiscal year 2005 8 6 4 40 20 0 28 6.4 2003 ¥ billion 60 Net income, left scale ROE, right scale 56 11.7 Total assets Shareholders’ equity 1,249 1,270 1,376 60 % 12 ¥ billion 1,500 10.8 10 1,000 8 6 450 500 512 594 0 0 2003 2004 Fiscal year 2005 2004 Fiscal year 2005 To Our Shareholders Annual Report 2006 03 The Japanese economy showed signs of recovery during fiscal 2005, the final year of our Ishin-05 strategic initiative, with increased private-sector capital investment and strong corporate results. The operating environment nevertheless remained challenging, with petroleum prices continuing to increase on strong demand growth world-wide, especially in China, driving up the cost of naphtha and other petrochemical feedstocks. Sales increased in chemicals operations, with strong overseas demand, and in electronics operations, with strong demand in IT-related markets. Net sales were ¥1,498.6 billion, increasing by ¥120.9 billion from the previous year. Operating profit was ¥108.7 billion, with a decrease of ¥7.1 billion. Amortization of actuarial differences in retirement benefit accounts resulted in a ¥16.2 billion decrease in operating profitability; a ¥4.0 billion surplus was amortized during the year, as opposed to a ¥20.2 billion surplus amortized during the preceding year. Operating profit excluding this amortization was ¥104.7 billion, increasing by ¥9.1 billion. Ordinary profit was ¥104.2 billion, decreasing by ¥8.7 billion. Net income was ¥59.7 billion, increasing by ¥3.2 billion. These were record highs in net sales and net income for the second year in a row, and operating profit excluding retirement benefits amortization exceeded ¥100 billion for the first time, as we achieved our Ishin-05 targets. Dividends were increased by ¥2 per share to ¥10 per share in light of these results. Efforts are now dedicated to building on the solid achievements gained through Ishin-05, as we implement the new Growth Action – 2010 strategic business plan to drive the expansion of global businesses and the enhancement of domestic businesses through strategic investment and business portfolio realignment for expansion and growth, heightening corporate value and brand strength. August 2006 Nobuo Yamaguchi Chairman of the Board Shiro Hiruta President 04 Strategic Five-Year Business Plan Growth Action – 2010 is a plan of action to guide the growth of operations throughout the Asahi Kasei Group from fiscal year 2006 through fiscal year 2010. It builds on the strong financial and operational base established through the Ishin-05 strategic initiative, advancing the transformation of the business portfolio with strategic investments for expansion and growth, to effect greater corporate value and brand strength. Strategic pillars of the plan are the expansion of businesses characterized by global competitiveness and the enhancement of businesses focused on the domestic Japanese market. The plan provides for investment over the five years totaling ¥800 billion, of which ¥400 billion is strategic investment including M&A. Targets for fiscal year 2010 include consolidated net sales of ¥1,800 billion, operating profit of ¥150 billion, and maintaining ROE at least 10%. Conceptual Framework Pillars of Strategy The Asahi Kasei Group serves many different markets with a wide range of outstanding technologies and a variety of separate business models. Based on the strengths and competences we enjoy in each area, our businesses with a stable growth and earnings base are being enhanced for greater performance while generating the resources which enable the expansion of high-growth businesses, thus driving a new phase of development and growth for the Asahi Kasei Group. Asahi Kasei’s competences Diverse markets Wide-ranging technologies Multifaceted business models ▲ Advancing business portfolio realignment High growth businesses Chemical-based, specialized- function Electronic materials Medical devices Electronic devices Expanding global operations •Reinforcement of strong businesses & expansion of business areas •Development of new businesses with global potential Expansions are focused on global businesses whose growth is unimpeded by the limits of the mature Japanese economy. In addition to furthering the program of “building on strengths” already advanced, this includes extending the geographical cover of businesses with established presence in overseas markets, and the creation of new businesses with potential for development on a global scale. By fiscal year 2010 we aim to raise the portion of sales in global businesses from the current 55% of our sales to 60% and to raise the rate of overseas sales from 25% to one third or more. Enhancing domestic operations •Higher added value •Development of services peripheral to established businesses Growth and greater earnings in domestic businesses are achieved by expanding into services peripheral to established businesses, cultivating new demand by dynamic response to emerging market trends, and pursuing higher added value throughout. Pursuing higher growth with strong, stable base Expanding global businesses Stable growth, stable earnings businesses Domestic businesses Housing, construction materials, pharmaceuticals, home-use products, etc. Polymers Monomers Including processed products Acrylonitrile, MMA, styrene monomer, etc. Enhancing domestic businesses ▲ Ishin-2000 FY1999–2002 Ishin-05 FY2003–2005 Selectivity and focus Selective diversification Ishin-05 accomplishments Establishment of selectively diversified enterprise group Building on strengths •Monomers, specialized-function products, electronics, medical devices Completion of restructuring •Acrylic fiber, liquors, salt, large ALC panels, etc. Establishment of New Business Development •Enhanced holding company function for development of new businesses Annual Report 2006 05 Growth Action – 2010 Performance Targets ¥ billion 2,000 1,500 1,000 500 0 Net Sales 1,650.0 1,498.6 1,800.0 FY05 FY08 FY10 ¥ billion Operating Income 200 160 120 80 40 0 ¥ billion 100 75 50 25 0 150.0 125.0 108.7 FY05 FY08 FY10 Net Income 80.0 59.7 65.0 FY05 FY08 FY10 Strategic investment The Asahi Kasei Group currently invests on the order of ¥70–80 billion per year. In addition to ordinary investment on this scale, the plan provides for strategic investment of ¥400 billion, including M&A, by fiscal year 2010, for a total of some ¥800 billion of investment during the five-year period. Strategic investment is largely be directed to the four product categories of monomers, chemical-based, specialized-function products, electronics products, and medical devices, including both business expansion and new business creation. ¥400 billion ¥800 billion/year × 5 + ¥400 billion Strategic investment ¥800 billion Breakdown of strategic investment Housing & construction materials Pharmaceuticals & medical devices Chemical- based Electronics Greater corporate value and brand strength ▲ Transformation of operating structure for cash flow creation •Cash flow management in addition to EVA •Improved free cash flow Greater management speed & autonomy •Transition to holding company configuration •Separation of execution and oversight functions •Adoption of executive officer system of management (cid:0)(cid:1)(cid:2)(cid:3)(cid:4)(cid:5) (cid:7)(cid:8)(cid:4)(cid:9)(cid:2)(cid:10) (cid:11) (cid:12)(cid:13)(cid:14)(cid:13) FY2006–2010 • Business portfolio realignment for expansion and growth • Strategic investment 06 Positioned for Growth President Shiro Hiruta on the strategic outlook Shiro Hiruta President Ishin-05 retrospective In our Ishin-05 strategic initiative from fiscal 2003 to fiscal 2005 we completed portfolio realignments to refound ourselves as a selectively diversified enterprise group. We reinforced and expanded our strong businesses, heightening competitiveness in high value-added fields, with investments for expansion in areas of competitive superiority. The operational structure was transformed for Major Investments since Formulation of Ishin-05 cash flow creation, with heightened awareness of cash flow in day-to-day operation and strict cash flow criteria for investment. Management speed and autonomy were increased with the October 2003 transition to a holding company configuration and with authority devolved to the business units. Fiscal 2005 results show that these actions have been effective, resulting in record high sales and net income and enabling increased dividends for the second year in a row. Chemicals New plant for Delaglas™ acrylic sheet for light-guide plates Pyongtaek, Korea November 2003 Back-light units for LCD panels Location Start-up Applications Expansion of plant for Hipore™ rechargeable Li-ion battery separators Moriyama, Japan March 2005 Batteries for mobile electronics Omega Process plant Mizushima, Japan March 2006 Propylene production Expansion of plant for Hipore™ rechargeable Li-ion battery separators Moriyama, Japan July 2006 Batteries for mobile electronics New plant for Duranate™ hexamethylene diisocyanate based polyisocyanate Nantong, Chaina Spring 2007 Polyurethane coatings Pharma New hollow-fiber plant for Planova™ virus removal filters Nobeoka, Japan May 2004 Production of pharmaceuticals New hollow-fiber plant for APS™ artificial kidneys Nobeoka, Japan April 2005 Hemodialysis for patients with renal failure Expansion of hollow-fiber plant for APS™ artificial kidneys Nobeoka, Japan October 2005 Hemodialysis for patients with renal failure New plant for assembly of APS™ artificial kidneys Hangzhou, China January 2006 Hemodialysis for patients with renal failure Fibers Expansion of plant for Roica™ spandex Hangzhou, China April 2004 Swimwear and other apparel New plant for Roica™ spandex Chonburi, Thailand December 2005 Swimwear and other apparel Acquisition of spandex business from German Lanxess Group Germany, America March 2006 Swimwear and other apparel EMD New plant for large pellicles Expansion of plant for LSIs Nobeoka, Japan May 2004 Production of large LCD panels Nobeoka, Japan September 2004 Communications, signal processing Expansion of plant for Sunfort™ dry film resist Suzhou, China November 2004 Production of printed wiring boards Expansion of plant for large pellicles Nobeoka, Japan May 2005 Production of large LCD panels Expansion of plant for LSIs Nobeoka, Japan July 2006 Communications, signal processing Annual Report 2006 07 Improvement in Financial Strength 0.78 0.79 0.62 0.64 0.62 0.49 D/E ratio Profit*, ¥ billion Net income (loss), ¥ billion 74.3 51.2 0.54 96.0 17.4 20.5 25.2 Ishin - 2000 0.40 104.7 80.4 95.6 61.6 56.5 59.7 27.7 45.7 5.2 Ishin-05 ISHIN-05 (66.8) FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 * Operating profit from FY98 to FY01; operating profit absent amortization of actuarial differences in retirement benefits from FY02 to FY05. Corporate governance With the transition to a holding company configuration we also adopted an executive officer system to separate execution and oversight functions, and established a management framework with clear delineation of executive authority and responsibility. In our third year under the new configuration it is clear that management speed has increased, and that each core operating company is advancing as an autonomous and self-reliant profit-making unit. Other measures to enhance corporate governance include the April 2005 formation of a CSR Council in the holding company to lead the effort related to corporate social responsibility throughout the Asahi Kasei Group, and the October 2005 formation of an Internal Control Project to lead the preparation and implementation of an optimum system for internal control. Holding Company Configuration Strategic planning & analysis Administration of resources Oversight of management execution Development of new businesses Asahi Kasei Chemicals Asahi Kasei Homes Asahi Kasei Pharma Asahi Kasei Fibers Asahi Kasei EMD Chemicals Housing Pharmaceuticals, medical products Fiber, textiles Electronics materials and devices Asahi Kasei Construction Materials Construction materials Asahi Kasei Life & Living Household products, packaging materials 08 Challenges ahead Despite the advances we have made, I see two challenges that must be met. The first is the correspondence between the growth of the Asahi Kasei Group and the growth of Japan’s GDP. With the maturing of the Japanese economy, it is natural that growth rates tend to be moderate. We have to de-link our growth from that of Japan’s economy. Asahi Kasei’s Operating Profit and Japan’s GDP Asahi Kasei’s operating profit* Japan’s GDP 10,000 1,000 The second challenge is to raise the proportion of business 1960=100 Business portfolio restructuring we have overseas. Our overseas sales are only about a quarter of the total, and overseas production is only about 7%. The new strategic business plan we launched at the beginning of fiscal 2006, Growth Action – 2010, sets the path to meet these challenges and effect the expansion and growth of the Asahi Kasei Group over the next five years. 100 10 Diversification 1963,1964 Nylon, synthetic rubber, construction materials 1972 Ethylene center, housing 1983 LSIs 1955 1965 1975 1985 1995 2005 Fiscal year * Three-year moving average, non-consolidated until FY 1980. Performance Targets (¥ billion, except ROE) Net sales Operating profit Net income ROE (%) FY05 results 1,498.6 108.7 59.7 10.8 FY08 targets 1,650.0 125.0 65.0 ≥10 FY10 targets 1,800.0 150.0 80.0 ≥10 Growth Action – 2010 The Asahi Kasei Group’s greatest strength lies in our unparalleled combination of competences in diverse markets, wide-ranging technologies, and multiple business models. Growth Action – 2010 builds on this with strategic action to expand global businesses and enhance domestic businesses. The increased earnings ability and improved financial foundation achieved through Ishin-05 has enabled the execution of substantial strategic investment to advance the transformation of our business portfolio for expansion and growth. For fiscal 2010 we are targeting net sales of ¥1,800 billion, operating profit of ¥150 billion, and net income of ¥80 billion. This operating profit figure is 38% higher than our fiscal 2005 result, and the net income figure is 34% higher. Sustained growth in earnings should also enable successive dividends increases. Annual Report 2006 09 Positioned for Growth Expanding global businesses Enhancing domestic businesses Our global businesses are basically in four fields: Monomers, including acrylonitrile and methyl methacrylate; chemical- based, specialized-function products, including elastic polyurethane filament, thermoplastic elastomers, and battery materials; electronics, including electronic materials and electronic devices; and medical devices. We will focus strategic investment in these fields to expand in global markets based on our competitive superiority. Our domestic-oriented businesses are basically in three fields: Housing, construction materials, and pharmaceuticals. While Japan’s economy had in the past been centered on capital-intensive production industries, a transformation of the industrial structure is emerging where creative know- how and services are playing an increasingly prominent role. Our domestic businesses must adapt to these new circumstances in order to add more value. We are now the world’s second largest supplier of The strategic focus of our housing business is the Long Life acrylonitrile, and have developed the world’s first process to produce acrylonitrile from propane. We are now studying a joint project with PTT of Thailand for a propane-process acrylonitrile plant. The completion of this project would bring our total supply capacity to nearly one million tons per year, on par with the world-leading position. Our elastic polyurethane filament business was recently augmented by the acquisition of the business of the Lanxess Group of Germany, with production sites in Germany and the US. Complementing our production sites in Japan, China, Taiwan, and Thailand, this gives us a solid presence in each of the world’s major market regions. In electronics we will accelerate our global expansion with M&A, and develop higher-function, higher-performance electronic devices and electronic materials for new applica- tions to expand a high-earnings operational structure. In medical devices we are building global leadership in blood purification systems and expanding production capacity for artificial kidneys used in hemodialysis therapy. Home product concept for Hebel Haus™ homes providing long-term comfort and utility. The strategy is being extended into peripheral services such as remodeling, real estate, and financing, as the operational structure is expanded to include value-additive customer support for the living environment in addition to the provision of the home itself. In construction materials we are expanding sales of high- performance insulation material, bringing a more customer- centered perspective into marketing activities, exploiting synergies with housing operations, and advancing R&D for new business. Our pharmaceuticals business is sharpening the focus on selected therapeutic fields, chiefly orthopedics, and building alliances with domestic and international pharmaceutical firms in joint development, joint sales, and licensing. 10 Strategic investment Development of new businesses Positioned for Growth In October 2005 we reorganized the R&D function in the holding company with the establishment of New Business Development. Our traditional R&D process began with basic investigation to identify projects to pursue, followed by research, then development, and finally commercialization. Projects were often passed from one team to another as they progressed from one stage to the next. We have adopted a new process in which the same team is responsible from investigation through commercialization. Projects are currently in progress in three main fields: Electronics, with projects for flexible printed circuit materials, flat panel display materials, and capacitors; chemical based, specialized function products, with projects for polyketone filament and battery materials; and medical devices. In each field, the effort is directed toward the creation of new businesses which can develop on a global scale. Projects to develop new businesses peripheral to established businesses are being advanced at each core operating company. Vision for 2010 The strength of the Asahi Kasei Group has always lain in the diversity of our operations, and this will be no less the case in 2010. We hold contribution to human life and human livelihood through constant innovation and advances based in science and the human intellect as basic tenets, and this provides a unified outlook and purpose which binds together the many operations in different fields. Our business portfolio has undergone many changes as we adapt dynamically to new challenges and new opportunities, and I cannot say just what changes will emerge by 2010, but our products and technologies will certainly be making more of a difference to more people’s lives throughout the world. In addition to our ordinary investment of around ¥70 to ¥80 billion per year, Growth Action – 2010 provides for strategic investment of ¥400 billion including M&A over the five years of the plan, for a five-year total of some ¥800 billion. Investment for expansion has been around half of the total, but with inclusion of the strategic investment this will increase to around three fourths. For expansion of global businesses, strategic investment will be focused on chemicals, electronics, and medical devices. For enhancement of domestic businesses, it will be focused on housing and construction materials. M&A will be primarily in chemical-based, specialized function products and in electronic materials and devices. About 70% of the strategic investment other than M&A should be done in the first half of the five-year period. Long-term Investment Past 3 years Plan for FY 2006 to 2010 Maintenance Expansion Maintenance Expansion ¥70 to ¥80 billion/year (a) (a)×5 + strategic investment of ¥400 billion = ¥800 billion over 5 years Allocation of Strategic Investment Funds Expanding global businesses Monomers Specialized function products Electronics Enhancing domestic businesses New business creation Renewing ethylene center, etc. Total (¥ billion) FY 2006 to 2010 M&A Organic — 50 100 — — — 150 40 40 50 30 40 20 220 Return to shareholders (increased dividend, etc.) 20 〜 30 Operating Segments Annual Report 2006 11 Chemicals Homes Pharma Fibers Electronics Materials & Devices Construction Materials Life & Living Note: Leona™ nylon 66 filament operations were transferred from the Fibers segment to the Chemicals segment in April 2005. Results for the year-ago period have been revised accordingly for comparison purposes. 12 At a Glance Chemicals Homes Pharma Fibers Electronics Materials & Devices Construction Materials Life & Living Services, Engineering and Others Core Operating Companies Taketsugu Fujiwara Keiji Kamei Masanori Warabi Masami Fujimori Kyosuke Komiya Tadashi Akaishi President & Representative Director, Presidential Executive Officer Director, Vice-Presidential Executive Officer Director, Primary Executive Officer Director, Senior Executive Officer Director, Senior Executive Officer Director, Senior Executive Officer Toshiaki Okamoto Shingo Hatano Katsuhiko Sato Tsuyoshi Shimizu Morio Watanabe Chairman of the Board & Representative Director President & Representative Director, Presidential Executive Officer Director, Vice-Presidential Executive Officer Director, Senior Executive Officer Director, Senior Executive Officer Kei Oe Yasuyuki Yoshida Tsutomu Inada Akio Kobayashi President & Representative Director, Presidential Executive Officer Director, Primary Executive Officer Director, Primary Executive Officer Director, Senior Executive Officer Masaki Sakamoto Ryo Matsui Hidehumi Takai President & Representative Director, Presidential Executive Officer Director, Senior Executive Officer Director, Executive Officer Makoto Konosu Katsuhiko Yamazoe Koji Yamada President & Representative Director, Presidential Executive Officer Director, Senior Executive Officer Director, Executive Officer Yoichi Saji Ryozo Eguro Hiroshi Kobayashi Tsuyoshi Shimizu President & Representative Director, Presidential Executive Officer Director, Senior Executive Officer Director, Senior Executive Officer Director Keiji Kamei Kenji Haneda Yasuyuki Itoh President & Representative Director, Presidential Executive Officer Representative Director, Vice-Presidential Executive Officer Director, Executive Officer Annual Report 2006 13 FY05 Net Sales FY05 Operating Profit* Major Consolidated Subsidiaries Main Businesses 35% ¥41 billion 25% ¥28 billion Sanyo Petrochemical Co., Ltd. Japan Elastomer Co., Ltd. Asahi Kasei Technoplus Co., Ltd. Tong Suh Petrochemical Corp. Ltd. Asahikasei Plastics (America) Inc. Asahi Kasei Plastics Singapore Pte. Ltd. NV Asahi Photoproducts (Europe) SA Asahi Kasei Jyuko Co., Ltd. Asahi Kasei Mortgage Corp. Asahi Kasei Real Estate, Ltd. Asahi Kasei Reform Co., Ltd. Organic and inorganic industrial chemicals, synthetic resin, synthetic rubber, high-compound fertilizer, coating materials, latex, pharmaceutical and food additives, explosives, photopolymers and platemaking systems, separation and ion-exchange membranes, systems, and equipment. Hebel HausTM houses, Hebel MaisonTM apartments, condominiums, remodeling, real estate, residential land development, financial services. 