ASAHI KASEI CORP Annual Report 2012

Plain-text annual report

Annual Report 2012 ASAHI KASEI CORPORATION A S A H I K A S E I C O R P O R A T O N I A N N U A L R E P O R T 2 0 1 2 The Asahi Kasei Group operates a diversiﬁ ed range of businesses in the four sectors of Chemicals & Fibers, Homes & Construction Materials, Electronics, and Health Care. With Asahi Kasei Corp. as a holding company, these businesses are advanced by nine core operating companies. Under our ﬁ ve- year medium-term strategic management initiative “For Tomorrow 2015” launched in ﬁ scal 2011, we are actively expanding our world-leading businesses along with creating new value for society in the ﬁ elds related to the environment & energy, residential living, and health care. By leveraging the comprehensive strengths of the Asahi Kasei Group, we will offer new value from the perspectives of “living in health and comfort” and “harmony with the natural environment,” aiming to achieve continuous growth in accordance with our Group Slogan—Creating for Tomorrow. Group Mission We, the Asahi Kasei Group, contribute to life and living for people around the world. Group Vision Providing new value to society by enabling “living in health and comfort” and “harmony with the natural environment.” Group Values Sincerity—Being sincere with everyone. Challenge—Boldly taking challenges, continuously seeking change. Creativity—Creating new value through unity and synergy. Group Slogan Creating for Tomorrow Holding company Business sectors Asahi Kasei Chemicals & Fibers Core operating companies Homes & Construction Materials Core operating companies Electronics Health Care Core operating companies Core operating companies Asahi Kasei Chemicals Asahi Kasei Homes Asahi Kasei Microdevices Asahi Kasei Pharma Asahi Kasei Fibers Asahi Kasei Construction Materials Asahi Kasei E-materials Asahi Kasei Medical ZOLL Medical Asahi Kasei Annual Report 2012 1 Net Sales Contents 02 Consolidated Financial Highlights 04 To Our Shareholders 05 Outline of “For Tomorrow 2015” 06 A Message from the President 11 Creation of New Value for Society 15 At a Glance 18 Operating Segments 18 20 22 24 26 28 30 Chemicals Homes Health Care Fibers Electronics Construction Materials Others 31 39 Toward Sustainable Growth Financial Section 80 Major Subsidiaries and Affiliates 82 Company Information 83 Investors Information Others 1.3% ¥18.6 billion Construction Materials 2.9% ¥46.1 billion Electronics 9.3% ¥146.1 billion Fibers 7.0% ¥110.8 billion FY 2011 Net sales ¥1,573.2 billion Chemicals 43.2% ¥680.1 billion Homes 28.7% ¥452.0 billion Health Care 7.6% ¥119.5 billion Operating Income (Percentages before corporate expenses and eliminations) Others 2.6% ¥3.0 billion Construction Materials 1.6% ¥1.8 billion Electronics 5.6% ¥6.4 billion Fibers 2.8% ¥3.1 billion FY 2011 Operating income ¥104.3 billion Chemicals 39.0% ¥44.5 billion Homes 40.7% ¥46.3 billion Health Care 7.7% ¥8.8 billion Disclaimer The forecasts and estimates shown in this annual report are dependent on a variety of assumptions and economic conditions. Plans and figures depicting the future do not imply a guarantee of actual outcome. Asahi Kasei Annual Report 2012 2 Consolidated Financial Highlights Asahi Kasei Corporation and consolidated subsidiaries Fiscal year beginning April 1 2011 2010 ¥ billion 2009 2008 2007 For the year Net sales** Operating income Net income Comprehensive income Free cash flows At year-end Total assets Net worth† Interest-bearing debt Per share Net income Net worth‡ Cash dividends Key indexes Operating margin Payout ratio ROA ROE Net worth to total assets‡ D/E ratio‡ US$ million* 2011 $ 19,155 1,269 679 762 631 $ 17,175 8,606 2,242 US$* ¥ 1,573.2 104.3 ¥ 1,555.9 122.9 55.8 62.6 51.8 60.3 45.1 69.3 ¥ 1,392.2 ¥ 1,521.2 57.6 25.3 35.0 4.7 ¥ 1,663.8 127.7 69.9 — — — 69.1 (66.9) 3.8 ¥ 1,410.6 ¥ 1,425.9 706.8 184.1 663.6 253.9 ¥ 39.89 505.72 14.00 ¥ 43.11 474.59 11.00 6.6% 35.1% 3.9% 8.1% 50.1% 0.26 7.9% 25.5% 4.3% 9.3% 46.5% 0.38 ¥ 1,368.9 633.3 264.6 ¥ ¥ 18.08 452.91 10.00 4.1% 55.3% 1.8% 4.1% 46.3% 0.42 ¥ 1,379.3 603.8 315.6 ¥ 1,425.4 666.2 211.4 ¥ 3.39 431.77 10.00 ¥ 50.01 $ 0.49 476.39 13.00 6.16 0.17 2.3% 295.0% 0.3% 0.7% 43.8% 0.52 7.7% 26.0% 4.8% 10.7% 46.7% 0.32 * U.S. dollar amounts in this annual report are translated from Japanese yen, for convenience only, at the rate of ¥82=US$1 as described in Note 1 of Notes to Consolidated Financial Statements. ** Beginning with the year ended March 31, 2012, the accounting policy for naphtha resale in the Chemicals segment was changed. This change is applied retro- actively to net sales for the years ended March 31, 2008, through March 31, 2011. Operating margin is recalculated accordingly. † Net assets less minority interest. ‡ At fiscal year end. Net Sales (¥ billion) 2,000 