ASAHI KASEI CORP
Annual Report 2008

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Annual Report 2008 ASAHI KASEI CORPORATION A n n u a l R e p o r t 2 0 0 8 A S A H I K A S E I C O R P O R A T I O N , 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 1-105 Kanda Jinbocho, Chiyoda-ku,Tokyo 101-8101, Japan Phone: +81-3-3296-3008 Fax: +81-3-3296-3162 www.asahi-kasei.co.jp This annual report was printed with vegetable-based ink on recycled paper. Printed in Japan 2008.10 Contents page. 02 History of Diversification, Operating Structure page. 04 Asahi Kasei Group Operations, Worldwide page. 06 Strategic Management Initiatives page. 08 Consolidated Financial Highlights page. 10 To Our Shareholders page. 11 Driving the Strategic Advance: Growth Action − 2010 page. 33 Toward Sustainable Growth page. 34 Corporate Governance page. 38 Corporate Social Responsibility page. 40 Directors, Corporate Auditors, Executive Officers page. 41 Financial Section page. 72 Major Subsidiaries and Affiliates Investors Information As of March 31, 2008 Stock Listings Stock Code Authorized Shares Outstanding Shares Transfer Agent Tokyo, Osaka, Nagoya, Fukuoka, Sapporo 3407 4,000,000,000 1,402,616,332 Sumitomo Trust & Banking Co., Ltd. 4-5-33 Kitahama, Chuo-ku Osaka 541-8639, Japan Independent Auditors PricewaterhouseCoopers Aarata Number of Shareholders 128,865 Largest Shareholders % of equity* Nippon Life Insurance Co. .................................................................................. 5.22 Master Trust Bank of Japan, Ltd. TS .................................................................. 5.17 Japan Trustee Services Bank, Ltd. TS ................................................................. 4.42 Sumitomo Mitsui Banking Corp. ....................................................................... 2.53 Employees’ Stockholding ..................................................................................... 2.46 Dai-ichi Mutual Life Insurance Co. .................................................................. 2.30 Tokio Marine & Nichido Fire Insurance Co., Ltd. ........................................... 2.22 Meiji Yasuda Life Insurance Co. ........................................................................ 1.49 Mizuho Corporate Bank, Ltd. ............................................................................ 1.45 Sumitomo Life Insurance Company. ................................................................. 1.40 * Percentage of equity ownership after exclusion of treasury stock. Distribution by Type of Shareholder Distribution by Number of Shares Held Japanese financial institutions 44.11% Foreign investors 27.31% Japanese individuals and groups 21.56% Japanese securities companies 2.34% Other Japanese companies 4.68% 100,000 or more 10,000〜99,999 1,000〜9,999 Less than 1,000 80.53% 6.49% 12.56% 0.42% page. 16 At a Glance page. 74 Corporate Profile 1,402,616,332 shares page. 18 Operating Segments page. 75 Investors Information TM: Trademark or registered trademark of Asahi Kasei Corporation, affiliated companies, or third parties granting rights to Asahi Kasei Corporation or affiliated companies. 75 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. 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. 01 History of Diversification, Operating Structure The Asahi Kasei Group is a selectively diversified enterprise group centered in chemicals, with business extending to housing and semiconductors. History of Diversification A concerted drive to diversify into a broad range of fields began in the 1950s. A rapid pace of growth was sustained by successive advances into new fields of business, which were developed based on combinations of new technology with the technology of established businesses. When each business began to mature, its growth would naturally tend to slow. As this happened, there were other businesses which were new and growing quickly, ensuring that a high overall rate of growth was maintained. Nonwoven fiber Hollow-fiber membranes Spandex Nonwoven fiber Maturing Growth Regenerated fiber Chemical fertilizer Explosives Incubation 1923 Ammonia Ammonium sulfate 1924 Rayon 1931 BembergTM 1932 Explosives Petrochemicals Synthetic fibers Housing Construction materials Electronics Pharmaceuticals & medical devices 1967 HebelTM 1972 Hebel HausTM 1953/1957 SaranTM fiber Polystyrene 1959/1962 Acrylic fiber Acrylonitrile 1964 Nylon fiber Synthetic rubber 1972 Ethylene plant 1975 Artificial kidneys 1978 Hall elements 1981 Pharmaceuticals business unit Dry film resist 1983 LSIs Nonwoven Business Configuration Following this period of growth through diversification, we underwent a structural transformation with the business portfolio refocused with greater selectivity. Underperforming businesses were withdrawn, and resources were concentrated on growth in businesses with clear competitive superiority. A breakdown of sales and operating profit in our seven current operating segments is shown below. Fiscal 2007 Sales by Segment Fiscal 2007 Operating Profit by Segment Services, Engineering and Others 2% Construction Materials 2% Services, Engineering and Others 4% Chemicals 52% Electronics Materials & Devices 16% Fibers 5% Pharma 9% Homes 16% Chemicals 48% Construction Materials 3% Electronics Materials & Devices 7% Fibers 7% Pharma 6% Homes 23% 02 Operating Structure Since October 2003 we have operated as a holding company with a wholly owned core operating company in each main field of business. The holding company is focused on strategic planning & analysis, administration of resources, oversight of management execution, and development of new businesses which extend beyond the scope of any single operating segment. The core operating companies enjoy broad independence and autonomy to swiftly adapt and respond to the distinct operating environment in their own segment of business. Corporate value for the group as a whole is further enhanced through synergies among the core operating companies, and between the holding company and each core operating company. Segments, Core Operating Companies Businesses/Products Chemicals AsAhi KAsei CheMiCAls Homes AsAhi KAsei hoMes Pharma AsAhi KAsei PhArMA Holding Company Fibers AsAhi KAsei CorporATioN AsAhi KAsei Fibers Electronics Materials & Devices AsAhi KAsei eMD Construction Materials AsAhi KAsei ConstruCtion MAteriAls Services, Engineering and Others Chemicals & derivative products Polymer products Specialty products Hebel Haus™ unit homes Hebel Maison™ apartments Condominiums Pharmaceuticals APS™ polysulfone-membrane dialyzers Planova™ virus removal filters Roica™ elastic polyurethane filament Bemberg™ regenerated cellulose Lamous™ artificial suede LSIs Sunfort™ dry film photoresist Photomask pellicles Hebel™ autoclaved lightweight concrete (ALC) Eazet™ piling system Neoma™ high-performance foam insulation Engineering Personnel staffing and placement 03 Asahi Kasei Group Operations, Worldwide Operations of the Asahi Kasei Group extend to many locations throughout the world. The growth of these operations is a key element in the expansion of global businesses as part of our Growth Action – 2010 strategic initiative. 04 ShiraoiMibuTomobeSakaiChibaFujiNagoyaGunmaSaitamaAgeoKawasakiOhitoWakayamaSuzukaOitaNobeokaShigaHozumiMoriyamaOnoChikushinoIwakuniMizushima SuzhouHangzhouNantongKoreaAsahi Kasei Plastics Singapore Pte. Ltd.Polyxylenol Singapore Pte. Ltd.Asahikasei Plastics (Thailand) Co., Ltd.Thai Asahi Kasei Spandex Co., Ltd.Asahi Kasei America, Inc.Asahikasei Plastics (America) Inc.Asahi Kasei Plastics North America, Inc.Sun Plastech Inc.Asahi Kasei Medical America Inc.Asahi Kasei Spandex America, Inc.AKM Semiconductor, Inc.Asahi Kasei Plastics Europe SA/NVAsahi Photoproducts (Europe) SA/NVAsahi Photoproducts (UK) Ltd.Asahi Kasei Medical Europe GmbHAsahi Pharma Spain, SLAsahi Kasei Spandex Europe GmbHAsahi Kasei Fibers Italy SRLAsahi Kasei Fibers Deutschland GmbHTong Suh Petrochemical Corp., Ltd.Asahi Kasei Adipic Acid (Korea) Co., Ltd.Delaglas Korea Corp.Asahi Kasei EMD Korea Corp.Holding CompanyChemicals segmentPharma segmentFibers segmentElectronics Materials & Devices segmentAsahi Kasei Plastics (Hong Kong) Co., Ltd.Asahi Chemical (HK) Ltd.Hong KongChinaThailandSingaporeFormosa Asahi Spandex Co., Ltd.Asahi Kasei EMD Taiwan Corp.Asahi-Schwebel (Taiwan) Co., Ltd.Asahi Kasei Wah Lee Hi-Tech Corp.TaiwanPT Nippisun IndonesiaIndonesiaEuropeTokyo head officeOsaka head officeAsahi Kasei Microza (Hangzhou) Co., Ltd.Asahi Kasei Medical (Hangzhou) Co., Ltd.Hangzhou Asahikasei Spandex Co., Ltd.Hangzhou Asahikasei Textiles Co., Ltd.Asahi Kasei BusinessManagement (Shanghai) Co., Ltd.Asahikasei Plastics (Shanghai) Co., Ltd. Asahikasei (Suzhou) PlasticsCompound Co., Ltd.Asahi Kasei ElectronicsMaterials (Suzhou) Co., Ltd.Asahi-DuPont POM (Zhangjiagang) Co., Ltd.Asahi Kasei PerformanceChemicals Corp.Japan ZhangjiagangShanghaiAmerica 05 ShiraoiMibuTomobeSakaiChibaFujiNagoyaGunmaSaitamaAgeoKawasakiOhitoWakayamaSuzukaOitaNobeokaShigaHozumiMoriyamaOnoChikushinoIwakuniMizushima SuzhouHangzhouNantongKoreaAsahi Kasei Plastics Singapore Pte. Ltd.Polyxylenol Singapore Pte. Ltd.Asahikasei Plastics (Thailand) Co., Ltd.Thai Asahi Kasei Spandex Co., Ltd.Asahi Kasei America, Inc.Asahikasei Plastics (America) Inc.Asahi Kasei Plastics North America, Inc.Sun Plastech Inc.Asahi Kasei Medical America Inc.Asahi Kasei Spandex America, Inc.AKM Semiconductor, Inc.Asahi Kasei Plastics Europe SA/NVAsahi Photoproducts (Europe) SA/NVAsahi Photoproducts (UK) Ltd.Asahi Kasei Medical Europe GmbHAsahi Pharma Spain, SLAsahi Kasei Spandex Europe GmbHAsahi Kasei Fibers Italy SRLAsahi Kasei Fibers Deutschland GmbHTong Suh Petrochemical Corp., Ltd.Asahi Kasei Adipic Acid (Korea) Co., Ltd.Delaglas Korea Corp.Asahi Kasei EMD Korea Corp.Holding CompanyChemicals segmentPharma segmentFibers segmentElectronics Materials & Devices segmentAsahi Kasei Plastics (Hong Kong) Co., Ltd.Asahi Chemical (HK) Ltd.Hong KongChinaThailandSingaporeFormosa Asahi Spandex Co., Ltd.Asahi Kasei EMD Taiwan Corp.Asahi-Schwebel (Taiwan) Co., Ltd.Asahi Kasei Wah Lee Hi-Tech Corp.TaiwanPT Nippisun IndonesiaIndonesiaEuropeTokyo head officeOsaka head officeAsahi Kasei Microza (Hangzhou) Co., Ltd.Asahi Kasei Medical (Hangzhou) Co., Ltd.Hangzhou Asahikasei Spandex Co., Ltd.Hangzhou Asahikasei Textiles Co., Ltd.Asahi Kasei BusinessManagement (Shanghai) Co., Ltd.Asahikasei Plastics (Shanghai) Co., Ltd. Asahikasei (Suzhou) PlasticsCompound Co., Ltd.Asahi Kasei ElectronicsMaterials (Suzhou) Co., Ltd.Asahi-DuPont POM (Zhangjiagang) Co., Ltd.Asahi Kasei PerformanceChemicals Corp.Japan ZhangjiagangShanghaiAmerica Strategic Management Initiatives Having established a strong financial foundation through our previous management initiatives, we embarked on a new phase of expansion and growth for the fiscal years 2006 through 2010 in our Growth Action – 2010 initiative, expanding global businesses and enhancing domestic businesses to bring greater corporate value and brand strength. Asahi Kasei’s operating profit* Asahi Kasei’s operating profit* Asahi Kasei’s operating profit* Japan’s GDP Japan’s GDP Japan’s GDP Growth Action – 2010 Growth Action – 2010 Growth Action – 2010 Fiscal 1960 = 100 Fiscal 1960 = 100 Fiscal 1960 = 100 Raising the share of sales in global businesses, Raising the share of sales in global businesses, Raising the share of sales in global businesses, exceeding Japan’s GDP growth exceeding Japan’s GDP growth exceeding Japan’s GDP growth Share of sales in global businesses Share of sales in global businesses Share of sales in global businesses Fiscal 1995 Fiscal 1995 Fiscal 1995 Fiscal 2010 target Fiscal 2010 target Fiscal 2010 target Growth through diversification Growth through diversification Growth through diversification 40％ 40％ 40％ 60％ 60％ 60％ Fiscal 1960 Fiscal 1960 Fiscal 1960 1970 1970 1970 1980 1980 1980 1990 1990 1990 2005 2005 2005 *Three-year moving average, non-consolidated until fiscal 1980. *Three-year moving average, non-consolidated until fiscal 1980. *Three-year moving average, non-consolidated until fiscal 1980. Selective Diversification and Structural Transformation 0.78 0.79 0.62 0.64 0.62 0.49 D/E ratio Profit*, ¥ billion Net income (loss), ¥ billion 0.54 96.0 74.3 51.2 17.4 20.5 25.2 95.6 80.4 61.6 45.7 5.2 27.7 0.40 104.7 Ishin-2000 Selectivity and focus • Focus on competitive-superiority businesses • Fostering next-generation growth drivers • Divestment or closure of businesses with low assets efficiency 56.5 59.7 • Stable financial foundation Ishin-2000 Ishin-05 Fiscal 1998 1999 2000 2001 2002 2003 2004 2005 (66.8) Ishin-05 Selective diversification • Building on strengths • Creation of cash flow • Management speed and autonomy *Operating profit prior to amortization of actuarial differences in retirement benefits. 06 Growth Action – 2010 We are advancing a business portfolio transformation for expansion and growth through strategic investment, with the expansion of global businesses and the enhancement of domestic businesses as pillars of strategy, to obtain greater corporate value and brand strength. High growth businesses Electronic materials Medical devices Electronics devices Chemical-based, specialized- function Stable growth, stable earnings businesses Housing, construction materials, pharmaceuticals, home-use products, etc. Polymers Including processed products Monomers Acrylonitrile, MMA, styrene monomer, etc. Enhancing domestic businesses Expanding global businesses Long-term Investment Strategic investment of ¥400 billion will be made over the five-year period, raising total long-term investment in Growth Action – 2010 to ¥800 billion. Fiscal 2003–2005 Fiscal 2006–2010 Plan Maintenance Expansion Maintenance Expansion Expanding global businesses Enhancing domestic businesses Fiscal 2010 Targets Greater corporate value and brand strength Net sales Operating profit Net income ¥1,800 billion ¥150 billion ¥80 billion Breakdown of Strategic Investment Homes & Construction Materials Pharma Chemical-based Electronics Materials & Devices ¥ billion Organic M&A (a) ¥70 to ¥80 billion/year Renewing ethylene center, etc. 蘇州 ¥800 billion over 5 years = (a) × 5 + strategic investment of ¥400 billion Monomers ■ 旭化成（蘇州）複合塑料 ■ 旭化成電子材料（蘇州） Specialized-function products Electronics Materials & Devices New business creation Enhancing domestic businesses 20 40 40 50 40 30 – – 50 100 – – Total 220 150 07 Consolidated Financial Highlights Asahi Kasei Corporation and consolidated subsidiaries Fiscal year beginning April 1 2007 2006 ¥ billion 2005 2004 2003 US$ million* 2007 ¥1,696.8 ¥1,623.8 ¥1,498.6 ¥1,377.7 ¥1,253.5 $16,968 Income before income taxes and minority interest 105.6 114.9 407.8 127.7 120.5 399.8 127.8 126.5 69.9 82.9 74.0 56.2 68.6 84.4 71.6 52.4 371.1 108.7 104.2 94.5 59.7 66.3 69.4 51.5 367.2 115.8 112.9 91.1 56.5 68.5 71.5 50.7 329.3 60.9 53.6 54.8 27.7 86.4 64.4 48.4 1,209.5 1,195.8 1,125.5 1,067.9 1,011.4 487.3 428.0 373.2 309.8 242.2 ¥1,425.4 666.2 ¥1,459.9 645.7 ¥1,376.0 594.2 ¥1,270.1 511.7 ¥1,249.2 450.5 $14,254 6,662 Fiscal year beginning April 1 2007 2006 ¥ 2005 2004 2003 ¥ 50.01 ¥ 49.00 ¥ 42.46 ¥ 40.16 ¥ 19.62 476.39 13.00 461.50 12.00 424.34 10.00 365.43 8.00 321.41 6.00 U.S. dollar amounts in this annual report are translated from Japanese yen, for convenience only, at the rate of ¥100=US$1 as described in Note 4 of Notes to Consolidated Financial Statements. For the year Net sales Gross profit Operating profit Ordinary profit Net income Capital expenditure Depreciation and amortization R&D expenditures Domestic sales Overseas sales At year-end Total assets Net worth† Per share Net income Net worth‡ Cash dividends * 4,078 1,277 1,205 1,056 699 829 740 562 12,095 4,873 US$* 2007 $0.50 4.76 0.13 † Net assets less minority interest in consolidated subsidiaries. Through the year beginning April 1, 2005, figures for shareholders’ equity shown. ‡ At fiscal year end. Fiscal year beginning April 1 2007 2006 2005 2004 2003 Key indexes Operating profit margin Payout ratio ROA ROE Net worth to total assets D/E ratio 7.5% 26.0% 4.8% 10.7% 46.7% 0.32 7.9% 24.5% 4.8% 11.1% 44.2% 0.34 7.3% 23.6% 4.5% 10.8% 43.2% 0.40 8.4% 19.9% 4.5% 11.7% 40.3% 0.49 4.9% 30.6% 2.2% 6.4% 36.1% 0.62 Fiscal year beginning April 1 2007 2006 2005 2004 2003 Key operating factors Naphtha price (¥/kL, domestic) 61,450 49,950 42,350 32,150 25,575 ¥/US$ exchange rate (market average) 114 117 113 108 113 08 Net Sales ¥ billion 2,000 1,696.8 1,623.8 1,498.6 1,500 1,000 500 0 Gross Profit, Gross Profit Margin ¥ billion 600 24.8 24.6 24.0 400 371.1 399.8 407.8 200 0 % 30 20 10 0 Fiscal year 2005 2006 2007 Fiscal year 2005 2006 2007 Net Income, ROE ¥ billion 90 10.8 11.1 10.7 68.6 69.9 59.7 60 30 0 % 12.0 8.0 4.0 0 Gross profit, left scale Gross profit margin, right scale Total Assets, Net Worth to Total Assets ¥ billion 1,500 1,459.9 1,425.4 1,376.0 % 60 1,000 43.2 44.2 46.7 40 500 0 20 0 Operating Profit, Operating Profit Margin ¥ billion 180 7.9 7.5 7.3 127.8 127.7 120 108.7 60 0 Fiscal year 2005 2006 2007 Operating profit, left scale Operating profit margin, right scale Interest-Bearing Debt, D/E Ratio % 9.0 6.0 3.0 0 0.60 ¥ billion 300 200 100 0 235.8 216.9 211.4 0.40 0.34 0.40 0.32 0.20 0 Fiscal year 2005 2006 2007 Net income, left scale ROE, right scale Fiscal year 2005 2006 2007 Total assets, left scale Net worth to total assets, right scale Fiscal year 2005 2006 2007 Interest-bearing debt, left scale D/E ratio, right scale Capital Expenditure, Depreciation and Amortization Net Income per Share, Cash Dividends per Share 84.4 82.9 71.6 74.0 69.4 66.3 ¥ billion 90 60 30 0 ¥ 60.0 13.0 50.0 49.0 12.0 42.5 10.0 40.0 20.0 0 15.0 10.0 5.0 0 Fiscal year 2005 2006 2007 Fiscal year 2005 2006 2007 Capital expenditure Depreciation and amortization Net income per share, left scale Cash dividends per share, right scale Domestic Sales, Overseas Sales ¥ billion 1,500 1,125.5 1,195.8 1,209.5 428.0 1,000 373.2 500 0 600 487.3 400 200 0 Fiscal year 2005 2006 2007 Domestic sales, left scale Overseas sales, right scale 09 To Our Shareholders LEFT: Nobuo Yamaguchi, Chairman of the Board RIGHT: Shiro Hiruta, President Although economic expansion advanced in China and other developing countries, the global economy was destabilized by continuing rises in feedstock and fuel prices and by concerns about a slowdown in the US economy triggered by the rise in subprime mortgage defaults. While the Japanese economy saw firm corporate earnings and private sector capital investment, expansion slowed as an effect of concern about the outlook for the global economy and a rapid rise in the exchange value of the yen during the second half of the fiscal year. The operating environment in fiscal 2007 thus remained a challenging one. Our performance was especially strong in the Chemicals segment, as high feedstock costs were reflected in high product prices. With consolidated net sales and net income reaching new record highs, we raised dividends by ¥1 per share to ¥13 per share. We will continue to endeavor to achieve higher earnings which will enable further dividends increases. We adopted a number of notable investment decisions during fiscal 2007 which will contribute to the growth of operations from fiscal 2008 onward, enabling us to meet the performance targets of our Growth Action – 2010 mid- term initiative. Investment decisions beginning in fiscal 2008 will be made with an outlook beyond fiscal 2010, as we work to sustain the expansion accomplished under Growth Action – 2010. With respect to the improper acquisition of ministerial certification for fire- resistance of certain soffit panels by one of the suppliers of components used in our Hebel Haus™ homes, as came to light during fiscal 2007, we made a commitment to the homeowners that we would perform remediation as quickly as possible, and devoted every effort to addressing their concerns regarding the integrity and performance of their homes. At the same time we have reinforced our system of quality control to ensure against the recurrence of any similar situation. In fiscal 2008, we began remediation work to restore the original fire- resistance performance specification to all of the affected homes. August 2008 10 Nobuo Yamaguchi Chairman of the Board Shiro Hiruta President Driving the Strategic Advance: Growth Action – 2010 Executing our strategies under Growth Action – 2010, we are adapting to dramatic changes in the operating climate and advancing the expansion and growth of the Asahi Kasei Group. Shiro Hiruta President Expanding Global Businesses We owe our emergence as a diversified chemicals manufacturer in large part to the broad effort to expand and diversify in the 1950s, with operations generally oriented toward the domestic Japanese market. Comparing our consolidated operating profit and Japan’s GDP from the 1960s through the early 2000s, a loose correlation is apparent. This indicates that our operations were broadly dependent on growth in Japan’s economy, an economy which has matured and can’t be expected to mark rapid growth moving forward. A new phase of expansion and growth for the Asahi Kasei Group, therefore, required a transformation not only of the management structure but also of the business portfolio, with greater emphasis on operations with global potential. In our previous management initiative we adopted the configuration of a holding company with core operating companies, established a strong focus on cash-flow creation, and advanced the transformation of our business portfolio as a selectively diversified enterprise group. To achieve expansion and growth building on our renewed financial strength, we launched Growth Action – 2010, a strategic business initiative for the fiscal years 2006– 2010, with the expansion of global businesses and the enhancement of domestic businesses as the pillars of our strategy. Cash generated in stable growth, stable earnings businesses is invested in high growth businesses as we advance the business portfolio transformation for expansion and growth which exceeds the growth of the Japanese economy. Whereas in fiscal 1995 the ratio of sales between domestic businesses and global businesses was 60/40, we set a goal to turn this around to 40/60 by fiscal 2010. The goal was reached three years early, in fiscal 2007, an indication of the progress achieved in transforming our business portfolio. Financial Performance Net sales Operating profit Ordinary profit Net income Fiscal 2005 Results 1,498.6 108.7 104.2 59.7 Fiscal 2006 Results Fiscal 2007 Results 1,623.8 127.8 126.5 68.6 1,696.8 127.7 120.5 69.9 ¥ billion Fiscal 2010 Forecast 1,800.0 150.0 – 80.0 11 Driving the Strategic Advance: Growth Action – 2010 Raising Operating Profit by 40%, Investing ¥800 Billion Fiscal 2010 performance goals with Growth Action – 2010 include