10% ¥11 billion Asahi Kasei Medical Co., Ltd. Asahi Kasei N&P Co., Ltd. Asahikasei Aime Co., Ltd. Pharmaceuticals, pharmaceutical intermediates, feed additives, diagnostic reagents, hemodialyzers and other medical devices. Kyokuyo Sangyo Co., Ltd. Hangzhou Asahikasei Spandex Co., Ltd. Hangzhou Asahikasei Textiles Co., Ltd. Asahi Chemical (HK) Ltd. Thai Asahi Kasei Spandex Co., Ltd. RoicaTM elastic polyurethane filament (spandex), EltasTM spunbond, LamousTM artificial suede, BemlieseTM cupro cellulosic nonwoven, BembergTM cupro cellulosic fiber, polyester filament, SolotexTM polytrimethylene terephthalate (PTT) fiber. Asahi Kasei Microsystems Co., Ltd. Asahi Kasei Electronics Co., Ltd. Asahi-Schwebel Co., Ltd. Asahi-Schwebel (Taiwan) Co., Ltd. Asahi Kasei Electronics Materials (Suzhou) Co., Ltd. PimelTM photosensitive polyimide precursor, SunfortTM photosensitive dry-film resist, Hall elements, LSIs, glass fabric for printed circuit boards. Asahi Kasei Foundation Systems Corp. Asahi Kasei Marinetech Co., Ltd. HebelTM autoclaved lightweight concrete, construction piles, NeomaTM foam and other thermal insulation, artificial fish reef and other marine structures. Asahi Home Products Co., Ltd. Asahi Kasei Pax Corp. Saran WrapTM cling film, ZiplocTM storage bags, plastic film, sheet, and foam. Asahi Research Center Co., Ltd. Asahi Finance Co., Ltd. Asahi Kasei Engineering Co., Ltd. Asahi Kasei Amidas Co., Ltd. Plant, equipment, process engineering, employment agency, think tank. 44% ¥660 billion 27% ¥405 billion 7% ¥106 billion 6% ¥90 billion 7% ¥103 billion 3% ¥4 billion 17% ¥19 billion 4% ¥57 billion 3% ¥4 billion 3% ¥52 billion 2% ¥27 billion 4% ¥5 billion 3% ¥3 billion * Before corporate expenses and eliminations 14 Operating Segment Chemicals Taketsugu Fujiwara President, Asahi Kasei Chemicals Net Sales ¥ billion 800 600 570.2 715.0 660.4 400 200 0 2004 2005 2006 Forecast Fiscal year Operating Profit ¥ billion 50 40 30 20 10 0 40.5 37.8 37.0 2004 2005 2006 Forecast Fiscal year Creating the Future with Chemistry is the basic ideal to guide the advancement and growth of operations. All businesses have been classified as those for strategic expansion and those for stable earnings. Management resources are focused on advancing the growth of strategic expansion businesses, while stable earnings businesses are strengthened and enhanced to heighten profitability. The Year in Review Sales for the segment increased by ¥90.2 billion to ¥660.4 billion, a 15.8% rise. Operating profit increased by ¥2.7 billion to ¥40.5 billion, a 7.1% rise. This included a credit to amortize the actuarial surplus for retirement benefits which was ¥4.3 billion smaller than a year ago. In volume products, sales grew with strong overseas demand but operating profit decreased due to higher feedstock costs. Operating profit in monomers and basic chemicals decreased with elevated feedstock costs for acrylonitrile and styrene. Operating profit in polymers and elastomers increased with improved market conditions for Xyron™ modified polyphenylene ether and other engineering resins. Operating profit in specialty products and systems increased. Sales of Hipore™ Li-ion rechargeable battery separators continued to grow with strong demand. Sales of both membrane-process salt electrolysis systems and their ion-exchange membranes remained strong. Notable Developments The Microza™ membrane bioreactor (MBR) process was selected in August 2005 for wastewater treatment at two large-scale petrochemical complexes in China, which will be among the largest such water treatment facilities in the world. Microza™ microfiltration (MF) was selected in December 2005 for Singapore’s largest wastewater recovery project. Asahi Kasei Performance Chemicals Corp. was established in November 2005 in Nantong, Jiangsu, China, for the production and sale of Duranate™ hexamethylene diiso- cyanate (HDI) based polyisocyanate, with plant start-up scheduled for spring 2007. Duranate™ is used as a curing agent for non-yellowing polyurethane coatings and as a production material for inks, adhesives, and cast moldings. In May 2006, a memorandum of understanding was concluded with PTT Plc. of Thailand for the establishment of joint facilities for production of acrylonitrile (AN), methyl 20 15 20 15 Annual Report 2006 15 Major Products Monomers and basic chemicals Ammonia, nitric acid, caustic soda, high-compound fertilizers, acrylonitrile (AN), styrene, adipic acid, methyl methacrylate (MMA). Polymers and elastomers Suntec™ polyethylene (PE), Stylac™-AS styrene-acrylonitrile, Stylac™-ABS acrylonitrile-butadiene-styrene, polymethyl methacrylate (PMMA), synthetic rubber and elastomer, styrene-butadiene latex, Tenac™ polyacetal, Xyron™ modified polyphenylene ether (mPPE), Leona™ nylon 66 polymer and filament. Specialty products and systems Coating materials, Ceolus™ microcrystalline cellulose, explosives, explosion-bonded metal clad, APR™ photosensitive resin, AFP™ photosensitive plates, printing plate making systems, Microza™ UF and MF membranes and systems, Hipore™ microporous membrane, ion-exchange membranes and electrolysis systems. Those characterized by the potential to maintain stable earnings through a strengthened operational base and structure include petrochemicals, basic chemicals, and ethylene center derivatives with the exception of those marked for strategic expansion. R&D The structural configuration for R&D was reorganized in April 2006. R&D related to each established business, with the exception of monomers and basic chemicals, has been devolved to the authority of the relevant business division. Divisional R&D is focused on enhanced market development in downstream fields. Corporate-level R&D comprises chemical process and catalyst technology, and individual projects to develop new businesses in the areas of electronics/optics, environment/energy, and healthcare. Throughout, the effort is directed to achieving global niche leadership, enhanced competitiveness, and development of peripheral business fields based on technological strengths in catalysts, organic synthesis, chemical processes, and polymer processing and modification. methacrylate (MMA), and polymethyl methacrylate (PMMA), with start-up scheduled for year-end 2009. The AN facility will be the world’s first commercial plant to use propane instead of propylene as starting material, and will raise the AN supply capability of the Asahi Kasei Group to a world- leading level. Asahi Kasei’s non-phosgene process technology for polycarbonate (PC) production was honored with an Okochi Memorial Foundation Award in February 2006. The award is granted in recognition of technology which makes outstanding contribution to industrial development. The PC process eliminates the need for the highly toxic phosgene as process material, and by using CO2 as feedstock effects carbon sequestration. Featuring low production costs, it has elicited strong interest worldwide from potential licensees. Growth Action – 2010 Asahi Kasei Chemicals has reviewed the position of each business, classifying each either as a business for strategic expansion, with management resources focused on achieving growth and high earnings, or as a business for stable earnings, with efforts focused on strengthening and enhancement to heighten profitability. Strategic expansion businesses, characterized by the potential to attain greater earnings and stronger market position through expansion of scale, include AN, MMA, and synthetic rubber and elastomers. Those characterized by the potential to attain growth through linkage with growing market segments, building on established strengths, and extension into peripheral fields, include battery/fuel cell materials and water treatment systems. Stable earnings businesses, characterized by the potential to attain greater added value and stable earnings growth through a leading position in growing market segments, include polymers/compounds and performance chemicals. 16 Highlights Water treatment systems Water treatment systems is marked for growth as a competitive, high value-added business. Adoption of Microza™ microfiltration (MF) and ultrafiltration (MF) modules and systems continues to grow at large-scale water-treatment facilities throughout the world. In August 2005, the Microza™ membrane bioreactor (MBR) process was selected for wastewater treatment at two large-scale petrochemical complexes in China, which will be among the largest such water treatment facilities in the world. Microza™ MBR enables outstanding water treatment quality with a small space requirement. In December 2005 Microza™ MF was selected for Singapore’s largest wastewater recovery project. Joint facilities with PTT in Thailand In February 2006 Asahi Kasei Chemicals and PTT Plc. of Thailand began studies for a joint project for the production of acrylonitrile (AN), methyl methacrylate (MMA), and polymethyl methacrylate (PMMA). A memorandum of understanding was concluded with PTT in May 2006 for the establishment of joint facilities in Thailand, with start-up targeted for year-end 2009. The AN facility is to be the world’s first commercial plant to use propane instead of propylene as starting material, raising the AN supply capability of the Asahi Kasei Group to a world-leading level. Microza™ modules at a water treatment facility Subsidiary for Duranate™ in China Demand for Duranate™ hexamethylene diisocyanate (HDI) based polyisocyanate has continued to grow, most notably in Asia. To meet this growing demand, Asahi Kasei Performance Chemicals Corp. was established in November 2005 in Nantong, Jiangsu, China, for the production and sale of Duranate™ with plant start-up scheduled for spring 2007. Duranate™ is used as a curing agent for non-yellowing polyurethane coatings and as a production material for inks, adhesives, and cast moldings. Applications include the automotive, architectural, and maritime fields. The new capacity in China will reinforce our presence in the growing Asia-Pacific region. Signing ceremony with PTT Plc. Omega Process facility A facility using the proprietary Omega Process for catalytic cracking of olefins began commercial operation at our Mizushima Works in June 2006. The Omega Process is used to produce ethylene and propylene from C4 and C5 raffinates which occur as by-products of petrochemical plants and refineries. The process features unprecedented selectivity for propylene, and with lower operating temper- ature than conventional naphtha cracking enables reduced energy consumption and CO2 emissions. The new facility increases the self-sufficiency of feedstock supply at the Mizushima Works, optimizing and enhancing the compet- itiveness of operations. With the commercial validation of the Omega Process, Asahi Kasei Chemicals is studying the potential to license the technology to secure new sources of propylene. Groundbreaking ceremony for Duranate™ plant in China Our Mizushima Works Operating Segment Homes Shingo Hatano President, Asahi Kasei Homes Net Sales ¥ billion 500 400 375.8 404.5 415.0 300 200 100 0 2004 2005 2006 Forecast Fiscal year Operating Profit ¥ billion 40 30 20 10 0 33.0 29.0 28.2 2004 2005 2006 Forecast Fiscal year Annual Report 2006 17 Marketing resources are focused on demand for rebuilding in urban areas, backed by the Long Life Home product strategy to maintain and enhance customer satisfaction over the long term. The Year in Review Sales for the segment increased by ¥28.8 billion to ¥404.5 billion, a 7.7% rise. Operating profit decreased by ¥0.8 billion to ¥28.2 billion, a 2.7% decline. This included a credit to amortize the actuarial surplus for retirement benefits which was ¥2.2 billion smaller than a year ago. Sales of homes, both order-built and pre-built, increased with higher unit prices and the completion of large condominium reconstruction projects, but operating profit decreased with higher costs for materials. The value of orders received during the year increased by ¥11.5 billion to ¥313.3 billion. Sales and operating profit in real estate operations grew with rising income from rentals. Sales and operating profit in remodeling operations also grew. Notable Developments A new product line of Hebel Haus™ Long Life two-generation homes featuring enhanced flexibility to adapt the floor-plan to emerging changes in household composition went on sale in April 2005. Two-story Hebel Maison Court Villa™ apartments went on sale in September 2005. 20 15 20 15 18 Sales Trends of Homes Segment Orders Received Others Pre-built homes Order-built homes ¥ billion 400 306.2 16.5 300 280.0 16.7 354.1 359.0 0.9 1.1 25.6 33.6 332.0 1.1 20.1 318.2 1.1 36.0 ¥ billion 400 300 273.0 289.3 318.1 301.8 313.3 329.0 200 100 0 289.6 263.3 281.1 310.7 319.4 332.5 2001 2002 2003 2004 2005 2006 Forecast Fiscal year 200 100 0 2001 2002 2003 2004 2005 2006 Forecast Fiscal year Major Products Hebel Haus™ houses, Hebel Maison™ apartments, condominiums, remodeling, real estate, residential land development, home financing. R&D R&D is focused on enhancing core technologies. Shelter technology brings greater safety and security through earthquake resistance, seismic damping, and fire resistance; greater long-term usability through physical durability/evaluation, systematic maintenance, and ease of remodeling; enhanced livability through thermal insulation, air circulation, and sound barrier; and enhanced ecology through recycling and incorporation of greenery. Lifestyle technology brings greater comfort, convenience, and satisfaction, while evaluation/simulation technology is being enhanced to enable buyers to more intuitively appreciate the real-world effects of variations and modifications to a home design so that it is optimized to taste before building. Additional research is focused on the physiological and psychological aspects of comfort, and how these can be utilized through technological development to achieve greater energy efficiency and environmental compatibility in homes optimized for health and comfort. Growth Action – 2010 Marketing of order-built homes is focused on demand for home rebuilding in major urban areas, as a high-earnings operational structure is reinforced and expanded. Specific actions include: • Successive development of new products tailored to specific market characteristics in different regions. • Advancement of cost reductions through shared logistical networks with other home builders. • Productivity enhancements through reduced home construction time. • Advanced development of technology to enhance the Long Life Home product strategy. Long-term customer relationships are maintained through the provision of remodeling, real estate, and financial services. Specific actions include: • Expansion of real estate operations in brokerage of used Hebel Haus™ homes. • Expansion of remodeling operations through high value- added services for long-term maintenance and enhancement of home asset value. • Establishment of stable earnings in home financing operations with mortgage securitization and development of homeowners insurance business. • Development of new businesses utilizing proprietary technology, know-how, and the asset value of Hebel Haus™ homes. Highlights New Hebel Haus™ Long Life two- generation home product line A new product line of Hebel Haus™ Long Life two- generation homes was launched in April 2005, building on a long heritage that dates to the industry-leading introduction of the two-generation home in 1975. As a pioneer in the field of homes for two-generation occupancy, Asahi Kasei Homes has constantly studied the needs of residents, the features of a home which can meet them, and how these change over time as a result of lifestyle adaptations, changes which emerge in household composition, and demographic trends. The new product line is the latest development based on the results of such study and analysis, and offers an unprecedented level of flexibility to rearrange the floor-plan of the home in order to adapt to changing needs over the course of long-term ownership. The ability to rearrange interior wall placement without diminishing structural integrity enables the division between living zones to be adjusted in response to changes in the numbers of residents. If desired, part of the living space can also be separated for use as a rental unit. Hebel Haus™ Long Life two-generation home Annual Report 2006 19 Hebel Maison Court Villa™ Two-story Hebel Maison Court Villa™ apartment buildings went on sale in September 2005, meeting growing demand in urban markets for innovative rental units designed with recent demographic trends and current tastes in mind. Featuring a higher degree of privacy and higher quality amenities than with commonly available rental units, Hebel Maison Court Villa™ apartments have strong appeal to moderately affluent singles and couples without children, a growing segment of the Japanese urban population. Hebel Mansion Court Villa™ Urban renewal Urban renewal and redevelopment, including reconstruction of large condominiums and housing complexes, is a growing field of business for Asahi Kasei Homes. Several large projects were delivered during the year, including the Dojunkai Edogawa Apartment Complex whose reconstruction was completed in June 2005. It has been estimated that at least a million older condominium units throughout Japan are in need of extensive renovation or demolishing and rebuilding. With its established know-how and experience in the field, Asahi Kasei Homes continues to expand its business in this market. ▲ The Dojunkai Edogawa Apartment Complex, before rebuilding (left) and after (right) 20 Operating Segment Pharma Kei Oe President, Asahi Kasei Pharma Net Sales ¥ billion 120 103.9 105.8 108.0 80 40 0 2004 2005 2006 Forecast Fiscal year Operating Profit ¥ billion 15 13.4 12 9 6 3 0 11.1 10.0 2004 2005 2006 Forecast Fiscal year The pharmaceuticals business is advancing as a specialized, R&D-centered operation, with the field of orthopedics the central focus of management resources. The medical device business is directed toward for global leadership in systems for ther- apeutic blood filtration. The Year in Review Sales for the segment increased by ¥1.9 billion to ¥105.8 billion, a 1.8% rise. Operating profit decreased by ¥2.3 billion to ¥11.1 billion, a 17.2% decline. This included a credit to amortize the actuarial surplus for retirement benefits which was ¥2.1 billion smaller than a year ago. In pharmaceuticals, sales of Elcitonin™ calcitonin formulation decreased as market share was lost to competing products, but sales of Flivas™ therapy for benign prostatic hyperplasia and Toledomin™ antidepressant continued to grow, and operating profit from pharmaceuticals increased. Shipments of APS™ artificial kidneys grew both in Japan and overseas, but elevated capital depreciation following plant expansions resulted in decreased operating profit for medical devices. 20 15 20 Notable Developments In June 2005 Asahi Kasei Pharma and Novartis Pharma K.K. began co-promotion in Japan of Novartis Pharma’s Voltaren* nonsteroidal anti-inflammatory drug. In March 2006 Asahi Kasei Pharma granted Eisai China Inc. rights to promote Eril™ vasodilator in China beginning in June. Asahi Kasei Medical’s artificial kidney assembly plant in China began operation in November 2005. 15 Growth Action – 2010 Pharmaceuticals business: Advancement as a specialized, R&D-centered operation, with management resources focused on selected therapeutic fields. Expansion of operations through structural reform and slim, robust management, building on an established presence in selected therapeutic fields in the Japanese market. In pharmaceutical intermediates and diagnostic reagents, structural reform is advancing to enable global growth and expansion in selected fields of competitive superiority. Asahi Kasei Medical: Directed toward global leadership in therapeutic blood filtration systems. Global growth and expansion as a high- earnings enterprise based on consolidation in the field of hemodialysis, eliciting new demand for plasmapheresis and leukocytapheresis products, expanding demand for Annual Report 2006 21 Major Products Elcitonin™, Bredinin™, Flivas™, Toledomin™, and other pharmaceuticals, pharmaceutical intermediates, functional food additives, diagnostic reagents, APS™ artificial kidneys, Sepacell™ leukocyte reduction filters, Cellsorba™ leukocyte adsorption columns, Planova™ virus removal filters, contact lenses. Pharmaceutical Product Pipeline Development stage Product Objective Class Indication Pre-registration ART-123 (injection) New biologic Recombinant human thrombomodulin Disseminated intravascular coagulation Phase III AKT-120 (oral) New chemical Anti-virus Herpes zoster AT-877 (injection) Additional indication Rho-kinase inhibitor Acute cerebral thrombosis PTH (injection) Additional indication Synthetic human parathyroid hormone Osteoporosis Phase II AT-877 (oral) New dosage form Rho-kinase inhibitor KT-611 (oral) Additional indication α-1 blocker Angina pectoris Neurogenic bladder Phase II (overseas) ART-123 (injection) New biologic Recombinant human thrombomodulin Deep vein thrombosis Sepacell™ leukocyte reduction filters, and expanding demand for Planova™ virus removal filters. R&D In pharmaceuticals, the focus is on new drug development in the fields of orthopedics, the central nervous system, and urology, and on extension of market life through enhanced product conformation. In medical devices, developments are advancing in fields related to hemodialysis, apheresis, leukocyte removal, and virus removal. Next-generation fields of research include autohemotherapy and cell therapy. Highlights Co-promotion of Voltaren In June 2005 Asahi Kasei Pharma and Novartis Pharma K.K. began co-promotion of Voltaren* diclofenac sodium in Japan. Voltaren* is a nonsteroidal anti-inflammatory drug (NSAID) widely used to reduce inflammation and alleviate pain. The co-promotion was expanded effective April 2006 to include gel, tape, and other transdermal formulations, further reinforcing Asahi Kasei Pharma’s established position in orthopedics as a core field of competence. * Voltaren is a trademark of Novartis. Promotion of Eril™ in China In March 2006 Asahi Kasei Pharma and Eisai China Inc. concluded an agreement for Eisai China to promote injectable formulations of Eril™ in China beginning in June. Eril™ fasudil hydrochloride is a vasodilator indicated for prevention of cerebral vasospasm and ensuing cerebral ischemia following surgery for subarachnoid hemorrhage. With a strong presence in China in the field of neurology, Eisai China is well positioned to expand sales of Eril™ in this key market. Consignment of promotion of Eril™ in China to Eisai China enables Asahi Kasei Pharma to focus its Chinese resources on expanding sales of Elcitonin™ osteoporosis therapy and Bredinin™ immunosuppressant. Artificial kidney assembly plant in China Asahi Kasei Medical’s plant in China for assembly of APS™ polysulfone-membrane artificial kidneys began operation in November 2005. To meet strong demand growth, a decision was made in April 2006 to add a second assembly line. The expanded plant in China will enhance Asahi Kasei Medical’s capacity to maintain stable supply, and will provide an optimum base from which to serve China, Southeast Asia, the Middle East, and other developing markets. The market for artificial kidneys is growing steadily in Japan and throughout the world, as the number of hemodialysis patients increases and facilities for hemodialysis therapy become increasingly available. Demand growth is particularly strong for polysulfone- membrane dialyzers, due to their exceptional performance and biocompatibility. The new assembly line is part of an ongoing program of R&D and plant investments to heighten the trust and satisfaction of the hemodialysis community, to advance Japan’s world-leading hemodialysis technology, and ultimately to contribute to the quality of life for hemodialysis patients. New APS™ assembly plant in China The focus is on achieving growth through the global expansion of products with exceptional performance features and the development of new businesses in industrial-use materials. The Year in Review Sales for the segment decreased by ¥1.8 billion to ¥89.7 billion, a 2.0% decline. Operating profit decreased by ¥4.3 billion to ¥4.0 billion a 51.8% decline. This included a credit to amortize the actuarial surplus for retirement benefits which was ¥1.3 billion smaller than a year ago. Operating profit in Roica™ spandex decreased with elevated feedstock prices and lower sales prices due to intensified competition. Operating profit in Bemberg™ cupro filament, used principally in linings, increased with strong overseas sales. Sales of Eltas™ spunbond increased in diaper and hand- warmer applications, but operating profit in nonwovens decreased with elevated feedstock costs. Notable Developments In March 2006 Asahi Kasei Fibers acquired the spandex business of Lanxess, with production facilities in Germany and the US. Together with production facilities in Japan, China, Taiwan, and Thailand, Asahi Kasei Fibers now has a truly global supply infrastructure for spandex filament and yarn. Growth Action – 2010 Achieving continuous growth by advancing a transformation from a business structure centered on products for the Japanese market for apparel through expansion of overseas business and development of business in non-apparel, industrial-use materials. R&D is focused on driving the growth of business in industrial-use materials to develop as a new core field of operation. For greater earnings in established businesses: • Expansion in global markets. Development of Roica™ as a leading global spandex brand, with production in six countries. • Full utilization of available resources to expand earnings. Concerted forward-looking execution of investment for expansion. • Intensive development of high value-added products. Establishment of pricing structure to reflect added value. For expansion of new businesses: • Expansion of Solotex™ polytrimethylene terephthalate (PTT) fiber business in new application fields. 