1,663.8 1,500 1,521.2 1,555.9 1,573.2 1,392.2 1,000 500 0 FY 07 08 09 10 11 (%) 20 15 10 60.3 55.8 Operating Income, Operating Margin Net Income, ROE (¥ billion) (¥ billion) (%) 15 12 9 127.7 122.9 104.3 7.7 7.9 57.6 6.6 6 35.0 4.1 2.3 3 0 07 08 09 10 11 150 120 90 60 30 0 FY 69.9 10.7 80 60 40 20 0 FY Operating income, left scale Operating margin, right scale Net income, left scale ROE, right scale 25.3 4.1 4.7 0.7 9.3 8.1 5 0 07 08 09 10 11 Asahi Kasei Annual Report 2012 3 (¥ billion) 2,000 1,600 1,200 800 400 0 Strategic Management Initiatives (¥ billion) 150 120 90 60 30 0 FY (30) (60) (90) 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Ishin2000 (FY 1999–2002) Selectivity and focus Disposal of negative legacies Ishin-05 (FY 2003–2005) Selective diversification Creation of cash flow Growth Action – 2010 (FY 2006–2010) Business portfolio realignment for expansion and growth Strategic investment For Tomorrow 2015 (FY 2011–2015) Pursuit of growth Operating income, left scale Net income (loss), left scale Net sales, right scale Total Assets, Net Worth to Total Assets Interest-Bearing Debt, D/E Ratio Free Cash Flows (¥ billion) (¥ billion) (¥ billion) 1,500 1,425.4 (%) 60 1,379.3 1,368.9 1,425.9 1,410.6 46.7 43.8 46.3 1,000 500 0 50.1 46.5 40 20 0 350 300 250 200 150 100 50 0 315.6 264.6 0.52 253.9 211.4 0.32 0.42 0.38 184.1 0.7 0.6 0.5 0.4 0.3 0.26 0.2 0.1 0.0 80 60 40 20 0 (20) (40) (60) (80) FY 69.1 69.3 51.8 3.8 (66.9) 07 08 09 10 11 FY* 07 08 09 10 11 FY* 07 08 09 10 11 Total assets, left scale Net worth to total assets, right scale * At year end. Interest-bearing debt, left scale D/E ratio, right scale * At year end. Asahi Kasei Annual Report 2012 4 To Our Shareholders The Japanese economy slowed down significantly during fiscal 2011, with the global economy being affected by the sovereign debt crisis in Europe, and with exports to China and other emerging markets declining during the second half after having been relatively solid during the early part of the fiscal year. Although manufacturing activity generally recovered from the stagnant period following the Great East Japan Earthquake, Japan’s economic circumstances remained challenging, with corporate earnings suppressed by the persistent strength of the yen and high prices for feedstocks and fuel. Consolidated net sales of Asahi Kasei Corp. and its consolidated subsidiaries and equity-method affiliates (the Asahi Kasei Group) increased by ¥17.3 billion (1.1%) to ¥1,573.2 billion with strong performance in the Homes segment. Operating income decreased by ¥18.7 billion (15.2%) to ¥104.3 billion, largely due to the effect of high feedstock costs and the strong yen in the Chemicals segment. Ordinary income decreased by ¥10.7 billion (9.0%) to ¥107.6 billion, and net income decreased by ¥4.5 billion (7.5%) to ¥55.8 billion. Although overall performance declined, we raised our annual dividend for the fiscal year by ¥3 per share from previous year to ¥14 per share. The Asahi Kasei Group is now advancing under a five-year strategic management initiative called “For Tomorrow 2015,” which we launched in April last year for completion in fiscal 2015. This initiative provides a clear focus that unifies our diverse operations on our Group Vision of providing new value for people by enabling living in health and comfort and harmony with the natural environment in accordance with our Group Slogan of “Creating for Tomorrow.” In order to achieve this, in addition to further accelerating the expansion of our world-leading businesses, we are creating new value for society by expanding our operations in fields related to the environment & energy, residential living, and health care. One notable advance was our April 2012 acquisition of ZOLL Medical Corporation, a major US manufacturer of critical care devices, and ZOLL is now a core operating company within the Asahi Kasei Group. We will continue to strive for heightened corporate value through the achievement of further strategic advances under “For Tomorrow 2015.” August 2012 Ichiro Itoh Chairman Taketsugu Fujiwara President Ichiro Itoh, Chairman (left), Taketsugu Fujiwara, President (right) Asahi Kasei Annual Report 2012 Outline of “For Tomorrow 2015” 5 Mid-term management initiative “For Tomorrow 2015” (FY 2011 – 2015) Leveraging our diversified strengths, we will offer new value from the perspectives of living in health and comfort and harmony with the natural environment by “Creating for Tomorrow.” 