consolidated sales of ¥1,800 billion, a 20% rise from fiscal 2005, and operating profit of ¥150 billion, a 40% rise. To achieve these goals we are augmenting our ordinary investment of around ¥70–80 billion per year with up to ¥400 billion in strategic investment, including funds for M&A and resources for increased dividends. Expansion of operations through strategic investment is centered on monomers, specialized- function chemical-based products, electronics materials and devices, and medical devices. Over the five-year period this will raise total investment to some ¥800 billion. Ordinary investment and strategic investment decisions adopted in fiscal 2006 combined for approximately ¥100 billion, and this was ¥150 billion in fiscal 2007. In the current fiscal year, 2008, we plan to adopt decisions on ¥150 billion, and aim to keep this pace up in fiscal 2009 onward. Maintaining this rate of investment, we are not only on track to meet our fiscal 2010 performance targets, but are also looking ahead to the next phase of expansion and growth up to fiscal 2015. Fiscal 2007 Results, Fiscal 2008 Outlook In fiscal 2007 we marked record-high sales and net income, as strong performance in the Chemicals and Fibers segments more than made up for a tough year in the Homes and Construction Materials segments, which were affected by weak domestic demand and the construction slowdown following a revision of Japanese building codes. We got particularly strong results from chemicals & derivative products, and from high value-added products in globally competitive businesses where we have been concentrating resources for expansion. Businesses with a global No. 1 or No. 2 market share now earn 40–50% of our operating profit. Although the price of oil leapt sharply during the second half of fiscal 2007, the negative effect on results was relatively modest. Unfortunately, we have to expect that the effect of high feedstock and fuel costs will be much more severe in fiscal 2008. We will do everything we can to cope with this dramatic shift in the operating climate by raising product prices and expanding businesses in high value-added products which are less directly affected by such costs. Major Investments Completed in fiscal 2007 Segment Chemicals Homes Pharma Fibers Project Location New plant for Duranate™ hexamethylene diisocyanate-based polyisocyanate China New housing R&D center Expansion of assembly plant for APS™ artificial kidneys Japan China Installation of Roica™ production equipment at Asahi Kasei Spandex America plant US New plant for Precisé™ nonwovens Under construction Chemicals Expansion of plant for Hipore™ microporous membrane at fiscal 2007 year-end Pharma Expansion of plant for solution-polymerized styrene-butadiene rubber New plant for APS™ artificial kidneys integrating spinning and assembly lines New plant for Sepacell™ leukocyte reduction filters Electronics Materials & Devices Fibers Expansion of plant for photomask pellicles Expansion of plant for Sunfort™ dry film photoresist Expansion of plant for Roica™ spandex Construction of advanced technology center Japan Japan Japan Japan Japan Japan China Thailand, Germany, US Japan 12 Strategic Action, by Segment The strategic position and actions we’re taking in each segment to achieve our fiscal 2010 goals are as follows. Chemicals Volume products, being chemicals & derivative products and polymer products, are most directly affected by high feedstock and fuel costs. Short-term performance may fluctuate greatly depending on the extent to which we can pass these costs on through product price increases. Meanwhile, we will continue to confidently expand globally competitive businesses. The joint venture with PTT and Marubeni for new acrylonitrile (AN) and methyl methacrylate (MMA) plants in Thailand is a case in point. We finalized the joint-venture agreement in March 2008, and plant start-up is slated for late 2010. Even as construction progresses, we are looking ahead to the next phase of expansion of our AN business, in line with global demand trends. Our goal is to construct the next plant in the Middle East, making us the world’s largest AN supplier. Other overseas plants for global businesses are also being studied. We will continue to expand production capacity for specialty products with solid growth prospects, including global market leaders such as ion-exchange membranes for chlor-alkali and Hipore™ Li-ion rechargeable battery separators. To meet growing demand in batteries for cell phones and laptop computers, we are adding capacity at our Hipore™ plant in Moriyama, Shiga, and building a new Hipore™ plant in Hyuga, Miyazaki. One area of great potential demand growth is in next-generation hybrid electric vehicles, for which the adoption of Li-ion batteries is being evaluated. In August 2007 we began commercial operation at a new plant in Nantong, China, for Duranate™ hexamethylene diisocyanate-based polyisocyanate, which is used in high- performance paints in automotive and other demanding applications. We will continue to expand in many other fields where we have a healthy growth outlook, including the development of overseas operations for water-treatment membranes and systems. Homes For order-built Hebel Haus™ unit homes, we are supplementing the network of model home parks with a large increase in the number of “street-corner showrooms” in major urban centers throughout Japan to elicit demand for rebuilding and secure a stable base of new orders. We forecast solid growth in housing-related operations 13 　 Driving the Strategic Advance: Growth Action – 2010 such as remodeling, real estate, and financing, which provide services for Hebel Haus™ homeowners. With the October 2007 completion of our new housing R&D center in Fuji, we are accelerating the development of new products, functions, and features. Remediation work is advancing on all home units in which a supplier’s improperly certified soffit panels were installed, as came to light in fiscal 2007. Pharma In May we launched sales of the Recomodulin™ anticoagulant and we are hiring more medical representatives to help promote this new drug, which we developed in- house. As part of our focus of management resources on our fields of focus, primarily orthopedics, we consigned marketing and sales of the Famvir™ anti-herpes agent, which was approved in April 2008, to Maruho Co., Ltd., which has dermatology as a specialty. We continue to advance work to reinforce our pharmaceutical product pipeline, including through the in-licensing of new drugs. In medical devices-related businesses, which are a focus for expansion under Growth Action – 2010, we will continue to increase production capacity for APS™ polysulfone-membrane artificial kidneys for hemodialysis, and advance the global expansion of business through our marketing bases established in the US and Europe. Expansion of business in therapeutic apheresis devices will also continue to advance. At the same time we are transforming the operation, now centered on devices for extracorporeal circulation, for development as a comprehensive leader in blood-related healthcare systems. In October we will transfer ownership of Asahi Kasei Kuraray Medical and Asahi Kasei Medical from Asahi Kasei Pharma to the holding company, raising management efficiency for swifter decision-making and resource allocation to better facilitate the sustained expansion and growth of these operations. Of course we will retain our unique advantages as an enterprise group encompassing both pharmaceutical and medical device businesses, with synergies gained through mutual infrastructure utilization. Fibers We can expect that the operating climate will continue to be difficult, with high costs for feedstock and fuel and the possibility for the supply/demand balance in certain products to be temporarily upset by production capacity increases at competing producers. The immediate priority will be raising product prices to overcome 14 inflated operating costs, and over the longer term we will advance the shift in our business portfolio for greater focus on non-apparel, industrial materials applications. For spandex, we established a global supply network with plants in Japan, Thailand, China, Taiwan, the US, and Germany, and will be raising capacity and advancing the development of specialty, high-function Roica™ grades. We are advancing applications development for Precisé™, the totally new nonwoven launched in September 2007, and will build this business as a new profit core. To accelerate the development of additional new businesses, we will set up a fibers technology center in autumn 2008 in Shiga, bringing R&D functions of the various divisions together in a unified organization. Electronics Materials & Devices In devices, we will expand sales by reinforcing the overseas marketing network, successively increase LSI fabrication capacity in line with demand growth, and develop new products for use in a broader field of applications. The materials business will be expanded with higher added value and increased production capacity for Sunfort™ dry film photoresist, Pimel™ semiconductor buffer coat, photomask pellicles, and other major products. In April 2009 the electronics materials-related businesses of the holding company, Asahi Kasei Chemicals, and Asahi Kasei EMD will be integrated in a new core operating company. The combination of all the related technology and know-how throughout the Asahi Kasei Group in a single strategic entity will enable a heightened level of growth and development. Preparations are advancing for the market launch of new materials for flexible printed circuits and flat panel displays, including up-front investments. Construction Materials Following a tough fiscal 2007 with the direct impact of suppressed construction activity due to a revision of Japanese building codes, the challenge in fiscal 2008 will be high material and fuel costs. To expand sales of our mainstay Hebel™ autoclaved lightweight concrete panels while ensuring high product value, marketing will be advanced from a customer-centric perspective. In foundation systems, the expansion of applications for piles in civil engineering will be advanced to supplement conventional demand in the construction of houses and small-scale buildings. Sales of Neoma™ high-performance insulation panels will be expanded in industrial applications in addition to housing and construction. The development of overseas business is being studied for this product 2003 2004 2005 2006 2007 line, which provides the highest level of thermal insulation available. 278 597 686 565 699 Return to Shareholders Our unwavering goal is to obtain greater corporate value as we achieve our Growth Action – 2010 targets through these and other strategic actions. Between fiscal 2003 and 2006 we raised dividends from ¥6 per share to ¥12 per share, and raised it again in fiscal 2007, to ¥13. We will continue to perform strategic investments to sustain profit growth and enable further continuous dividend increases. Although we don’t employ a specific target for payout ratio, our goal is to maintain dividend payments in the range of 25–30% of net income as part of our commitment to provide a satisfactory return to shareholders. Shareholder Returns Strategic investment (¥220 billion + M&A ¥150 billion) Continuous earnings increase (6% p.a. for net income) Continuous dividends increase (resources of ¥20–30 billion) Share buybacks Net Income, Cash Dividends per Share ¥ billion 150 13 12 68.6 69.9 10 8 56.5 59.7 100 50 6 27.7 0 Fiscal year 2003 2004 2005 2006 2007 Net income, left scale Cash dividends per share, right scale ¥ 15 10 5 0 Dividend Payout Ratio % Fiscal year 2003 2004 2005 2006 2007 30.6 19.9 23.6 24.5 26.0 15 At a Glance Segments, Core Operating Companies Core Operating Company Directors* Chemicals Homes Pharma Fibers Electronics Materials & Devices Taketsugu Fujiwara President & Representative Director, Presidential Executive Officer Director, Vice-Presidential Executive Officer Keiji Kamei Director, Primary Executive Officer Masami Fujimori Koji Fujiwara Director, Primary Executive Officer Katsuhiko Yamazoe Director, Primary Executive Officer Director, Primary Executive Officer Shigeru Mizutani Director, Senior Executive Officer Kyosuke Komiya Director, Senior Executive Officer Hajime Nagahara Director, Senior Executive Officer Tadashi Akaishi Director, Senior Executive Officer Yuji Kobayashi Shingo Hatano Tsuyoshi Shimizu Morio Watanabe Eisuke Ikeda Masahito Hirai Hiroshi Kobayashi President & Representative Director, Presidential Executive Officer Director, Primary Executive Officer Director, Senior Executive Officer Director, Senior Executive Officer Director, Senior Executive Officer Director Tsutomu Inada Akio Kobayashi Toshio Asano Yasuyuki Yoshida President & Representative Director, Presidential Executive Officer Director, Senior Executive Officer Director, Senior Executive Officer Director Masaki Sakamoto Ryo Matsui Hidefumi Takai President & Representative Director, Presidential Executive Officer Director, Primary Executive Officer Director, Senior Executive Officer Makoto Konosu President & Representative Director, Presidential Executive Officer Director, Senior Executive Officer Hideki Kobori Katsuhiko Yamazoe Director, Senior Executive Officer Koji Yamada Director, Executive Officer Construction Materials Hiroshi Kobayashi Fumio Nakagawa Masafumi Funaki Shingo Hatano President & Representative Director, Presidential Executive Officer Director, Senior Executive Officer Director, Senior Executive Officer Director Services, Engineering and Others 16 *As of April 1, 2008 Taketsugu Fujiwara President & Representative Director, Presidential Executive Officer Keiji Kamei Director, Vice-Presidential Executive Officer Masami Fujimori Director, Primary Executive Officer Koji Fujiwara Director, Primary Executive Officer Katsuhiko Yamazoe Director, Primary Executive Officer Shigeru Mizutani Kyosuke Komiya Hajime Nagahara Tadashi Akaishi Yuji Kobayashi Director, Primary Executive Officer Director, Senior Executive Officer Director, Senior Executive Officer Director, Senior Executive Officer Director, Senior Executive Officer Fiscal 2007 Composition of Net Sales, Operating Profit* Major Consolidated Subsidiaries Main Businesses Net sales 52% Net sales Net sales 52% ¥879.2 billion 52% ¥879.2 billion Net sales ¥879.2 billion 52% Net sales ¥879.2 billion 52% Net sales ¥879.2 billion 52% Net sales ¥879.2 billion Net sales 52% 23% Net sales ¥879.2 billion Net sales 23% ¥386.2 billion 23% ¥386.2 billion Net sales ¥386.2 billion 23% Net sales ¥386.2 billion 23% Net sales ¥386.2 billion 23% Net sales ¥386.2 billion Net sales 23% 6% Net sales ¥386.2 billion Net sales 6% ¥111.2 billion 6% ¥111.2 billion Net sales ¥111.2 billion 6% Net sales ¥111.2 billion 6% Net sales ¥111.2 billion 6% Net sales ¥111.2 billion Net sales 6% 7% Net sales ¥111.2 billion Net sales 7% ¥114.1 billion 7% ¥114.1 billion Net sales ¥114.1 billion 7% Net sales ¥114.1 billion 7% Net sales ¥114.1 billion 7% Net sales ¥114.1 billion Net sales 7% 7% Net sales ¥114.1 billion Net sales 7% ¥113.3 billion 7% ¥113.3 billion Net sales ¥113.3 billion 7% Net sales ¥113.3 billion 7% Net sales ¥113.3 billion 7% Net sales ¥113.3 billion Net sales 7% 3% Net sales ¥113.3 billion Net sales ¥55.7 billion 3% 3% ¥55.7 billion Net sales ¥55.7 billion 3% ¥55.7 billion Net sales 3% Net sales ¥55.7 billion 3% Net sales ¥55.7 billion 3% ¥55.7 billion Operating profit Operating Operating 48% profit profit 48% ¥65.2 billion Operating 48% ¥65.2 billion profit ¥65.2 billion Operating 48% profit ¥65.2 billion Operating 48% profit ¥65.2 billion Operating 48% Operating profit ¥65.2 billion profit Operating 48% Operating 16% profit ¥65.2 billion profit 16% ¥21.4 billion Operating 16% ¥21.4 billion profit ¥21.4 billion Operating 16% profit ¥21.4 billion Operating 16% profit ¥21.4 billion Operating 16% Operating profit ¥21.4 billion profit Operating 16% Operating 9% profit ¥21.4 billion profit 9% ¥12.7 billion Operating 9% ¥12.7 billion profit ¥12.7 billion 9% Operating profit ¥12.7 billion Operating 9% profit ¥12.7 billion Operating 9% Operating profit ¥12.7 billion profit Operating 9% Operating 5% profit ¥12.7 billion profit 5% ¥7.2 billion Operating 5% ¥7.2 billion profit ¥7.2 billion 5% Operating profit ¥7.2 billion Operating 5% profit ¥7.2 billion Operating 5% Operating profit ¥7.2 billion profit Operating 5% Operating 16% profit ¥7.2 billion profit 16% ¥22.2 billion Operating 16% ¥22.2 billion profit ¥22.2 billion 16% Operating profit ¥22.2 billion Operating 16% profit ¥22.2 billion Operating 16% Operating profit ¥22.2 billion profit Operating 16% Operating 2% profit ¥22.2 billion profit ¥2.8 billion 2% Operating 2% ¥2.8 billion profit ¥2.8 billion 2% Operating ¥2.8 billion profit Operating 2% profit ¥2.8 billion Operating 2% profit ¥2.8 billion 2% ¥2.8 billion Sanyo Petrochemical Co., Ltd. Asahi Kasei Pax Corporation Asahi Kasei Home Products Corporation Japan Elastomer Co., Ltd. Asahi Kasei Technoplus Co., Ltd. Tong Suh Petrochemical Corp., Ltd. Asahi Kasei Plastics Singapore Pte. Ltd. Asahikasei Plastics (America) Inc. Asahi Kasei Performance Chemicals Corp. Asahi Kasei Jyuko Co., Ltd. Asahi Kasei Mortgage Corp. Asahi Kasei Reform Co., Ltd. Asahi Kasei Real Estate, 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 Haus™ houses, Hebel Maison™ apartments, condominiums, remodeling, real estate, residential land development, financial services. Asahi Kasei Medical Co., Ltd. Asahi Kasei Kuraray Medical Co., Ltd. Asahi Kasei N&P Co., Ltd. Asahikasei Aime Co., Ltd. Asahi Kasei Medical (Hangzhou) Co., Ltd. ■ Pharmaceuticals, pharmaceutical intermediates, feed additives, diagnostic reagents, hemodialyzers and other medical devices. Kyokuyo Sangyo Co., Ltd. Thai Asahi Kasei Spandex Co., Ltd. Hangzhou Asahikasei Spandex Co., Ltd. Asahi Kasei Spandex Europe GmbH Asahi Kasei Spandex America, Inc. Asahi Chemical (HK) Ltd. Hangzhou Asahikasei Textiles Co., Ltd. ■ Roica™ elastic polyurethane filament (spandex), Eltas™ spunbond, Lamous™ artificial suede, Bemliese™ cupro cellulosic nonwoven, Bemberg™ cupro cellulosic fiber, polyester filament, Solotex™ polytrimethylene terephthalate (PTT) fiber. Asahi Kasei Electronics Materials (Suzhou) Co., Ltd. Asahi-Schwebel (Taiwan) Co., Ltd. ■ Pimel™ photosensitive polyimide precursor, Sunfort™ dry film photoresist, Hall elements, LSIs, glass fabric for printed circuit boards, photomask pellicles. Asahi Kasei Foundation Systems Corp. ■ Hebel™ autoclaved lightweight concrete, construction piles, Neoma™ foam and other thermal insulation. Net sales 2% Net sales Net sales 2% ¥37.0 billion 2% ¥37.0 billion Net sales ¥37.0 billion 2% Net sales ¥37.0 billion 2% Net sales ¥37.0 billion 2% Net sales ¥37.0 billion 2% ¥37.0 billion Operating profit Operating Operating 4% profit profit 4% ¥5.2 billion Operating 4% ¥5.2 billion profit ¥5.2 billion 4% Operating profit ¥5.2 billion Operating 4% profit ¥5.2 billion Operating 4% profit ¥5.2 billion 4% *Before corporate expenses and eliminations ¥5.2 billion 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. 17 Operating Segment Chemicals With the basic ideal Creating the Future with Chemistry 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. Taketsugu Fujiwara President, Asahi Kasei Chemicals Major Products Chemicals and derivative products Ammonia, nitric acid, caustic soda, acrylonitrile (AN), styrene, adipic acid, methyl methacrylate (MMA), polymethyl methacrylate (PMMA). Polymer products Suntec™ polyethylene (PE), Stylac™-AS styrene-acrylonitrile, Stylac™-ABS acrylonitrile-butadiene-styrene, synthetic rubber and elastomer, styrene- butadiene latex, Tenac™ polyacetal, Xyron™ modified polyphenylene ether (mPPE), Leona™ nylon 66 polymer and filament. Specialty products 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, Saran Wrap™ cling film, Ziploc™ storage bags, plastic film, sheet, and foam. Growth Action – 2010 Each business is classified either as a strategic expansion business, with management resources focused on achieving growth and high earnings, or as a stable growth, stable earnings business, 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. 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. Net Sales ¥ billion 1,000 879.2 912.0 805.2 800 600 400 200 0 Fiscal year 2006* 2007 * Including Life & Living. 2008 Forecast Operating Profit, Operating Profit Margin ¥ billion 7.4 7.0 65.2 56.6 6.6 60.0 80 60 40 20 0 Fiscal year 2006* 2007 Operating profit, left scale Operating profit margin, right scale * Including Life & Living. 2008 Forecast % 8.0 6.0 4.0 2.0 0 18 R&D Technology development in line with the basic ideal of Creating the Future with Chemistry is directed toward the fields of petrochemicals, electronics and optics, and environment and energy. The focus in petrochemicals and monomers is on advances and innovations in catalysts and chemical processes for diversification of feedstocks, as with the world’s first propane process for acrylonitrile (AN) which was recently developed. In electronics and optics, a wide range of functional sheets and films are nearing commercialization. Development in the field of energy will be expanded from the base of Hipore™ Li-ion rechargeable battery separator technology to various materials for distributed energy systems. In ecology, development of water treatment materials technology is advancing for expansion into promising new markets. In polymers/ compounds and performance chemicals, the focus is on obtaining higher added value. The Year in Review Sales increased by ¥74.0 billion (9.2%) from a year ago to ¥879.2 billion and operating profit increased by ¥8.7 billion (15.3%) to ¥65.2 billion. Volume products operations were affected by high feedstock costs, but operating profit nevertheless increased with strong market conditions for chemicals and derivative products, particularly acrylonitrile, and with polymer products performing well. Operating profit from specialty products grew with strong demand for Hipore™ Li-ion rechargeable battery separator membranes resulting in increased shipments and with sales growth of ion-exchange membranes and systems for chlor-alkali electrolysis. Market Environment Outlook for Fiscal 2008 Operations in chemicals/derivative products and polymer products will remain challenging due to increased feedstock and fuel costs. Focus will be on the maintenance of appropriate product pricing, energy conservation and other operating cost reductions, and further development of differentiated and specialized polymer products. In specialty products, businesses having advantages in growing, high-end markets will be expanded strategically, in line with emerging dynamics such as shortened product lifecycles and heightened emphasis on environmental problems. Development of new specialty products businesses will be accelerated. 