22 Operating Segment Fibers Masaki Sakamoto President, Asahi Kasei Fibers Net Sales ¥ billion 120 108.0 91.5 89.7 80 40 0 2004 2005 2006 Forecast Fiscal year Operating Profit ¥ billion 10 8.3 4.0 4.0 2004 2005 2006 Forecast Fiscal year 20 15 8 6 4 2 0 20 15 Annual Report 2006 23 Major Products Roica™ elastic polyurethane filament (spandex), Eltas™ spunbond, Lamous™ artificial suede, and other nonwovens, Bemberg™ cuprammonium rayon, polyester filament. Commercialization of polyketone filament business. • Development of new businesses peripheral to established cellulosic and nonwovens businesses. Rapid scale-up to form new core business. • Extension of business domain based on established technology and know-how, not limited to traditional fields of fiber production. • Flexible implementation of alliances and joint projects with 75th anniversary for Bemberg™ In June 2006, Asahi Kasei Fibers celebrated 75 years of production of Bemberg™ cupro fiber in Nobeoka. Bemberg™ is an environmentally compatible fiber made from cotton linter, short fibers on the seeds of cotton plants which are not used in cotton yarn. Production technology was licensed from Germany in 1929 and the first commercial shipment from Nobeoka was in June 1931. partners within and outside the Asahi Kasei Group. Bemberg™ cupro is widely used in high quality linings, and use is growing in fashionable apparel, innerwear, bedding, and sportswear. Newspaper advertisement commemorating the 75th anniversary of Bemberg™ R&D The ratio of R&D expenditure on new materials to that on existing materials is 2:3 and increasing as greater emphasis is focused on development of new materials. R&D on existing materials is directed toward the development of new high value-added grades of Roica™ spandex, Bemberg™ cupro, and nonwovens which meet market needs for advanced performance. R&D on new materials is directed toward the development of unique products which will elicit new demand. A pilot plant for polyketone filament started up at the beginning of 2006, with samples supplied to users for evaluation. Highlights Acquisition of spandex business In March 2006 Asahi Kasei Fibers acquired the spandex business of the German Lanxess Group, including production facilities in Germany and the US. Featuring elastic stretch and recovery, spandex is widely used in sportswear, swimwear, and stockings. The product lineup of Roica™ spandex is distinguished by high-performance grades with added functionality enabled by innovative technological advances and integrated production from raw material to finished yarns. The newly acquired production bases complement those in Japan, China, Taiwan, and Thailand, establishing Asahi Kasei Fibers as a truly global supplier of spandex products. The business will be expanded and grown to establish Roica™ as a leading global spandex brand. Press conference announcing acquisition of spandex business from Lanxess Swimwear made with Roica™ 24 Operating Segment Electronics Materials & Devices Growth of a high-earnings operational structure is obtained through leadership in the development of products for emerging applications in each market segment for electronic materials and electronic devices. The Year in Review Sales for the segment increased by ¥9.8 billion to ¥102.9 billion, a 10.6% rise. Operating profit increased by ¥1.7 billion to ¥19.3 billion, a 9.9% rise. This included a credit to amortize the actuarial surplus for retirement benefits which was ¥1.1 billion smaller than a year ago. Operating profit in electronics devices grew with strong demand in cell phone, DVD recorder, and other home electronics applications. Operating profit in electronics materials grew with increased sales of Sunfort™ dry film resist for printed wiring board production following an expansion of capacity in China. Notable Developments A second production line began commercial operation in May 2005 at Asahi Kasei EMD’s plant for large pellicles in Nobeoka. In September 2005 Asahi Kasei Electronics announced the development of a high-precision contact-free rotation angle sensor for use in automotive and industrial applications. In March 2006 Asahi Kasei Microsystems announced the development of the world’s smallest and thinnest 6-axis electronic compass for use in cell-phone navigation systems and other portable electronics applications. Growth Action – 2010 In electronic devices: • Established LSI and sensor businesses are being expanded. • New high-performance hybrid devices combining sensors and LSIs, including a contact-free position detector IC, are being developed. • Marketing is being expanded world-wide. In electronic materials: • Industry-leading positions are being reinforced for Sunfort™ DFR, Pimel™ PSPI, and photomask pellicles for LCD panel production. • Other core businesses including glass fabric are also being expanded. Makoto Konosu President, Asahi Kasei EMD Net Sales ¥ billion 120 100 93.0 115.0 102.9 80 60 40 20 0 2004 2005 2006 Forecast Fiscal year Operating Profit ¥ billion 25 21.0 19.3 17.6 2004 2005 2006 Forecast Fiscal year 20 15 10 5 0 20 15 20 15 Major Products Pimel™ photosensitive polyimide precursor (PSPI), Sunfort™ photosensitive dry film resist (DFR), photomask pellicles, Luminous™ plastic optical fiber, LSIs, Hall elements, glass fabric. Annual Report 2006 25 World’s smallest and thinnest 6-axis electronic compass The AK8976A developed by Asahi Kasei Microsystems (AKM) comprises a 3-axis geomagnetic sensor and a 3-axis acceleration sensor to form the world’s smallest and thinnest 6-axis electronic compass. AKM is one of the world’s lead- ing suppliers of 3-axis electronic compasses widely used in GPS-enabled cell phones for pedestrian navigation systems. The new 6-axis electronic compass provides accurate navi- gation performance regardless of handset orientation, enabling advanced functions and services such as continuous alignment of 3D map display with handset orientation angle, and access to real-time shopping or events information by pointing the handset at a building. AK8976A 6-axis electronic compass • Development of new applications is being advanced, including materials for flat-panel displays using established core technology in photosensitive materials and materials for semiconductor packaging. R&D R&D is directed toward meeting needs and providing solutions to problems identified through interaction with the customer. Developments in electronics devices include combinations of sensor technology with digital/analog mixed-signal LSI technology for hybrid devices with unique functions. Developments in electronics materials include high-performance structural materials for LCD panels and organic electroluminescent (EL) materials for flat-panel displays, and next-generation package substrate materials compatible with emerging standards for high transmission speeds, performance, and reliability. Highlights Contact-free rotation angle sensor The high-precision contact-free rotation angle sensor developed by Asahi Kasei Electronics (AKE) comprises the AE-8001 controller IC and two high-sensitivity Hall elements. It is the world’s first magnetic rotation angle sensor to achieve the high precision standard of ±0.5° across the broad temperature range of – 40° to 125°C. The sensor also features reliable performance under severe conditions of dust and vibration, making it well suited for use in automotive applications including electric motor control and steering angle detection, and in industrial applications including control of machine tools and robotic equipment. AKE is the world’s leading supplier of Hall elements, magnetic sensors widely used in the control of electric motors for consumer electronics. Advanced products of AKE include Hall ICs and cell phone input devices. New sensor solutions for emerging applications are being developed through a combination of magnetic sensor function with digital/analog signal processing technology and innovative algorithms to efficiently extract the required information from electronic signals. Contact-free rotation angle sensor controller IC (left) and Hall elements (right) 26 Operating Segment Construction Materials Yoichi Saji President, Asahi Kasei Construction Materials Net Sales 20 ¥ billion 80 60 40 15 20 0 59.9 56.5 59.0 2004 2005 2006 Forecast Fiscal year Operating Profit ¥ billion 5 4 3 2 1 0 3.8 4.0 2.6 2004 2005 2006 Forecast Fiscal year 20 15 With a reinforced commitment to customer focus, safety, security, and comfort, operational reform is advancing for heightened competitiveness of estab- lished businesses, expansion and development of new businesses, and establishment of new business models. The Year in Review Sales for the segment decreased by ¥3.4 billion to ¥56.5 billion, a 5.7% decline. Operating profit increased by ¥1.2 billion to ¥3.8 billion, a 48.6% rise. This included a credit to amortize the actuarial surplus for retirement benefits which was ¥1.5 billion smaller than a year ago. Operating profit in building materials and housing materials increased with operating cost reductions and growing sales of Hebel™ autoclaved lightweight concrete (ALC) panels in large retail outlets, factories, and apartment buildings, and with operating cost reductions and growing sales of Hebel Powerboard™ ALC panels in new market segments. Sales of pre-cast concrete piles decreased, but operating profit in foundation systems increased with growing sales of Eazet™ and ATT Column™ piles for small-scale construction. Operating profit in insulation materials decreased with elevated feedstock costs and lower demand for Neoma™ high-performance foam insulation panels due to a downturn in wood-frame home construction. Notable Developments Nanoroof™ fiber-reinforced cement roofing tiles went on sale in November 2005. The E-coupler™ steel column coupling system went on sale in January 2006. Growth Action – 2010 Further reinforcing the enhanced operational structure with growth through the expansion and development of new businesses and the establishment of new business models. Enhancing competitiveness of established businesses: • Ongoing operating cost reductions and enhanced product quality and service to ensure stable profitability of the Hebel™ ALC business. • Expansion and reinforcement of Hebel Lite™, Hebel Powerboard™, and small-scale piles businesses. Expansion and development of new businesses: • Wide-ranging study of new business opportunities, both domestic and overseas. • Swift commercialization of projects under development. • Collaboration with Asahi Kasei Homes. Major Products Hebel™ autoclaved lightweight concrete (ALC) panels, steel-frame structural components, piles and foundation systems, Neoma™ foam insulation panels, artificial fish reefs and marine structures. Annual Report 2006 27 E-coupler™ steel column coupling system The E-coupler™ coupling system for steel columns went on sale in January 2006. The system enables quick and precise coupling of steel columns for building frames without the need for welding at the construction site. Based on column coupling technology developed jointly by Asahi Kasei Homes and Unytite Corp. for use in the Hebel Haus Frex™ series of homes, the E-coupler™ system is the product of a three-way collaboration including Asahi Kasei Construction Materials to develop material components enabling general use in build- ing frames. Asahi Kasei Construction Materials is advancing the development of other innovative structural systems and components with strong demand growth foreseen. ▲ ▲ ▲ E-coupler™ steel column coupling system Establishment of new business models: • Expansion of installation business for piles and foundation systems and for ALC panels and other exterior wall products. • Identification of new research projects based on customer needs. • Intensified marketing of housing materials and insulation materials through direct contact with builders and constructors. R&D The phenolic foam thermal insulation business will be expanded through developments to enhance production efficiency and enable composite product variations. Products under development include materials with humidity/temperature regulating function and the incorporation of added function to ALC panels. Highlights Nanoroof™ cement roofing tiles Nanoroof™ fiber-reinforced cement roofing tiles went on sale in November 2005. While the clay roofing tiles most commonly used in Japan feature durability and a substantial appearance, their heavy weight poses a danger in the event of an earthquake. Many attempts to develop a lighter- weight roofing tile have failed to find market approval due to lack of sufficient durability and indistinct appearance. With the Nanoroof™ tile, Asahi Kasei Construction Materials has succeeded in matching the durability and appearance of traditional clay tiles at half the weight loading per unit of roof area. The outstanding strength and durability of the thin Nanoroof™ tiles is made possible by the proprietary development of an ultra-fine material composition in which the pores in the cement are reduced to nanometer-order size, in contrast to the micrometer-order pores in conventional cement. Containing no asbestos, Nanoroof™ is a safe, environmentally compatible product. Nanoroof™ cement roofing tiles A revitalization of operations is advancing by reinforcing strong businesses, selecting and prioritizing new businesses, quickly performing necessary restructuring, and strengthening links with other core operating companies. The Year in Review Sales for the segment decreased by ¥7.2 billion to ¥51.9 billion, a 12.2% decline, largely due to the transfer of biaxially oriented polystyrene sheet operations to a joint venture with Dainippon Ink and Chemicals, Inc. Operating profit decreased by ¥1.2 billion to ¥4.8 billion, a 20.5% decline. This included a credit to amortize the actuarial surplus for retirement benefits which was ¥0.6 billion smaller than a year ago. Feedstock costs rose, but operating profit in home-use products increased with higher sales of Saran Wrap™ cling film and increased exports of Saran™ fiber. Sales prices for packaging and cushioning materials continued to rise, but operating profit decreased due to still higher feedstock costs. Notable Developments Ziploc™ containers with twist-sealing lids and Ziploc™ bags with double zippers went on sale in March 2006. Growth Action – 2010 Reinforcing strong businesses and expanding into growth applications. Strengthening links with Asahi Kasei Chemicals and other core operating companies. In home-use products: Expansion of operations by reinforcing the Saran Wrap™ brand and development of new products which meet market demand. In packaging products: Expansion and growth with applications development in films for use in electronics and pharmaceuticals packaging, in addition to the main-line foods application field. 28 Operating Segment Life & Living Keiji Kamei President, Asahi Kasei Life & Living Net Sales ¥ billion 60 59.1 51.9 54.0 40 20 0 2004 2005 2006 Forecast Fiscal year Operating Profit ¥ billion 8 6 4 2 0 6.1 4.8 4.5 2004 2005 2006 Forecast Fiscal year 20 15 20 15 Major Products Saran Wrap™ cling film, Ziploc™ storage bags, film, sheet, foam. R&D Development in the main business fields of Saran Wrap™ food wrapping film, cushioning material, Saran™ fiber, and plastic containers, is directed toward heightening productivity and eliciting new demand through product differentiation. R&D for new business growth is focused on the following areas: Development of performance films, packaging systems, functional packaging, and easy-opening packaging for enhanced consumer safety, reliability, and convenience in food and pharmaceutical applications; development of improved performance and new applications for biodegradable polymers; development of new consumer products which enable more comfortable living; and advanced utilization of the PAOSS™ cushioning design and simulation technology. Highlights Biodegradable plastic cups Biodegradable Green Promax™ cups from Asahi Kasei Pax were used at Aichi Expo 2005. The cups are made with 100% polylactic acid (PLA), a biodegradable plastic material derived from corn. Asahi Kasei Pax developed proprietary technology for thermal processing and additive formulation to enable the production of PLA cups with transparency and strength equivalent to plastic drinking cups made of polystyrene or polypropylene. Green Promax™ cups are used at fast food chains, and other new applications based on the established technology are emerging. Biodegradable Green Promax™ cup Annual Report 2006 29 New Ziploc™ products Ziploc™ containers with twist-sealing lids, rectangular Ziploc™ containers, and Ziploc™ bags with double zippers went on sale in March 2006. With a tighter seal, the twist- sealing containers are ideal for storage of soups, stews, or other liquid foodstuffs without spillage, and also for protecting dry ingredients from humidity. The rectangular Ziploc™ containers are specially designed for use in the limited space of a Japanese kitchen, and are perfect for efficient storage of small portions. The new Ziploc™ bags feature two zippers to assure a tight and secure seal. Ziploc™ containers with twist-sealing lids Rectangular Ziploc™ containers Ziploc™ bags with double zippers The Year in Review Sales for the segment increased by ¥2.6 billion to ¥26.8 billion, a 10.7% rise. Operating profit decreased by ¥0.3 billion to ¥3.3 billion, a 7.9% decline, largely as a result of the exclusion of Asahi Kasei Information Systems as a consolidated subsidiary with the April 2005 divestment of a majority of its shares to TIS Inc. Sales and operating profit in engineering operations increased with growing business in domestic plant construction. Sales and operating profit in personnel staffing and placement operations increased with growing business in staffing and an expanded sales network. R&D Projects under development at Asahi Kasei Engineering include technology for evaluation of high performance films and sheets used in display panels, technology for examination of minute metallic impurities, and technology for microbicidal photocatalysis. During the fiscal year, Asahi Kasei Engineering and Asahi Research Center completed a three-year commission from the New Energy and Industrial Technology Development Organization (NEDO) for development of biodiesel fuel production technology in a joint project including Kyoto University and others. Major Products Plant engineering, environmental engineering, personnel staffing and placement, think tank services. 