1 Expansion of world-leading businesses Focused and proactive global development to build market leadership in growing markets. Acrylonitrile (AN) Solution-polymerized styrene-butadiene rubber (S-SBR) Electronics: Hipore™ lithium-ion battery separator, LSIs, Sunfort™ dry film photoresist, photomask pellicles Health Care: APS™ polysulfone-membrane artificial kidneys, Planova™ virus removal filters Fibers: Bemberg™ cupro cellulosic fiber, Roica™ elastic polyurethane filament 2 Creation of new value for society Meeting emerging social needs for “living in health and comfort” and “harmony with the natural environment” in the following three fields of focus through collaboration among different business units. Environment & Energy: Leveraging diverse technology to create a future in harmony with the natural environment (Hipore™ lithium-ion battery separator, LSIs, Microza™ hollow-fiber filtration membranes, Neoma™ and Jupii™ phenolic foam insulation panels, etc.) Residential Living: Providing comfortable living to more customers, more quickly (Order-built homes, real-estate business, remodeling, Hebel™ autoclaved aerated concrete, etc.) Health Care: Providing unique products and technologies for a lively society of health and longevity (Teribone™ osteoporosis drug, hemodialysis, etc.) Creation of new businesses is advanced with “For Tomorrow” projects in each of these three fields. Financial targets (¥ billion) Operating income Net income 300 250 200 150 100 50 0 FY Net sales ¥2.5–3.0 trillion Operating income over ¥250 billion Net sales ¥2 trillion Operating income ¥200 billion Net income ¥110 billion Net income over ¥140 billion FY 2011–2015 Long-term investment ¥1 trillion Net sales ¥1,555.9 billion Operating income ¥122.9 billion Net income ¥60.3 billion 2006 2007 2008 2009 2010 2015 target 2020 target Asahi Kasei Annual Report 2012 6 A Message from the President Taketsugu Fujiwara, President Accelerating actions for future growth through our “For Tomorrow 2015” strategic management initiative. In April 2011, the Asahi Kasei Group launched a strategic management initiative “For Tomorrow 2015” for the five years through fiscal 2015. Despite the challenging operating climate we faced during the second half of fiscal 2011, we maintained momentum on several strategic actions to build the foundations for further growth. For Tomorrow 2015 No. 2 global positions, expanding proactively in markets where we can exert leadership, with a focus “For Tomorrow 2015” is focused on the creation of new on growth in developing countries. For the latter, we value for the future by anticipating changes in society have been concentrating our resources on the from the two perspectives of living in health and comfort expansion of businesses related to the environment and harmony with the natural environment, in and energy, residential living, and health care. accordance with our Group Mission of contributing to Leveraging the diverse strengths of the Asahi Kasei life and living for people around the world. Group in these fields, we have established “For Our two main strategies for growth are the Tomorrow” projects that correspond to each of these expansion of world-leading businesses and the three fields, extending across our various business creation of new value for society. For the former, we units, working to provide unique solutions to the have been building on our established No. 1 and world’s emerging needs. Asahi Kasei Annual Report 2012 7 We plan to invest some ¥1 trillion to achieve these displays future products created through synergy strategies over the five-year period through fiscal among different operations within the Asahi Kasei 2015. Our targets for fiscal 2015 are consolidated net Group as well as with various outside entities. In sales of ¥2 trillion and operating income of ¥200 health care, we began a program of a joint research billion. Progress to Date on cell processing for cancer treatment with tella, Inc., a company specializing in cell therapy. Most significant of all is our entry into the field of critical care through our acquisition of ZOLL Medical We have taken several important steps during our Corporation, a major US manufacturer of critical care first year of “For Tomorrow 2015.” For the expansion devices and systems. of world-leading businesses, we have strengthened the foundations of our acrylonitrile (AN) business to meet the growing demand in Asia with our world- leading production technology. We started-up a new Long-term investment plan AN plant in Thailand using the world’s first commercial propane-process technology—which is now ramping-up toward full-capacity operation, constructed a new AN plant in Korea, and established a joint venture in Saudi Arabia to study an AN project. For S-SBR, whose demand is growing in the market of fuel-efficient tires, we started construction of our first plant in Singapore and made Intermittent expansion of established businesses, establishment of new businesses, M&A Long-term investment of some ¥1 trillion Chemicals & Fibers Homes & Const. Mat. Electronics a decision to add a second plant as well. In