19 Highlights Launching ceremony for AN/MMA project in Thailand Hipore™ Li-ion rechargeable battery separators Asahi Kasei Performance Chemicals Corp. Construction of AN and MMA plants in Thailand Asahi Kasei Chemicals, PTT Plc., and Marubeni Corp. have agreed to construct acrylonitrile (AN) and methyl methacrylate (MMA) plants in Thailand through a joint venture. AN is a production material for acrylic fiber and ABS resin, which is used in home appliances, and MMA is a production material for acrylic resin. The new AN plant will employ the propane process, a world-leading development of Asahi Kasei Chemicals, enabling the production of AN without the use of naphtha or other petroleum-based feed and thus enhancing the competitiveness of the AN business. With the world’s second largest AN production capacity, Asahi Kasei Chemicals is strengthening and expanding its AN business as a focus for global growth under the Asahi Kasei Group’s Growth Action – 2010 mid-term initiative. An additional AN plant in the Middle East that will secure the company’s place as the world’s largest AN supplier is being studied. The new MMA plant will achieve superior cost competitiveness through close integration with the AN plant, enabling Asahi Kasei Chemicals to further expand its MMA business. Expansion of Hipore™ production capacity To meet strong demand growth, Asahi Kasei Chemicals will substantially expand its production capacity for Li-ion rechargeable battery separators, increasing production capacity in two phases at its existing plant in Moriyama, with start-up in fiscal 2008 and 2009, and constructing a new plant in Hyuga, with start-up in early 2010. Hipore™ separators currently hold a 50% share of the world market. Demand growth is forecast to continue in cell phones, laptop computers, and other mobile IT products, and with the adoption of Li-ion batteries in hybrid electric vehicles. These capacity expansions will reinforce the world-leading market position for Hipore™, as Asahi Kasei Chemicals fulfills its commitment as the market leader to maintain stable supply growth. Start-up of a new plant for Duranate™ in China Asahi Kasei Performance Chemicals Corp., wholly owned subsidiary of Asahi Kasei Chemicals, has completed construction of a new plant for Duranate™ hexamethylene diisocyanate (HDI)-based polyisocyanate in China, and began operation in August 2007. Duranate™, a curing agent for high-performance polyurethane coatings, is widely used in automotive and architectural applications, with particularly strong demand growth in Asia. The new plant will enable further expansion of the Duranate™ HDI-based curing agent business. 20 Operating Segment Homes 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. Shingo Hatano President, Asahi Kasei Homes Major Products Hebel Haus™ houses, Hebel Maison™ apartments, condominiums, remodeling, real estate, residential land development, home financing. 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. Net Sales ¥ billion 405.7 386.2 422.0 500 400 300 200 100 0 Fiscal year 2006 2007 2008 Forecast Operating Profit, Operating Profit Margin ¥ billion % 9.0 27.5 26.0 6.8 21.4 6.2 6.0 5.5 30 20 10 0 Fiscal year 2006 2007 Operating profit, left scale Operating profit margin, right scale 2008 Forecast 3.0 0 21 Operating Segment Sales Trends of Home Segment ¥ billion Orders Received ¥ billion 332.0 1.1 20.1 318.2 1.1 36.0 354.1 1.1 33.6 347.5 1.0 28.9 346.0 1.0 34.0 322.5 1.0 24.5 281.1 310.7 319.4 317.6 297.1 311.0 400 300 200 100 400 300 200 100 318.1 301.8 313.3 303.4 306.1 315.0 0 Fiscal year 03 04 05 06 07 08 Forecast 0 Fiscal year 03 04 05 06 07 08 Forecast Others Pre-built homes Order-built homes The Year in Review Sales decreased by ¥19.5 billion (4.8%) from a year ago to ¥386.2 billion and operating profit decreased by ¥6.1 billion (22.3%) to ¥21.4 billion. Operating profit from order-built and pre-built homes decreased with the number of deliveries of unit homes significantly lower as an effect of fewer orders received through the first half of 2007 and postponement of delivery of some units due to improper acquisition of ministerial certification by a supplier of certain components as came to light in late October 2007. New orders for order-built homes increased by ¥2.7 billion from a year ago to ¥306.1 billion. Operating profit from housing-related operations increased with remodeling operations performing well. Market Environment Outlook for Fiscal 2008 Grounds for optimism in the Japanese economy are few, particularly in view of the negative trends in share prices and in the US economy. Although the inhibiting effect of a revision of Japanese building codes is expected to gradually pass, lacking clear prospects for solid economic growth the operating environment for housing will remain challenging. Asahi Kasei Homes will work to gain increased orders for Hebel Haus™ homes by expanding the use of “street-corner showrooms” throughout Japan and strengthening its strategic focus on the market for rebuilding. Recovery in condominiums operations and growth in housing-related operations are forecast. 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. 22 Highlights Hebel Haus Frex™ with piloti garage Hebel Haus Frex™ with piloti garage A new Hebel Haus Frex™ series featuring a piloti garage was launched in August 2007, targeting the market for home rebuilding in dense urban areas. The new series takes advantage of a robust framing system to support the building on pilotis, opening the ground-level space for use as a garage. Elevation of the living space provides more sunlight and natural ventilation, a superior view, and greater security than is obtained in conventional ground-level construction in an urban setting. This new series is part of the continuing development and expansion of Long Life Home product designs for lasting comfort, quality, and security in urban living. Housing R&D center A new housing R&D center in Fuji was inaugurated in October 2007, supplanting and expanding on the functions of the laboratory in Tokyo which had served as a base for housing R&D. The new center provides an enhanced range of capabilities, with greater scale and more advanced facilities. Its location in Fuji will foster synergies with the other Asahi Kasei Group laboratories and research facilities at the same site for new business creation and R&D in a broad range of fields. Advancing research on basic technologies for the Long Life Home concept, the new R&D center will drive the development of next-generation products. Housing R&D center in Fuji Street-corner showrooms The use of “street-corner showrooms” to promote Hebel Haus™ sales was extended to target regions throughout Japan in April 2007. A street-corner showroom is a Hebel Haus™ built in a residential neighborhood to serve as a model home for nearby residents to examine. A building plot is purchased in a strategic location, and a home design which matches the atmosphere and surroundings of the neighborhood is selected, with the construction process open to observation by neighborhood residents from start to finish. This generates interest among owners of older houses in the prospect of rebuilding, heightens awareness of Hebel Haus™ design and quality characteristics, and facilitates rapport in the community with local sales representatives. Street-corner showrooms are proving to be a vital complement to conventional marketing activities, serving to elicit purchasing interest among potential customers other than those who visit model home parks. A Hebel Haus™ built as a street-corner showroom 23 Operating Segment Pharma The pharmaceutical 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 the development of global leadership in blood-related healthcare systems. Tsutomu Inada President, Asahi Kasei Pharma 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. Growth Action – 2010 Pharmaceuticals: 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. Devices and systems: Based on established leadership in devices for extracorporeal circulation, the business is being transformed for development as a comprehensive leader in blood-related healthcare systems, spanning from disease treatment to preventive medicine and blood-based risk-factor analysis/diagnosis. Over the longer term, healthcare systems will be developed in regenerative medicine, the nervous system, and other fields. Pharmaceutical Product Pipeline Development stage Approved on January 25, 2008 Product ART-123 (injection) Approved on April 16, 2008 AK-120 (oral) Phase III Phase II Phase II (overseas) AT-877 (injection) PTH (injection) AT-877 (oral) KT-611 (oral) ART-123 (injection) 24 Rho-kinase inhibitor Acute cerebral Objective New biologic Recombinant Class human thrombomodulin Antiviral New chemical entity Additional indication Additional indication Additional indication Additional indication New biologic Recombinant human Synthetic human parathyroid hormone Rho-kinase inhibitor α-1 blocker thrombomodulin Indication Disseminated intravascular coagulation (DIC) Herpes zoster thrombosis Osteoporosis Pulmonary hypertension Neurogenic bladder DIC in sepsis Net Sales ¥ billion 127.0 111.2 104.5 150 120 90 60 30 0 Fiscal year 2006 2007 2008 Forecast Operating Profit, Operating Profit Margin ¥ billion 13.9 13.3 12.7 16.0 12.6 11.4 20 15 10 5 0 Fiscal year 2006 2007 Operating profit, left scale Operating profit margin, right scale 2008 Forecast % 20.0 15.0 10.0 5.0 0 The Year in Review Sales increased by ¥6.8 billion (6.5%) from a year ago to ¥111.2 billion and operating profit decreased by ¥1.2 billion (8.6%) to ¥12.7 billion. Sales of main pharmaceutical products, notably Elcitonin™ calcitonin formulation, grew, but operating profit from pharmaceutical operations decreased with lower licensing income and higher R&D expenditures. Operating profit in devices operations grew with increased domestic and overseas shipments in each product line, most notably in APS™ polysulfone-membrane artificial kidneys following production capacity expansion. Market Environment Outlook for Fiscal 2008 The environment for pharmaceuticals operations will remain challenging, with reduced reimbursement prices under Japanese National Health Insurance and higher R&D expenditures. Business will benefit from increased sales of major products, the launch of sale of Recomodulin™ recombinant thrombomodulin alpha, and income from licensing the sales rights to the Famvir™ antiviral for herpes zoster. The environment for medical devices will also be challenging, with reduced reimbursement prices, higher costs for material inputs, and the effect of a strong yen. Sales of APS™ artificial kidneys will grow both in Japan and overseas, particularly with a reinforced overseas sales configuration. An expansion of health insurance coverage to include hepatitis C will contribute to sales growth in therapeutic apheresis devices. 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 Recomodulin™ anticoagulant APS™ artificial kidneys Launch of Recomodulin™ Having gained Japanese regulatory approval for the production and sale of recombinant thrombomodulin alpha for the treatment of disseminated intravascular coagulation, Asahi Kasei Pharma (AKP) began selling the new drug under the brand Recomodulin™ in May 2008. Developed by AKP, Recomodulin™ is the world’s first thrombomodulin formulation cloned by genetic recombination technology. It features a novel mechanism of action which distinguishes it from other available anticoagulants. AKP is increasing the number of medical representatives handling Recomodulin™, both to expand sales and to enhance the gathering and dissemination of information related to proper use, giving the highest priority to the safety Strengthening medical devices-related operations The dialyzer businesses of Kuraray Medical Inc. was integrated with that of Asahi Kasei Medical, with integrated operation beginning in October 2007 as Asahi Kasei Kuraray Medical. The company completed a new production facility for ethylene-vinyl alcohol copolymer (EVOH) hollow-fiber membrane in Nobeoka, Miyazaki, in May 2008, and is now constructing a new plant in Nobeoka with integrated spinning and assembly lines for APS™ polysulfone- membrane artificial kidneys, with scheduled start-up in September 2008. Further expansions of production capacity will be advanced to meet ongoing demand growth worldwide. To better facilitate the sustained expansion and growth of medical device-related operations with greater management efficiency for swifter decision-making and resource allocation, the management structure for Asahi Kasei Kuraray Medical and Asahi Kasei Medical, currently operated as subsidiaries of Asahi Kasei Pharma, will be reconfigured in October 2008 with their transformation into direct subsidiaries of Asahi Kasei Corp., the holding company for the Asahi Kasei Group. 25 Operating Segment Fibers The focus is on achieving 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. Masaki Sakamoto President, Asahi Kasei Fibers Major Products Roica™ elastic polyurethane filament, Eltas™ spunbond, Lamous™ artificial suede, and other nonwovens, Bemberg™ cupro cellulosic fiber, polyester filament. 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 research 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. Net Sales ¥ billion 122.0 114.1 106.6 150 120 90 60 30 For greater earnings in established businesses: • Development and expansion in global markets and industrial materials. • Full utilization of available resources to expand earnings. Proactive investment for expansion. • Establishment of new pricing structure through a shift of resources to high earnings application fields and geographic regions. • Continuous cost reduction. 0 Fiscal year 2006 2007 2008 Forecast Operating Profit, Operating Profit Margin ¥ billion For expansion of new businesses: • Expansion of Solotex™ polytrimethylene terephthalate (PTT) fiber business in new application fields. Commercialization of Cyberlon™ polyketone fiber business. • Development of new businesses peripheral to established cellulosic fibers and nonwovens businesses. Rapid scale-up to form new core business. • Extension of business domain based on established technology and know- how, in growth fields not limited to fiber production. • Advancement of alliances and joint projects with partners within and outside the Asahi Kasei Group. 7.2 6.3 6.0 4.9 4.2 3.9 8 6 4 2 0 Fiscal year 2006 2007 Operating profit, left scale Operating profit margin, right scale 2008 Forecast % 8.0 6.0 4.0 2.0 0 26 forecast in non-lining applications and in overseas markets. Shipments of Lamous™ will increase, mainly for car seats in the US and Europe, and development will be advanced for nonwovens. R&D R&D is focused on the development of new materials and high value-added grades of existing materials. 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. 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. The Year in Review Sales increased by ¥7.4 billion (7.0%) from a year ago to ¥114.1 billion and operating profit increased by ¥3.1 billion (73.9%) to ¥7.2 billion. Operating profit from elastic polyurethane filament increased as overseas operations, notably those in Europe and the US, performed well with strong demand. Operating profit from Bemberg™ regenerated cellulose fiber grew with increased exports. Operating profit from nonwovens operations decreased as operating cost reductions could not overcome the large effect of increased feedstock costs. Market Environment Outlook for Fiscal 2008 Demand for Roica™ elastic polyurethane filament is forecast to remain firm, but the operating environment will remain challenging with high feedstock costs and declining market prices. Processing costs for Bemberg™ will increase and demand in Japan will be weak, but increased sales volume is Highlights The November 2007 fashion show featuring Bemberg™ Asahi Kasei’s plant complex in Moriyama Award for Fashion Design Creativity in China Two of China’s leading fashion designers were honored as recipients of the Asahi Kasei Award for Fashion Design Creativity in China, with fashion shows of apparel featuring Bemberg™ fabric held together with the award ceremonies in Beijing in November 2007 and March 2008. The shows and awards, jointly held by Asahi Kasei and Asahi Kasei Fibers, received wide coverage by the Chinese media—raising brand recognition for Asahi Kasei in China and reinforcing a strong presence for Bemberg™ in the world of Chinese fashion and apparel. Completion of plant for Precisé™ nonwoven With the September 2007 completion of a large new production line at its Spunbond Plant in Moriyama, Shiga, Asahi Kasei Fibers made a full-scale commercial launch of the Precisé™ nonwoven business. Precisé™ is a new polyester nonwoven with a highly uniform structure of layers of filament with different denier, providing outstanding barrier performance and functionality in wide range of applications including filtration and separation, food packaging, and medical-use products. 27 Operating Segment Electronics Materials and 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. Makoto Konosu President, Asahi Kasei EMD Major Products Pimel™ photosensitive polyimide precursor (PSPI), Sunfort™ dry film photoresist (DF), photomask pellicles, Luminous™ plastic optical fiber, fine-pattern coils, LSIs, Hall elements, glass fabric. Growth Action – 2010 In electronic devices: • Established LSI and sensor businesses are being expanded. • New high-performance hybrid devices combining sensors and LSIs are being developed. • Marketing is being expanded world-wide. • Continuous cost reduction. 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. • Development of new applications is being advanced, including materials for flatpanel displays using established core technology in photosensitive materials and materials for semiconductor packaging. Net Sales ¥ billion 129.0 112.1 113.3 150 120 90 60 30 0 Fiscal year 2006 2007 2008 Forecast Operating Profit, Operating Profit Margin ¥ billion 22.6 22.2 20.2 20.5 19.6 15.9 24 18 12 6 0 Fiscal year 2006 2007 Operating profit, left scale Operating profit margin, right scale 2008 Forecast % 24.0 18.0 12.0 6.0 0 28 The Year in Review Sales increased by ¥1.2 billion (1.0%) from a year ago to ¥113.3 billion and operating profit decreased by ¥0.4 billion (1.7%) to ¥22.2 billion. Operating profit from electronics materials increased as shipment volumes generally rose with strong overseas demand, especially in China. Operating profit from electronics devices decreased with fewer shipments of LSIs and lower product prices as an effect of inventory adjustments in home electronics markets. Market Environment Outlook for Fiscal 2008 Given the deteriorating macroeconomic climate, the operating environment is expected to be challenging. Appropriate capacity expansions for both materials and devices will be performed in line with medium-term demand growth forecasts. To achieve Growth Action – 2010 targets, development of differentiated, high value- added products will be advanced together with productivity enhancements to maintain and heighten cost competitiveness. R&D Keeping pace with fast-moving technological advances, 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. Utilizing core technologies in the design and synthesis of photopolymers and in microfabrication, developments in electronics materials include next- generation semiconductor and package substrate materials compatible with emerging standards for fine pitch, high density, and high transmission speeds. Other high value-added product developments being advanced include new materials for flat-panel displays. Highlights Pellicle plant in Nobeoka New production line for pellicles Asahi Kasei EMD is constructing a production line for large photomask pellicles compatible with the 10th-generation (10G) LCD panel production process in Nobeoka, Miyazaki, with start-up in November 2008. Asahi Kasei EMD is the world’s de facto standard supplier of large pellicles for LCD, which prevent the adherence of dust on photomasks during photolithographic exposure. The new line will enable Asahi Kasei EMD to meet growing demand for larger pellicles, maintaining its market-leading position. New plant for Pimel™ In February 2008 Asahi Kasei EMD began operation of a new plant for Pimel™ photosensitive polyimide precursor (PSPI) in Fuji, Shizuoka. Pimel™ is the world’s leading material for the formation of semiconductor buffer coats. The market for semiconductor buffer coats is forecast to grow with strong demand in cell-phone and home electronics applications. The new plant will not only enable Asahi Kasei EMD to keep pace with demand growth, it will also serve as a base for production of innovative new materials that meet emerging performance demands in line with technological advances in the rapidly evolving semiconductor industry. Pimel™ PSPI 29 Operating Segment Construction Materials With a reinforced commitment to customer focus, safety, security, and comfort, operational reform is advancing for heightened competitiveness of established businesses, expansion and development of new business, and establishment of new business models. Hiroshi Kobayashi President, Asahi Kasei Construction Materials Major Products Hebel™ autoclaved lightweight concrete (ALC) panels, steel-frame structural components, piles and foundation systems, Neoma™ foam insulation panels. Growth Action – 2010 Further enhancing competitiveness of the established businesses 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 business for Hebel Powerboard™ and for Eazet™ and ATT Column™ small-scale piles. 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. 