30 Operating Segment Services, Engineering and Others Net Sales ¥ billion 30 29.0 26.8 24.2 20 10 0 2004 2005 2006 Forecast Fiscal year Operating Profit ¥ billion 4 3.6 3.3 3.5 3 2 1 0 2004 2005 2006 Forecast Fiscal year 20 15 20 15 New Business Development and Intellectual Property Annual Report 2006 31 32 Research & Development and New Operations Asahi Kasei Corporation CTO Kageyasu Akashi on the new approach to development. Kageyasu Akashi Director, Executive Officer R&D Renewing the organizational structure Since the holding company configuration was adopted in October 2003, R&D related to established businesses has been the responsibility of the core operating companies. The holding company has continued to perform basic research and new business projects. In August 2005 these were brought together with intellectual property in a new organization, New Business Development. As part of this, basic research functions are performed by the Central R&D Laboratories. New Business Development Corporate IP & Research Administration Shibasaki Laboratory Yoshino Laboratory Strategic Planning & Development Central R&D Laboratories Information Technology Laboratory Internet Business Marketing Center for FPC and FPD Materials Medical Service Support Center Speech Solutions (As of August 1, 2006) The role of New Business Development While each core operating company remains responsible for development of new businesses in its own field of operation, New Business Development performs the development of new businesses which extend beyond the range of any single operating segment, or would be impractical for any single core operating company to perform independently. In the past our corporate R&D organs had served to support the R&D efforts of the business units. With the new structure, in contrast, the core operating companies support our work in New Business Development with their established market- ing capabilities and infrastructure. In this sense there has been quite a change in the way we function at the core of the Asahi Kasei Group’s effort for the expansion and growth of operations. Flexible printed circuit (FPC) and flat panel display (FPD) materials The Marketing Center for FPC and FPD Materials was established as a holding company project in October 2004, to develop new businesses in electronic chemicals. The project combines personnel and technology from Asahi Kasei Chemicals, Asahi Kasei EMD, and the holding company. It marks a new way of doing things for us in that the same organ is responsible for the whole process encompassing research, development, and commercialization, tailoring its work in real time to emerging market needs, with the Annual Report 2006 33 biotechnology. Our internet businesses include an electronic marketplace for construction materials and home fixtures, and a web-based personal diet management system. Outlook We have a clear mission to develop new businesses that can grow to become the next generation of core businesses for Asahi Kasei. The growth fields we are targeting require speed and flexibility if we going to succeed, and the personnel we have in New Business Development welcome and enjoy the challenge. Fiscal 2006 will be a pivotal year for much of our work, and we look forward to achieving progress in several areas. R&D Expenditure (consolidated) ¥ billion 60 40 20 0 48.4 50.7 51.5 56.0 2003 2004 2005 2006 Forecast authority to license technology or make acquisitions as necessary. A two-layer flexible copper-clad laminate (FCCL) for flexible printed wiring boards and a wire-grid polarizing film for liquid crystal displays are in advanced stages of development, with preparations for sample shipment. Marketing Center for FPC and FPD Materials Asahi Kasei EMD Photoresist, film processing Asahi Kasei Chemicals Optical materials, hardening agents, polymers, silicone, microfabrication Talent, technology, market access Talent, technology, market access Marketing center for FPC and FPD materials FCCL FPD materials Other areas of development One area with great potential we are looking at is biotechnology. Successful developments with biotechnology have largely been limited to the fields of crop science and pharmaceuticals, but important new fields of application will emerge, including therapeutic devices and systems, and we are studying the prospects for establishing a new business model using biotechnology in such emerging fields. Another project we have is to develop a business which can support the establishment of private clinics and medical offices. Established in November 2004, this project combines personnel and technology from Asahi Kasei Homes, Asahi Kasei Pharma, and Asahi Kasei Medical. This project also has the potential to lead to new developments in biotechnology utilizing information related to hemodialysis technology. Our speech recognition technology also has the potential for cross-application to data processing related to 34 Intellectual Property A systematic patent portfolio is maintained to secure the market superiority of operations. Strategic development of the patent portfolio is directed toward international patent protection to support the globalization of business. The figures below show domestic patents held by category of use and overseas patents held by region of registration. Domestic patents of the Asahi Kasei Group, by category of use Overseas patents of the Asahi Kasei Group, by region of registration In practice 44% 1,574 Defensive and other 30% 1,081 Scheduled for practice 26% 945 Other 9% 351 Asia 34% 1,385 United States 21% 869 EPC* signatory nations 36% 1,477 * European Patent Convention Public recognition of inventions Many key inventions which support Asahi Kasei Group businesses have been honored with prestigious awards and commendations in recognition of the public benefits which have been made possible. The main awards received from fiscal 2003 to fiscal 2005 are shown below. Japan Medal of Merit, Purple Ribbon Akira Yoshino, Asahi Kasei Group Research Fellow Ichiro Shibasaki, Asahi Kasei Group Research Fellow Li-ion rechargeable battery InSb Hall element Science and Technology Award (Distinguished Service Award until 2004) from Minister of Education, Culture, Sports, Science and Technology National Commendation for Invention, Japan Institute of Invention and Innovation Oil-extended SBR with functional groups for silica-compound tires Novel catalytic reaction with high-concentration heteropolyacid Li-ion rechargeable battery Virus removal filter FY 2004 FY 2003 FY 2005 FY 2005 FY 2003 FY 2005 Governance and Responsibility Annual Report 2006 35 36 Corporate Governance The Asahi Kasei Group constantly endeavors to heighten fast-moving and transparent management as essential for maximum corporate value and greater earnings. The effort for enriched and enhanced corporate governance is ongoing, building on the October 2003 transformation to Corporate Governance System a holding company configuration with separate execution and oversight functions which established a management framework with clear delineation of executive authority and responsibility. Shareholders Holding Company Asahi Kasei Board of Corporate Auditors Board of Directors Group Advisory Committee Chairman of the Board President Strategic Management Council CSR Council Group staff functions • Strategic planning & analysis • Compliance & risk management • Resources administration Development of new businesses Internal Auditing Internal Control Project Group Executives Council Core Operating Companies, business fields Asahi Kasei Chemicals Asahi Kasei Homes Asahi Kasei Pharma Asahi Kasei Fibers Asahi Kasei EMD Chemicals Housing Pharmaceuticals, medical products Fiber, textiles Electronics materials and devices Asahi Kasei Construction Materials Construction materials Asahi Kasei Life & Living Household products, packaging materials (As of April 1, 2006) Board of Directors Oversees group management, and deliberates and decides on basic group policy and strategy, and on substantive proposals by the Strategic Management Council. The chairman of the holding company chairs meetings of the Board of Directors. Meets once or twice per month. Strategic Management Council Deliberates and decides on substantive matters relating to the operation of the holding company and of the group. Its decisions are made by the president of the holding company, who chairs meetings of the council, after deliberation by the attending constituent members. Meets twice per month. Group Advisory Committee The advisory body to the holding company Board of Directors, composed of the chairman and the president of the holding company and outside advisors. Meets twice per year. Group Executives Council Conducts the dissemination of substantive group information and the exchange of group information, and deliberates on matters requiring coordination among the core operating companies. Meets once per month. Board of Corporate Auditors Comprises four Corporate Auditors, of which two are Outside Auditors. Corporate Auditors exchange views, deliberate, and decide on substantive matters relating to auditing. Meets at least once per quarter. Annual Report 2006 37 Membership of Group Advisory Committee (as of March 31, 2006) External Members Internal Members Yuzo Seto Kodama Yukiharu Norio Wada Masumi Shiraishi Kazuo Tezuka Akio Makabe Nobuo Yamaguchi Shiro Hiruta Counsellor President President and CEO Professor Attorney Professor Chairman of the Board & Representative Director President & Representative Director, Presidential Executive Officer Asahi Breweries, Ltd. Japan Information Processing Development Corporation Nippon Telegraph and Telephone Corporation Faculty of Economics, Toyo University Kaneko & Iwamatsu Faculty of Economics, Shinshu University Asahi Kasei Corporation Asahi Kasei Corporation Internal Observer Secretariat Ichiro Ito Kenichi Shibukawa Director, Primary Executive Officer Director, Senior Executive Officer Asahi Kasei Corporation Asahi Kasei Corporation Executive Officer System Audits An executive officer system of management is employed at the holding company and at each core operating company. Authority and responsibility for the management of each core operating company is held by the president and the other executive officers of that company. Authority and responsibility for the management of the holding company and of the group is held by the president and the other executive officers of the holding company. The president of the holding company oversees the executive management and performance of the core operating companies and of their presidents. The holding company board of directors oversees the executive management and performance of the holding company president and of the group. For both the holding company and the core operating companies, the number of board directors and executive officers is as small as possible. In all cases, the term of office is one year, and management results and performance are reviewed each fiscal year. Recent developments The Board of Directors, Strategic Management Council, Group Advisory Committee, Group Executives Council, and Board of Corporate Auditors met as scheduled. In October 2005 an Internal Control Project was formed to lead the preparation and implementation of an optimum system for internal control. After studying what would be the optimum content of documentation for the Asahi Kasei Group based on a standard internal control framework, the project began in earnest in April 2006. The Corporation Law which came into effect in May 2006 requires a Board of Directors resolution related to the preparation of an internal control system. At its May 2006 meeting, our Board of Directors adopted a basic policy for the Asahi Kasei Group’s internal control system. Internal Auditing is a corporate organ under the direct authority of the president of the holding company. Each year, Internal Auditing prepares plans for an internal audit in accordance with basic corporate regulations for internal audits, obtains the president’s approval for these plans, and then performs the internal audit. In accordance with the audit policy adopted by the Board of Corporate Auditors, each Corporate Auditor attends meetings of the Board of Directors and audits Directors in the discharge of their duties through examination of business performance. The Statutory Auditors Office provides staff to assist Corporate Auditors. Chuo Aoyama PricewaterhouseCoopers was contracted as an independent auditor to perform the financial audit in accordance with the Commercial Code and Securities Law. Partners of the independent auditor designated to perform the audit for fiscal 2005 and the number of years auditing Asahi Kasei were as follows. • Koji Kobayashi, CPA, 10 years • Takahiro Nakazawa, CPA, 5 years • Tetsuo Kitagawa, CPA, 10 years The independent auditor forms a team of assistants for performance of the audit in accordance with its audit plan. The team mainly comprises certified public accountants and junior accountants, and also includes certified information systems accountants and other specialist assistants. Internal Auditing, the Board of Corporate Auditors, and the corporate auditors of core operating companies and other subsidiaries regularly meet to confirm the effectiveness of internal governance systems for legal compliance and risk management. The Board of Corporate Auditors provides counsel to the independent auditor with respect to its audit plan, and receives the results of the consolidated financial audit of Asahi Kasei for the fiscal half- year and fiscal year. 38 Corporate Social Responsibility CSR at the Asahi Kasei Group CSR in Action We believe that CSR is achieved through the sustainable expansion of operations effecting increased corporate value, enabling fulfillment of the needs and expectations of our various stakeholders, in accordance with our basic tenets of contribution to human life and human livelihood through constant innovation and advances based in science and the human intellect. CSR Fundamentals Based in an understanding of the effects of our operations on the global environment and the global community, efforts and actions related to CSR are based in our four CSR Fundamentals: Compliance, Respect for Employee Individuality, Responsible Care*, and Corporate Citizenship. Asahi Kasei Group CSR The employee Employee fulfillment The community Community outreach The environment Environmental protection The customer Customer satisfaction Sustainable increase in corporate value The shareholder Shareholder returns The supplier Fair business dealings The local economy Local economic participation Business operations CSR Fundamentals Compliance Respect for Employee Individuality Responsible Care Corporate Citizenship * Responsible Care represents the commitment and initiative to secure and improve safety and environmental protection at every step of the product life-cycle through the individual determination and responsibility of each firm producing and handling chemical products. As of April 2006, fifty-two countries throughout the world have a Responsible Care program. Framework for advancement The CSR Council formed in April 2005, with the president serving as chair, formulates CSR policy and guides the CSR effort throughout the Asahi Kasei Group. The Asahi Kasei CSR Fundamentals were promulgated by the CSR Council in November 2005. Specific CSR initiatives are implemented by the committees under the authority of the CSR Council, including the Corporate Ethics Committee to ensure Framework for Advancement of CSR President CSR Council • Formulation of unified policy and action plans • Guidance and counsel for the subordinate committees • Preparation of reports • Monitoring of independent evaluation • Disclosure of CSR information Public recognition of CSR results In April 2006 the Asahi Kasei Group received the Grand Prize in the 15th Annual Global Environment Award sponsored by Fujisankei Communications Group with the support of WWF Japan. The award cited the Asahi Kasei Group’s advancement of Responsible Care, particularly curtailment of fiscal 2004 greenhouse gas emissions to approximately half the level of the baseline year fiscal 1990, and also the provision of the “Eco-footprint Club” website for children to learn about the environment, ecology, and conservation. Annual Report 2006 39 regulatory compliance and the Responsible Care Committee to guide efforts for environment, health, and safety. The Risk Management Committee formulates the response to contingencies such as a major earthquake. The Commu- nity Fellowship Committee promotes and coordinates the effort for outreach and fellowship in each local community where we operate. Corporate Ethics Committee Advancement of ethics education and operation of compliance hotline Market Compliance Committee Compliance with Antimonopoly Law and prevention of violation Export Control Committee Compliance with export-related regulations and prevention of violation Responsible Care Committee Risk Management Committee Environmental preservation, product safety, physical integrity and safe operation, work- place safety, hygiene, and health, and community outreach Crisis prevention and damage minimization Community Fellowship Committee Advancement of community fellowship activities President Hiruta accepts the Grand Prize at the Global Environment Award Ceremony 40 Directors, Auditors, Excecutive Officers (As of June 30, 2006) Yuji Tsuchiya Auditor Kenji Nakamae Auditor Hidefumi Sakamoto Outside Auditor Katsuo Wajiki Outside Auditor Hatsuki Onitsuka Executive Officer Masanori Mizunaga Executive Officer Koji Fujiwara Executive Officer Yoshio Hayashi Executive Officer Nobuo Yamaguchi Chairman of the Board & Representative Director Shiro Hiruta President & Representative Director, Presidential Executive Officer Ichiro Itoh Director, Vice-Presidential Executive Officer Strategy; Accounting & Finance Kunio Kohga Director, Primary Excective Officer ESH; Production Technology; PL Kenichi Shibukawa Director, Senior Executive Officer Legal & General Affairs; Procurement; Compliance Shigeru Mizutani Director, Executive Officer ESH; Production Technology; PL Kageyasu Akashi Director, Executive Officer R&D Kiyoshi Tsujita Director, Executive Officer Human Resources Financial Section Annual Report 2006 41 C o n t e n t s Consolidated Eleven-Year Summary ........................................ 42 Management’s Discussion and Analysis .................................. 44 Risk Analysis .............................................................................. 50 Consolidated Balance Sheets ................................................... 52 Consolidated Statements of Income ........................................ 54 Consolidated Statements of Shareholders’ Equity .................. 55 Consolidated Statements of Cash Flows ................................. 56 Notes to Consolidated Financial Statements .......................... 57 Report of Independent Auditors ............................................. 71 42 Consolidated Eleven-Year Summary Asahi Kasei Corporation and Consolidated Subsidiaries For the year ended March 31 Net Sales Chemicals Chemical and Chemical-related Chemicals and Plastics Homes Housing and Construction Materials Pharma* Fibers* Electronics Materials & Devices* Construction Materials Life & Living Special Products and Services Electronics Membranes and Systems Biotechnology and Medical Products Speciality Products Foods and Liquors Engineering and Others* Services, Engineering and Others* Domestic sales Overseas sales Operating profit Ordinary profit Income (loss) before income taxes Net income (loss) Net income (loss) per share (yen) Capital expenditure Depreciation and amortization R&D expenditures Cash dividends per share (yen) As of March 31 Total assets Inventories Property, plant and equipment Investments and other assets Shareholders’ equity Shareholders’ equity per share (yen) Shareholders’ equity to total assets (%) Number of employees 2006 2005** 2004 2003 2003† ¥1,498,620 660,402 – – 404,539 – 105,842 89,704 102,859 56,512 51,942 – – – – – – – 26,821 1,125,454 373,166 108,726 104,166 94,481 59,668 42.46 66,310 69,399 51,467 10.00 ¥1,377,697 570,182 – – 375,755 – 103,933 91,518 93,024 59,908 59,149 – – – – – – – 24,228 1,067,893 309,804 115,809 112,876 91,141 56,454 40.16 68,479 71,531 50,715 8.00 ¥1,253,534 453,707 – – 361,273 – 105,965 101,514 82,484 60,622 59,813 – – – – – – – 28,156 1,011,366 242,168 60,932 53,643 54,820 27,672 19.62 86,387 64,408 48,420 6.00 ¥1,193,614 424,673 – – 320,553 – 105,463 110,551 71,579 63,101 52,908 – – – – – – – 44,786 981,064 212,550 61,555 50,389 (100,869) (66,791) (47.63) 93,985 60,808 49,311 6.00 ¥1,193,614 – 477,581 – – 383,654 105,463 110,551 71,579 – – – – – – – – – 44,786 981,064 212,550 61,555 50,389 (100,869) (66,791) (47.63) 93,985 60,808 49,311 6.00 2006 2005 2004 2003 2003 ¥1,376,044 214,062 414,368 284,390 594,211 424.34 43.2 23,030 ¥1,270,057 202,521 419,969 223,958 511,726 365.43 40.3 23,820 ¥1,249,206 181,609 428,302 226,825 450,451 321.41 36.1 25,011 ¥1,212,374 176,788 427,188 198,697 407,639 290.92 33.6 25,730 ¥1,212,374 176,788 427,188 198,697 407,639 290.92 33.6 25,730 * For continuity, figures for business categories which were renamed are shown on the same line. • Through the year ended March 31, 2003: Figures shown as Pharma are those for the previous Health Care sector, figures shown as Fibers are those for the previous Fibers and Textiles sector, figures shown as Electronics Materials & Devices are those for the previous Electronics sector, and figures shown as Services, Engineering and Others are those for the previous Liquors, Services and Others sector. • With the divestment of foods operations, the “foods and liquors” and “engineering and services” segments are combined as “engineering and others.” Through the year ended March 31, 1999, figures shown as “engineering and others” are those for the previous “engineering and services” segment. ** For comparison purposes, results for the year ended March 31, 2005 are recalculated to reflect the April 2005 transfer of Leona™ nylon 66 filament operations from the Fibers segment to the Chemicals segment. † For comparison purposes, results by business category for the year ended March 31, 2003 are recalculated in accordance with the revised categories for the year ended March 31, 2004, which are aligned with the core operating companies in the holding company configuration adopted in October 1, 2003. • The “fabricated home products” segment of the Chemical and Chemical-related sector is separated to an independent Life & Living segment. The remainder of the Chemical and Chemical-related sector is reclassified as the Chemicals segment. • The Housing and Construction Materials sector is separated into the Homes segment and the Construction Materials segment. • The Health Care sector is renamed the Pharma segment. • The Fibers and Textiles sector is renamed the Fibers segment. • The Electronics sector is renamed the Electronics Materials & Devices segment. • With the divestment of liquors operations, the Liquors, Services and Others sector is renamed the Services, Engineering and Others segment. Annual Report 2006 43 2002 2001‡ 2001 2000 1999 1998§ 1998 Millions of yen, except where noted 1996 1997 ¥1,195,393 – 440,698 – – 408,474 98,686 125,908 64,062 – – – – – – – – – 57,565 1,006,810 188,583 45,664 39,849 10,679 5,180 3.61 74,826 60,676 49,574 6.00 ¥1,269,415 – 449,470 – – 433,440 95,481 134,791 95,999 – – – – – – – – – 60,234 1,086,219 183,196 96,024 86,747 50,318 25,177 17.45 69,188 62,222 49,768 6.00 ¥1,269,415 – – 430,934 – 433,440 – 134,791 – – – 270,250 96,228 18,307 95,481 – – 60,234 – 1,086,219 183,196 96,024 86,747 50,318 25,177 17.45 69,188 62,222 49,768 6.00 ¥1,194,462 – – 379,677 – 412,954 – 139,181 – – – 262,650 80,653 17,967 93,460 – – 70,570 – 1,044,630 149,832 74,323 85,853 39,615 20,525 14.23 63,213 63,629 50,015 6.00 ¥1,171,845 – – 375,048 – 372,649 – 148,277 – – – 275,871 66,212 18,133 88,050 – 90,068 13,408 – 1,009,439 162,406 51,237 42,443 37,525 17,392 12.06 70,461 63,845 56,844 6.00 ¥1,281,675 – – 400,420 – 425,553 – 181,542 – – – 274,160 63,235 20,828 82,703 – 88,478 18,916 – 1,127,590 154,085 62,814 56,271 40,264 20,809 14.43 74,981 67,117 57,023 6.00 ¥1,281,675 – – 373,874 – 424,532 – 181,542 – – – 301,727 62,337 – 82,703 33,593 88,478 34,616 – 1,127,590 154,085 62,814 56,271 40,264 20,809 14.43 74,981 67,117 57,023 6.00 ¥1,291,599 – – 363,589 – 451,407 – 184,065 – – – 292,538 59,457 – 82,058 29,464 89,014 32,545 – 1,133,811 157,788 72,103 60,686 49,259 25,353 17.57 73,217 70,897 55,591 6.00 ¥1,210,170 – – 354,595 – 392,030 – 177,499 – – – 286,046 56,794 – 81,294 28,810 82,742 36,406 – 1,065,670 144,500 56,271 47,604 27,075 9,235 6.40 71,908 74,875 55,306 6.00 2002 2001 2001 2000 1999 1998 1998 1997 1996 ¥1,193,011 180,826 415,193 181,618 496,826 353.16 41.6 26,227 ¥1,240,008 196,510 419,168 176,177 516,013 357.70 41.6 26,695 ¥1,240,008 196,510 419,168 176,177 516,013 357.70 41.6 26,695 ¥1,180,372 181,771 416,881 127,013 476,159 330.07 40.3 26,580 ¥1,185,249 193,691 435,005 132,251 464,339 321.88 39.2 29,263 ¥1,206,872 198,651 424,499 141,388 455,250 315.64 37.7 27,792 ¥1,206,872 198,651 424,499 141,388 455,250 315.64 37.7 27,792 ¥1,250,921 206,253 424,002 151,804 442,730 306.89 35.4 26,721 ¥1,235,054 198,282 426,744 156,984 425,947 295.26 34.5 28,155 ‡ For comparison purposes, results by business category for the year ended March 31, 2001 are recalculated in accordance with the revised categories for the year ended March 31, 2002. • Operations of the “membranes and systems” segment combine with the Chemicals and Plastics sector to form the Chemical and Chemical-related sector. • The “electronics” segment is reclassified as the Electronics sector. • Operations of the “biotechnology and medical products” segment are reclassified as the Health Care sector. • The remaining operations comprise the Liquors, Services and Others sector, in place of the “engineering and others” segment. § For comparison purposes, results by business category for the year ended March 31, 1998 are recalculated in accordance with the revised categories for the year ended March 31, 1999. • Photopolymer and explosives operations are transferred from the Special Products and Services sector to the Chemicals and Plastics sector. • Artificial fish reef operations are transferred from the Special Products and Services sector to the Housing and Construction Materials sector. • Within the Special Products and Services sector, functional membrane operations are transferred from the “speciality products” segment to the “membranes and systems” segment, and ion-exchange product operations are transferred from the “engineering and services” segment to the “membranes and systems” segment. 