Health Care electronics, the Asahi Kasei Group enjoys the world’s top-share with Hipore™ Li-ion battery separator, which is widely used for smartphones, tablet PCs, and laptop computers. In order to maintain and reinforce our leading position, we are not only increasing production capacity but also making preparations for market expansion in automotive applications. We also made significant progress in developing and expanding businesses that create new value for Chemicals & Fibers Homes & Const. Mat. Performance plan by business sector (¥ billion) Net sales Operating income FY 2010 FY 2015 target FY 2010 FY 2015 target 808.6 880.0 68.6 75.0 456.6 570.0 38.6 50.0 society. In the field of the environment and energy, we Electronics 158.3 250.0 14.3 40.0 established a joint venture with FDK Corp. to accelerate the development of business related to the Health Care 116.4 180.0 7.0 25.0 lithium ion capacitor (LIC), an advanced high-capacity Others 16.0 20.0 (5.5) (5.0) energy storage device. We also acquired US venture company Crystal IS, Inc. to develop business related to ultraviolet light emitting diodes (UV LEDs). In the field of residential living, we constructed a demonstration house called “HH2015” in Fuji, Shizuoka prefecture, to showcase cutting-edge technologies, such as solar power generation systems and home dialysis devices. This facility Subtotal 1,555.9 1,900.0 122.9 185.0 “For Tomorrow” projects* 100.0 15.0 FY 2020, approx. 300 FY 2020, approx. 50 Total 1,555.9 2,000.0 122.9 200.0 * With our April 2012 acquisition of ZOLL, Critical Care is added as a new operating segment beginning in FY 2012. FY 2015 targets shown above as “For Tomorrow” projects include the Critical Care segment. Asahi Kasei Annual Report 2012 8 A Message from the President Forthcoming Steps of new value for society, we will strategically expand businesses in our three fields of focus. Growth in the Subsequent to the launch of “For Tomorrow 2015,” field of the environment and energy will be achieved the operating climate has worsened dramatically, with through the development of new electronic devices the extreme strength of Japanese yen impacting the that, like the electronic compass, establish market profitability of exports and the sovereign debt crisis in leadership in each category, the expansion of our Europe leading to reduced demand in our Chemicals water-treatment membrane business, and the and Electronics segments in particular. In response to development of new businesses for LICs and these changes, we are not only further accelerating UV LEDs. In residential living-related businesses, we progress under our management initiative, but are will continue to launch new homes that address also implementing an additional program to enhance social needs such as support for raising children, and structural profitability. We are targeting a cost energy conservation and storage. We will also reduction of over ¥20 billion by the end of “For expand business for Jupii™ phenolic foam floor Tomorrow 2015” by enhancing the efficiency of work insulation panels. Expansion of operations in the field in sales and R&D, reducing production costs, and of health care will be achieved through further sales streamlining physical distribution. These measures to growth in Recomodulin™ recombinant reinforce our business foundation will play a vital part thrombomodulin and Teribone™ for osteoporosis, in achieving our “For Tomorrow 2015” targets. advanced development of cell processing technology, For the further development of our world-leading and growth in the area of critical care with ZOLL as a businesses, we will advance the strategic expansion core operating company. of AN operations, and study further capacity increases for S-SBR overseas. We are also studying additional expansions of capacity for Hipore™ to maintain our world-leading share in mobile Expansion of Health Care Operations through Acquisition of ZOLL applications and establish leadership in the growing We are focusing on three areas for growth in the field market for automotive applications. For the creation of health care by creating new value for society: AN capacity expansion plan S-SBR capacity expansion plan (thousand tons/year) 2,000 (thousand tons/year) 6,000 (thousand tons/year) 400 1,500 1,000 500 0 FY 245 kt in Korea 200 kt in Thailand 10 11 12 Market share in Asia (Asahi Kasei estimate) 25% Asahi Kasei production capacity, left scale Global demand forecast, right scale 200 kt in Mideast 4,500 300 50 kt Phase 1 Singapore plant 50 kt Phase 2 Singapore plant 3,000 200 1,500 100 0 0 FY 10 13 Share of production capacity (Asahi Kasei estimate) 18% 15 40% Asahi Kasei production capacity, left scale Global demand forecast, right scale (thousand tons/year) 1,200 Additional capacity (overseas) 