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 with customer-focused solutions for builders and contractors. Net Sales ¥ billion 60.8 55.7 63.0 70 60 50 40 30 20 10 0 Fiscal year 2006 2007 2008 Forecast Operating Profit, Operating Profit Margin ¥ billion 8.3 5.0 5.0 2.8 6 4 2 % 9.0 6.3 4.0 6.0 3.0 0 0 Fiscal year 2006 2007 Operating profit, left scale Operating profit margin, right scale 2008 Forecast 30 The Year in Review Sales decreased by ¥5.1 billion (8.4%) from a year ago to ¥55.7 billion and operating profit decreased by ¥2.3 billion (44.7%) to ¥2.8 billion. Operating profit from building materials and housing materials decreased with fewer shipments of Hebel™ autoclaved lightweight concrete (ALC) panels as an effect of the decline in construction starts for unit homes following a revision of building codes in Japan. Development of new markets for Eazet™ piles for small-scale construction advanced but demand for large-scale piles decreased, and operating profit from foundation systems operations was on par with a year ago. Operating profit from insulation materials also decreased as an effect of the decline in new housing starts, especially for wood-frame houses. Market Environment Outlook for Fiscal 2008 A recovery of construction starts in Japan is forecast, enabling increased shipments of major products. The challenge will be to swiftly raise product prices to overcome the effect of significantly elevated costs for fuel and materials such as steel and cement. In the Hebel™ ALC business, development of new applications and high-value added products will be advanced together with further reductions in operating costs. In the Neoma™ foam insulation business, the application range will be expanded in transportation and other industrial fields as well as in housing and construction, and enhanced product functionality will be achieved with composites of Neoma™ foam and other materials. In the foundation systems business, new markets for Eazet™ and ATT Column™ piles will be developed in the fields of civil engineering and seismic reinforcement. R&D The Neoma™ phenolic foam thermal insulation business will be expanded through developments to enhance production efficiency and enable new composite product variations. High performance materials for housing, ecoefficient building foundation systems, and Hebel™ ALC panels with additional functions are under development. Highlights Civil engineering application example: Pedestrian bridge Fireproof wall configuration JICE certification for Eazet™ The Japan Institute of Construction Engineering (JICE) issued a Construction Technology Review and Certification (CTRC) for Eazet™ in spring 2007. The CTRC provides official recognition of the Eazet™ piling system’s environmental performance for low-noise, low- vibration installation in confined spaces with no soil disposal. Demand for piling systems with these features is growing in civil engineering applications such as cell phone towers, pedestrian bridges, and train-station elevators, in addition to the main application in home and building foundations. With the issuance of the CTRC, the Eazet™ business gains new impetus for growth in the field of civil engineering. Neoma™ Spanwall fire-resistant insulation One new high-performance composite product in the insulation panel lineup is Neoma™ Spanwall, composed of fire-resistant Neoma™ foam bonded to cement-board backing, for use as insulation lining in fireproof metal walls. Featuring versatile compatibility with a variety of metal wall designs, Neoma™ Spanwall meets the rising demand for fireproof structures in a wide range of fields, including stores, shops, plants, and distribution centers. 31 Operating Segment Services, Engineering and Others Major Products Plant engineering, environmental engineering, personnel staffing and placement, think tank services. Net Sales ¥ billion 37.0 35.0 28.9 40 30 20 10 0 Fiscal year 2006 2007 2008 Forecast Operating Profit, Operating Profit Margin ¥ billion 13.9 5.2 12.9 4.5 13.3 3.9 6 4 2 0 Fiscal year 2006 2007 Operating profit, left scale Operating profit margin, right scale 2008 Forecast % 15.0 10.0 5.0 0 The Year in Review Sales increased by ¥8.1 billion (28.2%) from a year ago to ¥37.0 billion and operating profit increased by ¥1.3 billion (33.6%) to ¥5.2 billion. Operating profit from engineering increased with overseas plant engineering operations performing well. Market Environment Outlook for Fiscal 2008 With the slowdown in the US economy and the sharp rise in steel prices, there is growing concern that the pace of capital investment in Japan may slacken. While business related to the provision of services for Asahi Kasei Group operations will remain strong, orders for services to non-Group customers will be accepted with careful selectivity based on profitability. R&D Engineering developments in progress include a joint project for next-generation automotive safety features and technology to inspect for internal pipe corrosion. Highlights Health guidance materials Health Guidance Business Asahi Kasei Corp. began operation of a new business for the provision of health guidance in June 2007, and Asahi Kasei Life Support Corp. was established in April 2008 to advance the commercial development of this business as a wholly owned subsidiary. Beginning in April 2008, employee health insurance societies, local governments which administer the National Health Insurance, and other health insurers have a legal obligation to provide a specified array of physical examinations and health guidance to insured individuals and their dependents aged forty or older. Asahi Kasei Life Support provides the specified health guidance on consignment from insurers who chose to outsource this obligation. The business builds on the internet-based personal diet management system developed by Asahi Kasei, and an alliance with the Japan Dietetic Association provides access to the services of a large number of registered dieticians throughout Japan. 32 Toward Sustainable Growth Contents page. 34 Corporate Governance page. 38 Corporate Social Responsibility page. 40 Directors, Corporate Auditors, Executive Officers 33 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 a holding company configuration with separate execution and oversight functions which established a management framework with clear delineation of executive authority and responsibility. Corporate Governance System 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 Core Operating Companies, Business Fields Asahi Kasei Chemicals Asahi Kasei Homes Asahi Kasei Pharma Chemicals Housing Pharmaceuticals, medical products Asahi Kasei Fibers Fiber, textiles Asahi Kasei EMD Electronics materials and devices Asahi Kasei Construction Materials Construction materials (As of July 1, 2008) 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. 34 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. Board of Corporate Auditors Comprises four Corporate Auditors, of which two are Outside Corporate Auditors. Corporate Auditors exchange views, deliberate, and decide on substantive matters relating to auditing. Meets at least once per quarter. Executive Officer System 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 Election of Outside Directors 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 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. Three Outside Directors, Yuzo Seto, former President and Representative Director of Asahi Breweries, Ltd., Yukiharu Kodama, former Administrative Vice Minister of the Ministry of International Trade and Industry, and Morio Ikeda, former President and CEO of Shiseido Co., Ltd. were elected at the 117th Ordinary General Meeting of Shareholders held in June 2008. Outside Directors now comprise 30% of the membership of the Board of Directors. Internal Control System Objectives for internal control include reliable financial reporting, legal compliance, effective and efficient operations execution, and safeguarding of assets. As a market-listed company, beginning in fiscal 2008 Asahi Kasei’s management is required by the Financial Instruments and Exchange Law to assess the effectiveness of internal controls for financial reporting, and to have these assessments audited by independent CPAs or auditing firms. Internal Control was established in May 2008 as a corporate organ dedicated to maintenance and enhancement of our system for internal control, replacing the Internal Control Project which had focused on the design and development of the system since October 2005. Audits 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. The Independent Auditors form 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 accountants. 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 Corporate Auditors Office provides staff to support Corporate Auditors in their duties. PricewaterhouseCoopers Aarata is contracted as the Independent Auditors to perform financial audits in accordance with the Commercial Code and Securities Law. Partners of the Independent Auditors designated to perform the audit for fiscal year 2007 were as follows. • Katsunori Sasayama • Takahiro Nakazawa 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 Auditors with respect to its audit plan, holds periodic meetings with them, and receives the results of the consolidated financial audit of Asahi Kasei. 35 Corporate Governance Adoption of Shareholder Rights Plan On April 23, 2008, the Asahi Kasei Board of Directors established a basic corporate policy concerning the nature of parties who would control the company’s financial and operational decision. At the 117th Ordinary General Meeting of Shareholders held on June 27, 2008, the adoption of a Shareholder Rights Plan, comprising measures in response to large acquisition of shares to prevent control of the company’s financial and operational decisions by inappropriate parties in light of this basic corporate policy, was approved by the majority votes of shareholders present. Compliance Corporate Ethics Our Corporate Ethics – Basic Policy and Code of Conduct is the standard and guide for ethical conduct throughout the day-to-day work of each and every member of the Asahi Kasei Group. It has been translated into English and Chinese, and applies to all majority-held subsidiaries the world over. The purpose of the Shareholder Rights Plan is to secure and heighten the company’s corporate value and the common interest of shareholders in the event of a purchase of 20% or more of the company’s shares, by ensuring necessary and sufficient information and time for shareholders to make proper judgment, by obtaining an opportunity to negotiate with the purchasing party, and otherwise. Please refer to the relevant news release at www.asahi-kasei.co.jp/asahi/en/news/2008/e080423.html for more details. Protection of Personal Information Asahi Kasei is committed to the proper handling and use of personal information, in accordance with our basic policy shown below. Education and training for all employees includes the distribution of an information security handbook which covers issues related to personal information protection, is monitored by the Corporate Ethics Committee. Corporate Ethics – Basic Policy Basic Policy for Protection of Personal Information • Creating value, contributing to society • Caring for environment, health, and safety • Honoring law and norms of society • Excluding subversive elements • Respecting the individual • Ensuring transparency • Respecting information and intellectual property • Practicing corporate ethics • We handle personal information properly and in compliance with the Personal Information Protection Law and other applicable statutes, and in conformance with generally accepted norms and standards. • We ensure that personnel throughout the Asahi Kasei Group thoroughly understand and faithfully comply with corporate standards and regulations for the handling of personal information. • We use personal information only for the specific purposes which have been indicated or announced at the time of its receipt. • We employ appropriate measures in the maintenance and management of personal information to ensure against unauthorized alteration, disclosure, and loss of personal information. • We will respond in good faith to requests to confirm, revise, cease using, or delete personal information. 36 Information Disclosure Policy The Asahi Kasei Group has established an Information Disclosure Policy, enhancing the management and disclosure of corporate information to obtain greater corporate value. Corporate regulations for information disclosure based on this policy were adopted on July 1, 2008. The basic principles of the Information Disclosure Policy are shown below. • With our Basic Credo of “contributing to human life and human livelihood through constant innovation and advances based in science and the human intellect,” we hold “progressing in concert with society, and honoring the laws and standards of society as a good corporate citizen” as a Guiding Precept. “Ensuring transparency” Risk Management Risk Management Committee The Risk Management Committee was established under the CSR Council in April 2005 to enhance the risk management system for prevention of operational crises and minimization of the effects of crises which occur. The Board of Directors in March 2007 enacted Basic Risk Management Regulations, effective April 1, 2007, providing clear guidelines to heighten the capability and effectiveness for risk management and emergency response throughout the Asahi Kasei Group. Role of Corporate Risk Management is a fundamental element of our Corporate Ethics – Basic Policy. We proactively engage in information disclosure and communication based on these basic concepts. • Corporate information is disclosed fairly, impartially, accurately, and as swiftly as possible to stakeholders such as customers, suppliers, shareholders, investors, employees, and local communities, and to the general public. • In our communication with stakeholders and with the general public, we strive for dialog which fosters a relationship of trust, promoting greater understanding of the Asahi Kasei Group and its operations, to increase brand strength and heighten corporate value. Corporate Risk Management Corporate Risk Management works with the various divisions and departments to guide the proper response to any major accidents, incidents, or problems which cause significant damage to Asahi Kasei Group operations or which may foreseeably cause Asahi Kasei Group operations to have adverse effects on the general public. In fiscal 2007, Corporate Risk Management coordinated the response to the improper acquisition of fire-resistance certification by a supplier of soffit panels used in our housing products, and provided guidance to personnel traveling abroad on business or stationed abroad. Corporate Risk Management Information disclosure through Corporate Communications Direction and guidance Stakeholders Employees Emerging crisis Fact checking, coordination Typhoon, earthquake, or other natural disaster; industrial accident causing pollution or injury; terrorism; infectious disease; product safety incident, etc. Response Responsible division or department 37 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 October 2007, fifty-three countries throughout the world have a Responsible Care program. 38 Framework for Advancement The CSR Council, formed in April 2005 with the holding company President serving as chair, formulates CSR policy and guides the CSR effort throughout the Asahi Kasei Group. Specific CSR initiatives are implemented by the committees under the authority of the CSR Council, including the Corporate Ethics Committee to ensure 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 Community Fellowship Committee promotes and coordinates the effort for outreach and fellowship in each local community where we operate. 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 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 Environmental preservation, product safety, physical integrity and safe operation, workplace safety, hygiene, and health, and community outreach risk Management Committee Crisis prevention and damage minimization Community Fellowship Committee Advancement of community fellowship activities Environmental Technology Seminar in China In July 2007 we were invited to co-host a seminar for environmental technology at the Great Hall of the People in Beijing, commemorating the 35th anniversary of the establishment of diplomatic relations between China and Japan. Environmental challenges and water treatment technology were in focus at the seminar, with a lively exchange of opinions among the attendants. A “Beijing Declaration” on sustainable growth through international cooperation in harmony with the environment was adopted, and Asahi Kasei proposed the establishment of a fund to support the advancement and development of environmental technology in China by combining Chinese and Japanese know-how in the field. The environmental technology seminar in Beijing 39 Directors, Corporate Auditors, Executive Officers (As of June 27, 2008) 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; Compliance Kiyoshi Tsujita Director, Senior Executive Officer Human Resources; Compliance Katsuhiko Sato Director, Senior Executive Officer Procurement Yuji Mizuno Director, Executive Officer Legal & General Affairs; Compliance Yoshio Hayashi Director, Executive Officer ESH; PL; R&D Yuzo Seto Outside Director Yukiharu Kodama Outside Director Morio Ikeda Outside Director Yuji Tsuchiya Auditor Katsuhiko Yamazoe Senior Executive Officer Tsutomu Inada Executive Officer Kenji Nakamae Auditor Masanori Mizunaga Lead Executive Officer Haruyuki Yoneda Executive Officer Kazuo Tezuka Outside Auditor Hiroo Kato Outside Auditor Toshikatsu Sunami Lead Executive Officer Shoichiro Tonomura Executive Officer Yutaka Shibata Executive Officer 40 Financial Section Contents page. 42 Consolidated Eleven-Year Summary page. 44 Management’s Discussion and Analysis page. 50 Risk Analysis page. 52 Consolidated Balance Sheets page. 54 Consolidated Statements of Income page. 55 Consolidated Statements of Changes in Net Assets page. 56 Consolidated Statements of Cash Flows page. 57 Notes to Consolidated Financial Statements page. 71 Report of Independent Auditors 41 Consolidated Eleven-Year Summary Asahi Kasei Corporation and consolidated subsidiaries For the year ended March 31 Net sales Chemicals Life & Living a Chemical and Chemical-related Chemicals and Plastics Homes Housing and Construction Materials Pharmab Fibersb Electronics Materials & Devicesb Construction Materials Special Products and Services Electronics Membranes and Systems Biotechnology and Medical Products Speciality Products Foods and Liquors Engineering and Othersb 2008 2007 2006 2005d 2004 2003e 2003 2002 2001f 2001 2000 1999 1998g 1998 ¥1,696,789 ¥1,623,791 ¥1,498,620 ¥1,377,697 ¥1,253,534 ¥1,193,614 ¥1,193,614 ¥1,195,393 ¥1,269,415 ¥1,269,415 ¥1,194,462 ¥1,171,845 ¥1,281,675 ¥1,281,675 Millions of yen, except where noted 879,235 – – – 752,632 52,558 660,402 51,942 570,182 59,149 453,707 59,813 – – – – – – – – 386,227 405,695 404,539 375,755 361,273 – 111,232 114,072 113,267 55,732 – 104,474 106,639 112,094 60,818 – 105,842 89,704 102,859 56,512 – 103,933 91,518 93,024 59,908 – 105,965 101,514 82,484 60,622 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – Services, Engineering and Othersb 37,024 28,881 26,821 24,228 28,156 57,565 60,234 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 Net worthc Net worth per share, yen Net worth/total assets, % Number of employees 1,209,452 1,195,751 1,125,454 1,067,893 1,011,366 1,006,810 1,086,219 1,086,219 1,044,630 1,009,439 1,127,590 1,127,590 487,337 127,656 120,456 105,599 69,945 50.01 82,911 73,983 56,170 13.00 428,040 127,801 126,507 114,883 68,575 49.00 84,413 71,646 52,426 12.00 373,166 108,726 104,166 94,481 59,668 42.46 66,310 69,399 51,467 10.00 309,804 115,809 112,876 91,141 56,454 40.16 68,479 71,531 50,715 8.00 242,168 60,932 53,643 54,820 27,672 19.62 86,387 64,408 48,420 6.00 2008 2007 2006 2005 2004 2003 2003 2002 2001 2001 2000 1999 1998 1998 ¥1,425,367 ¥1,459,922 ¥1,376,044 ¥1,270,057 ¥1,249,206 ¥1,212,374 ¥1,212,374 ¥1,193,011 ¥1,240,008 ¥1,240,008 ¥1,180,372 ¥1,185,249 ¥1,206,872 ¥1,206,872 272,372 424,193 234,873 c 666,244 476.39 46.7 23,854 240,006 426,959 281,502 c 645,655 461.50 44.2 23,715 214,062 414,368 284,390 594,211 424.34 43.2 23,030 202,521 419,969 223,958 511,726 365.43 40.3 23,820 181,609 428,302 226,825 450,451 321.41 36.1 25,011 a. The Life & Living segment was combined with the Chemicals segment in the year ended March 31, 2008. b. 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. c. Net assets less minority interest in consolidated subsidiaries. Though the year ended March 31, 2006, figures for shareholders’ equity shown. d. 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 e. 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. 