44 Management’s Discussion and Analysis Fiscal year 2005 (April 1, 2005 – March 31, 2006) Overview of Fiscal 2005 Consolidated results Operating Environment The Japanese economy showed signs of recovery during the year, with increased private-sector capital investment and strong corporate results. The operating environment nevertheless remained challenging, with petroleum prices continuing to increase on strong demand growth world- wide, especially in China, driving up the cost of naphtha and other petrochemical feedstocks. Net Sales, Operating Profit Sales increased in chemicals operations, with strong overseas demand, and in electronics operations, with strong demand in IT-related markets. Net sales increased by ¥120.9 billion to ¥1,498.6 billion, an 8.8% rise. Operating profit decreased by ¥7.1 billion to ¥108.7 billion, a 6.1% decline. Amortization of actuarial differences in retirement benefit accounts resulted in a ¥16.2 billion decrease in operating profitability (a ¥20.2 billion surplus was amortized during the year-ago term, and a ¥4.0 billion surplus was amortized during the term under review), reducing cost of sales by ¥5.5 billion and selling, general and administrative expenses (SGA) by ¥10.7 billion. Operating profit excluding this amortization grew by ¥9.1 billion to ¥104.7 billion, a 9.5% increase. As a percentage of net sales, cost of sales increased by 1.8 percentage points to 75.2%, largely due to feedstock cost increases and the above amortization. SGA increased by ¥11.0 billion, but decreased as a percentage of net sales by 0.7 percentage points to 17.5% due to the higher rate of growth in net sales. Operating profit as a percentage of net sales decreased by 1.1 percentage points to 7.3%. Non-operating Income and Expenses, Ordinary Profit Net non-operating expenses were ¥4.6 billion, ¥1.6 billion higher than the ¥2.9 billion of a year earlier. Net financing expenses decreased by ¥0.4 billion. Equity in net earnings of unconsolidated subsidiaries and affiliates was ¥0.5 billion, ¥2.1 billion lower than the ¥2.6 billion of a year earlier, with declining performance of overseas subsidiaries and affiliates. As a result, ordinary profit decreased by ¥8.7 billion to ¥104.2 billion, a 7.7% decline. Special Gains and Losses Special gains of ¥5.9 billion included a ¥5.7 billion gain on sale of idle land. Special losses of ¥15.6 billion included a ¥7.0 billion loss on sale disposal of property, plant, and equipment and a ¥3.8 billion impairment loss on idle land. The net special loss of ¥9.7 billion was ¥12.1 billion lower than a year earlier, when significant restructuring charges were incurred including for closure of overseas subsidiaries. Net Income With ordinary profit of ¥104.2 billion and the net special loss of ¥9.7 billion, income before income taxes and minority interests was ¥94.5 billion. Current income taxes of ¥39.0 billion and deferred income taxes of ¥4.4 billion Net Sales ¥ Billion Operating Profit, Operating Profit Margin ¥ Billion % Net Income, Net Income per Share ¥ Billion 1,500 1,200 900 600 300 0 ’03 ’04 Fiscal year ’05 125 100 75 50 25 0 ’03 ’04 Fiscal year Operating profit, left scale ’05 Operating profit margin, right scale 10 8 6 4 2 0 60 48 36 24 12 0 ’03 ’04 Fiscal year ’05 Net income, left scale Net income per share, right scale ¥ 45 36 27 18 9 0 Annual Report 2006 45 resulted in a net income tax expense of ¥34.5 billion. Minority interest in income of consolidated subsidiaries was ¥0.3 billion. As a result, net income increased by ¥3.2 billion to ¥59.7 billion, a 5.7% rise, and net income per share in- creased by ¥2.30 to ¥42.46 from the ¥40.16 of a year earlier. Results by Segment Operating Segments Leona™ nylon 66 filament operations were transferred from the Fibers segment to the Chemicals segment in April 2005. Results for the year-ago period have been revised accordingly for comparison purposes. Within each segment, operating performance of individual businesses is described absent amortization of actuarial differences in retirement benefits accounting. Chemicals Sales for the segment increased by ¥90.2 billion to ¥660.4 billion, a 15.8% rise. Operating profit increased by ¥2.7 billion to ¥40.5 billion, a 7.1% rise. This included a credit to amortize the actuarial surplus for retirement benefits which was ¥4.3 billion smaller than a year ago. In volume products, sales grew with strong overseas demand but operating profit decreased due to higher feedstock costs. Operating profit in monomers and basic chemicals decreased with elevated feedstock costs for acrylonitrile and styrene. Operating profit in polymers and elastomers increased with improved market conditions for Xyron™ modified polyphenylene ether and other engineering resins. Operating profit in specialty products and systems increased. Sales of Hipore™ Li-ion rechargeable battery separators continued to grow with strong demand. Sales of both membrane-process salt electrolysis systems and their ion-exchange membranes remained strong. Homes Sales for the segment increased by ¥28.8 billion to ¥404.5 billion, a 7.7% rise. Operating profit decreased by ¥0.8 billion to ¥28.2 billion, a 2.7% decline. This included a credit to amortize the actuarial surplus for retirement benefits which was ¥2.2 billion smaller than a year ago. Sales of homes, both order-built and pre-built, increased with higher unit prices and the completion of large condominium reconstruction projects, but operating profit decreased with higher costs for materials. The value of orders received during the year increased by ¥11.5 billion to ¥313.3 billion. Sales and operating profit in real estate operations grew with rising income from rentals. Sales and operating profit in remodeling operations also grew. Pharma Sales for the segment increased by ¥1.9 billion to ¥105.8 billion, a 1.8% rise. Operating profit decreased by ¥2.3 billion to ¥11.1 billion, a 17.2% decline. This included a ROE % 15 10 5 0 ’03 ’04 Fiscal year ’05 Chemicals ¥ Billion ¥ Billion Homes ¥ Billion ¥ Billion 700 560 420 280 140 0 ’03 ’04* Fiscal year ’05 45 36 27 18 9 0 500 400 300 200 100 0 ’03 ’04 Fiscal year ’05 30 24 18 12 6 0 Net sales, left scale Operating profit, right scale * Including Leona™ filament operations. Net sales, left scale Operating profit, right scale 46 credit to amortize the actuarial surplus for retirement benefits which was ¥2.1 billion smaller than a year ago. In pharmaceuticals, sales of Elcitonin™ calcitonin formu- lation decreased as market share was lost to competing products, but sales of Flivas™ therapy for benign prostatic hyperplasia and Toledomin™ antidepressant continued to grow, and operating profit from pharmaceuticals increased. Shipments of APS™ artificial kidneys grew both in Japan and overseas, but elevated capital depreciation following plant expansions resulted in decreased operating profit for medical devices. Fibers Sales for the segment decreased by ¥1.8 billion to ¥89.7 billion, a 2.0% decline. Operating profit decreased by ¥4.3 billion to ¥4.0 billion a 51.8% decline. This included a credit to amortize the actuarial surplus for retirement benefits which was ¥1.3 billion smaller than a year ago. Operating profit in Roica™ elastic polyurethane filament decreased with elevated feedstock prices and lower sales prices due to intensified competition. Operating profit in Bemberg™ cupro filament, used principally in linings, in- creased with strong overseas sales. Sales of Eltas™ spunbond increased in diaper and hand-warmer applications, but operating profit in nonwovens decreased with elevated feedstock costs. billion, a 10.6% rise. Operating profit increased by ¥1.7 billion to ¥19.3 billion, a 9.9% rise. This included a credit to amortize the actuarial surplus for retirement benefits which was ¥1.1 billion smaller than a year ago. Operating profit in electronics devices grew with strong demand in cell phone, DVD recorder, and other home elec- tronics applications. Operating profit in electronics materials grew with increased sales of Sunfort™ dry film resist for printed wiring board production following an expansion of capacity in China. Construction Materials Sales for the segment decreased by ¥3.4 billion to ¥56.5 billion, a 5.7% decline. Operating profit increased by ¥1.2 billion to ¥3.8 billion, a 48.6% rise. This included a credit to amortize the actuarial surplus for retirement benefits which was ¥1.5 billion smaller than a year ago. Operating profit in building materials and housing materials increased with operating cost reductions and growing sales of Hebel™ autoclaved lightweight concrete (ALC) panels in large retail outlets, factories, and apartment buildings, and with operating cost reductions and growing sales of Hebel Powerboard™ ALC panels in new market segments. Sales of pre-cast concrete piles decreased, but operating profit in foundation systems increased with growing sales of Eazet™ and ATT Column™ piles for small-scale construction. Electronics Materials & Devices Sales for the segment increased by ¥9.8 billion to ¥102.9 Operating profit in insulation materials decreased with elevated feedstock costs and lower demand for Neoma™ Pharma ¥ Billion ¥ Billion Fibers ¥ Billion 150 120 90 60 30 0 ’03 ’04 Fiscal year ’05 15 12 9 6 3 0 150 120 90 60 30 0 ¥ Billion 10 8 6 4 2 0 ’03 ’04* Fiscal year ’05 Electronics Materials & Devices ¥ Billion ¥ Billion Construction Materials ¥ Billion ¥ Billion 150 120 90 60 30 0 ’03 ’04 Fiscal year ’05 20 16 12 8 4 0 90 60 30 0 (30) (60) ’03 ’04 Fiscal year ’05 6 4 2 0 (2) (4) Net sales, left scale Operating profit, right scale Net sales, left scale Operating profit, right scale * Not including Leona™ filament operations. Net sales, left scale Operating profit, right scale Net sales, left scale Operating profit, right scale Annual Report 2006 47 high-performance foam insulation panels due to a down- turn in wood-frame home construction. Life & Living Sales for the segment decreased by ¥7.2 billion to ¥51.9 billion, a 12.2% decline, largely due to the transfer of biax- ially oriented polystyrene sheet operations to a joint venture with Dainippon Ink and Chemicals, Inc. Operating profit decreased by ¥1.2 billion to ¥4.8 billion, a 20.5% decline. This included a credit to amortize the actuarial surplus for retirement benefits which was ¥0.6 billion smaller than a year ago. Feedstock costs rose, but operating profit in home-use products increased with higher sales of Saran Wrap™ cling film and increased exports of Saran™ fiber. Sales prices for packaging and cushioning materials continued to rise, but operating profit decreased due to still higher feedstock costs. Services, Engineering and Others Sales for the segment increased by ¥2.6 billion to ¥26.8 billion, a 10.7% rise. Operating profit decreased by ¥0.3 billion to ¥3.3 billion, a 7.9% decline, largely as a result of the exclusion of Asahi Kasei Information Systems as a consolidated subsidiary with the April 2005 divestment of a majority of its shares to TIS Inc. Sales and operating profit in engineering operations increased with growing business in domestic plant construction. Sales and operating profit in personnel staffing and placement operations increased with growing business in staffing and an expanded sales network. Geographical Information Geographic segment information is not shown because over 90% of total sales were from operations domiciled in Japan and over 90% of total assets were located in Japan. Overseas Sales Overseas sales increased, largely in Chemicals, by ¥63.4 billion to ¥373.2 billion, a 20.5% increase and a 2.4 percentage points increase to 24.9% of consolidated net sales. Liquidity and Capital Resources Financial Position Total assets at fiscal year end were ¥1,376.0 billion, ¥106.0 billion (8.3%) higher than a year earlier. Current assets increased by ¥54.5 billion (9.2%) to ¥644.2 billion. Notes and accounts receivable increased by ¥17.3 billion and inventories increased by ¥11.5 billion with higher selling prices and greater sales in the Chemicals segment. Cash on-hand and in banks increased by ¥18.1 billion. Fixed assets increased by ¥51.5 billion (7.6%) to ¥731.9 billion. Investment securities increased by ¥58.7 billion with Life & Living ¥ Billion ¥ Billion Services, Engineering and Others ¥ Billion ¥ Billion 80 60 40 20 0 ’03 ’04 Fiscal year ’05 8 6 4 2 0 40 30 20 10 0 4 3 2 1 0 ’03 ’04 Fiscal year ’05 Net sales, left scale Operating profit, right scale Net sales, left scale Operating profit, right scale 48 increased fair value of shares held. Tangible fixed assets decreased by ¥5.6 billion and intangible fixed assets decreased by ¥3.3 billion as the value of depreciation and disposals exceeded the value of asset acquisitions. Notable capital expenditure included capacity expansions for Hipore™ microporous membrane and APS™ polysulfone- membrane hemodialyzers. Current liabilities increased by ¥36.7 billion (9.1%) to ¥439.7 billion. Short-term borrowings increased by ¥24.9 billion, and accrued expenses increased by ¥11.5 billion. Long-term liabilities decreased by ¥13.8 billion (3.9%) to ¥335.2 billion. Bonds decreased by ¥23.0 billion, and long- term debt decreased by ¥6.9 billion. Deferred income tax liabilities increased by ¥18.8 billion. Interest-bearing debt decreased by ¥13.0 billion to ¥235.8 billion, with ¥31.0 billion of bonds redemption. Shareholders’ equity increased by ¥82.5 billion (16.1%) to ¥594.2 billion. Retained earnings increased by ¥46.9 billion with net income of ¥59.7 billion, while net unrealized gain on securities increased by ¥30.7 billion. Shareholders’ equity per share increased by ¥58.91 to ¥424.34. Shareholders’ equity/total assets increased from 40.3% to 43.2%, and debt-to-equity ratio decreased from 0. 49 to 0.40. Capital Expenditure Capital expenditure was primarily for new and expanded production plant and equipment in long-term growth fields. Investments were also made for rationalization, modification, maintenance, and IT systems to bring greater product reliability and cost reductions. Capital expenditure by operating segment shown below is for tangible and intangible fixed assets, combined, before consumption tax. For comparison purposes, the previous year’s segment figures have been revised to reflect the April 2005 transfer of Leona™ nylon 66 filament operations from Fibers to Chemicals. Totals for the year (¥ Million) Compared to previous year Chemicals Homes Pharma Fibers Electronics Materials & Devices Construction Materials Life & Living Services, Engineering and Others Combined Corporate assets and eliminations Consolidated 26,632 3,583 4,897 5,417 14,960 2,313 4,655 1,038 63,495 2,815 66,310 106.2 % 103.9 % 59.3 % 109.9 % 91.0 % 104.7 % 107.5 % 72.9 % 96.0 % 119.6 % 96.8 % Notable capital expenditure by operating segment was as follows: • Chemicals: New facility for propylene production. • Homes: IT systems. • Pharma: Capacity expansion for APS™ polysulfone-membrane hemodialyzers. • Fibers: Capacity expansion for Bemliese™ nonwoven cellulose filament; IT systems. • Electronics Materials & Devices: Capacity expansion for large pellicles. • Construction Materials: Plant modification, rationalization, and maintenance. • Life & Living: Plant modification, rationalization, and maintenance. • Services, Engineering and Others: IT systems, rationalization, labor- saving, and maintenance. • Corporate assets: Corporate research facilities; maintenance. Total Assets and Total Shareholders’ Equity ¥ Billion 1,500 Interest-Bearing Debt, D/E Ratio ¥ Billion 400 1,200 900 600 300 0 ’03 ’05 ’04 Fiscal year Total assets, left scale Total shareholders’ equity, right scale 300 200 100 0 ’03 ’04 Fiscal year ’05 Interest-bearing debt, left scale D/E ratio, right scale 1.00 0.75 0.50 0.25 0.00 Annual Report 2006 49 Cash Flows Free cash flows were ¥48.2 billion as cash generated, principally operating profit and depreciation and amor- tization, exceeded cash used, principally for acquisition of fixed assets and investment securities. Cash flows from financing activities, principally for reduction of interest- bearing debt and payment of dividends, were a net ¥30.9 billion net cash used. After including ¥0.1 billion cash and cash equivalents held by newly consolidated subsidiaries, cash and cash equivalents at fiscal year end were ¥86.4 billion, ¥17.9 billion greater than a year earlier. fixed assets. Cash generated from sales of idle land and other property, plant and equipment aggregated ¥8.8 billion. Net cash used in investing activities was ¥60.4 billion, ¥2.5 billion less than a year earlier. Cash flows from financing activities A net ¥17.6 billion was used for interest-bearing debt such as borrowings and bonds. A further ¥12.6 billion was used for payment of parent-company dividends. A net ¥30.9 billion was used in financing activities, ¥8.7 billion less than a year earlier. Cash flows from operating activities Greater sales and higher selling prices resulted in increases in notes and accounts receivable, trade, and in inventories, aggregating ¥27.5 billion cash used, while ¥29.1 billion was used for payment of income taxes. Income before income taxes and minority interest generated ¥94.5 billion, and depreciation and amortization generated ¥69.4 billion. Net cash generated from operating activities was ¥108.6 billion, ¥10.3 billion more than a year earlier. Cash flows from investing activities Cash used included ¥59.1 billion for acquisition of tangible fixed assets for continuing expansion of competitive- superiority operations and enhancement of overall competitiveness and ¥7.3 billion for acquisition of intangible Capital Expenditure, Depreciation and Amortization ¥ Billion Cash Flows ¥ Billion 100 80 60 40 20 0 ’03 ’04 Fiscal year ’05 150 100 50 0 (50) (100) ’03 ’04 Fiscal year ’05 Capital expenditure Depreciation and amortization Net cash provided by operating activities Net cash used in investing activities Net cash used in financing activities 50 Risk Analysis Operating risks and non-operating risks which may influence investor decisions are described below. The management maintains awareness of the possibility that these scenarios may emerge, and measures to avoid their emergence and to minimize their impact on corporate performance in the event that they do emerge are implemented to the fullest possible extent. The description of risks given here includes elements which may emerge in the future, but being based on current evaluations as this report is being prepared it does not include risks which could not be foreseen at this time. Crude Oil and Naphtha Prices Operating costs in operations based on petrochemicals are affected by prices for crude oil and naphtha. If crude oil and naphtha prices rise, selling prices for products derived from these feedstocks must be increased in a timely manner to maintain sufficient price spreads. Price spreads may diminish, thereby affecting our consolidated performance and financial condition. Exchange Rate Fluctuation Operations based overseas maintain accounts in the local currency where they operate. The yen value of items carried in these accounts is affected by the rate of exchange at the time of conversion to yen. Although measures such as currency exchange hedges are utilized to minimize the short-term effects of exchange rate fluctuations, such fluctuations may exceed the foreseeable range over the short to long term, thereby affecting our consolidated performance and financial condition. Overseas Operations Overseas operations may face a variety of risks which cannot be foreseen, including the existence or emergence of economically unfavorable circumstances due to legal and regulatory changes, vulnerability of infrastructure, difficulty in hiring/retaining qualified employees, or other factors, and social or political instability due to terrorism, war, or other factors. Overseas operations may be impaired by such scenarios, thereby affecting our consolidated performance and business plans. Housing-Related Tax Policy, Interest Rate Fluctuation Operations in the Homes segment are affected by Japanese tax policies as they relate to home acquisition and by fluctuations in Japanese interest rates. Changes in Japanese tax policy, including consumption taxes, or fluctuations in Japanese interest rates may result in diminished housing demand, thereby affecting our consolidated performance and financial condition. Profitability of Electronics-Related Businesses The electronics industry is characterized by sharp market cycles. The profitability of electronics-related businesses may decline significantly in a relatively short time, thereby affecting our consolidated performance and financial condition. Because products in this field rapidly become obsolete, the timely development and commercialization of leading-edge devices and materials is required. New product development may be delayed, or demand fluctuations may exceed expectations, thereby affecting our consolidated performance and financial condition. Pharmaceuticals and Medical Devices Pharmaceutical and medical device businesses may be significantly affected by government measures to curtail health care expenditure or other changes in government policy. Unforeseeable side effects or complications may emerge, significantly affecting these businesses. The pharmaceutical business additionally faces the possibility that product approval may be withdrawn as a result of Japan’s reexamination system, and that competition may intensify as a result of the market entry of generics. For pharmaceuticals and medical devices under development, regulatory approval may fail to be obtained, market demand may be lower than expected, and the national reimbursement prices may be lower than expected. Such scenarios may affect our consolidated performance and financial condition. Industrial Accidents and Natural Disasters The occurrence of a significant industrial accident or natural disaster at a plant or elsewhere may result in a loss of public trust, the emergence of costs associated with accident Annual Report 2006 51 response, including compensation, and the emergence of costs associated with plant shutdown, including opportunity loss and compensation to customers, thereby affecting our consolidated performance and financial condition. Intellectual Property, Product Liability, and Legal Regulation An unfavorable ruling may emerge in a dispute relating to intellectual property, a product defect resulting in a large- scale recall and compensation whose costs exceed insurance coverage may emerge, and detrimental legal and regulatory changes may emerge in any country where we operate. Such scenarios may affect our consolidated performance and financial condition. Irrecoverable Credits Credits extended to customers may become irrecoverable to an unforeseeable extent, necessitating additional losses or allowances to be recorded in financial accounts, and thereby affecting our consolidated performance and financial condition. 52 Consolidated Balance Sheets Asahi Kasei Corporation and Consolidated Subsidiaries March 31, 2006 and 2005 Millions of yen 2006 2005 Thousands of U.S. dollars (Note 3) 2006 ¥ 86,422 ¥ 68,279 $ 738,650 269,509 252,210 446 307 214,062 202,521 29,385 45,828 (1,460) 25,670 42,209 (1,477) 2,303,496 3,812 1,829,590 251,154 391,692 (12,479) 644,192 589,719 5,505,915 155,630 170,364 55,240 18,108 15,026 155,667 174,754 59,912 14,601 15,035 1,330,171 1,456,103 472,137 154,769 128,427 414,368 419,969 3,541,607 5,700 27,394 33,094 5,974 30,437 36,411 48,718 234,137 282,855 248,616 189,894 2,124,923 3,043 8,915 24,680 (864) 2,992 10,452 22,643 (2,023) 26,008 76,197 210,940 (7,385) 284,390 223,958 2,430,683 731,852 680,338 6,255,145 ¥1,376,044 ¥1,270,057 $11,761,060 ASSETS Current assets: Cash on hand and in banks (Note 5) Notes and accounts receivable, trade (Note 6) Marketable securities (Notes 5 and 7) Inventories Deferred income taxes (Note 11) Other current assets (Note 6) Allowance for doubtful accounts Total current assets Fixed assets: Property, plant and equipment, net of accumulated depreciation (Notes 8 and 9) – Buildings Machinery and equipment Land Construction in progress Other Intangible fixed assets – Goodwill Other Investments and other assets – Investment securities (Notes 6 and 7) Long-term receivables (Note 6) Deferred income taxes (Note 11) Other Allowance for doubtful accounts Total fixed assets Total assets The accompanying notes are an integral part of these statements. The accompanying notes are an integral part of these statements. LIABILITIES AND SHAREHOLDERS’ EQUITY Liabilities: Current liabilities – Notes and accounts payable, trade (Note 6) Short-term borrowings (Notes 6 and 9) Current portion of long-term debt (Note 9) Accrued income taxes Deferred income taxes (Note 11) Accrued expenses (Note 6) Advances received Other current liabilities Total current liabilities Long-term liabilities – Long-term debt (Note 9) Accrued pension and severance costs (Note 10) Deferred income taxes (Note 11) Customers’ guarantee deposits Other long-term liabilities Total long-term liabilities Annual Report 2006 53 Millions of yen 2006 2005 Thousands of U.S. dollars (Note 3) 2006 ¥ 132,980 ¥ 133,918 $ 1,136,581 46,380 32,842 19,511 – 110,231 48,877 48,902 439,723 156,300 132,433 27,781 18,306 373 27,369 34,991 10,405 0 98,759 50,053 47,527 396,410 280,701 166,761 – 942,145 417,752 417,966 403,022 3,758,316 186,246 135,565 8,964 17,806 376 1,335,898 1,131,906 237,444 156,462 3,188 335,193 348,957 2,864,898 Minority interest in consolidated subsidiaries 6,917 6,352 59,120 Shareholders’ equity: Common stock – Authorized – 4,000,000,000 shares Issued and outstanding – 1,442,616,332 shares Capital surplus Retained earnings (Note 19) Revaluation surplus (Note 12) Net unrealized gain on securities (Note11) Cumulative translation adjustments Treasury stock, at cost 103,389 79,433 342,450 966 85,383 (99) 103,389 79,423 295,594 966 54,703 (5,380) 883,667 678,915 2,926,923 8,256 729,769 (846) 611,522 528,695 5,226,684 (2006 – 42,799,834 shares, 2005 – 42,260,226 shares) Total shareholders’ equity (17,311) 594,211 (16,969) 511,726 (147,958) 5,078,726 Commitments and contingent liabilities (Notes 17 and 20) Total liabilities and shareholders’ equity ¥1,376,044 ¥1,270,057 $11,761,060 The accompanying notes are an integral part of these statements. 54 Consolidated Statements of Income Asahi Kasei Corporation and Consolidated Subsidiaries Years ended March 31, 2006 and 2005 Net sales (Notes 6 and 18) Cost of sales (Notes 6 and 13) Gross profit Selling, general and administrative expenses (Note 13) Operating profit (Note 18) Non-operating income: Interest and dividend income Equity in net earnings of unconsolidated subsidiaries and affiliates Insurance recoveries Other Total non-operating income Non-operating expenses: Interest expense Loss due to disasters Loss on disposal of inventories Other Total non-operating expenses Ordinary profit Special gains: Gain on sales of investment securities Gain on sale of property, plant and equipment Reversal of allowance for doubtful account Total special gains Special losses: Loss on sales of investment securities Loss on devaluation of investment securities Loss on disposal of property, plant and equipment Impairment loss (Note 14) Litigation settlement (Note 15) Restructuring charges (Note 16) Total special losses Income before income taxes and minority interest Income taxes (Note 11) – current – deferred Minority interest in income of consolidated subsidiaries Millions of yen 2006 2005 Thousands of U.S. dollars (Note 3) 2006 ¥1,498,620 ¥1,377,697 $12,808,718 1,127,530 1,010,526 371,090 262,364 108,726 2,653 536 1,292 2,935 7,416 3,570 1,285 2,703 4,418 11,976 104,166 – 5,670 210 5,880 854 703 7,038 3,799 – 3,171 15,565 94,481 (38,963) 4,417 (267) 367,171 251,362 115,809 2,286 2,617 2,381 3,323 10,607 3,648 1,393 3,324 5,175 13,540 112,876 3,373 1,016 411 4,800 – 429 8,568 – 2,617 14,921 26,535 91,141 (29,245) (4,760) (682) 9,637,009 3,171,709 2,242,427 929,282 22,675 4,581 11,043 25,086 63,385 30,513 10,983 23,102 37,761 102,359 890,308 – 48,461 1,795 50,256 7,299 6,008 60,154 32,470 – 27,103 133,034 807,530 (333,017) 37,752 (2,282) Net income ¥ 59,668 ¥ 56,454 $ 509,983 Per share data: Net income (Note 21) – Basic – Diluted Cash dividends The accompanying notes are an integral part of these statements. 2006 42.46 – 10.00 ¥ ¥ ¥ Yen 2005 40.16 – 8.00 ¥ ¥ ¥ U.S. dollars (Note 3) 2006 $ $ $ 0.36 – 0.09 Consolidated Statements of Shareholders’ Equity Asahi Kasei Corporation and Consolidated Subsidiaries Years ended March 31, 2006 and 2005 Millions of yen Annual Report 2006 55 Common stock ¥103,389 Capital surplus ¥79,396 27 Net Retained Revaluation unrealized gain on earnings securities (Note 19) surplus (Note 12) Cumulative translation adjustments Treasury stock, at cost ¥249,820 ¥1,066 ¥43,413 ¥(9,973) ¥(16,660) Balance at March 31, 2004 Gain on sales of treasury stock Net income for the year ended March 31, 2005 Decrease in retained earnings due to newly consolidated subsidiaries and affiliates, or subsidiaries and affiliates excluded from consolidation Net change in revaluation surplus Net change in unrealized gain on securities Foreign currency translation adjustments Purchase of treasury stock Cash dividends Bonuses to directors and corporate auditors Balance at March 31, 2005 Gain on sales of treasury stock Net income for the year ended March 31, 2006 ¥103,389 ¥79,423 10 Decrease in retained earnings due to newly consolidated subsidiaries and affiliates, or subsidiaries and affiliates excluded from consolidation Net change in revaluation surplus Net change in unrealized gain on securities Foreign currency translation adjustments Purchase of treasury stock Cash dividends Bonuses to directors and corporate auditors Balance at March 31, 2006 ¥103,389 ¥79,433 56,454 (692) (9,806) (182) ¥295,594 59,668 (11) (12,602) (199) ¥342,450 (100) 11,290 4,593 (309) ¥ 966 ¥54,703 ¥(5,380) ¥(16,969) 30,680 5,281 (342) ¥ 966 ¥85,383 ¥ (99) ¥(17,311) Total ¥450,451 27 56,454 (692) (100) 11,290 4,593 (309) (9,806) (182) ¥511,726 10 59,668 (11) 30,680 5,281 (342) (12,602) (199) ¥594,211 Common stock Capital surplus Net Retained Revaluation unrealized gain on earnings securities (Note 18) surplus (Note 12) Cumulative translation adjustments Treasury stock, at cost Total $883,667 $678,829 $2,526,444 $8,256 $467,547 86 $(45,983) $(145,034) $4,373,726 86 Thousands of U.S. dollars (Note 3) 509,983 (94) 262,222 509,983 (94) 45,137 262,222 45,137 (2,924) (107,709) (1,701) (846) $(147,958) $5,078,726 (2,924) (107,709) (1,701) $883,667 $678,915 $2,926,923 $8,256 $729,769 $ Balance at March 31, 2005 Gain on sales of treasury stock Net income for the year ended March 31, 2006 Decrease in retained earnings due to newly consolidated subsidiaries and affiliates, or subsidiaries and affiliates excluded from consolidation Net change in revaluation surplus Net change in unrealized gain on securities Foreign currency translation adjustments Purchase of treasury stock Cash dividends Bonuses to directors and corporate auditors Balance at March 31, 2006 The accompanying notes are an integral part of these statements. 56 Consolidated Statements of Cash Flows Asahi Kasei Corporation and Consolidated Subsidiaries Years ended March 31, 2006 and 2005 Cash flows from operating activities: Income before income taxes and minority interest Depreciation and amortization Impairment loss Amortization of goodwill Decrease in accrued pension and severance costs Interest and dividend income Interest expense Equity in net earnings of unconsolidated subsidiaries and affiliates Gain on sales of investment securities Loss on sales of investment securities Loss on devaluation of investment securities Gain on sale of property, plant and equipment Loss on disposal of property, plant and equipment Litigation settlement Increase in notes and accounts receivable, trade Increase in inventories (Decrease) Increase in notes and accounts payable, trade Increase in accrued expenses (Decrease) Increase in advances received Other Sub total Interest and dividend income, received Interest expense, paid Litigation settlement, paid Income taxes, paid Net cash provided by operating activities Cash flows from investing activities: Payments for purchases of time deposits Proceeds from maturities of time deposits Payments for purchases of marketable securities Proceeds from sales of marketable securities Payments for acquisition of property, plant and equipment Proceeds from sales of property, plant and equipment Payments for acquisition of intangible fixed assets Payments for purchases of investment securities Proceeds from sales of investment securities Proceeds from sales of consolidated subsidiaries Payments for loan receivables Collections of loan receivables Other Net cash used in investing activities Cash flows from financing activities: Proceeds from short-term borrowings Repayment of short-term borrowings Proceeds from issuance of commercial papers Repayment of commercial papers Proceeds from long-term loans Repayment of long-term loans Proceeds from issuance of bonds Repayment of bonds Payments for purchases of treasury stock Proceeds from sale of treasury stock Dividends paid by parent company Dividends paid to minority interests in consolidated subsidiaries Other Net cash used in financing activities Effect of exchange rate changes on cash and cash equivalents Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents held by newly consolidated subsidiaries Cash and cash equivalents at end of year (Note 5) The accompanying notes are an integral part of these statements. Millions of yen 2006 2005 ¥ 94,481 69,399 3,799 259 (3,127) (2,653) 3,570 (536) – 854 703 (5,670) 7,038 – (16,393) (11,075) (2,075) 11,532 (1,192) (11,695) 137,219 4,110 (3,656) – (29,053) 108,620 (498) 125 – 30 (59,074) 8,824 (7,341) (6,848) 1,099 1,962 (5,293) 7,600 (959) (60,373) 25,019 (7,923) – – 2,903 (6,584) – (31,000) (378) 33 (12,592) (355) (4) (30,881) ¥ 91,141 71,531 – 248 (23,365) (2,286) 3,648 (2,617) (3,373) – 429 (1,016) 8,568 2,617 (15,117) (20,317) 13,037 18,488 222 2,266 144,104 3,413 (3,897) (2,617) (42,704) 98,299 (669) 718 (0) 20 (72,408) 8,733 (6,262) (1,889) 8,440 – (2,056) 4,354 (1,827) (62,846) 8,715 (13,171) 5,000 (5,000) 1,265 (2,895) 2,000 (25,104) (414) 129 (9,800) (268) (14) (39,557) Thousands of U.S. dollars (Note 3) 2006 $ 807,530 593,154 32,470 2,214 (26,727) (22,675) 30,513 (4,581) – 7,299 6,008 (48,461) 60,154 – (140,111) (94,658) (17,735) 98,564 (10,188) (99,958) 1,172,812 35,128 (31,248) – (248,316) 928,376 (4,256) 1,068 – 256 (504,906) 75,419 (62,744) (58,530) 9,393 16,769 (45,239) 64,957 (8,196) (516,009) 213,838 (67,718) – – 24,812 (56,274) – (264,957) (3,231) 282 (107,624) (3,034) (34) (263,940) 426 17,792 68,456 142 ¥ 86,390 122 (3,982) 70,898 1,540 ¥ 68,456 3,641 152,068 585,094 1,214 $ 738,376 Notes to Consolidated Financial Statements Asahi Kasei Corporation and Consolidated Subsidiaries March 31, 2005 and 2004 1. Major policies for preparing the consolidated financial statements Annual Report 2006 57 The consolidated financial statements, which are filed with the Japanese Ministry of Finance (hereinafter called the “MOF”) as required by the Securities and Exchange Law in Japan, are prepared in accordance with accounting principles generally accepted in Japan, which are different in certain respects from the application and disclosure requirements of International Financial Reporting Standards. The accompanying consolidated financial statements are a translation of those filed with the MOF and incorporate certain modifications to enhance foreign readers’ understanding of the financial statements. In addition, the notes to the consolidated financial statements include certain financial information which is not required under the disclosure regulations in Japan, but is presented herein as additional information. In addition, certain reclassifications of previously reported amounts have been made to conform to current classifications. Such modifications or reclassifications have no effect on net income or retained earnings. Consolidation and investments in affiliated companies – The consolidated financial statements consist of the account of parent company and 105 subsidiaries (106 subsidiaries at March 31, 2005) (hereinafter collectively referred to as the “Company”) which, with minor exceptions due to materiality, are all majority and wholly owned companies, including 7 Core operating companies (Asahi Kasei Chemicals Corporation, Asahi Kasei Homes Corporation, Asahi Kasei Pharma Corporation, Asahi Kasei Fibers Corporation, Asahi Kasei EMD Corporation, Asahi Kasei Construction Materials Corporation, and Asahi Kasei Life & Living Corporation), Tong Suh Petrochemical Corp. Ltd. (Korea), Sanyo Petrochemical Co., Ltd., Asahi Kasei 2. Significant accounting policies (a) Cash and cash equivalents For cash flow statement purposes, cash and cash equivalents include all highly liquid investments, generally with original maturities of three months or less, which are readily convertible to known amounts of cash and are so near maturity that they present an insignificant risk of changes in value due to changes in interest rates. (b) Inventories Inventories are principally stated at the lower of average cost or market value. Residential lots and dwellings under construction are stated at specifically identified costs. (c) Fixed assets and depreciation / amortization Property, plant and equipment are stated at cost. Significant renewals and improvements are capitalized at cost, while maintenance and repairs are charged to income as incurred. Depreciation is provided for under the declining-balance method for property, plant and equipment, except for buildings which are depreciated using the straight-line method, at rates based on estimated useful lives of the assets, principally ranging Microsystems Co., Ltd. and Asahi Kasei Medical Co., Ltd. All significant inter-company transactions and accounts have been eliminated. Investments in unconsolidated subsidiaries and 20% to 50% owned companies in which the Company exercises significant influence are accounted for, with minor exceptions due to materiality, using the equity method of accounting. There were 55 such unconsolidated subsidiaries and 20% to 50% owned companies to which the equity method is applied at March 31, 2006 (53 at March 31, 2005), including Asahi Kasei Metals Ltd., Asahi Kasei Finechem Co., Ltd. and Asahi Organic Chemicals Industry Co., Ltd. Certain subsidiaries results are reported in the consolidated financial statements using a December 31, or a February 28 year-end. Material differences in inter-company transactions and accounts arising from the use of different fiscal year-ends are appropriately adjusted for through consolidation procedures. The excess of the cost over the underlying net equity of investments in subsidiaries and affiliated companies accounted for using the equity method of accounting is allocated to identifiable assets and liabilities based on fair values at the date of acquisition. The unassigned residual value of the excess of the cost over the underlying net equity is recognized as goodwill. The Company amortizes goodwill using the straight- line method over the estimated period of benefit over a five or twenty-year period, with the exception of minor amounts, which are charged to income in the year of acquisition. from five to sixty years for buildings and from four to twenty- two years for machinery and equipment. Intangible fixed assets including software for internal use are amortized using the straight-line method over the estimated useful life of the asset. The estimated useful life of software for internal use is five years. (Accounting for impairment of fixed assets) On August 9, 2002, the Business Accounting Council in Japan issued “Accounting Standards for Impairment of Fixed Assets.” The standard requires that fixed assets should be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss is recognized in the income statement by reducing the carrying amount of impaired assets or a group of assets to the recoverable amount to be measured as the higher of the net selling price or value in use. The stan- dard became effective for the fiscal year ended March 31, 2006. The Company adopted this new standard in the fiscal year ended March 31, 2006, this had the effect of decreasing 58 income before income taxes and minority interests by ¥3,799 million (US$32,470 thousand). Accumulated impairment losses on fixed assets are deducted directly from the corresponding assets in the consolidated balance sheets. (d) Accrued pension and severance costs Accrued pension and severance costs at March 31, 2006 and 2005 represent the estimated present value of projected benefit obligations in excess of the fair value of the plan assets. Unrecognized prior service costs are being amortized on a straight-line basis primarily over ten years. Unrecognized actuarial gains / losses are being fully recognized in the year following that in which they arise. (Change in method of amortization of unrecognized actuarial gains / losses) The parent company and certain Japanese subsidiaries have been fully amortizing unrecognized actuarial gains / losses in the year following that in which they arose. Beginning with the fiscal year ended March 31, 2006, actuarial gains / losses which arise each year are amortized on a straight-line basis over the following ten years. This change was adopted due to the following reasons. (1) Stock markets, both in Japan and overseas, have fluctuated more widely than was foreseen when the policy of one-year amortization was adopted, bringing large actuarial gains / losses on pension fund investments each fiscal year. As a result, year- to-year fluctuations in operating profit, ordinary profit, and net income have largely been attributable to amortization of the previous year’s large unrecognized actuarial gains / losses as an operating expense. (2) This situation is undesirable in terms of clarity of disclosure, as levels of profit have not always directly represented trends and evaluations of business performance. (3) Adoption of a method where unrecognized actuarial gains / losses were amortized over a longer term will enable gains on pension fund investments from stock market rises in some years to offset losses from stock market declines in other years. In consideration of the gains / losses on pension fund investments in recent years, the economic circumstance is more suitable to the conventional approach of stable, long-term amortization of actuarial gains / losses. As the full amount of the actuarial gain which occurred in the fiscal year ended March 31, 2005 was amortized in one year in accordance with the previously adopted policy, this change will not affect profits for the fiscal year ended March 31, 2006. Because the ¥23,604 million (US$201,744 thousand) actuarial gain occurring in the year ended March 31, 2006 will be amortized on a straight-line basis over the following ten years, net pension and severance costs will be ¥21,244 million (US$181,573 thousand) higher, ordinary profit will be ¥19,639 million (US$167,855 thousand) lower, and income before income taxes and minority interests will be ¥19,639 million (US$167,855 thousand) lower in the year ended March 31, 2007 than if one-year amortization were continued. The effect by industry segment is shown in Note 18. Provision is made for lump-sum indemnities to directors and corporate auditors equal to the estimated liability calculated under the internal rules of the Company. (e) Financial instruments i) Securities Securities are classified into four categories; trading securities, held-to-maturity debt securities, equity securities of unconsoli- dated subsidiaries and affiliates, and other securities. At March 31, 2006 and 2005, the Company did not have trading securities or held-to-maturity debt securities. Equity securities of unconsolidated subsidiaries and affiliates are accounted for, with minor exceptions due to materiality, using the equity method of accounting. Other securities, whose fair values are readily determinable, are carried at fair value with net unrealized gains or losses included as a component of shareholders’ equity, net of