42 477,581 440,698 449,470 383,654 105,463 110,551 71,579 408,474 98,686 125,908 64,062 433,440 95,481 134,791 95,999 430,934 379,677 375,048 400,420 373,874 433,440 412,954 372,649 425,553 424,532 134,791 139,181 148,277 181,542 181,542 270,250 262,650 275,871 274,160 424,673 52,908 320,553 105,463 110,551 71,579 63,101 – – – – – – – – – – – – – – – – – – – – – – 44,786 981,064 212,550 61,555 50,389 44,786 981,064 212,550 61,555 50,389 (100,869) (100,869) (66,791) (66,791) (47.63) (47.63) 93,985 60,808 49,311 6.00 93,985 60,808 49,311 6.00 176,788 427,188 198,697 407,639 290.92 33.6 25,730 176,788 427,188 198,697 407,639 290.92 33.6 25,730 – – – – – – – – – – – – 45,664 39,849 10,679 5,180 3.61 74,826 60,676 49,574 6.00 180,826 415,193 181,618 496,826 353.16 41.6 26,227 – – – – – – – – – – – – 96,024 86,747 50,318 25,177 17.45 69,188 62,222 49,768 6.00 196,510 419,168 176,177 516,013 357.70 41.6 26,695 96,228 18,307 95,481 80,653 17,967 93,460 60,234 70,570 – – – – – – – – – – 96,024 86,747 50,318 25,177 17.45 69,188 62,222 49,768 6.00 196,510 419,168 176,177 516,013 357.70 41.6 26,695 – – – – – – – – – – 74,323 85,853 39,615 20,525 14.23 63,213 63,629 50,015 6.00 181,771 416,881 127,013 476,159 330.07 40.3 26,580 – – – – – – – 66,212 18,133 88,050 90,068 13,408 – – 51,237 42,443 37,525 17,392 12.06 70,461 63,845 56,844 6.00 193,691 435,005 132,251 464,339 321.88 39.2 29,263 – – – – – – – 63,235 20,828 82,703 88,478 18,916 – – 62,814 56,271 40,264 20,809 14.43 74,981 67,117 57,023 6.00 198,651 424,499 141,388 455,250 315.64 37.7 27,792 – – – – – – – – – 301,727 62,337 82,703 33,593 88,478 34,616 62,814 56,271 40,264 20,809 14.43 74,981 67,117 57,023 6.00 198,651 424,499 141,388 455,250 315.64 37.7 27,792 188,583 183,196 183,196 149,832 162,406 154,085 154,085 Services, Engineering and Othersb 37,024 28,881 26,821 24,228 28,156 1,209,452 1,195,751 1,125,454 1,067,893 1,011,366 For the year ended March 31 Net sales Chemicals Life & Living a Chemical and Chemical-related Chemicals and Plastics Housing and Construction Materials Homes Pharmab Fibersb Electronics Materials & Devicesb Construction Materials Special Products and Services Electronics Membranes and Systems Biotechnology and Medical Products Speciality Products Foods and Liquors Engineering and Othersb 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 Net worthc Net worth per share, yen Net worth/total assets, % Number of employees 879,235 752,632 52,558 660,402 51,942 570,182 59,149 453,707 59,813 386,227 405,695 404,539 375,755 361,273 111,232 114,072 113,267 55,732 104,474 106,639 112,094 60,818 105,842 89,704 102,859 56,512 103,933 91,518 93,024 59,908 105,965 101,514 82,484 60,622 – – – – – – – – – – 428,040 127,801 126,507 114,883 68,575 49.00 84,413 71,646 52,426 12.00 240,006 426,959 281,502 645,655 461.50 44.2 23,715 – – – – – – – – – – 373,166 108,726 104,166 94,481 59,668 42.46 66,310 69,399 51,467 10.00 214,062 414,368 284,390 594,211 424.34 43.2 23,030 – – – – – – – – – – 309,804 115,809 112,876 91,141 56,454 40.16 68,479 71,531 50,715 8.00 202,521 419,969 223,958 511,726 365.43 40.3 23,820 – – – – – – – – – – 242,168 60,932 53,643 54,820 27,672 19.62 86,387 64,408 48,420 6.00 181,609 428,302 226,825 450,451 321.41 36.1 25,011 – – – – – – – – – – – 487,337 127,656 120,456 105,599 69,945 50.01 82,911 73,983 56,170 13.00 272,372 424,193 234,873 666,244 476.39 46.7 23,854 2008 2007 2006 2005d 2004 2003e 2003 2002 2001f 2001 2000 1999 1998g 1998 ¥1,696,789 ¥1,623,791 ¥1,498,620 ¥1,377,697 ¥1,253,534 ¥1,193,614 ¥1,193,614 ¥1,195,393 ¥1,269,415 ¥1,269,415 ¥1,194,462 ¥1,171,845 ¥1,281,675 ¥1,281,675 Millions of yen, except where noted – – – – – – 477,581 440,698 449,470 – – – – – – – – – – – – – – – 424,673 52,908 – – 320,553 – – – 383,654 105,463 110,551 71,579 63,101 – – – – – – – 105,463 110,551 71,579 – – – – – – – – 44,786 981,064 212,550 61,555 50,389 44,786 981,064 212,550 61,555 50,389 (100,869) (100,869) (66,791) (66,791) (47.63) (47.63) 93,985 60,808 49,311 6.00 93,985 60,808 49,311 6.00 – – 408,474 98,686 125,908 64,062 – – 433,440 95,481 134,791 95,999 – – – – – – – – – – – – – – – – 430,934 379,677 375,048 400,420 373,874 – – – – – 433,440 412,954 372,649 425,553 424,532 – – – – – 134,791 139,181 148,277 181,542 181,542 – – – – – – – – 270,250 262,650 275,871 274,160 96,228 18,307 95,481 – – 80,653 17,967 93,460 – – 60,234 70,570 66,212 18,133 88,050 – 90,068 13,408 – 63,235 20,828 82,703 – 88,478 18,916 – – – 301,727 62,337 – 82,703 33,593 88,478 34,616 – 57,565 60,234 – – 1,006,810 1,086,219 1,086,219 1,044,630 1,009,439 1,127,590 1,127,590 188,583 183,196 183,196 149,832 162,406 154,085 154,085 45,664 39,849 10,679 5,180 3.61 74,826 60,676 49,574 6.00 96,024 86,747 50,318 25,177 17.45 69,188 62,222 49,768 6.00 96,024 86,747 50,318 25,177 17.45 69,188 62,222 49,768 6.00 74,323 85,853 39,615 20,525 14.23 63,213 63,629 50,015 6.00 51,237 42,443 37,525 17,392 12.06 70,461 63,845 56,844 6.00 62,814 56,271 40,264 20,809 14.43 74,981 67,117 57,023 6.00 62,814 56,271 40,264 20,809 14.43 74,981 67,117 57,023 6.00 2008 2007 2006 2005 2004 2003 2003 2002 2001 2001 2000 1999 1998 1998 ¥1,425,367 ¥1,459,922 ¥1,376,044 ¥1,270,057 ¥1,249,206 ¥1,212,374 ¥1,212,374 ¥1,193,011 ¥1,240,008 ¥1,240,008 ¥1,180,372 ¥1,185,249 ¥1,206,872 ¥1,206,872 176,788 427,188 198,697 407,639 290.92 33.6 25,730 176,788 427,188 198,697 407,639 290.92 33.6 25,730 180,826 415,193 181,618 496,826 353.16 41.6 26,227 196,510 419,168 176,177 516,013 357.70 41.6 26,695 196,510 419,168 176,177 516,013 357.70 41.6 26,695 181,771 416,881 127,013 476,159 330.07 40.3 26,580 193,691 435,005 132,251 464,339 321.88 39.2 29,263 198,651 424,499 141,388 455,250 315.64 37.7 27,792 198,651 424,499 141,388 455,250 315.64 37.7 27,792 f. • 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. 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. g. 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. 43 Management’s Discussion and Analysis Fiscal 2007 (April 1, 2007 – March 31, 2008) Overview of Fiscal 2007 Consolidated Results Operating Environment lion, but decreased as a percentage of net sales by 0.2 percent- Although economic expansion advanced in China and other age points to 16.5% due to the higher rate of growth in net developing countries, the global economy was destabilized by sales. Operating profit as a percentage of net sales increased continuing rises in feedstock and fuel prices and by concerns by 0.4 percentage points to 7.5%. about a slowdown in the US economy triggered by the rise in subprime mortgage defaults. While the Japanese economy Non-operating Income and Expenses, Ordinary Profit saw firm corporate earnings and private sector capital invest- Net non-operating expenses were ¥7.2 billion, ¥5.9 billion ment, expansion slowed as an effect of concern about the higher than the ¥1.3 billion of a year earlier. As a result, outlook for the global economy and a rapid rise in the ordinary profit decreased by ¥6.1 billion to ¥120.5 billion, a exchange value of the yen during the second half of the fiscal 4.8% decline. year. The operating environment in fiscal 2007 thus remained a challenging one. Special Gains and Losses Net sales, Operating Profit Special gains of ¥4.3 billion included a ¥3.4 billion gain on sale of investment securities. Special losses of ¥19.2 billion included Consolidated net sales grew by ¥73.0 billion from a year ago a ¥6.8 billion loss on sale disposal of property, plant, and equip- to ¥1,696.8 billion, a 4.5% increase. Sales growth was greatest ment and a ¥4.8 billion impairment loss. The net special loss of in chemicals operations, as high feedstock costs were ¥14.9 billion was ¥3.2 billion higher than a year earlier. reflected in high product prices. Operating profit decreased by ¥0.1 billion to ¥127.7 billion, Net Income a 0.1% decline. By segment, lower operating profit was most With ordinary profit of ¥120.5 billion and the net special loss notable in Homes, as an effect of decreased deliveries, and in of ¥14.9 billion, income before income taxes and minority Construction Materials, as an effect of the construction slow- interests was ¥105.6 billion. Currently payable income taxes down following a revision of Japanese building codes, but of ¥34.6 billion and deferred income tax obligation of ¥0.5 operating profit growth in the Chemicals and Fibers seg- billion combined for an income tax expense of ¥35.0 billion. ments helped keep the overall decline to a minimum. As a Minority interest in income of consolidated subsidiaries was percentage of net sales, cost of sales increased by 0.6 percent- ¥0.6 billion. As a result, net income grew by ¥1.4 billion to age points to 76.0%, largely due to increases in the cost of ¥69.9 billion, a 2.0% increase, and net income per share naphtha and other feedstocks. SG&A increased by ¥8.2 bil- increased by ¥1.01 to ¥50.01 from the ¥49.00 of a year earlier. Net Sales ¥ billion Operating Profit, Operating Profit Margin % ¥ billion SG&A, SG&A Ratio ¥ billion 2,000 1,500 1,000 500 0 Fiscal year 2005 2006 2007 44 150 120 90 60 30 0 Fiscal year 2005 2006 2007 10 8 6 4 2 0 300 240 180 120 60 0 Fiscal year 2005 2006 2007 Operating profit, left scale Operation profit margin, right scale SG&A, left scale SG&A ratio, right scale % 20 16 12 8 4 0 Net Income, Net Income per Share ¥ billion 80 60 40 20 0 Fiscal year 2005 2006 2007 Net income, left scale Net income per share, right scale ¥ 60 45 30 15 0 Results by Segment Operating Segments Homes Six operating segments correspond to the core operating Sales decreased by ¥19.5 billion (4.8%) from a year ago to companies, and the Services, Engineering and Others seg- ¥386.2 billion and operating profit decreased by ¥6.1 billion ment comprises the remainder of operations. With the April (22.3%) to ¥21.4 billion. 1, 2007, merger of Asahi Kasei Life & Living with Asahi Kasei Operating profit from order-built and pre-built homes Chemicals, the Life & Living segment was combined with the decreased with the number of deliveries of unit homes signi- Chemicals segment. For comparison purposes, results for the ficantly lower as an effect of fewer orders received through year-ago period in the Chemicals segment have been revised the first half of 2007 and postponement of delivery of some to include those in the Life & Living segment. units due to improper acquisition of ministerial certification Chemicals by a supplier of certain components as came to light in late October 2007. New orders for order-built homes increased Sales increased by ¥74.0 billion (9.2%) from a year ago to by ¥2.7 billion from a year ago to ¥306.1 billion. ¥879.2 billion and operating profit increased by ¥8.7 billion Operating profit from housing-related operations increased (15.3%) to ¥65.2 billion. with remodeling operations performing well. Volume products operations were affected by high feed- stock costs, but operating profit nevertheless increased with Pharma strong market conditions for chemicals and derivative prod- Sales increased by ¥6.8 billion (6.5%) from a year ago to ucts, particularly acrylonitrile, and with polymer products ¥111.2 billion and operating profit decreased by ¥1.2 billion performing well. (8.6%) to ¥12.7 billion. Operating profit from specialty products grew with strong Sales of main pharmaceutical products, notably Elcitonin™ demand for Hipore™ Li-ion rechargeable battery separator calcitonin formulation, grew, but operating profit from phar- membranes resulting in increased shipments and with sales maceutical operations decreased with lower licensing income growth of ion-exchange membranes and systems for chlor- and higher R&D expenditures. alkali electrolysis. ROE % 15 10 5 Chemicals ¥ billion 1,000 ¥ billion % 80 8 750 500 250 Homes ¥ billion 500 400 300 200 100 60 6 40 4 20 2 0 ¥ billion % 30 10 24 8 18 6 12 4 6 2 0 0 Fiscal year 2005 2006 2007 0 Fiscal year 2005 2006* 2007 0 Fiscal year 2005 2006 2007 Net sales, left scale Operating profit, right scale (upper) Operating profit margin, right scale (lower) Net sales, left scale Operating profit, right scale (upper) Operating profit margin, right scale (lower) *Including Life & Living. 45 Operating profit in devices operations grew with increased Construction Materials domestic and overseas shipments in each product line, most Sales decreased by ¥5.1 billion (8.4%) from a year ago to notably in APS™ polysulfone-membrane artificial kidneys ¥55.7 billion and operating profit decreased by ¥2.3 billion following production capacity expansion. (44.7%) to ¥2.8 billion. Fibers Operating profit from building materials and housing materials decreased with fewer shipments of Hebel™ auto- Sales increased by ¥7.4 billion (7.0%) from a year ago to claved lightweight concrete (ALC) panels as an effect of the ¥114.1 billion and operating profit increased by ¥3.1 billion decline in construction starts following a revision of building (73.9%) to ¥7.2 billion. codes in Japan. Operating profit from elastic polyurethane filament Development of new markets for Eazet™ piles for small- increased as overseas operations, notably those in Europe and scale construction advanced but demand for large-scale piles the US, performed well with strong demand. decreased, and operating profit from foundation systems Operating profit from Bemberg™ regenerated cellulose fiber operations was on par with a year ago. Operating profit from grew with increased exports. Operating profit from nonwo- insulation materials decreased as an effect of the decline in vens operations decreased as operating cost reductions could new housing starts, especially for wood-frame houses. not overcome the large effect of increased feedstock costs. Services, Engineering and Others Electronics Materials & Devices Sales increased by ¥8.1 billion (28.2%) from a year ago to Sales increased by ¥1.2 billion (1.0%) from a year ago to ¥37.0 billion and operating profit increased by ¥1.3 billion ¥113.3 billion and operating profit decreased by ¥0.4 billion (33.6%) to ¥5.2 billion. (1.7%) to ¥22.2 billion. Operating profit from engineering increased with overseas Operating profit from electronics materials increased as plant engineering operations performing well. shipment volumes generally rose with strong overseas demand, especially in China. Operating profit from electronics devices decreased with fewer shipments of LSIs and lower product prices as an effect of inventory adjustments in home electronics markets. Pharma ¥ billion 150 120 90 60 30 Fibers ¥ billion 120 ¥ billion % 15 15 Electronics Materials & Devices ¥ billion ¥ billion % 12 12 9 9 6 6 3 3 0 90 60 30 0 Fiscal year 2005 2006 2007 150 120 90 60 30 8 8 6 6 4 4 2 2 0 ¥ billion % 30 25 24 20 18 15 12 10 6 5 0 0 Fiscal year 2005 2006 2007 0 Fiscal year 2005 2006 2007 Net sales, left scale Operating profit, right scale (upper) Operating profit margin, right scale (lower) Net sales, left scale Operating profit, right scale (upper) Operating profit margin, right scale (lower) Net sales, left scale Operating profit, right scale (upper) Operating profit margin, right scale (lower) 46 Geographical Information Current liabilities increased by ¥9.8 billion (2.0%) to ¥513.4 Geographic segment information is not shown because over billion. While commercial paper increased by ¥55.0 billion, 90% of total sales were from operations domiciled in Japan notes and accounts payable, trade, decreased by ¥31.8 billion and over 90% of total assets were located in Japan. as the previous year’s closing date fell on a bank holiday and Overseas Sales the closing date of the year under review came during a maintenance turnaround in Chemicals. Overseas sales increased, largely in Chemicals, by ¥59.3 bil- Long-term liabilities decreased by ¥65.0 billion (21.5%) to lion to ¥487.3 billion, a 13.9% increase and a 2.3 percentage ¥237.8 billion, with a ¥35.0 billion decrease in bonds. point increase to 28.7% of consolidated net sales. Interest-bearing debt decreased by ¥5.5 billion to ¥211.4 Liquidity and Capital Resources Financial Position billion as repayment of bonds and borrowings exceeded the value of commercial paper issued. Net assets increased by ¥20.6 billion (3.2%) from the Total assets at fiscal year end were ¥1,425.4 billion, ¥34.6 bil- ¥653.5 billion of a year ago to ¥674.2 billion. With net lion (2.4%) lower than a year earlier. income of ¥69.9 billion, dividend payments were ¥18.2 billion Current assets increased by ¥17.1 billion (2.4%) to ¥740.1 and net unrealized gain on securities decreased by ¥28.7 bil- billion. Inventories increased by ¥32.4 billion, largely in lion. Net worth per share increased by ¥14.89 to ¥476.39. Chemicals and Homes. Cash on hand and in banks Net worth/total assets increased from 44.2% to 46.7%, and decreased by ¥18.6 billion. debt-to-equity ratio decreased slightly to 0.32. Fixed assets decreased by ¥51.6 billion (7.0%) to ¥685.3 billion. Tangible fixed assets decreased by ¥2.8 billion as depreciation and amortization combined with loss on dis- posal of property, plant and equipment exceeded the value of investment in plant and equipment. Intangible fixed assets decreased by ¥2.2 billion, and the market value of investment securities decreased by ¥50.7 billion. Construction Materials ¥ billion ¥ billion % Services, Engineering and Others ¥ billion ¥ billion % 90 60 30 0 Fiscal year 2005 2006 2007 6 9 4 6 2 3 0 40 30 20 10 0 Fiscal year 2005 2006 2007 8 16 6 12 4 8 2 4 0 Net sales, left scale Operating profit, right scale (upper) Operating profit margin, right scale (lower) Net sales, left scale Operating profit, right scale (upper) Operating profit margin, right scale (lower) 47 Capital Expenditure Notable capital expenditure by operating segment was as Capital expenditure was primarily for new and expanded follows: production plant and equipment in long-term growth fields. • Chemicals: New facility for production of Duranate™ hexameth- Investments were also made for rationalization, modification, ylene diisocyanate-based polyisocyanate; plant modification, maintenance, and IT systems to bring greater product reli- rationalization, and maintenance. ability and cost reductions. Capital expenditure by operating • Homes: New R&D center, construction system modification, segment shown below is for tangible and intangible fixed rationalization, and maintenance. assets, combined, before consumption tax. • Pharma: Expansion of capacity for assembly of APS™ polysulfone- Totals for the year (¥ million) Compared to previous year (%) Chemicals Homes Pharma Fibers 34,344 7,451 10,007 9,255 Electronics Materials & Devices 17,018 Construction Materials Services, Engineering and Others Combined 2,507 793 81,375 Corporate assets and eliminations 1,536 Consolidated 82,911 74.6 275.9 174.9 145.5 104.8 108.9 104.3 101.6 35.7 98.2 membrane artificial kidneys in China, new facility for production of ethylene-vinyl alcohol copolymer hollow-fiber membrane, expansion of capacity for assembly of Planova™ virus removal fil- ters; plant modification, rationalization, and maintenance. • Fibers: Production capacity expansion for Roica™ elastic polyure- thane filament in the US and Thailand, new facility for production of Precisé™ polyester nonwoven; plant modification, rationaliza- tion, and maintenance. • Electronics Materials & Devices: Production capacity expansion for Pimel™ photosensitive polyimide precursor; plant modification, rationalization, and maintenance. • Construction Materials: Plant modification, rationalization, and maintenance. • Services, Engineering and Others: IT systems, rationalization, labor-saving, and maintenance. • Corporate assets: Corporate research facilities; maintenance. Interest-Bearing Debt, D/E Ratio ¥ billion Capital Expenditure, Depreciation and Amortization ¥ billion Total Assets, Net Worth Net Worth to Total Assets ¥ billion 1,500 1,000 500 % 50 40 30 20 10 400 300 200 100 0 Fiscal year 2005 2006 2007 0 Fiscal year 2005 2006 2007 0 Fiscal year 2005 2006 2007 Total assets Net worth Interest-bearing debt, left scale D/E ratio, right scale 48 1.00 100 0.75 0.50 0.25 0.00 75 50 25 0 Fiscal year 2005 2006 2007 Capital expenditure Depreciation and amortization Cash Flows Cash flows from investing activities Free cash flows were ¥3.8 billion as cash generated, princi- Cash used included ¥68.8 billion for acquisition of tangible pally operating profit and depreciation and amortization, fixed assets for continuing expansion of competitively supe- exceeded cash used, principally for acquisition of fixed assets rior operations and enhancement of overall competitiveness and investment securities. Cash flows from financing activi- and ¥7.4 billion for acquisition of intangible fixed assets. ties, principally for payment of dividends, were a net ¥22.3 Cash generated from sales of investment securities aggre- billion cash used. After including ¥0.1 billion cash and cash gated ¥10.2 billion. Net cash used in investing activities was equivalents held by newly consolidated subsidiaries, cash and ¥69.1 billion, ¥12.2 billion less than a year earlier. cash equivalents at fiscal year end were ¥83.0 billion, ¥18.7 billion less than a year earlier. Cash flows from financing activities A net ¥3.8 billion was used to repay interest-bearing debt such Cash flows from operating activities as borrowings and bonds. A further ¥18.2 billion was used for Increased inventories, notably in Chemicals and Homes, payment of parent-company dividends. A net ¥22.3 billion was resulted in ¥33.3 billion cash used. Decreases in notes and used in financing activities, ¥13.7 billion less than a year earlier. accounts payable, trade, with the previous year’s closing date falling on a bank holiday, resulted in ¥30.6 billion cash used. Income tax payments were ¥45.6 billion. Income before income taxes and minority interest generated ¥105.6 billion, while depreciation and amortization generated ¥74.0 billion. Net cash generated from operating activities was ¥72.9 billion, ¥55.5 billion less than a year earlier. Free Cash Flows Cash Flows ¥ billion ¥ billion 50 40 30 20 10 200 100 0 0 Fiscal year 2005 2006 2007 –100 Fiscal year 2005 2006 2007 Net cash provided by operating activities Net cash used in investing activities Net cash used in financing activities 49 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 mini- mize 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 dimin- ish, 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 cur- rency 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 econom- ically 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 fluctua- tions in Japanese interest rates. Changes in Japanese tax pol- icy, 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 affect- ing 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 expecta- tions, thereby affecting our consolidated performance and financial condition. Pharmaceuticals and Medical Devices Pharmaceutical and medical device businesses may be signif- icantly affected by government measures to curtail health care expenditure or other changes in government policy. Unforeseeable side effects or complications may emerge, sig- nificantly affecting these businesses. The pharmaceutical business additionally faces the possibility that product approval may be withdrawn as a result of Japan’s reexamina- tion system, and that competition may intensify as a result of the market entry of generics. For pharmaceuticals and medi- cal 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 perfor- mance and financial condition. 50 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 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. 51 Consolidated Balance Sheets Asahi Kasei Corporation and consolidated subsidiaries March 31, 2008 and 2007 ASSETS Current assets: Cash on hand and in banks (Note 6) Notes and accounts receivable, trade Marketable securities (Notes 6 and 7) Inventories Deferred income taxes (Note 11) Other current assets 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 Subtotal Intangible fixed assets – Goodwill Other Subtotal Investments and other assets – Investment securities (Note 7) Long-term receivables Deferred income taxes (Note 11) Other Allowance for doubtful accounts Subtotal Total fixed assets Total assets The accompanying notes are an integral part of these statements. 