related taxes. Other securities not practicable to fair value are stated at cost. In cases where any significant decline in the realizable value is assessed to be other than temporary, the cost of other securities is devalued by the impaired amount and is charged to income. Realized gains and losses are determined using the average cost method and are reflected in the income statement. ii) Derivative financial instruments All derivatives are stated at fair value. Gains or losses arising from changes in fair value are charged or credited to income for the period in which they arise, except for derivatives that are designated as hedging instruments. Gains or losses arising from changes in fair value of the derivatives designated as hedging instruments are deferred as assets or liabilities to be off-set against gains or losses on the underlying hedged assets and liabilities. (f) Taxes Accrued income taxes are stated at the estimated amount payable for corporation, enterprise, and inhabitant taxes. The asset and liability approach is used to recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. The Company applied to file its return under the consolidated tax filing system. (g) Leases Under Japanese accounting practices, financing leases must be capitalized by the lessee except for those leases that do not transfer ownership of the leased asset to the lessee as part of the lease. Such exceptions can be accounted for either as financing leases or operating leases with an appropriate foot- note disclosure. Periodic lease charges for financing leases entered into by the parent company and its Japanese sub- sidiaries, where lessors retain the ownership of the leased assets, are charged to income as incurred. (h) Translation of foreign currencies Foreign currency receivables and payables are translated into Japanese yen at the exchange rates prevailing at the balance sheet date. Resulting gains and losses are charged or credited to income for the period. Assets, liabilities, income and expenses of foreign subsidiaries and 20% to 50% owned companies accounted for using the equity method of accounting are translated into Japanese yen 3. United States dollar amounts The U.S. dollar amounts presented in the financial statements are included solely for the convenience of readers. These translations should not be construed as representations that the Japanese yen amounts actually represent, or have been or could be converted into U.S. dollars. As the amounts shown in U.S. dollars are for convenience only, and are not intended to 4. Derivative financial instruments The Company operates internationally, giving rise to exposure to market risks from fluctuations in foreign currency exchange and interest rates. In the normal course of its risk management efforts, the Company uses a variety of derivative financial in- struments, which are comprised of foreign currency forward exchange contracts, interest rate swap agreements and currency swap agreements, to reduce its exposures. In accordance with the Company’s policy, these financial instruments are utilized solely for hedging purposes and the Company does not hold or issue financial instruments for trading or speculation purposes. The Company has entered into foreign currency forward exchange contracts with banks as hedges against receivables and payables denominated in foreign currencies. As these foreign currency forward exchange contracts are utilized solely for hedging purposes, the resulting gains or losses are offset against foreign exchange gains or losses on the underlying hedged assets and liabilities. Annual Report 2006 59 at year-end rates. Shareholders’ equity of foreign subsidiaries and 20% to 50% owned companies is translated into Japanese yen at the historical rates. The translation differences in Japanese yen amounts arising from the use of different rates are recognized as cumulative translation adjustments in the balance sheets. A portion of the cumulative translation adjustments is allocated to “Minority interest in consolidated subsidiaries” and the Company’s portion is presented as a separate component of shareholders’ equity in the balance sheets. (i) Net income per share The computation of net income per share is based on the weighted average number of shares outstanding each year. Net income per share of common stock, assuming full dilution, is determined on the assumption that convertible bonds out- standing were converted into common stock at the beginning of the year or at the time of debt issuance, if later. be computed in accordance with generally accepted translation procedures, the approximate current exchange rate of ¥117= US$1 prevailing on March 31, 2006 has been used for the purpose of presentation of the U.S. dollar amounts in the accompanying consolidated financial statements. Interest rate swap agreements and currency swap agree- ments are used to limit the Company’s exposure to losses in relation to interest expense from adverse fluctuations in foreign currency exchange and interest rates. The related differentials to be paid or received under the interest rate swap agreements are recognized in interest expense over the terms of the agree- ments. Currency swap agreements are accounted for in a manner similar to that used for foreign currency forward exchange contracts. The Company does not anticipate any credit loss from nonperformance by the counter-parties to foreign currency forward exchange contracts, interest rate swap agreements and currency swap agreements. Since the derivative financial instruments of the Company are solely for hedging purposes, gains or losses arising from changes in fair value are deferred as assets or liabilities to be off-set against foreign exchange gains or losses on the underlying hedged assets and liabilities. Accordingly, the information relating to fair values is not applicable. 60 5. Cash and cash equivalents Reconciliation of cash and cash equivalents on the consolidated statements of cash flows to the amounts disclosed on the balance sheets at March 31 is as follows: Cash on hand and in banks Time deposits with deposit term of over 3 months Money market funds, medium-term government bond funds and others included in marketable securities Cash and cash equivalents Millions of yen 2005 2006 ¥86,422 (454) ¥68,279 (74) Thousands of U.S. dollars 2006 $738,650 (3,880) 422 ¥86,390 251 ¥68,456 3,606 $738,376 6. Account balances and transactions with affiliated companies Major account balances with unconsolidated subsidiaries and 20% to 50% owned companies accounted for using the equity method of accounting are as follows: Notes and accounts receivable, trade Other current assets Investment securities Long-term receivables Notes and accounts payable, trade Short-term borrowings Accrued expenses Millions of yen 2005 2006 ¥15,606 7,692 44,383 2,064 5,171 1,093 4,028 ¥14,285 15,394 38,788 1,457 6,069 1,098 4,730 Thousands of U.S. dollars 2006 $133,385 65,744 379,342 17,641 44,197 9,342 34,427 Major transactions between the Company and its unconsolidated subsidiaries and 20% to 50% owned companies accounted for using the equity method of accounting are as follows: Sales Purchases 7. Marketable securities and investment securities Millions of yen 2005 2006 ¥65,818 13,436 ¥69,170 13,325 Thousands of U.S. dollars 2006 $562,547 114,838 (a) Other securities with available fair value The aggregate cost, carrying amount which was identical to fair value, gross unrealized gains and losses of debt and equity securities classified as other securities for which fair values were available at March 31 are as follows: Securities with unrealized gains: Equity securities Securities with unrealized losses: Equity securities Debt securities Millions of yen 2006 Unrealized gains (losses) Carrying amount ¥181,704 181,704 ¥142,930 142,930 106 24 130 ¥181,834 (24) – (24) ¥142,906 Cost ¥38,774 38,774 130 24 154 ¥38,928 Securities with unrealized gains: Equity securities Debt securities Securities with unrealized losses: Equity securities Debt securities Securities with unrealized gains: Equity securities Securities with unrealized losses: Equity securities Debt securities Annual Report 2006 61 Millions of yen 2005 Unrealized gains (losses) ¥91,955 0 91,955 (125) – (125) ¥91,830 Carrying amount ¥129,511 60 129,571 1,601 28 1,629 ¥131,200 Cost ¥37,556 60 37,616 1,726 28 1,754 ¥39,370 Thousands of U.S. dollars 2006 Cost Carrying amount Unrealized gains (losses) $331,402 331,402 $1,553,026 1,553,026 $1,221,624 1,221,624 1,111 205 1,316 $332,718 906 205 1,111 $1,554,137 (205) – (205) $1,221,419 Losses on devaluation of other securities, whose fair values were readily determinable, for the years ended March 31, 2005 was ¥11 million. (b) The realized gains and losses on the sale of other securities during the year ended March 31 are as follows: Selling amount Gain on sales of securities Loss on sales of securities Millions of yen 2005 2006 ¥625 267 4 ¥4,922 1,514 23 Thousands of U.S. dollars 2006 $5,342 2,282 34 (c) The carrying amounts of other securities for which it was not practicable to determine fair value at March 31 are as follows: Equity investment in funds Equity investments in nonpublic companies Millions of yen 2005 2006 ¥10,001 7,521 ¥10,005 7,625 Thousands of U.S. dollars 2006 $85,479 64,282 62 (d) Redemption schedules for maturity of debt securities at March 31 are as follows: Debt securities: Government and municipal bonds Debt securities: Government and municipal bonds Corporate debt securities Due within one year Due after one year, within five years Due after five years, Due after within ten years more than ten years ¥23 ¥23 ¥1 ¥1 ¥– ¥– ¥– ¥– Millions of yen 2006 Due within one year Due after one year, within five years Due after five years, Due after within ten years more than ten years Millions of yen 2005 ¥46 10 ¥56 ¥42 – ¥42 ¥– – ¥– ¥– – ¥– Thousands of U.S. dollars 2006 Debt securities: Government and municipal bonds Due within one year Due after one year, within five years Due after five years, Due after within ten years more than ten years $197 $197 $9 $9 $– $– $– $– 8. Accumulated depreciation Accumulated depreciation at March 31 comprised the following: Buildings Machinery and equipment Other 9. Borrowings Millions of yen 2005 2006 Thousands of U.S. dollars 2006 ¥ 208,128 891,598 84,591 ¥1,184,317 ¥207,781 867,851 82,112 ¥1,157,744 $ 1,778,872 7,620,496 723,000 $10,122,368 Short-term borrowings at March 31, 2006 and 2005 represented loans, principally from banks. The weighted average interest rates on these borrowings were 1.23 % in 2006 and 1.32 % in 2005. Long-term debt at March 31 comprised the following: Loans, principally from banks and insurance companies due 2006 to 2018 with weighted average interest rates of 2.12% (short-term portion) and 1.83% (long-term portion): Secured Unsecured Unsecured 0.54% to 2.15% yen bonds due 2006 to 2009 Unsecured 1.0% to 1.8% step up coupon Euro yen bonds due 2011 Unsecured 10 years constant maturity swap rate less 0.9% Euro yen bonds due 2006 Unsecured 10 years constant maturity swap rate less 6 months yen LIBOR multiplied by 0.45 Euro yen bonds due 2006 Unsecured 0.29% to 3.45% Euro yen bonds due 2006 to 2009 Unsecured US$1.9% to 3.5% reversal dual currency Euro yen bonds due 2007 to 2013 Less – Portion due within one year Millions of yen 2005 2006 ¥ 1,354 80,788 65,000 10,000 – ¥ 1,596 81,641 90,000 10,000 1,000 2,000 18,000 12,000 189,142 (32,842) ¥156,300 3,000 22,000 12,000 221,237 (34,991) ¥186,246 Thousands of U.S. dollars 2006 $ 11,573 690,496 555,556 85,470 – 17,094 153,846 102,564 1,616,599 (280,701) $1,335,898 Annual Report 2006 63 Thousands of U.S. dollars $ 280,701 295,214 270,923 769,761 $1,616,599 Thousands of U.S. dollars $48,120 Millions of yen ¥5,630 The aggregate annual maturities of long-term debt after March 31, 2006 are as follows: Years ending March 31 2007 2008 2009 2010 and thereafter Millions of yen ¥ 32,842 34,540 31,698 90,062 ¥189,142 A summary of assets pledged as collateral for short-term loans and long-term debt at March 31, 2006 is as follows: Property, plant and equipment 10. Accrued pension and severance costs Upon terminating employment, employees of the parent company and its major subsidiaries in Japan are entitled, under most circumstances, to lump-sum severance indemnities and/or pension payments determined by reference mainly to their current basic rate of pay and length of service. Additional benefits may be granted to employees depending on the conditions under which termination of employment occurs. Certain foreign subsidiaries have defined benefit pension plans or defined contribution plans. The obligation for these severance indemnity benefits is provided for through accruals, contributory funded defined benefit pension plans, contributory funded defined benefit enterprise pension plans and/or non-contributory funded tax- qualified pension plans. The parent company and 16 Japanese subsidiaries (16 sub- sidiaries at March 31, 2005) have non-contributory tax-qualified pension plans. On April 1, 1999, the portion of indemnities to the parent company’s employees, who had not qualified as vested at April 1, 1999, was transferred to the contributory funded defined benefit pension plan from the non-contributory funded tax-qualified pension plan of the parent company. Currently, the parent company’s non-contributory funded tax-qualified pension plan covers the indemnities of employees qualified as vested at April 1, 1999. Information on accrued severance and pension costs as at March 31, 2006 and 2005 are as follows: Projected benefit obligations Fair value of plan assets Unrecognized actuarial gains/losses Unrecognized prior service costs Prepaid pension cost Retirement benefits for employees Retirement benefits for directors and corporate auditors Accrued pension and severance costs Millions of yen 2005 2006 ¥(300,327) 206,022 (94,305) (23,619) (9,797) (3,896) (131,617) (816) ¥(132,433) ¥(290,655) 172,419 (118,236) (2,663) (11,176) (2,730) (134,805) (760) ¥(135,565) Thousands of U.S. dollars 2006 $(2,566,898) 1,760,872 (806,026) (201,872) (83,735) (33,299) (1,124,932) (6,974) $(1,131,906) Note: The figures in the above table do not include additional benefit payables amounting to ¥1,352 million (US$11,556 thousand) and ¥219 million at March 31, 2006 and 2005, respectively. The amounts are recorded as part of current liabilities on the consolidated balance sheets at March 31, 2006 and 2005. 64 Net periodic pension and severance costs for employees for the years ended March 31, 2006 and 2005 included the following components: Service cost (Note 1) Interest cost Expected return on plan assets Amortization of unrecognized actuarial gains / losses Amortization of unrecognized prior service costs Net pension and severance costs Millions of yen 2005 2006 ¥ 8,697 7,293 (4,409) (2,726) (1,394) ¥ 7,461 ¥ 8,438 7,049 (4,158) (23,480) (1,394) ¥(13,545) Thousands of U.S. dollars 2006 $ 74,333 62,333 (37,684) (23,299) (11,914) $ 63,769 Note 1: The figures in the above table do not include the contributions made by employees. Note 2: In addition to the above costs, additional benefits amounting to ¥1,962 million (US$ 16,769 thousand) and ¥1,376 million were charged to income for the year ended March 31, 2006 and 2005, respectively. The assumptions used in calculation of the above information are as follows: Discount rate Expected rate of return on plan assets Method of attributing the projected benefits to periods of employee service Amortization of unrecognized prior service costs Amortization of unrecognized actuarial gains / losses 11. Taxes 2006 2.5% 2.5% Straight-line basis Mainly 10 years 1 year 2005 2.5% 2.5% Straight-line basis Mainly 10 years 1 year Income taxes applicable to the parent company and subsidiaries in Japan include (1) corporation tax, (2) enterprise tax and (3) inhabitants tax which, in the aggregate. For the year ended March 31, 2005, a corporation size-based enterprise tax was introduced which reduces the income-based enterprise tax rate. As a result, the statutory tax rate is approximately 40.7%. Significant components of the deferred tax assets and liabilities at March 31 are as follows: Deferred tax assets: Accrued pension and severance costs Accrued bonuses Loss on disposal of property, plant and equipment Unrealized gain on fixed assets and others Tax loss carryforwards Devaluation of inventories Accrued enterprise tax Impairment loss Devaluation of investment securities Allowance for doubtful accounts Depreciation Other Sub total deferred tax assets Less: Valuation allowance Total deferred tax assets Deferred tax liabilities: Unrealized gains on securities Property, plant and equipment Reserve for special depreciation Other Total deferred tax liabilities Net deferred tax assets (liabilities) Millions of yen 2005 2006 Thousands of U.S. dollars 2006 ¥ 53,496 8,317 6,205 4,130 3,196 3,016 2,145 1,308 1,037 525 425 13,817 97,617 (6,203) 91,414 ¥52,517 8,747 6,710 3,736 3,580 2,863 2,152 – 906 703 433 9,996 92,343 (4,144) 88,199 (60,281) (15,777) (1,621) (3,216) (80,895) ¥ 10,519 (39,845) (16,256) (1,790) (3,150) (61,041) ¥ 27,158 $457,231 71,085 53,034 35,299 27,316 25,778 18,333 11,180 8,863 4,487 3,633 118,094 834,333 (53,017) 781,316 (515,222) (134,846) (13,855) (27,487) (691,410) $ 89,906 Annual Report 2006 65 Reconciliation of the differences between the statutory tax rate and the effective income tax rate for the year ended March 31 is as follows: Statutory tax rate Increase (reduction) in taxes resulting from: Non-deductible expenses and non-taxable income Equalization inhabitants taxes R&D expenses deductible from income taxes IT investments deductible from income taxes Amortization of goodwill Equity in earnings of unconsolidated subsidiaries and affiliates Other Effective income tax rate 2006 40.7% 2.1 0.4 (6.4) (0.4) 0.1 (0.2) 0.3 36.6% Statutory tax rate Increase (reduction) in taxes resulting from: Non-deductible expenses and non-taxable income Equalization inhabitants taxes R&D expenses deductible from income taxes IT investments deductible from income taxes Amortization of goodwill Equity in earnings of unconsolidated subsidiaries and affiliates Other Effective income tax rate 2005 40.7% 2.6 0.4 (4.5) (0.4) 0.1 (1.2) (0.4) 37.3% In Japan, the consumption tax system is designed so that all goods and services are taxed at a flat rate of 5% unless specifically provided otherwise. Assets, liabilities and profit and loss accounts were stated net of consumption tax. 12. Revaluation surplus A revaluation surplus was recorded by a consolidated foreign subsidiary, based on the applicable laws. 13. Selling, general and administrative expenses Major components of selling, general and administrative expenses were as follows: Freight and storage Salaries and benefits Depreciation Research and development Advertising Rent Millions of yen 2005 2006 ¥32,554 87,117 10,718 35,832 13,411 28,072 ¥33,637 71,357 10,759 36,445 15,167 30,069 Thousands of U.S. dollars 2006 $278,239 744,590 91,607 306,256 114,624 239,932 Note: The aggregate amounts of research and development expenses included in manufacturing costs and selling, general and administrative expenses for the years ended March 31, 2006 and 2005 were ¥51,467 million (US$ 439,889 thousand) and ¥50,715 million, respectively. 14. Impairment loss Grouping of operating assets is based on managerial accounting categories, with consideration given to production process, geographic location, and domain of authority for making investment decisions. Idle assets are recorded separately in each fixed assets class. In the fiscal year ended March 31, 2006, the book value of idles assets with diminished market value was reduced to the recoverable amount, resulting in a special loss of ¥3,799 million (US$ 32,470 thousand) as impairment loss. Recoverable amount for these assets was taken as net selling price mainly based on the appraisal value as determined by the real estate appraiser. 66 15. Litigation settlement A settlement agreement was concluded in March 2005 with the plaintiffs in class action litigation in US district court who claimed damages related to an alleged violation of US antitrust law with respect to microcrystalline cellulose, a tableting agent 16. Restructuring charges Major components of the restructuring charges were as follows: Loss on disposal and devaluation of assets and others Loss on liquidation of subsidiaries and others Total 17. Leases Periodic lease charges for the Company’s financing leases, where lessors retain the ownership of the leased assets, are charged to income. Such lease charges were ¥4,554 million and food additive, by the Company and a US maker of microcrystalline cellulose. After the relevant court procedures for approval, this settlement was determined in July 2005. Millions of yen 2005 2006 ¥2,456 715 ¥3,171 ¥ 6,983 7,938 ¥14,921 Thousands of U.S. dollars 2006 $20,992 6,111 $27,103 (US$38,923 thousand) and ¥6,230 million for the year ended March 31, 2006 and 2005, respectively. The future lease payments under the Company’s financing leases and noncancelable operating leases at March 31, including amounts representing interest, were as follows: Due within one year Due after one year Millions of yen 2005 2006 ¥ 3,971 6,161 ¥10,132 ¥ 4,488 5,798 ¥10,286 Thousands of U.S. dollars 2006 $33,940 52,658 $86,598 The leased assets under the Company’s financing leases, where lessors retain ownership of the leased assets were accounted for as operating leases by the Company. If the leases had been capitalized, then the cost of the assets and the related accumulated amortization, computed using the straight-line method over the term of the lease, at March 31, 2006 and 2005 would have been as follows: Buildings Machinery and equipment Other tangible fixed assets Intangible fixed assets – other Buildings Machinery and equipment Other tangible fixed assets Intangible fixed assets – other Millions of yen 2006 Thousands of U.S. dollars 2006 Cost ¥15,125 616 1,724 628 ¥18,093 Accumulated amortization ¥6,387 378 841 355 ¥7,961 Net amount ¥ 8,738 238 883 273 ¥10,132 Net amount $74,684 2,034 7,547 2,333 $86,598 Cost ¥16,043 648 4,448 1,577 ¥22,716 Accumulated amortization ¥ 8,250 349 2,780 1,051 ¥12,430 Millions of yen 2005 Net amount ¥ 7,793 299 1,668 526 ¥10,286 The amortization amount of the leased assets, computed using the straight-line method over the term of the lease, would have been ¥4,554 million (US$38,923 thousand) and ¥6,230 million for the year ended March 31, 2006 and 2005, respectively. No impairment loss is allocated to the leased assets. Annual Report 2006 67 18. Business segment information (1) Industry segments – Sales and operating profit (loss) for the year ended March 31: Chemicals Homes Pharma Fibers Electronics Materials Construction Materials and Devices Life & Living Services, Engineering and Others Corporate expenses and Combined eliminations Consolidated Millions of yen 2006 Sales: Customers Intersegment Total Operating expenses Operating profit (loss) ¥660,402 16,659 677,061 636,549 ¥ 40,512 ¥404,539 ¥105,842 19 105,861 94,803 ¥ 28,218 ¥ 11,058 111 404,650 376,432 ¥89,704 2,262 91,966 87,950 ¥ 4,016 ¥102,858 992 103,850 84,517 ¥ 19,333 ¥56,512 11,596 68,108 64,292 ¥ 3,816 ¥51,942 3,624 55,566 50,740 ¥ 4,826 ¥26,821 27,247 54,068 50,785 ¥ 3,283 ¥1,498,620 62,510 1,561,130 1,446,068 ¥ 115,062 ¥ – (62,510) (62,510) (56,174) ¥1,498,620 – 1,498,620 1,389,894 ¥ (6,336) ¥ 108,726 Millions of yen 2005 Chemicals Homes Pharma Fibers Electronics Materials Construction Materials and Devices Life & Living Services, Engineering and Others Corporate expenses and Combined eliminations Consolidated ¥570,182 14,175 584,357 546,545 ¥ 37,812 ¥375,755 ¥103,933 35 103,968 90,611 ¥ 28,988 ¥ 13,357 86 375,841 346,853 ¥91,518 2,071 93,589 85,251 ¥ 8,338 ¥93,024 709 93,733 76,142 ¥17,591 ¥59,908 11,326 71,234 68,666 ¥ 2,568 ¥59,149 4,613 63,762 57,695 ¥ 6,067 ¥24,228 36,447 60,675 57,111 ¥ 3,564 ¥1,377,697 69,462 1,447,159 1,328,874 ¥ 118,285 ¥ – (69,462) (69,462) (66,986) ¥ (2,476) ¥1,377,697 – 1,377,697 1,261,888 ¥ 115,809 Chemicals Homes Pharma Fibers Electronics Materials Construction Materials and Devices Life & Living Services, Engineering and Others Thousands of U.S. dollars 2006 Corporate expenses and Combined eliminations Consolidated 142,385 $5,644,462 $3,457,598 $904,632 $766,701 19,333 949 786,034 5,786,847 3,458,547 751,709 5,440,590 3,217,368 $ 346,257 $ 241,179 $ 94,512 $ 34,325 162 904,794 810,282 $879,128 8,479 887,607 722,368 $165,239 $483,009 99,111 582,120 549,504 $ 32,616 $443,949 30,975 474,924 433,675 $ 41,249 $229,239 $12,808,718 534,274 13,342,992 12,359,556 983,436 232,880 462,119 434,060 $ 28,059 $ $ – $12,808,718 (534,274) – (534,274) 12,808,718 (480,120) 11,879,436 929,282 $ (54,154) $ Sales: Customers Intersegment Total Operating expenses Operating profit (loss) Sales: Customers Intersegment Total Operating expenses Operating profit (loss) Identifiable assets, depreciation and amortization, impairment loss and capital expenditure as of and for the year ended March 31: Chemicals Homes Pharma Fibers Electronics Materials Construction Materials and Devices Life & Living Services, Engineering and Others Millions of yen 2006 Corporate assets and Combined eliminations Consolidated ¥529,100 ¥200,066 ¥118,721 ¥105,718 ¥114,743 ¥49,557 ¥50,970 ¥317,171 ¥1,486,046 ¥ (110,002) ¥1,376,044 31,281 – 26,632 2,448 251 3,583 6,364 – 4,897 5,337 – 5,417 12,051 – 14,960 3,129 – 2,313 4,352 – 4,655 715 – 1,038 65,677 251 63,495 3,722 3,548 2,815 69,399 3,799 66,310 Chemicals Homes Pharma Fibers Electronics Materials Construction Materials and Devices Life & Living Services, Engineering and Others Millions of Yen 2005 Corporate assets and Combined eliminations Consolidated ¥494,313 ¥186,837 ¥ 123,762 ¥100,031 ¥109,055 ¥58,068 ¥55,738 ¥297,826 ¥1,425,630 ¥ (155,573) ¥1,270,057 31,553 25,084 2,280 3,447 6,372 8,260 5,200 4,927 13,312 16,446 3,797 2,209 4,535 4,329 1,192 1,423 68,241 66,125 3,290 2,354 71,531 68,479 Identifiable assets Depreciation and amortization Impairment loss Capital expenditure Identifiable assets Depreciation and amortization Capital expenditure 68 Chemicals Homes Pharma Fibers Electronics Materials Construction Materials and Devices Life & Living Services, Engineering and Others Thousands of U.S. dollars 2006 Corporate assets and Combined eliminations Consolidated Identifiable assets Depreciation and amortization Impairment loss Capital expenditure $4,522,222 $1,709,966 $1,014,710 $903,573 $980,709 $423,564 $ 435,641 2,710,863 $12,701,248 $(940,188) $11,761,060 267,359 – 227,624 20,923 2,145 30,624 54,393 – 41,855 45,615 – 46,299 103,000 – 127,863 26,744 – 19,769 37,197 – 39,786 6,111 – 8,872 561,342 2,145 542,692 31,812 30,325 24,060 593,154 32,470 566,752 Note 1: The Company’s industry segments are aggregated into eight segments based primarily upon similarities of products, services, and economic characteristics. Chemicals – The Company produces, processes and sells Monomers and basic chemicals (such as Ammonia, Nitric acid, Caustic soda, Acrylonitrile, Styrene monomer, Methyl Methacrylate (MMA) monomer, PMMA resin, High-compound fertilizers, and Adipic acid), Polymer and elastomers (such as Suntec™ polyethylene (PE), Stylac™ - AS (styrene-acrylonitrile), Stylac™-ABS (acrylonitrile-butadiene-styrene), synthetic rubber, Tenac™ polyacetal, Xyron™ modified polyphenylene ether (mPPE), and Leona™ nylon 66 polymer and filament), Specialty products and systems (such as Coating materials, Latex, Ceolus™ microcrystalline cellulose, Explosives, Explosion-bonded metal clad, APR™ photosensitive resin and printing plate making systems, Microza™ UF and MF membranes and systems, Hipore™ microporous membrane, and ion-exchange membranes andelectrolysis systems). Homes – The Company builds Hebel Haus™ pre-fabricated, custom-built homes, and Hebel Maison™ apartments, and operates related businesses such as condominiums, remodeling, real estate, residential land development, and home financing. Pharma – The Company produces and sells pharmaceuticals (such as Elcitonin™, Bredinin™, Flivas™, and Toledomin™), pharmaceutical intermediates, diagnostics reagents. The Company also manufactures APS™ artificial kidneys, Sepacell™ leukocyte reduction filters, Cellsorba™ leukocyte adsorption columns, Planova™ virus removal filters, and contact lenses. Fibers – The Company produces and sells Roica™ elastic polyurethane filament, nonwoven fabrics (such as Eltas™ spunbond and Lamous™ artificial suede), Bemberg™ cuprammonium rayon, and polyester filament. Electronics Materials and Devices – The Company produces and sells Pimel™ photosensitive polyimide, Sunfort™ photosensitive dry film resist (DFR), photomask pellicles, LSIs, Hall elements, and glass fabric. Construction Materials – The Company produces and sells autoclaved lightweight concrete (ALC) panels (such as Hebel™), piles, Neoma™ foam insulation panels, and artificial fish reefs. Life & Living – The Company produces and sells Saran Wrap™ cling film, Ziploc™ storage bags, and plastic films, sheets, and foams. Services, Engineering, and Others – The Company provides Plant engineering, Environmental engineering, Personnel staffing and replacement, and Think tank services. 2: Accounting Standards for Impairment of Fixed Assets became effective for the fiscal year ended March 31, 2006. The Company applies this new standard in the fiscal year ended March 31, 2006, this had the effect of decreasing “Home segment” Identifiable assets by ¥251 million (US$2,145 thousand) and “Corporate assets and eliminations” by ¥3,548 million (US$30,325 thousand). 3: The parent company and certain Japanese subsidiaries have been fully amortizing unrecognized actuarial gains/losses in the year following that in which they arose. Beginning with the fiscal year ended March 31, 2006, actuarial gains/losses are amortized on a straight-line basis over the ten years following that in which they arise. As the full amount of the actuarial gain which occurred in the fiscal year ended March 31, 2005 was amortized in one year in accordance with the previously adopted policy, this change will not affect profits for the fiscal year ended March 31, 2006. Because the ¥23,604 million (US$201,744 thousand) actuarial gain occurring in the year ended March 31, 2006 will be amortized on a straight-line basis over the following ten years, net pension and severance costs will be ¥19,639 million (US$167,855 thousand) higher. The effect by industry segment is that operating expenses in the following segment will be lower by the following amounts: “Chemicals” ¥6,064 million (US$51,829 thousand), “Homes” ¥3,097 million (US$26,470 thousand), “Pharma” ¥2,830 million (US$24,188 thousand), “Fibers” ¥1,869 million (US$15,974 thousand), “Electronics Materials and Devices” ¥1,077 million (US$9,205 thousand), “Construction Materials” ¥1,368million (US$11,692thousand), “ Life & Living” ¥855million (US$7,308thousand), “Corporate” ¥2,478million (US$21,179 thousand) in the year ended March 31, 2007 than if one-year amortization had been continued. 4: With the April 1, 2005 transfer of Leona™ nylon 66 filament operations from Asahi Kasei Fibers Corporation to Asahi Kasei Chemicals Corporation, classification of the corresponding sales, operating expenses, operating profit (loss), identifiable assets, depreciation and amortization, and capital expenditure for the year ended march 31,2005 has been changed from the Fiber segment to the Chemicals segment. 5: Corporate operating expenses included in “Corporate expenses and eliminations” in 2006 and 2005 amount to ¥15,209 million (US$129,991 thousand) and ¥10,205 million, respectively. 6: Corporate assets such as surplus funds (cash on hands and in banks), long-term-investment funds (investment securities etc.) and lands etc. included in “Corporate assets and eliminations” in 2006 and 2005 amount to ¥447,076 million (US$3,821,162 thousand) and ¥390,975 million, respectively. Annual Report 2006 69 (2) Geographic areas – Total sales and assets of consolidated subsidiaries located in countries or regions outside of Japan as of and for the years ended March 31, 2006 and 2005 were not significant. (3) Overseas sales – Overseas sales for the years ended March 31, 2006 and 2005 were as follows: Millions of yen Millions of yen Thousands of U.S. dollars East Asia Others 2006 Total East Asia Others 2005 Total East Asia Others 2006 Total Overseas sales Consolidated net sales Percentage of consolidated net sales (%) ¥222,377 – ¥150,789 ¥ 373,166 ¥187,017 ¥122,787 ¥ 309,804 $1,900,658 $1,288,795 $ 3,189,453 – 12,808,718 – 1,498,620 1,377,697 – – – 14.8% 10.1% 24.9% 13.6% 8.9% 22.5% Note 1: Geographical distance is considered in the classification of country or area. 2: Major countries or areas included in each category are as follows; East Asia: China (including Hong Kong), Korea and Taiwan Others: Southeast Asia (except East Asia), U.S.A., Europe and others. 3: Overseas sales represent the sales of the Company to countries and areas outside of Japan. 19. Appropriation of retained earnings Appropriations of retained earnings are not accrued in the financial statements for the period to which they relate, but are recorded in the subsequent accounting period after shareholders’ approval has been obtained. Retained earnings at March 31, 2006 include amounts representing final cash dividends of 20. Contingent liabilities ¥6,999 million (US$59,821 thousand) and bonuses to directors and corporate auditors of ¥73 million (US$624 thousand) which were approved at the shareholders’ meeting held on June 29, 2006. Contingent liabilities at March 31, arising in the ordinary course of business were as follows: Notes discounted Loans guaranteed Commitment for guarantees Letters of awareness Millions of yen 2005 2006 ¥ 296 15,569 2,646 734 ¥19,245 ¥ 225 17,044 2,739 190 ¥20,198 Thousands of U.S. dollars 2006 $ 2,530 133,068 22,615 6,274 $164,487 The parent company and certain of its subsidiaries and affiliates were defendants in several pending lawsuits. However, based upon the information currently available to both the Company and its legal counsel, the management of the Company believes that any damages from such lawsuits will not have a material effect on the Company’s consolidated financial statements. 70 21. Reconciliation of the differences between basic and diluted net income per share: Reconciliation of the differences between basic and diluted net income per share for the year ended March 31 is as follows: Net income Amount not allocated to the common stock Net income allocated to the common stock Effect of dilutive securities Net income allocated to the common stock for computation of diluted net income per share Weighted-average shares Effect of dilutive securities Weighted-average shares for computation of diluted net income per share Millions of yen 2005 2006 ¥59,668 (218) ¥59,450 – ¥59,450 ¥56,454 (199) ¥56,255 – ¥56,255 Thousands of U.S. dollars 2006 $509,983 (1,863) $508,120 – $508,120 Thousands of shares 2005 2006 1,400,109 – 1,400,109 1,400,671 – 1,400,671 2006 Yen 2005 U.S. dollars 2006 Basic net income per share Diluted net income per share $0.36 – $ As the Company had no dilutive securities as at March 31, 2006 and 2005, the Company does not disclose diluted net income for ¥42.46 – ¥ ¥40.16 – ¥ the years ended March 31, 2006 and 2005. Annual Report 2006 71 72 Major Subsidiaries and Affiliates As of April 1, 2006 Company Main products/business line Paid-in capital (million) Equity interest (%) Chemicals Benzene, ethylene Epoxy resin Aluminum paste Specialty chemicals Shotgun cartridges Sale of industrial explosives, civil engineering materials Processing and sale of plastic and fiber Synthetic rubber Silicone Caustic soda, chlorine Sale of fertilizer Polystyrene Synthetic resin, fabricated plastic products Sale of compounded performance resin Coloring and compounding of performance resin Sale of acrylonitrile Sale of purging compound Acrylonitrile, sodium cyanide Sale of adipic acid PMMA sheet for light-guide plates Sale of performance resin Chemicals Segment Asahi Kasei Chemicals Corp.* Sanyo Petrochemical Co., Ltd.* Asahi Kasei Epoxy Co., Ltd.* Asahi Kasei Metals Ltd. Asahi Kasei Finechem Co., Ltd. Asahi SKB Co., Ltd. Asahi Kasei Geotechnologies Co., Ltd. Asahi Kasei Technoplus Co., Ltd.* Japan Elastomer Co., Ltd.* Wacker Asahikasei Silicone Co., Ltd. Okayama Chemical Co., Ltd. Chisso Asahi Fertilizer Co., Ltd. PS Japan Corp. Asahi Organic Chemicals Industry Co., Ltd. Asahikasei Plastics (America) Inc.* Asahi Kasei Plastics North America, Inc.* Asahi Chemical Intermediates Inc.* Sun Plastech Inc.* Tong Suh Petrochemical Corp. Ltd.* Asahi Kasei Adipic Acid (Korea) Co., Ltd. Delaglas Korea Corporation Asahikasei Plastics (Shanghai) Co., Ltd. Asahikasei (Suzhou) Plastics Compound Co., Ltd. Coloring and compounding of performance resin SAL Petrochemical (Zhangjiagang) Co., Ltd. Asahi-DuPont POM (Zhangjiagang) Co., Ltd. Styron Asia Ltd. Asahi Kasei Performance Chemicals Corporation Polystyrene Polyacetal Sale of polystyrene Asahi Kasei Microza (Hangzhou) Co., Ltd. Asahi Kasei Plastics Singapore Pte. Ltd.* Polyxylenol Singapore Pte. Ltd.* Asahikasei Plastics (Thailand) Co., Ltd. PT Nippisun Indonesia NV Asahi Thermofil (Europe) SA* NV Asahi Photoproducts (Europe) SA* Asahi Photoproducts (UK) Ltd.* AK&N (UK) Ltd.* Asahi Thermofil (UK) Ltd.* Asahi Thermofil (France) SA* Homes Segment Asahi Kasei Homes Corp.* Asahi Kasei Jyuko Co., Ltd.* Asahi Kasei Mortgage Corp.* Asahi Kasei Real Estate, Ltd.* Asahi Kasei Reform Co., Ltd.* Pharma Segment Asahi Kasei Pharma Corp.* Asahi Kasei Medical Co., Ltd.* Asahi Kasei N&P Co., Ltd.* * Consolidated subsidiary ** Including capital reserve High-performance HDI-based polyisocyanate Industrial membranes and systems Performance resin PPE powder Coloring and compounding of performance resin Coloring and compounding of styrenic resin Sale of compounded performance resin Sale of photopolymer, printing plate making systems Sale of photopolymer, printing plate making systems Compounded performance resin operations Coloring and compounding of performance resin Coloring and compounding of performance resin Housing Steel frames Financial services Home leasing, real estate brokerage Home maintenance and remodeling Pharmaceuticals, medical products Medical devices, medical systems Functional food ingredients ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ US$ US$ US$ US$ W W W CNY CNY CNY US$ US$ US$ ¥ US$ US$ B US$ A A £ £ £ A ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ 3,000 2,000 300 250 175 100 132 160 1,000 4,200 1,000 305 5,000 5,000 17.8** 21.5** 16.4 1.0 50,642 1,500 5,000 18 50 222 32.0 1.0 20.0 400 46.0 35.0 140 6.3 5.0 3.4 0.3 11.1 5.3 4.3 3,250 2,820 500 200 250 3,000 800 495 100.0 100.0 100.0 100.0 100.0 100.0 100.0 99.4 75.0 50.0 50.0 50.0 45.0 29.8 100.0 100.0 100.0 100.0 100.0 100.0 60.0 100.0 51.0 50.0 50.0 50.0 100.0 100.0 100.0 70.0 100.0 25.7 100.0 100.0 100.0 65.0 65.0 65.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Company Main products/business line Asahikasei Aime Co., Ltd.* Asahi Kasei Medical America Inc. Nikkiso Asahi Kasei Medical Korea Co., Ltd. Asahi Kasei Medical (Hangzhou) Co., Ltd. Asahi Kasei Medical Europe GmbH NV Asahi Kasei Planova Europe SA Asahi Pharma Spain, SL Contact lenses Sale of medical devices, medical systems Sale of medical devices Hemodialyzers Sale of medical devices, medical systems Sale of virus removal filters Sale of pharmaceuticals Fiber, textiles Processing and sale of fiber, textiles Flash spun Polytrimethylene terephthalate fiber Spandex Fibers Segment Asahi Kasei Fibers Corp.* Kyokuyo Sangyo Co., Ltd.* DuPont-Asahi Flash Spun Products Co., Ltd. Solotex Corp. Asahi Kasei Fibers America, Inc. (Asahi Kasei Fibers America, Inc. was renamed Asahi Kasei Spandex America, Inc. on May 1, 2006.) Hangzhou Asahikasei Spandex Co., Ltd.* Hangzhou Asahikasei Textiles Co., Ltd.* Formosa Asahi Spandex Co., Ltd. Asahi Chemical (HK) Ltd.* Thai Asahi Kasei Spandex Co., Ltd.* Asahi Kasei Spandex Europe GmbH Asahi Kasei Fibers Italy SRL Asahi Kasei Fibers Deutschland GmbH Spandex Knitting and dyeing of spandex Spandex Sale of fiber and textiles Spandex Spandex Sale of spandex and cupuro cellulosic fiber Sale of artficial suede EMD Segment Asahi Kasei EMD Corp.* Asahi Kasei Microsystems Co., Ltd.* Asahi-Schwebel Co., Ltd.* Asahi Kasei Electronics Co., Ltd.* AKM Semiconductor, Inc.* Asahi Kasei Electronics Materials (Suzhou) Co., Ltd.* Asahi Kasei Wah Lee Hi-Tech Corp.* Asahi-Schwebel (Taiwan) Co., Ltd.* Electronics materials and devices LSIs Glass fabric Hall elements Sale of LSIs Photosensitive dry film resist Photosensitive dry film resist Glass fabric Constructions Materials Segment Asahi Kasei Construction Materials Corp.* Asahi Kasei Foundation Systems Co., Ltd.* Asahi Kasei Marintech Co., Ltd.* Construction materials Installation of piles Sale of marine structures Life & Living Segment Asahi Kasei Life & Living Corp.* Asahi Kasei Pax Corp.* Asahi Home Products Co., Ltd.* Sundic Inc. Asahi Packaging GmbH Household products, packaging material Packaging products and solutions Sale of cling film, other household products Biaxially oriented polystyrene sheet Sale of food packaging material Service, Engineering and Others Segment Asahi Research Center Co., Ltd.* Asahi Finance Co., Ltd.* Asahi Kasei Engineering Co., Ltd.* Asahi Kasei Trading Service Co., Ltd.* Sun Trading Co., Ltd.* Asahi Kasei Amidas Co., Ltd.* AJS Inc. Information and analysis Investment, finance Plant, equipment, process engineering Sale of Asahi Kasei products Sale of Asahi Kasei products Employment agency, consulting Computer software, IT systems * Consolidated subsidiary ** Including capital reserve Annual Report 2006 73 Paid-in capital (million) Equity interest (%) ¥ US$ W US$ A A A ¥ ¥ ¥ ¥ US$ CNY CNY NT$ HK$ B A A A ¥ ¥ ¥ ¥ US$ CNY NT$ NT$ ¥ ¥ ¥ ¥ ¥ ¥ ¥ A ¥ ¥ ¥ ¥ ¥ ¥ ¥ 480 0.2 4,400 10.0 0.2 0.2 0.1 3,000 80 450 250 10.2** 132 78 801 65 520 10.0** 3.0 0.3 3,000 14,000 648 400 2.9 60 49 326 3,000 200 30 3,000 490 250 1,050 0.7 3,000 800 400 98 94 80 800 100.0 100.0 50.0 100.0 100.0 100.0 100.0 100.0 100.0 50.0 50.0 100.0 100.0 82.5 50.0 100.0 60.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 80.6 51.0 100.0 100.0 100.0 100.0 100.0 100.0 50.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 49.0 74 Corporate Profile As of April 1, 2006 Company Name Asahi Kasei Corporation Date of Establishment May 21, 1931 Paid-in Capital ¥103,388,521,767 Employees 23,030 (Consolidated) 806 (Non-consolidated) Asahi Kasei Group Offices Asahi Kasei Corporation Tokyo Head Office 1-1-2 Yurakucho, Chiyoda-ku Tokyo 100-8440, Japan Phone: +81-3-3507-2060 Fax: +81-3-3507-2495 Osaka Head Office 1-2-6 Dojimahama, Kita-ku Osaka 530-8205, Japan Phone: +81-6-6347-3111 Fax: +81-6-6347-3077 Beijing Office Room 1408 New China Insurance Tower No.12 Jian Guo Men Wai Avenue Chao Yang District Beijing 100022 P. R. China Phone: +86-10-6569-3939 Fax: +86-10-6569-3938 Shanghai Office Room 2321 Shanghai Central Plaza 381 Huaihai Zhong Road Shanghai 200020 China Phone: +86-21-6391-6111 Fax: +86-21-6391-6686 Asahi Kasei America Inc. 535 Madison Avenue, 33rd Floor New York, NY 10022, USA Phone: +1-212-371-9900 Fax: +1-212-371-9050 Core Operating Companies Asahi Kasei Chemicals Corporation 1-1-2 Yurakucho, Chiyoda-ku Tokyo 100-8440, Japan Phone: +81-3-3507-2220 Asahi Kasei Homes Corporation 1-24-1 Nishi-shinjuku, Shinjuku-ku Tokyo 160-8345, Japan Phone: +81-3-3344-7111 Asahi Kasei Pharma Corporation 9-1 Kanda Mitoshiro-cho, Chiyoda-ku Tokyo 101-8481, Japan Phone: +81-3-3259-5777 Asahi Kasei Fibers Corporation 1-2-6 Dojimahama, Kita-ku Osaka 530-8205, Japan Phone: +81-6-6347-3600 Asahi Kasei EMD Corporation 1-23-7 Nishi-shinjuku, Shinjuku-ku Tokyo 160-0023, Japan Phone: +81-3-6911-2700 Asahi Kasei Construction Materials Corporation 2-12-7 Higashi-shinbashi, Minato-ku Tokyo 105-0021, Japan Phone: +81-3-5473-5251 Asahi Kasei Life & Living Corporation 1-1-2 Yurakucho, Chiyoda-ku Tokyo 100-8440, Japan Phone: +81-3-3507-2939 Annual Report 2006 75 Investors Information Stock Listings Tokyo, Osaka, Nagoya, Fukuoka, Sapporo Authorized Shares Outstanding Shares Transfer Agent Independent Auditors 4,000,000,000 1,442,616,332 Sumitomo Trust & Banking Co., Ltd. 4-5-33 Kitahama, Chuo-ku Osaka 541-8639, Japan ChuoAoyama PricewaterhouseCoopers (PricewaterhouseCoopers Aarata was appointed Interim Independent Auditors on July 1, 2006) Largest Shareholders % of equity Master Trust Bank of Japan, Ltd. TS .........................................................5.43 Japan Trustee Services Bank, Ltd. TS ........................................................4.94 Nippon Life Insurance Co. .......................................................................4.66 Employees’ Stockholding .........................................................................2.84 Sumitomo Mitsui Banking Corp. ..............................................................2.45 Dai-ichi Mutual Life Insurance Co. ...........................................................2.23 Tokio Marine & Nichido Fire Insurance Co., Ltd........................................2.16 Meiji Yasuda Life Insurance Co. ...............................................................1.70 Nomura Securities Co., Ltd. .....................................................................1.57 Japan Trustee Services Bank, Ltd. TS4 ......................................................1.43 Distribution by Type of Shareholder Distribution by Number of Shares Held Japanese financial institutions Japanese individuals and groups Foreign investors Japanese securities companies Other Japanese companies 44.08% 25.02% 23.09% 2.26% 4.73% 100,000 or more 10,000~99,999 1,000~9,999 less than 1,000 80.25% 6.50% 12.81% 0.44% TM: Trademark or registered trademark of Asahi Kasei Corporation, affiliated companies, or third parties granting rights to Asahi Kasei Corporation or affiliated companies. A copy of the Company,s annual report and further information will be made available upon request in writing to: Corporate Communications Asahi Kasei Corporation 1-1-2 Yurakucho, Chiyoda-ku, Tokyo 100-8440, Japan Phone: +81-3-3507-2060 www.asahi-kasei.co.jp Fax: +81-3-3507-2495 This annual report was printed with veg- etable-based ink on recycled paper. 

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