52 2008 Millions of yen 2007 Thousands of U.S. dollars (Note 4) 2008 ¥ 82,903 298,788 303 272,372 26,130 61,239 (1,660) 740,075 ¥ 101,514 300,386 400 240,006 26,650 55,831 (1,791) 722,995 $ 829,035 2,987,883 3,028 2,723,718 261,299 612,390 (16,598) 7,400,754 159,951 165,220 54,096 29,339 15,588 424,193 158,953 174,775 55,192 21,935 16,103 426,959 1,599,510 1,652,196 540,955 293,385 155,882 4,241,928 5,707 20,519 26,226 6,045 22,421 28,466 57,067 205,192 262,259 190,991 4,703 12,777 26,514 (113) 234,873 241,696 4,636 10,479 24,768 (78) 281,502 1,909,908 47,035 127,770 265,143 (1,126) 2,348,729 685,292 736,927 6,852,916 ¥1,425,367 ¥1,459,922 $14,253,670 LIABILITIES AND NET ASSETS Liabilities: Current liabilities – Notes and accounts payable, trade Short-term borrowings (Note 9) Commercial Paper (Note 9) Current portion of long-term debt (Note 9) Accrued income taxes Deferred income taxes (Note 11) Accrued expenses Advances received Allowance for repairs Allowance for after-care of products (Note 2 (d) iii)) Other current liabilities Total current liabilities Long-term liabilities – Long-term debt (Note 9) Deferred income taxes (Note 11) Accrued pension and severance costs (Note 10) Allowance for repairs Customers’ guarantee deposits Other long-term liabilities Total long-term liabilities Total liabilities Net assets: Shareholders’ equity: Common stock – Authorized – 4,000,000,000 shares Issued and outstanding – 1,402,616,332 shares Capital surplus Retained earnings (Note 20) Treasury stock, at cost (2008 – 4,080,805 shares, 2007 – 3,570,390 shares) Total shareholders’ equity Valuation, translation adjustments, and others Net unrealized gain on securities Net deferred profit on hedges Revaluation surplus (Note 12) Cumulative translation adjustments Total valuation, translation adjustments, and others Minority interest in consolidated subsidiaries Total net assets Commitments and contingent liabilities (Notes 16 and 21) 2008 Millions of yen 2007 Thousands of U.S. dollars (Note 4) 2008 ¥ 155,120 34,116 55,000 34,104 9,730 58 108,947 49,718 4,716 6,018 55,885 513,413 88,187 9,155 117,130 2,078 18,935 2,314 237,798 751,211 ¥ 186,900 51,273 – 36,555 18,232 – 103,155 48,874 4,506 3,401 50,674 503,570 129,074 26,210 126,266 – 18,660 2,632 302,842 806,412 $ 1,551,199 341,164 550,000 341,039 97,296 579 1,089,471 497,181 47,163 60,184 558,855 5,134,130 881,872 91,547 1,171,295 20,775 189,353 23,139 2,377,981 7,512,111 103,389 79,427 432,246 103,389 79,396 380,515 1,033,885 794,268 4,322,457 (2,019) 613,042 (1,544) 561,755 (20,187) 6,130,422 51,091 11 873 1,226 53,201 7,912 674,156 79,823 58 1,106 2,913 83,900 7,855 653,510 510,915 112 8,729 12,257 532,013 79,124 6,741,559 Total liabilities and net assets The accompanying notes are an integral part of these statements. ¥1,425,367 ¥1,459,922 $14,253,670 53 Consolidated Statements of Income Asahi Kasei Corporation and consolidated subsidiaries Years ended March 31, 2008 and 2007 Net sales (Note 18) Cost of sales (Note 13) Gross profit Selling, general and administrative expenses (Note 13) Operating profit (Note 18) Non-operating income: Interest income Dividend income Equity in net earnings of unconsolidated subsidiaries and affiliates Insurance recoveries Other Total non-operating income Non-operating expenses: Interest expense Loss on disposal of inventories Foreign exchange loss, net Other Total non-operating expenses Ordinary profit Special gains: Gain on sale of investment securities (Note 7) Gain on sale of property, plant and equipment Gain on change in equity Total special gains Special losses: Loss on devaluation of investment securities Loss on disposal of property, plant and equipment Impairment loss (Note 14) Charge for environmental countermeasures Charge for remediation of homes delivered in previous years (Note 2 (d) iii)) Restructuring charges (Notes 14 and 15) Total special losses Income before income taxes and minority interest Income taxes (Note 11) – currently payable – deferred (obligation)/benefit Minority interest in income of consolidated subsidiaries Net income Per share data: Net income (Note 22) – Basic – Diluted Cash dividends The accompanying notes are an integral part of these statements. 54 2008 ¥1,696,789 1,288,965 407,824 280,168 127,656 Millions of yen 2007 ¥1,623,791 1,224,041 399,750 271,949 127,801 Thousands of U.S. dollars (Note 4) 2008 $16,967,890 12,889,649 4,078,241 2,801,680 1,276,562 879 3,188 3,757 941 3,335 12,100 4,202 2,658 5,428 7,012 19,300 120,456 3,432 309 559 4,300 1,027 6,821 4,802 2,239 508 2,507 2,647 4,558 2,861 13,081 4,118 4,381 289 5,588 14,376 126,507 1,516 919 657 3,091 701 9,073 189 – 8,786 31,882 37,566 9,408 33,354 120,996 42,015 26,582 54,279 70,121 192,998 1,204,560 34,323 3,091 5,587 43,001 10,267 68,209 48,017 22,387 3,000 1,269 19,157 105,599 (34,555) (450) (649) ¥ 69,945 – 4,751 14,715 114,883 (42,247) (3,553) (508) ¥ 68,575 30,000 12,690 191,570 1,055,991 (345,551) (4,499) (6,487) $ 699,453 Yen U.S. dollars (Note 4) 2008 ¥50.01 ¥ – ¥13.00 2007 ¥49.00 ¥ – ¥12.00 2008 $0.50 $ – $0.13 Consolidated Statements of Changes In Net Assets Asahi Kasei Corporation and consolidated subsidiaries Years ended March 31, 2008 and 2007 Shareholders’ equity Valuation, translation adjustments, and others Common stock Capital surplus Retained earnings (Note 20) Treasury stock at cost Total shareholders’ equity Net unrealized gain on securities Net deferred profit on hedges Revaluation surplus (Note 12) Cumulative translation adjustments Total valuation, translation adjustments, and others Minority interest in consolidated subsidiaries Total net assets ¥103,389 ¥79,396 ¥380,515 ¥(1,544) ¥561,755 ¥ 79,823 ¥ 58 ¥1,106 ¥ 2,913 ¥ 83,900 ¥7,855 ¥653,510 Millions of yen (18,188) 69,945 (26) (18,188) 69,945 (26) (542) 98 (542) 67 31 (18,188) 69,945 (26) (542) 98 (28,732) (47) (233) (1,687) (30,699) 57 (30,642) – ¥103,389 31 51,731 ¥79,427 ¥432,246 (475) 51,287 ¥(2,019) ¥613,042 (28,732) ¥ 51,091 (47) ¥ 11 (233) ¥ 873 (1,687) ¥ 1,226 (30,699) ¥ 53,201 57 20,646 ¥7,912 ¥674,156 Shareholders’ equity Valuation, translation adjustments, and others Common stock Capital surplus Retained earnings (Note 20) Treasury stock at cost Total shareholders’ equity Net unrealized gain on securities Net deferred profit on hedges Revaluation surplus (Note 12) Cumulative translation adjustments Total valuation, translation adjustments, and others Minority interest in consolidated subsidiaries Total net assets ¥103,389 ¥79,433 ¥342,450 ¥(17,311) ¥507,960 ¥85,384 ¥ – ¥ 966 ¥ (99) ¥86,251 ¥6,917 ¥601,128 Millions of yen (6,999) (6,998) (228) 68,575 22 (1) 20 18 (55) (16,325) (634) 21 16,380 (6,999) (6,998) (228) 68,575 22 (1) 20 (634) 39 – (6,999) (6,998) (228) 68,575 22 (1) 20 (634) 39 – – ¥103,389 (37) 53,795 ¥79,396 ¥380,515 ¥ (1,544) ¥561,755 15,767 38,065 (5,561) 58 140 3,012 (2,351) 938 (1,413) (5,561) ¥79,823 58 ¥ 58 140 ¥ 1,106 3,012 ¥2,913 (2,351) ¥83,900 938 52,382 ¥7,855 ¥653,510 Thousands of U.S. dollars (Note 4) Shareholders’ equity Valuation, translation adjustments, and others Common stock Capital surplus Retained earnings (Note 20) Treasury stock at cost Total shareholders’ equity Net unrealized gain on securities Net deferred profit on hedges Revaluation Cumulative translation adjustments surplus (Note 12) Total valuation, translation adjustments, and others Minority interest in consolidated subsidiaries Total net assets $1,033,885 $793,962 $3,805,146 $(15,441) $5,617,553 $ 798,232 $ 584 $11,055 $ 29,125 $ 838,996 $78,554 $6,535,103 (181,881) 699,453 (262) 305 (5,421) 675 (181,881) 699,453 (262) (5,421) 980 (181,881) 699,453 (262) (5,421) 980 (287,317) (472) (2,327) (16,868) (306,983) 569 (306,415) Balance at March 31, 2007 Changes during the fiscal year Dividends Net income Decrease due to merger Purchase of treasury stock Disposal of treasury stock Net increase (decrease) in net assets others than shareholders’ equity Total changes during the fiscal year Balance at March 31, 2008 Balance at March 31, 2006 Changes during the fiscal year Year-end dividend Interim dividend Bonuses to directors and corporate auditors Net income Increase due to newly consolidated subsidiaries Decrease due to newly consolidated subsidiaries Increase due to unconsolidated subsidiaries and affiliates for which the equity method is newly applies Purchase of treasury stock Disposal of treasury stock Cancellation of treasury stock Net increase (decrease) in net assets others than shareholders’ equity Total changes during the fiscal year Balance at March 31, 2007 Balance at March 31, 2007 Changes during the fiscal year Dividends Net income Decrease due to merger Purchase of treasury stock Disposal of treasury stock Net increase (decrease) in net assets others than shareholders’ equity Total changes during the fiscal year Balance at March 31, 2008 – (287,317) $1,033,885 $794,268 $4,322,457 $(20,187) $6,130,422 $ 510,915 517,310 512,869 (4,746) 305 (472) $ 112 (2,327) 206,456 $ 8,729 $ 12,257 $ 532,013 $79,124 $6,741,559 (16,868) (306,983) 569 The accompanying notes are an integral part of these statements. 55 Consolidated Statements of Cash Flows Asahi Kasei Corporation and consolidated subsidiaries Years ended March 31, 2008 and 2007 Cash flows from operating activities: Income before income taxes and minority interest Depreciation and amortization Impairment loss Amortization of goodwill Amortization of negative goodwill Increase in allowance for repairs Increase in allowance for after-care of products Decrease in accrued pension and severance costs Interest and dividend income Interest expense Equity in net earnings of unconsolidated subsidiaries and affiliates Gain on sale 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 Increase in notes and accounts receivable, trade Increase in inventories Increase (decrease) in notes and accounts payable, trade Increase in accrued expenses Increase (decrease) in advances received Other Subtotal Interest and dividend income, received Interest expense, paid Income taxes, paid Net cash provided by operating activities Cash flows from investing activities: Payments for purchase of time deposits Proceeds from maturity of time deposits Payments for purchase of marketable securities Proceeds from sale of marketable securities Payments for acquisition of property, plant and equipment Proceeds from sale of property, plant and equipment Payments for acquisition of intangible fixed assets Payments for purchase of investment securities Proceeds from sale of investment securities Proceeds from sale 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 paper Repayment of commercial paper Proceeds from long-term loans Repayment of long-term loans Repayment of bonds Payments for purchase 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 Millions of yen 2007 Thousands of U.S. dollars (Note 4) 2008 ¥ 114,883 71,646 189 824 (196) (3,500) 97 (6,701) (3,015) 4,118 (2,647) (1,516) 701 (919) 9,073 (26,425) (23,005) 51,605 3,015 (85) (14,931) 173,209 4,941 (4,210) (45,508) 128,432 (192) 473 (14) 1 (77,357) 2,976 (4,872) (3,003) 2,557 – (5,655) 4,195 (456) (81,347) 39,760 (36,293) 150,000 (150,000) 8,337 (10,456) (23,000) (501) 40 (13,991) (135) 216 (36,025) $1,055,991 739,830 48,017 4,780 (1,713) 22,873 26,169 (92,106) (40,668) 42,015 (37,566) (34,323) 10,267 (3,091) 68,209 (1,045) (332,954) (305,711) 61,204 5,526 (61,678) 1,174,028 56,131 (44,966) (455,718) 729,474 (146) 88 – 428 (688,220) 10,258 (73,838) (21,153) 102,312 9,985 (97,476) 83,328 (16,913) (691,348) 270,574 (451,472) 750,000 (200,000) 25,852 (92,584) (340,000) (5,507) 893 (181,741) (1,445) 2,131 (223,300) 2008 ¥105,599 73,983 4,802 478 (171) 2,287 2,617 (9,211) (4,067) 4,202 (3,757) (3,432) 1,027 (309) 6,821 (104) (33,295) (30,571) 6,120 553 (6,168) 117,403 5,613 (4,497) (45,572) 72,947 (15) 9 – 43 (68,822) 1,026 (7,384) (2,115) 10,231 998 (9,748) 8,333 (1,691) (69,135) 27,057 (45,147) 75,000 (20,000) 2,585 (9,258) (34,000) (551) 89 (18,174) (145) 213 (22,330) Effect of exchange rate changes on cash and cash equivalents Net increase 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 6) (219) (18,736) 101,719 50 ¥ 83,033 643 11,703 86,390 3,625 ¥ 101,719 (2,186) (187,360) 1,017,187 504 $ 830,331 The accompanying notes are an integral part of these statements. 56 Notes to Consolidated Financial Statements Asahi Kasei Corporation and consolidated subsidiaries 1. Major policies for preparing the consolidated financial statements The consolidated financial statements, which are filed with the Ltd. (Korea), Sanyo Petrochemical Co., Ltd., Asahi Kasei Kuraray Japanese Ministry of Finance (hereinafter called the “MOF”) as Medical Co., Ltd., and Asahi Kasei Medical Co., Ltd. Material required by the Financial Instruments and Exchange Law in Japan, inter-company transactions and accounts have been eliminated. are prepared in accordance with accounting principles generally Investments in unconsolidated subsidiaries and 20% to 50% accepted in Japan, which are different in certain respects from the owned companies in which the Company exercises significant influ- application and disclosure requirements of International Financial ence are accounted for, with minor exceptions due to materiality, Reporting Standards. The accompanying consolidated financial using the equity method of accounting. There were 50 such uncon- statements are a translation of those filed with the MOF and incor- solidated subsidiaries and 20% to 50% owned companies to which porate certain modifications to enhance foreign readers’ under- the equity method is applied at March 31, 2008 (53 at March 31, standing of the financial statements. In addition, the notes to the 2007), including Asahi Kasei Metals Ltd., Asahi Kasei Finechem Co., consolidated financial statements include certain financial informa- Ltd., and Asahi Organic Chemicals Industry Co., Ltd. tion which is not required under the disclosure regulations in Japan, Certain subsidiaries results are reported in the consolidated but is presented herein as additional information. In addition, certain financial statements using a December 31 or a February 29 year- reclassifications of previously reported amounts have been made to end. Material differences in inter-company transactions and conform to current classifications. Such modifications or reclassifi- accounts arising from the use of different fiscal year-ends are appro- cations have no effect on net income or retained earnings. priately adjusted for through consolidation procedures. The excess of the cost over the underlying net equity of invest- Consolidation and investments in affiliated companies ments in subsidiaries and affiliated companies accounted for using The consolidated financial statements consist of the accounts of the the equity method of accounting is allocated to identifiable assets parent company and 106 subsidiaries (111 subsidiaries at March 31, and liabilities based on fair values at the date of acquisition. The 2007, hereinafter collectively referred to as the “Company”) which, unassigned residual value of the excess of the cost over the underly- with minor exceptions due to materiality, are all majority and wholly ing net equity is recognized as goodwill or negative goodwill. The owned companies, including 6 core operating companies (Asahi Kasei Company amortizes goodwill and negative goodwill using the Chemicals Corp., Asahi Kasei Homes Corp., Asahi Kasei Pharma straight-line method over the estimated period of benefit over a five Corp., Asahi Kasei Fibers Corp., Asahi Kasei EMD Corp., and Asahi or twenty-year period, with the exception of minor amounts, which Kasei Construction Materials Corp.), Tong Suh Petrochemical Corp. are charged to income in the year of acquisition. 2. Significant accounting policies (a) Cash and cash equivalents (d) Significant allowances For cash flow statement purposes, cash and cash equivalents include i) Allowance for doubtful accounts all highly liquid investments, generally with original maturities of Estimates of the unrecoverable portion of receivables, generally three months or less, which are readily convertible to known based on historical rates and for specific receivables of particular amounts of cash and are so near maturity that they present an insig- concern based on individual estimates of recoverability, are nificant risk of changes in value due to changes in interest rates. recognized as allowance for doubtful accounts. (b) Inventories ii) Allowance for repairs Inventories are principally stated at the lower of average cost or The portion of foreseeable repair expenses deemed to correspond market value. Residential lots and dwellings for sale are stated at to normal wear and tear of plant and equipment as of the closing specifically identified costs. date of the consolidated fiscal period is recognized as allowance (c) Fixed assets and depreciation/amortization for repairs. Property, plant and equipment are stated at cost. Significant renew- iii) Allowance for after-care of products als and improvements are capitalized at cost, while maintenance Estimates of product warranty expenses based on historical rates and repairs are charged to income as incurred. Depreciation is pro- and the amount required for remediation of deficient eave vided for under the declining-balance method for property, plant assembly specification are recognized as allowance for after-care and equipment, except for buildings which are depreciated using the straight-line method, at rates based on estimated useful lives of of products. (addendum) the assets, principally ranging from five to sixty years for buildings During the fiscal year ended March 31, 2008, it was ascertained and from four to twenty-two years for machinery and equipment. that it was necessary to perform remediation work to restore a Intangible fixed assets, including software for internal use, are deficient eave assembly specification on certain order-built amortized using the straight-line method over the estimated useful homes delivered by Asahi Kasei Homes Corp., a subsidiary of the lives of the assets. The estimated useful life of software for internal company. The amount of ¥3,000 million (US$30,000 thousand) use is mainly five years. estimated for the cost of this remediation work is recorded as 57 charge for remediation of homes delivered in previous years ii) Derivative financial instruments under special losses in the consolidated statements of income and All derivatives are stated at fair value. Gains or losses arising from is included in allowance for after-care of products in the consoli- changes in fair value are charged or credited to income for the dated balance sheets. period in which they arise, except for derivatives that are desig- The cost of remediation work required in relation to improper nated as hedging instruments. Gains or losses arising from acquisition by Nichias Corp. of ministerial certification for soffit changes in fair value of these qualifying hedges are deferred as panels procured by Asahi Kasei Homes Corp. which came to light “Net deferred profit on hedges” to be offset against gains or losses during the fiscal year ended March 31, 2008, is not expected to of the underlying hedged assets and liabilities. have any effect the on the consolidated financial statements for the year ended March 31, 2008, as the full amount will be claimed from Nichias Corp. (g) Taxes Accrued income taxes are stated at the estimated amount payable for corporation, enterprise, and inhabitant taxes. The asset and liability (e) Accrued pension and severance costs approach is used to recognize deferred tax assets and liabilities for the Accrued pension and severance costs at March 31, 2008 and 2007, expected future tax consequences of temporary differences between represent the estimated present value of projected benefit obliga- the carrying amounts and the tax bases of assets and liabilities. tions in excess of the fair value of the plan assets. Unrecognized The Company has elected to file its return under the consolidated prior service costs are amortized on a straight-line basis primarily tax filing system. over ten years. Unrecognized actuarial gains/losses, resulting from variances between actual results and economic estimates or actuarial (h) Leases Under Japanese accounting practices, financing leases must be assumptions, are amortized on a straight-line basis primarily over capitalized by the lessee except for those leases that do not transfer the following ten years. ownership of the leased asset to the lessee as part of the lease. Such Provision is made for lump-sum indemnities to directors and exceptions can be accounted for either as financing leases or operat- corporate auditors equal to the estimated liability calculated under ing leases with an appropriate footnote disclosure. the internal rules of the Company. (f) Financial instruments i) Securities Securities are classified into four categories; trading securities, held-to-maturity debt securities, equity securities of unconsoli- Periodic lease charges for financing leases entered into by the par- ent company and its Japanese subsidiaries, where lessors retain the ownership of the leased assets, are charged to income as incurred. (i) Translation of foreign currencies Foreign currency receivables and payables are translated into dated subsidiaries and affiliates, and other securities. At March Japanese yen at the exchange rates prevailing at the balance sheet 31, 2008 and 2007, the Company did not have trading securities date. Resulting gains and losses are charged or credited to income or held-to-maturity debt securities. for the period. Equity securities of unconsolidated subsidiaries and affiliates Assets, liabilities, and income and expenses of foreign subsidiar- are accounted for, with minor exceptions due to materiality, ies and 20% to 50% owned companies accounted for using the using the equity method of accounting. equity method of accounting are translated into Japanese yen at Other securities whose fair values are readily determinable are year-end exchange rates. Shareholders’ equity of foreign subsidiaries carried at fair value with net unrealized gains or losses included and 20% to 50% owned companies is translated into Japanese yen at as a component of net assets, net of related taxes. Other securities the historical exchange rates. The translation differences in Japanese whose fair values are not readily determinable are stated at cost. yen amounts arising from the use of different rates are recognized as In cases where any significant decline in the realizable value is cumulative translation adjustments in the balance sheets. assessed to be other than temporary, the cost of other securities is A portion of the cumulative translation adjustments is allocated devalued by the impaired amount and is charged to income. to “Minority interest in consolidated subsidiaries” and the Realized gains and losses are determined using the average cost Company’s portion is presented as a separate component of net method and are reflected in the income statement. assets in the balance sheets. 3. Changes in significant accounting policies Change in method of depreciation of tangible fixed assets ble fixed assets acquired on or after April 1, 2007, in accordance Due to a revision of the Corporation Tax Law (effected by Law No. with the revised Corporation Tax Law. 6 of 2007 (Law Partially Revising the Income Tax Law, Etc.), prom- The effect of this change for the year ended March 31, 2008, is that ulgated on March 30, 2007, and by Cabinet Ordinance No. 83 of operating profit, ordinary profit, and income before income taxes 2007 (Cabinet Ordinance Partially Revising the Income Tax Law, and minority interests are each ¥2,141 million (US$21,413 thousand) Etc.), promulgated on March 30, 2007), the parent company and its lower than they would have been under the previous method of Japanese subsidiaries, beginning with the fiscal year ended March depreciation. The effect by industry segment is shown in Note 18. 31, 2008, adopted a change in the method of depreciation of tangi- 58 (addendum) Law, are depreciating the difference between 5% of the purchase Due to a revision of the Corporation Tax Law (effected by Law No. price and the memorandum price using the straight-line method 6 of 2007 (Law Partially Revising the Income Tax Law, Etc.), prom- over five years, and recognizing this as a component of depreciation ulgated on March 30, 2007, and by Cabinet Ordinance No. 83 of expense. 2007 (Cabinet Ordinance Partially Revising the Income Tax Law, The effect of this for the year ended March 31, 2008, is that oper- Etc.), promulgated on March 30, 2007), the parent company and its ating profit, ordinary profit, and income before income taxes and Japanese subsidiaries, beginning with the fiscal year in which the minority interests are each ¥1,909 million (US$19,086 thousand) residual value of an asset purchased on or before March 31, 2007, lower than they would otherwise have been. The effect by industry reaches 5% of the purchase price through application of the method segment is shown in Note 18. of depreciation in effect prior to the revision of the Corporation Tax 4. United States dollar amounts The U.S. dollar amounts presented in the financial statements are U.S. dollars. As the amounts shown in U.S. dollars are for convenience included solely for the convenience of readers. These translations only, and are not intended to be computed in accordance with generally should not be construed as representations that the Japanese yen accepted translation procedures, the approximate current exchange rate amounts actually represent, or have been or could be converted into of ¥100=US$1 prevailing on March 31, 2008, has been used. 5. Derivative financial instruments The Company operates internationally, giving rise to exposure to mar- expense from adverse fluctuations in foreign currency exchange and ket risks from fluctuations in foreign currency exchange and interest interest rates. The related differentials to be paid or received under rates. In the normal course of its risk management efforts, the the interest rate swap agreements are recognized in interest expense Company uses a variety of derivative financial instruments, which over the terms of the agreements. Currency swap agreements are include foreign currency forward exchange contracts, interest rate swap accounted for in a manner similar to that used for foreign currency agreements and currency swap agreements, to reduce its exposures. In forward exchange contracts. Interest rate swap agreements for accordance with the Company’s policy, these financial instruments are housing loan securitization transactions are used to reduce interest utilized solely for hedging purposes and the Company does not hold or volatility risk between the time of execution of housing loans and issue financial instruments for trading or speculation purposes. the time of execution of their securitization. The Company has entered into foreign currency forward The Company does not anticipate any credit loss from nonperfor- exchange contracts with banks as hedges against receivables and pay- mance by the counter-parties to foreign currency forward exchange ables denominated in foreign currencies. As these foreign currency contracts, interest rate swap agreements, or currency swap agreements. forward exchange contracts are utilized solely for hedging purposes, Hedging accounting is applied for all derivative financial instruments the resulting gains or losses are offset against foreign exchange gains of the Company other than those for housing loan securitization, with or losses on the underlying hedged assets and liabilities. gains or losses arising from changes in fair value deferred as “Net Interest rate swap agreements and currency swap agreements are deferred profit on hedges” to be off-set against foreign exchange gains used to limit the Company’s exposure to losses in relation to interest or losses on the underlying hedged assets and liabilities. The fair value of the housing loan securitization transactions as of March 31, 2008, is as follows: Classification Items Dealings other than market dealings Interest rate swap receipt change/ payment fixation Amount of contract (Amount of contract over 1 year) Fair value Profit (loss) from valuation Millions of yen 2008 ¥1,700 – (46) (46) Thousands of U.S. dollars 2008 $17,000 – (459) (459) 59 6. 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 7. Marketable securities and investment securities (a) Other securities with available fair value Millions of yen 2008 2007 Thousands of U.S. dollars 2008 ¥82,903 ¥101,514 $829,035 (170) (192) (1,705) 300 397 3,001 ¥83,033 ¥101,719 $830,331 The aggregate cost, carrying amount which was identical to fair value, and gross unrealized gains and losses of debt and equity securities classi- fied 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 Securities with unrealized gains: Equity securities Securities with unrealized losses: Equity securities Debt securities Securities with unrealized gains: Equity securities Securities with unrealized losses: Equity securities Debt securities Cost 2008 Carrying amount Unrealized gains (losses) Millions of yen ¥37,310 ¥123,847 ¥86,537 3,943 23 3,966 3,261 23 3,283 (683) – (683) ¥41,276 ¥127,130 ¥85,854 Cost 2007 Carrying amount Unrealized gains (losses) Millions of yen ¥39,675 ¥173,612 ¥133,937 802 23 825 629 23 652 (173) – (173) ¥40,500 ¥174,264 ¥133,764 Cost 2008 Carrying amount Thousands of U.S. dollars Unrealized gains (losses) $373,096 $1,238,468 $865,371 39,435 230 39,655 32,606 230 32,836 $412,761 $1,271,303 (6,829) – (6,829) $858,542 Losses on devaluation of other securities whose fair values are readily determinable for the year ended March 31, 2008, total ¥404 mil- lion (US$4,038 thousand). 60 (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 2008 ¥8,673 3,278 – Millions of yen 2007 ¥1,310 832 0 (c) The carrying amounts of other securities for which fair values were not readily determinable at March 31 are as follows: Equity investment in funds Equity investment in nonpublic companies (d) Redemption schedules for maturity of debt securities at March 31 are as follows: 2008 ¥5,001 6,980 Millions of yen 2007 ¥10,001 6,996 Thousands of U.S. dollars 2008 $86,726 32,782 – Thousands of U.S. dollars 2008 $50,006 69,801 Millions of yen Debt securities: Government and municipal bonds Corporate bonds Debt securities: Government and municipal bonds Debt securities: Government and municipal bonds Corporate bonds 8. Accumulated depreciation Accumulated depreciation at March 31 is comprised of the following: Buildings Machinery and equipment Other 2008 Due within one year Due after one year, within five years Due after five years, within ten years Due after more than ten years ¥5 – ¥5 ¥ 9 120 ¥129 ¥– – ¥– ¥– – ¥– Millions of yen 2007 Due within one year Due after one year, within five years Due after five years, within ten years Due after more than ten years ¥5 ¥5 ¥9 ¥9 ¥2 ¥2 ¥– ¥– Thousands of U.S. dollars 2008 Due within one year Due after one year, within five years Due after five years, within ten years Due after more than ten years $50 – $50 $ 91 1,200 $1,291 $– – $– $– – $– Millions of yen 2008 2007 Thousands of U.S. dollars 2008 ¥ 217,434 ¥ 213,372 $ 2,174,341 958,159 88,320 935,316 85,842 9,581,586 883,198 ¥1,263,913 ¥1,234,530 $12,639,125 61 9. Borrowings Short-term borrowings at March 31, 2008 and 2007, represent loans, principally from commercial paper and banks. The weighted average interest rates on these borrowings are 1.31% in 2008 and 1.84% in 2007. Long-term debt at March 31, 2008 and 2007, is comprised of the following: Loans, principally from banks and insurance companies, due 2008 to 2018 with weighted average interest rates of 2.72% (short-term portion) and 1.95% (long-term portion): Secured Unsecured Unsecured 1.02% to 2.15% yen bonds due 2007 to 2009 Unsecured 1.0% to 1.8% step up coupon Euro yen bonds due 2011 Unsecured 0.29% to 2.83% Euro yen bonds due 2007 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 The aggregate annual maturities of long-term debt after March 31, 2008, are as follows: Years ending March 31 2009 2010 2011 2012 and thereafter Millions of yen 2008 2007 Thousands of U.S. dollars 2008 ¥ 870 ¥ 1,003 $ 8,698 71,421 35,000 – 4,000 11,000 80,626 45,000 10,000 17,000 12,000 714,213 350,000 – 40,000 110,000 122,291 (34,104) 165,629 (36,555) 1,222,911 (341,039) ¥ 88,187 ¥129,074 $ 881,872 Millions of yen Thousands of U.S. dollars ¥ 34,104 $ 341,039 37,828 15,456 34,903 378,281 154,558 349,032 ¥122,291 $1,222,911 A summary of assets pledged as collateral for short-term loans and long-term debt at March 31, 2008, is as follows: Property, plant and equipment 10. Accrued pension and severance costs Millions of yen Thousands of U.S. dollars ¥774 $7,740 Upon terminating employment, employees of the parent company employment occurs. Certain foreign subsidiaries have defined bene- and its major subsidiaries in Japan are entitled, under most circum- fit pension plans or defined contribution plans. stances, to lump-sum severance indemnities and/or pension pay- The obligation for these severance indemnity benefits is provided ments determined by reference mainly to their current basic rate of for through accruals, contributory funded defined benefit pension pay and length of service. Additional benefits may be granted to plans, contributory funded defined benefit enterprise pension plans employees depending on the conditions under which termination of and non-contributory funded tax-qualified pension plans. Information on accrued severance and pension costs at March 31, 2008 and 2007, is 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 2008 2007 Thousands of U.S. dollars 2008 ¥(297,343) ¥(302,528) $(2,973,432) 190,955 215,846 1,909,552 (106,388) (86,682) (1,063,880) 2,639 (7,009) (5,374) (25,630) (8,403) (4,648) 26,389 (70,093) (53,745) (116,133) (125,364) (1,161,329) (997) (902) (9,967) ¥(117,130) ¥(126,266) $(1,171,295) Note: The figures in the above table do not include additional benefit payables amounting to ¥310 million (US$3,100 thousand) and ¥82 million at March 31, 2008 and 2007, respectively. The amounts are recorded as part of current liabilities on the consolidated balance sheets at March 31, 2008 and 2007. 62 Net periodic pension and severance costs for employees for the years ended March 31, 2008 and 2007, include the following components: Service cost (*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 2007 ¥ 8,775 7,385 (5,229) (2,380) (1,393) Thousands of U.S. dollars 2008 $ 88,562 73,253 (52,893) (28,142) (13,932) 2008 ¥ 8,856 7,325 (5,289) (2,814) (1,393) ¥ 6,685 ¥ 7,157 $ 66,848 *1: The figures in the above table do not include the contributions made by employees. *2: In addition to the above costs, additional benefits amounting to ¥1,303 million (US$13,029 thousand) and ¥782 million were charged to income for the year ended March 31, 2008 and 2007, respectively. The assumptions used in the calculation of the above information are as follows: Discount rate Expected rate of return on plan assets 2008 2007 2.5% 2.5% 2.5% 2.5% Method of attributing the projected benefits to periods of employee service Straight-line basis Straight-line basis Amortization of unrecognized prior service costs Amortization of unrecognized actuarial gains/losses Mainly 10 years Mainly 10 years Mainly 10 years Mainly 10 years 11. Taxes Income taxes applicable to the parent company and subsidiaries in Japan include (1) corporation tax, (2) enterprise tax, and (3) inhabitants tax. 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 Tax loss carryforwards Unrealized gain on fixed assets and others Impairment loss Devaluation of inventories Allowance for repairs Allowance for after-care of products Accrued enterprise tax Devaluation of investment securities Charge for environmental countermeasures Depreciation Allowance for doubtful accounts Other Subtotal deferred tax assets Less: Valuation allowance Total deferred tax assets Deferred tax liabilities: Unrealized gains on securities Reserve for fixed assets reduction Reserve for special depreciation Other Total deferred tax liabilities Millions of yen 2008 2007 Thousands of U.S. dollars 2008 ¥ 46,847 ¥ 50,524 $ 468,468 8,722 6,826 5,795 4,354 3,897 2,817 2,644 2,501 1,409 1,401 874 551 476 8,741 97,854 (11,770) 86,084 (37,484) (14,235) (537) (4,134) 8,612 7,080 4,674 4,107 2,060 3,387 – – 2,401 1,094 – 353 375 12,561 97,226 (9,997) 87,229 (56,513) (14,995) (1,070) (3,732) 87,221 68,260 57,948 43,537 38,974 28,173 26,437 25,009 14,087 14,006 8,737 5,512 4,756 87,412 978,538 (117,697) 860,841 (374,837) (142,349) (5,367) (41,345) (56,390) (76,310) (563,899) Net deferred tax assets (liabilities) ¥ 29,694 ¥ 10,919 $ 296,943 63 Reconciliation of the differences between the statutory tax rate and the effective income tax rate for the year ended March 31 is as follows: 2007 2008 Statutory tax rate 40.7% Statutory tax rate Increase (reduction) in taxes resulting from: Increase (reduction) in taxes resulting from: Non-deductible expenses and non-taxable income Equalization of inhabitants taxes R&D expenses deductible from income taxes Amortization of goodwill Equity in earnings of unconsolidated subsidiaries and affiliates Difference of tax rates for foreign subsidiaries Other Effective income tax rate 2.7 0.4 (4.7) 0.2 (1.5) (3.3) (1.3) 33.2% Non-deductible expenses and non-taxable income Equalization of inhabitants taxes R&D expenses deductible from income taxes Amortization of goodwill Equity in earnings of unconsolidated subsidiaries and affiliates Other Effective income tax rate 40.7% 2.0 0.4 (3.9) 0.1 (0.9) 1.5 39.9% In Japan, the consumption tax system is designed so that all goods and services are taxed at a flat rate of 5% unless specified otherwise. Assets, liabilities, and profit and loss accounts are stated net of consumption tax 12. Revaluation surplus A revaluation surplus is 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 are as follows: Freight and storage Salaries and benefits Research and development (*) Rent Millions of yen 2008 2007 Thousands of U.S. dollars 2008 ¥35,086 ¥34,287 $350,860 89,729 39,618 28,566 87,819 37,307 28,392 897,288 396,178 285,659 (*) The aggregate amounts of research and development expenses included in manufacturing costs and selling, general and administrative expenses for the years ended March 31, 2008 and 2007, are ¥56,170 million (US$561,697 thousand) and ¥52,426 million, respectively. 14. Impairment loss Grouping of operating assets is based on managerial accounting cat- March 31, 2007, the book value of machinery and equipment with egories, with consideration given to production process, geographic no specific prospect for conversion of use and of land with dimin- location, and domain of authority for making investment decisions. ished market value was reduced to the recoverable amount, result- Idle assets are recorded separately in each fixed assets class. ing in a special loss of ¥189 million as impairment loss and ¥1,659 In the fiscal year ended March 31, 2008, the book value of million as a restructuring charge. machinery and equipment with no specific prospect for conversion Recoverable amount for machinery and equipment was taken as of use and of land with diminished market value was reduced to the disposable value less cost of disposal, and that for land was taken as recoverable amount, resulting in a special loss of ¥4,802 million net selling price mainly based on the appraisal value as determined (US$48,017 thousand) as impairment loss. In the fiscal year ended by a real estate appraiser. 64 15. Restructuring charges Major components of the restructuring charges are as follows: Loss on disposal and devaluation of assets and others Impairment of fixed assets Loss on liquidation of subsidiaries and others 16. Leases Millions of yen 2007 ¥2,577 1,659 516 ¥4,751 Thousands of U.S. dollars 2008 $11,229 – 1,461 $12,690 2008 ¥1,123 – 146 ¥1,269 Periodic lease charges for the Company’s financing leases, where The future lease payments under the Company’s financing leases lessors retain the ownership of the leased assets, are charged to and non-cancelable operating leases at March 31, including income. Such lease charges are ¥4,628 million (US$46,278 thou- amounts representing interest, are as follows: sand) and ¥4,551 million for the years ended March 31, 2008 and 2007, respectively. Due within one year Due after one year Millions of yen 2007 ¥ 4,287 5,770 ¥10,057 Thousands of U.S. dollars 2008 $37,608 43,591 $81,199 2008 ¥3,761 4,359 ¥8,120 The leased assets under the Company’s financing leases, where lessors retain ownership of the leased assets, are 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, 2008 and 2007, 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 2008 Accumulated amortization Cost Millions of yen Thousands of U.S. dollars 2008 Net amount Net amount ¥15,191 ¥8,421 ¥6,770 $67,697 457 1,837 527 258 972 242 199 866 285 1,992 8,656 2,854 ¥18,012 ¥9,892 ¥8,120 $81,199 2007 Accumulated amortization ¥8,027 327 1,051 358 ¥9,762 Millions of yen Net amount ¥ 8,674 225 958 200 ¥10,057 Cost ¥16,701 553 2,008 558 ¥19,819 The amortization amount of the leased assets, computed using the straight-line method over the term of the leases, are ¥4,628 million (US$46,278 thousand) and ¥4,551 million for the years ended March 31, 2008 and 2007, respectively. No impairment loss is allocated to the leased assets. 65 17. Transactions under common control, etc. Transactions under common control, etc. for the fiscal year ended Asahi-Schwebel Co., Ltd., and Asahi Kasei Electronics Co., Ltd. on March 31, 2008, are as follows. December 4, 2006, concerning separation by absorption of the sales 1) Merger of Asahi Kasei Chemicals Corp. and Asahi Kasei Life & and development operations of Asahi Kasei Microsystems Co., Ltd., Living Corp. Asahi-Schwebel Co., Ltd., and Asahi Kasei Electronics Co., Ltd., and Based on a resolution of the Company’s Board of Directors dated Separation Agreements were concluded between Asahi Kasei EMD October 31, 2006, resolutions concerning merger by absorption Corp. and each of these subsidiaries on the same date. were adopted at meetings of the Board of Directors of both Asahi The Separation Agreements were then approved at extraordinary Kasei Chemicals Corp., and Asahi Kasei Life & Living Corp., con- general meetings of shareholders of each relevant company on solidated subsidiaries of the Company, on January 16, 2007, and a January 22, 2007, and as a result Asahi Kasei EMD Corp. absorbed Merger Agreement was concluded between the two companies on Asahi Kasei Microsystems Co., Ltd., Asahi-Schwebel Co., Ltd., and the same date. Asahi Kasei Electronics Co., Ltd. in separation. The Merger Agreement was then approved at extraordinary gen- (1) Outline of business combination eral meetings of shareholders of both companies on March 1, 2007, i. Names of combining entities and as a result Asahi Kasei Chemicals Corp. absorbed Asahi Kasei Asahi Kasei Microsystems Co., Ltd., Asahi-Schwebel Co., Ltd., Life & Living Corp. in merger. (1) Outline of business combination i. Names of combining entities and Asahi Kasei Electronics Co., Ltd. with Asahi Kasei EMD Corp. ii. Nature of business Asahi Kasei Chemicals Corp., Asahi Kasei Life & Living Corp. Asahi Kasei Microsystems Co., Ltd.: Electronics. ii. Nature of business Asahi Kasei Chemicals Corp.: Chemicals. Asahi-Schwebel Co., Ltd.: Electronics. Asahi Kasei Electronics Co., Ltd.: Electronics. Asahi Kasei Life & Living Corp.: Household products. Asahi Kasei EMD Corp.: Electronics. iii. Statutory form of business combination iii. Statutory form of business combination Merger by absorption with Asahi Kasei Chemicals Corp. as Separation by absorption of Asahi Kasei Microsystems Co., the surviving company. Ltd., Asahi-Schwebel Co., Ltd., and Asahi Kasei Electronics iv. Name of company after business combination Co., Ltd. each with Asahi Kasei EMD Corp. Asahi Kasei Chemicals Corp. v. Outline of transaction iv. Name of company after business combination No change for Asahi Kasei Microsystems Co., Ltd., Asahi- This merger combining the diverse management resources Schwebel Co., Ltd., Asahi Kasei Electronics Co., Ltd., or Asahi held by both Asahi Kasei Chemicals Corp., and Asahi Kasei Kasei EMD Corp. Life & Living Corp., by maximizing synergies to accelerate the v. Outline of transaction further strengthening and expansion of the household In this separation by absorption, the sales and development consumer products business and the polymer processing busi- functions were separated from Asahi Kasei Microsystems Co., ness, was performed as a merger by absorption with Asahi Ltd., Asahi-Schwebel Co., Ltd., and Asahi Kasei Electronics Kasei Chemicals Corp., as the surviving company. Co., Ltd. and absorbed by Asahi Kasei EMD Corp. to integrate (2) Outline of the accounting treatment implemented electronics operations under unified management for swifter This merger was accounted for as a transaction under common business operation. control based on the Accounting Standard for Business (2) Outline of the accounting treatment implemented Combinations issued by the Business Accounting Council in Japan This merger was accounted for as a transaction under common and the Accounting Standard for Business Divestitures (Accounting control based on the Accounting Standard for Business Standard No. 7) and Guidance on Accounting Standard for Combinations issued by the Business Accounting Council in Japan Business Combinations and Accounting Standard for Business and the Accounting Standard for Business Divestitures (Accounting Divestitures (Accounting Standard Guidance No. 10) issued by the Standard No. 7) and Guidance on Accounting Standard for Accounting Standards Board of Japan. Business Combinations and Accounting Standard for Business Divestitures (Accounting Standard Guidance No. 10) issued by the 2) Separation by absorption of Asahi Kasei Microsystems Co., Accounting Standards Board of Japan. Ltd., Asahi-Schwebel Co., Ltd., and Asahi Kasei Electronics Co., Ltd. to Asahi Kasei EMD Resolutions were adopted at meetings of the Board of Directors of Asahi Kasei EMD Corp., a consolidated subsidiary of the Company, and its subsidiaries Asahi Kasei Microsystems Co., Ltd., 66 18. Business segment information (1) Industry segments Sales and operating profit (loss) for the year ended March 31: Sales: Chemicals Homes Pharma Fibers 2008 Electronics Materials & Devices Construction Materials Services, Engineering and Others Corporate expenses and Combined eliminations Consolidated Millions of yen Customers ¥879,235 ¥386,227 ¥111,232 ¥114,072 ¥113,267 ¥55,732 ¥37,024 ¥1,696,789 ¥ – ¥1,696,789 Intersegment Total 14,081 86 6 2,120 1,045 11,742 27,534 56,613 (56,613) – 893,316 386,313 111,238 116,192 114,312 67,474 64,559 1,753,402 (56,613) 1,696,789 Operating expenses 828,098 364,933 98,560 108,972 92,081 64,690 59,407 1,616,741 (47,608) 1,569,133 Operating profit (loss) ¥ 65,218 ¥ 21,380 ¥ 12,678 ¥ 7,220 ¥ 22,230 ¥ 2,784 ¥ 5,151 ¥ 136,661 ¥ (9,005) ¥ 127,656 Sales: Chemicals Homes Pharma Fibers 2007 Electronics Materials & Devices Construction Materials Services, Engineering and Others Corporate expenses and Combined eliminations Consolidated Millions of yen Customers ¥805,190 ¥405,695 ¥104,474 ¥106,639 ¥112,094 ¥60,818 ¥28,881 ¥1,623,791 ¥ – ¥1,623,791 Intersegment Total 12,264 315 8 1,870 1,210 12,465 29,305 57,437 (57,437) – 817,454 406,011 104,483 108,509 113,303 73,283 58,186 1,681,228 (57,437) 1,623,791 Operating expenses 760,899 378,502 90,610 104,356 90,682 68,246 54,331 1,547,626 (51,635) 1,495,990 Operating profit (loss) ¥ 56,555 ¥ 27,509 ¥ 13,873 ¥ 4,153 ¥ 22,622 ¥ 5,037 ¥ 3,855 ¥ 133,602 ¥ (5,801) ¥ 127,801 Sales: Chemicals Homes Pharma Fibers 2008 Electronics Materials & Devices Construction Materials Services, Engineering and Others Corporate expenses and Combined eliminations Consolidated Thousands of U.S. dollars Customers $8,792,350 $3,862,268 $1,112,325 $1,140,717 $1,132,671 $557,316 $370,243 $16,967,890 $ – $16,967,890 Intersegment 140,807 859 56 21,201 10,446 117,419 275,344 566,132 (566,132) – Total 8,933,157 3,863,127 1,112,381 1,161,918 1,143,118 674,735 645,586 17,534,022 (566,132) 16,967,890 Operating expenses 8,280,981 3,649,326 985,601 1,089,718 920,814 646,896 594,075 16,167,411 (476,082) 15,691,329 Operating profit (loss) $ 652,176 $ 213,801 $ 126,780 $ 72,200 $ 222,304 $ 27,839 $ 51,512 $ 1,366,611 $ (90,050) $ 1,276,562 Chemicals Homes Pharma Fibers 2008 Electronics Materials & Devices Construction Materials Services, Engineering and Others Corporate assets and Combined eliminations Consolidated Millions of yen Identifiable assets ¥618,877 ¥213,846 ¥142,774 ¥113,251 ¥122,310 ¥44,993 ¥332,164 ¥1,588,214 ¥(162,847) ¥1,425,367 Depreciation and amortization Impairment loss 37,122 2,690 6,102 – – – Capital expenditure 34,344 7,451 10,007 5,727 3,753 9,255 13,902 1,049 17,018 3,138 – 2,507 792 – 793 69,474 4,802 81,375 4,509 – 1,536 73,983 4,802 82,911 67 Chemicals Homes Pharma Fibers 2007 Electronics Materials & Devices Construction Materials Services, Engineering and Others Corporate assets and Combined eliminations Consolidated Millions of yen Identifiable assets ¥640,992 ¥212,739 ¥120,926 ¥115,575 ¥123,764 ¥55,141 ¥317,537 ¥1,586,674 ¥(126,751) ¥1,459,922 Depreciation and amortization Impairment loss 36,086 2,383 164 – Capital expenditure 46,024 2,701 6,553 1,659 5,722 5,302 13,357 3,040 – – – 6,362 16,234 2,301 735 – 760 67,456 1,823 80,104 4,191 25 4,308 71,646 1,848 84,413 Chemicals Homes Pharma Fibers 2008 Electronics Materials & Devices Construction Materials Services, Engineering and Others Corporate assets and Combined eliminations Consolidated Thousands of U.S. dollars Identifiable assets $6,188,772 $2,138,456 $1,427,742 $1,132,505 $1,223,096 $449,930 $3,321,635 $15,882,138 $(1,628,468) $14,253,670 Depreciation and amortization Impairment loss 371,220 26,905 61,022 57,272 139,020 31,381 7,917 694,738 45,092 739,830 – – – 37,528 10,488 – – 48,017 – 48,017 Capital expenditure 343,440 74,508 100,067 92,550 170,185 25,069 7,928 813,748 15,360 829,107 Note 1) The Company’s industry segments are aggregated into seven segments based primarily upon similarities of products, services, and economic characteristics. Chemicals − The Company produces, processes and sells chemicals and derivative products (such as ammonia, nitric acid, caustic soda, acrylonitrile, styrene monomer, methyl methacrylate (MMA) monomer, PMMA resin, high-compound fertilizers, and adipic acid), polymer products (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 (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, ion-exchange membranes and electrolysis systems, Saran Wrap™ cling film, Ziploc™ storage bags, and plastic films, sheets, and foams). Homes − The Company builds Hebel Haus™ custom-built pre-fabricated 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, and 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 & Devices − The Company produces and sells Pimel™ photosensitive polyimide, Sunfort™ dry-film photoresist (DF), 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. Services, Engineering and Others − The Company provides plant engineering, environmental engineering, personnel staffing and placement, and think tank services. Note 2) Change in industry segments On April 1, 2007, Asahi Kasei Life & Living Corp., a wholly owned subsidiary, was merged into Asahi Kasei Chemicals Corp., a wholly owned subsidiary. Accordingly, as a result of re-evaluation of the Company’s industry segment configuration, the Life & Living segment was combined with the Chemicals segment based on the similarity of product types and characteristics and the unification of the organization. For comparison purposes, results for the fiscal year ended March 31, 2007, in the Chemicals segment have been revised to include those in the Life & Living segment. Note 3) Change in method of depreciation of tangible fixed assets Due to a revision of the Corporation Tax Law (effected by Law No. 6 of 2007 (Law Partially Revising the Income Tax Law, Etc.), promulgated on March 30, 2007, and by Cabinet Ordinance No. 83 of 2007 (Cabinet Ordinance Partially Revising the Income Tax Law, Etc.), promulgated on March 30, 2007), the parent company and its Japanese subsidiaries, beginning with the fiscal year ended March 31, 2008, adopted a change in the method of depreciation of tangible fixed assets acquired on or after April 1, 2007, in accordance with the revised Corporation Tax Law. The effect of this change for the year ended March 31, 2008, is that operating expenses are higher than they would have been under the previous method of depreciation by ¥742 million (US$7,419 thousand) in the Chemicals segment, ¥49 million (US$490 thousand) in the Homes segment, ¥131 million (US$1,314 thousand) in the Pharma segment, ¥154 million (US$1,538 thousand) in the Fibers segment, ¥865 million (US$8,645 thousand) in the Electronics Materials & Devices segment, ¥91 million (US$912 thousand) in the Construction Materials segment, ¥12 million (US$115 thousand) in the Services, Engineering and Others segment, and ¥98 million (US$980 thousand) in corporate expenses and eliminations, with operating profit (loss) correspondingly lower (higher) in each case. (addendum) Due to a revision of the Corporation Tax Law (effected by Law No. 6 of 2007 (Law Partially Revising the Income Tax Law, Etc.), promulgated on March 30, 2007, and by Cabinet Ordinance No. 83 of 2007 (Cabinet Ordinance Partially Revising the Income Tax Law, Etc.), promulgated on March 30, 2007), the parent company and its Japanese subsidiaries, beginning with the fiscal year in which the residual value of an asset purchased on or before March 31, 2007, is reduced to 5% of the purchase price through application of the method of depreciation in effect prior to the revision of the Corporation Tax Law, are depreciating the difference between 5% of the purchase price and the memorandum price using the straight-line method over five years, and recognizing this as a constituent of depreciation. The effect of this for the year ended March 31, 2008, is that operating expenses are higher than they would have been under the previous method of depreciation by ¥877 million (US$8,766 thousand) in the Chemicals segment, ¥26 million (US$256 thousand) in the Homes segment, ¥181 million (US$1,809 thousand) in the Pharma segment, ¥205 million (US$2,047 thousand) in the Fibers segment, ¥401 million (US$4,013 thousand) in the Electronics Materials & Devices segment, ¥115 million (US$1,153 thousand) in the Construction Materials segment, ¥36 million (US$356 thousand) in the Services, Engineering and Others segment, and ¥68 million (US$684 thousand) in corporate expenses and eliminations, with operating profit (loss) correspondingly lower (higher) in each case. 68 Note 4) Corporate operating expenses included in “Corporate expenses and eliminations” for the year ended March 31, 2008 and 2007, amount to ¥16,149 million (US$161,493 thousand) and ¥14,325 million, respectively. Note 5) Corporate assets such as surplus funds (cash on hand and in banks), long-term-investment funds (investment securities etc.) and land etc. included in “Corporate assets and eliminations” as of the year ended march 31, 2008 and 2007, amount to ¥413,698 million (US$4,136,977 thousand) and ¥433,000 million, respectively. (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, 2008 and 2007, are not significant. (3) Overseas sales Overseas sales for the years ended March 31, 2008 and 2007, are as follows: East Asia 2008 Others Total East Asia 2007 Others Total East Asia 2008 Others Total Overseas sales ¥287,862 ¥199,475 ¥ 487,337 ¥245,276 ¥182,764 ¥ 428,040 $2,878,619 $1,994,747 $ 4,873,366 Millions of yen Thousands of U.S. dollars Consolidated net sales Percentage of consolidated net sales (%) – – 1,696,789 – – 1,623,791 – – 16,967,890 17.0% 11.8% 28.7% 15.1% 11.3% 26.4% Note 1) Geographical distance is considered in the classification of country or area. Major countries or areas included in each category are as follows; Note 2) East Asia: China, Korea, and Taiwan Others: Southeast Asia (except East Asia), U.S.A., Europe, and others. Overseas sales represent the sales of the Company to countries and areas outside of Japan. Note 3) 19. Related party transactions There were no transactions for the year ended March 31, 2008, between the Company and related parties. Transactions for the year ended March 31, 2007, between the Company and related parties are as follows: Type of related parties Corporate Auditor Name Yuichiro Miyake Occupation Attorney Equity ownership in the Company 0.0% Nature of transactions Attorney’s fees (*2) Amount (*1) Millions of yen 58 *1: Not including consumption tax. *2: Amounts of attorney’s fees were determined using a reasonable method of calculation based on guidelines formerly issued by the Japan Federation of Bar Associations and other standards. 20. Appropriation of retained earnings Appropriations of retained earnings are not accrued in the financial Directors. Retained earnings at March 31, 2008, include amounts rep- statements for the period to which they relate, but are recorded in the resenting final cash dividends of ¥9,791 million (US$97,911 thou- subsequent accounting period after approval by the Board of sand) which were approved at the Board meeting held on May 8, 21. Contingent liabilities Contingent liabilities at March 31, 2008 and 2007, arising in the ordinary course of business are as follows: Notes discounted Loans guaranteed Commitment for guarantees Letters of awareness Millions of yen 2007 ¥ 141 11,185 2,363 235 Thousands of U.S. dollars 2008 $ 2,077 97,369 17,384 2,672 2008 ¥ 208 9,737 1,738 267 ¥11,950 ¥13,924 $119,502 The parent company and certain of its subsidiaries and affiliates are defendants in several pending lawsuits. However, based upon the information currently available to both the Company and its legal counsel, management of the Company believes that any damages from such lawsuits will not have a material effect on the Company’s consolidated financial statements. 69 22. 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 years ended March 31, 2008 and 2007, 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 Basic net income per share Diluted net income per share Millions of yen 2008 2007 Thousands of U.S. dollars 2008 ¥69,945 ¥68,575 $699,453 – – – ¥69,945 ¥68,575 $699,453 – – – ¥69,945 ¥68,575 $699,453 Thousands of shares 2008 2007 1,398,704 1,399,462 – – 1,398,704 1,399,462 2008 ¥50.01 ¥ – 2007 ¥49.00 ¥ – Yen U.S. dollars 2008 $0.50 $ – As the Company had no dilutive securities at March 31, 2008 and 2007, the Company does not disclose diluted net income for the years ended March 31, 2008 and 2007. 70 71 Major Subsidiaries and Affiliates As of April 1, 2008 Company Chemicals Segment Asahi Kasei Chemicals Corp.* Sanyo Petrochemical Co., Ltd.* Asahi Kasei Pax Corp.* Asahi Kasei Epoxy Co., Ltd.* Asahi Kasei Home Products Corp.* Asahi Kasei Metals Ltd. Asahi Kasei Finechem Co., Ltd. Asahi Kasei Geotechnologies Co., Ltd. Asahi SKB Co., Ltd. Asahi Kasei Clean Chemical Co., Ltd. Asahi Kasei Technoplus Co., Ltd.* Japan Elastomer Co., Ltd.* Sundic Inc. Wacker Asahikasei Silicone Co., Ltd. Okayama Chemical Co., Ltd. Kayaku Japan Co., Ltd. PS Japan Corp. Chisso Asahi Fertilizer Co., Ltd. Asahi Organic Chemicals Industry Co., Ltd. Asahikasei Plastics (America) Inc.* Asahi Kasei Plastics North America, Inc.* Sun Plastech Inc.* Tong Suh Petrochemical Corp., Ltd.* Asahi Kasei Chemicals Korea Co., Ltd. Delaglas Korea Corp. Asahikasei Plastics (Shanghai) Co., Ltd. Asahikasei (Suzhou) Plastics Compound Co., Ltd. Asahi-DuPont POM (Zhangjiagang) Co., Ltd. Asahi Kasei Performance Chemicals Corp.* Asahi Kasei Microza (Hangzhou) Co., Ltd.* Asahi Kasei Plastics (Hong Kong) Co., Ltd. Asahi Kasei Plastics Singapore Pte. Ltd.* Polyxylenol Singapore Pte. Ltd.* Asahikasei Plastics (Thailand) Co., Ltd. PT Nippisun Indonesia Asahi Kasei Plastics Europe SA/NV* Asahi Photoproducts (Europe) SA/NV* Asahi Photoproducts (UK) Ltd.* Homes Segment Asahi Kasei Homes Corp.* Asahi Kasei Jyuko Co., Ltd.* Asahi Kasei Mortgage Corp.* Asahi Kasei Reform Co., Ltd.* Asahi Kasei Real Estate, Ltd.* Main products/business line Paid-in capital (million) Equity interest (%) Chemicals Benzene, ethylene Packaging products and solutions Epoxy resin Cling film, other household products Aluminum paste Specialty chemicals Sale of industrial explosives, civil engineering materials Shotgun cartridges Water treatment equipment, environmental chemicals Processing and sale of plastic and fiber Synthetic rubber Biaxially oriented polystyrene sheet Silicone Caustic soda, chlorine Industrial explosives Polystyrene Fertilizer Synthetic resin, fabricated plastic products Compounded performance resin operations Coloring and compounding of performance resin Sale of purging compound Acrylonitrile, sodium cyanide Adipic acid, microporous membrane PMMA sheet for light-guide plates Sale of performance resin Coloring and compounding of performance resin Polyacetal High-performance HDI-based polyisocyanate Industrial membranes and systems Sales of performance resin 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 Housing Steel frames Financial services Home maintenance and remodeling Home leasing, real estate brokerage ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ US$ US$ US$ W W W CNY CNY US$ CNY CNY HK$ US$ US$ B US$ € € ₤ ¥ ¥ ¥ ¥ ¥ 3,000 2,000 490 300 250 250 175 132 100 100 160 1,000 1,050 1,050 1,000 60 5,000 305 5,000 17.8** 21.7** 1.0 50,642 1,500 5,000 18 50 32.0 149 29 20 46.0 35.0 140 6.3 5.0 3.4 0.3 3,250 2,820 500 250 200 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 99.4 75.0 50.0 50.0 50.0 50.0 45.0 35.0 29.9 100.0 100.0 100.0 100.0 100.0 60.0 100.0 51.0 50.0 100.0 100.0 100.0 100.0 70.0 100.0 25.7 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 * Consolidated subsidiary ** Including capital reserve 72 Main products/business line Paid-in capital (million) Equity interest (%) Company Pharma Segment Asahi Kasei Pharma Corp.* Asahi Kasei Medical Co., Ltd.* Asahi Kasei N&P Co., Ltd.* Asahikasei Aime Co., Ltd.* Asahi Kasei Kuraray Medical Co., Ltd.* Asahi Kasei Medical America Inc. Asahi Kasei Medical (Hangzhou) Co., Ltd.* Asahi Kasei Medical Europe GmbH Asahi Pharma Spain, SL Fibers Segment Asahi Kasei Fibers Corp.* Kyokuyo Sangyo Co., Ltd.* Asahi Kasei AGMS Corp.* DuPont-Asahi Flash Spun Products Co., Ltd. Solotex Corp. Asahi Kasei Spandex America, Inc.* 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 Electronics Materials & Devices Segment Asahi Kasei EMD Corp.* Asahi Kasei Microsystems Co., Ltd.* Asahi-Schwebel Co., Ltd.* Asahi Kasei Electronics Co., Ltd.* AKM Semiconductor, Inc.* Asahi Kasei EMD Korea Corp. Asahi Kasei Electronics Materials (Suzhou) Co., Ltd.* Asahi Kasei EMD Taiwan Corp. Asahi Kasei Wah Lee Hi-Tech Corp.* Asahi-Schwebel (Taiwan) Co., Ltd.* Construction Materials Segment Pharmaceuticals, medical products Medical devices, medical systems Functional food ingredients Contact lenses Hemodialyzers, therapeutic apheresis devices Sale of medical devices, medical systems Hemodialyzers Sale of medical devices, medical systems Pharmaceuticals ¥ ¥ ¥ ¥ ¥ US$ CNY € € ¥ Fiber, textiles Processing and sale of fiber, textiles ¥ Computerized grading, marking, and pattern-making systems ¥ ¥ Flash spun ¥ Polytrimethylene terephthalate fiber US$ Spandex CNY Spandex CNY Warp-knit spandex textiles NT$ Spandex HK$ Promotion and marketing of fiber and textiles B Spandex € Spandex € Sale of spandex and cupro cellulosic fiber € Sale of artficial suede Electronics materials and devices LSIs Glass fabric Hall elements Sale of LSIs Sale of pellicles Dry film photoresist Sale of pellicles Dry film photoresist Glass fabric Asahi Kasei Construction Materials Corp.* Asahi Kasei Foundation Systems Corp.* Construction materials Installation of piles Services, Engineering and Others Segment Asahi Research Center Co., Ltd.* Asahi Finance Co., Ltd.* Asahi Kasei Engineering Co., Ltd.* Asahi Kasei Trading Co., Ltd.* Sun Trading Co., Ltd.* Asahi Kasei Amidas Co., Ltd.* AJS Inc. Asahi Kasei America, Inc.* Asahi Kasei Business Management (Shanghai) Co., Ltd. * Consolidated subsidiary ** Including capital reserve 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 Business support services Business support services 3,000 200 495 480 800 0.5 163 0.2 0.1 3,000 80 50 450 250 10.2 132 78 801 65 850 14.6** 3.0 0.3 3,000 50 50 50 2.9 820 181 1.0 49 326 3,000 200 3,000 800 400 98 94 80 800 0.1 100.0 100.0 100.0 100.0 93.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 50.0 50.0 100.0 100.0 82.5 50.0 100.0 60.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 80.6 51.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 49.0 100.0 3.0 100.0 73 ¥ ¥ ¥ ¥ US$ W CNY NT$ NT$ NT$ ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ US$ US$ Asahi Kasei Corporation May 21, 1931 ¥103,388,521,767 23,854 (Consolidated) 791 (Non-consolidated) Core Operating Companies Asahi Kasei Chemicals* 1-105 Kanda Jinbocho, Chiyoda-ku Tokyo 101-8101, Japan Phone: +81-3-3296-3200 Asahi Kasei Homes 1-24-1 Nishi-shinjuku, Shinjuku-ku Tokyo 160-8345, Japan Phone: +81-3-3344-7111 Asahi Kasei Pharma* 1-105 Kanda Jinbocho, Chiyoda-ku Tokyo 101-8101, Japan Phone: +81-3-3296-3600 Asahi Kasei Fibers 1-2-6 Dojimahama, Kita-ku Osaka 530-8205, Japan Phone: +81-6-6347-3600 Asahi Kasei EMD* 1-23-7 Nishi-shinjuku, Shinjuku-ku Tokyo 160-0023, Japan Phone: +81-3-6911-2700 Asahi Kasei Construction Materials* 2-12-7 Higashi-shinbashi, Minato-ku Tokyo 105-0021, Japan Phone: +81-3-5473-5251 * The Tokyo Head Office of Asahi Kasei Corp. and the Head Office of Asahi Kasei Pharma moved to Kanda Jinbocho in May 2008. The Head Office of Asahi Kasei Chemicals moved to Kanda Jinbocho in June 2008. The Head Offices of Asahi Kasei Construction Materials and Asahi Kasei EMD will move to Kanda Jinbocho in September 2008 and November 2008, respectively. Corporate Profile As of March 31, 2008 Company Name Date of Establishment Paid-in Capital Employees Asahi Kasei Group Offices Asahi Kasei Corporation Tokyo Head Office* 1-105 Kanda Jinbocho, Chiyoda-ku Tokyo 101-8101, Japan Phone: +81-3-3296-3000 Fax: +81-3-3296-3161 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 1407 New China Insurance Tower No.12 Jian Guo Men Wai Avenue Chao Yang District Beijing 100022, 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 74 Contents page. 02 History of Diversification, Operating Structure page. 04 Asahi Kasei Group Operations, Worldwide page. 06 Strategic Management Initiatives page. 08 Consolidated Financial Highlights page. 10 To Our Shareholders page. 11 Driving the Strategic Advance: Growth Action − 2010 page. 33 Toward Sustainable Growth page. 34 Corporate Governance page. 38 Corporate Social Responsibility page. 40 Directors, Corporate Auditors, Executive Officers page. 41 Financial Section page. 72 Major Subsidiaries and Affiliates Investors Information As of March 31, 2008 Stock Listings Stock Code Authorized Shares Outstanding Shares Transfer Agent Tokyo, Osaka, Nagoya, Fukuoka, Sapporo 3407 4,000,000,000 1,402,616,332 Sumitomo Trust & Banking Co., Ltd. 4-5-33 Kitahama, Chuo-ku Osaka 541-8639, Japan Independent Auditors PricewaterhouseCoopers Aarata Number of Shareholders 128,865 Largest Shareholders % of equity* Nippon Life Insurance Co. .................................................................................. 5.22 Master Trust Bank of Japan, Ltd. TS .................................................................. 5.17 Japan Trustee Services Bank, Ltd. TS ................................................................. 4.42 Sumitomo Mitsui Banking Corp. ....................................................................... 2.53 Employees’ Stockholding ..................................................................................... 2.46 Dai-ichi Mutual Life Insurance Co. .................................................................. 2.30 Tokio Marine & Nichido Fire Insurance Co., Ltd. ........................................... 2.22 Meiji Yasuda Life Insurance Co. ........................................................................ 1.49 Mizuho Corporate Bank, Ltd. ............................................................................ 1.45 Sumitomo Life Insurance Company. ................................................................. 1.40 * Percentage of equity ownership after exclusion of treasury stock. Distribution by Type of Shareholder Distribution by Number of Shares Held Japanese financial institutions 44.11% Foreign investors 27.31% Japanese individuals and groups 21.56% Japanese securities companies 2.34% Other Japanese companies 4.68% 100,000 or more 10,000〜99,999 1,000〜9,999 Less than 1,000 80.53% 6.49% 12.56% 0.42% page. 16 At a Glance page. 74 Corporate Profile 1,402,616,332 shares page. 18 Operating Segments page. 75 Investors Information TM: Trademark or registered trademark of Asahi Kasei Corporation, affiliated companies, or third parties granting rights to Asahi Kasei Corporation or affiliated companies. 75 Annual Report 2008 ASAHI KASEI CORPORATION A n n u a l R e p o r t 2 0 0 8 A S A H I K A S E I C O R P O R A T I O N , 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 1-105 Kanda Jinbocho, Chiyoda-ku,Tokyo 101-8101, Japan Phone: +81-3-3296-3008 Fax: +81-3-3296-3162 www.asahi-kasei.co.jp This annual report was printed with vegetable-based ink on recycled paper. Printed in Japan 2008.10

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