900 600 300 0 20 15 26% Asahi Kasei Annual Report 2012 9 critical care, medical IT, and cell culturing. Our particular interest in the area of critical care stems from the close coherence this area has with our Group Mission, the opportunity for synergies with our other health care operations, and the high market growth potential in this area worldwide. ZOLL enjoys an outstanding reputation and strong brand value in the US, whose medical device market is highly influential around the world, and it has a wealth of experience in dealing effectively with medical regulations and health insurance systems, as well as a strong track record of successfully developing innovative new products. ZOLL’s own future growth plans, moreover, corresponded flawlessly with our vision for business in this area, and so we moved to acquire the company. The acquisition was completed in April 2012, with ZOLL Fiscal 2012 Outlook becoming a wholly owned subsidiary of Asahi Kasei The operating environment for the Asahi Kasei Group and the newest core operating company in the Asahi in fiscal 2012 is expected to remain challenging due Kasei Group. Together, we are now accelerating the to ongoing effects of the European economic crisis, expansion of ZOLL’s high-growth products, both in the persistent strength of the yen, and slower the US and around the world. The inclusion of ZOLL’s economic growth in emerging countries. Although our critical care business will enable us to scale up our global operations will be vulnerable to such factors, health care sector to be a major pillar of our operating we still expect that our overall performance this fiscal portfolio, on par with Chemicals and Homes. year will improve from that of the previous year. Three fields of focus for creation of new value for society Basis of established businesses Fields of focus Chemicals & Fibers Homes & Construction Materials Electronics Health Care Environment & Energy Production process technology, materials/ processing technology, membranes/water treatment Insulation, highly durable construction materials Sensors, energy- conserving devices, battery materials Combined-unit projects Environment & Energy for Tomorrow Residential Living Production process technology, materials/ processing technology Unit homes, multidwelling homes, peripheral businesses Sensors, energy- conserving devices, battery materials Home health care devices & systems Residential Living for Tomorrow Health Care Production process technology, materials/ processing technology, medical applications Rental homes for the elderly Medical equipment applications Pharmaceuticals, medical-related devices & systems Health Care for Tomorrow Asahi Kasei Annual Report 2012 10 A Message from the President to soften the impact of rising R&D expenses. For the Critical Care segment, however, we are forecasting an operating loss due to amortization of goodwill. For overall performance in fiscal 2012, we are forecasting increases from the previous year in sales, operating income, ordinary income, and net income. Return to Shareholders The annual dividend for fiscal 2011 was raised by ¥3 per share from the previous year to ¥14 per share. We aim to maintain this dividend for fiscal 2012 reflecting forecasted consolidated financial results. Our basic policy is to strive to continuously increase dividends through earnings growth while maintaining an appropriate cash reserve based on In Chemicals & Fibers, we are forecasting a recovery in sales of chemicals and derivative consolidated income. products, especially overseas, despite high feedstock Our cash reserve will be used as a source of costs and deteriorating terms of trade. Increased funds required in order to achieve future earnings sales of Bemberg™ cupro fiber, spunbond growth by expanding operations, both through nonwovens, and Leona™ nylon 66 filament are also investments in established businesses and through anticipated. strategic investments and new business development In Homes & Construction Materials, increasing expenditures in fields related to the environment and deliveries of order-built homes are expected to continue, along with increased sales of Hebel™ autoclaved aerated concrete (AAC), foundation systems, and thermal insulation products. energy, residential living, and health care as the strategic focus of “For Tomorrow 2015.” We aim to continuously increase dividends by expanding earnings under “For Tomorrow 2015,” with a basic In Electronics, we are forecasting increased standard for payout ratio of 30%. shipments of electronic devices, especially LSIs for smartphones and other portable devices. Among electronic materials, we are forecasting a recovery in demand most notably for Hipore™ lithium-ion battery separator. Within the Health Care business sector, we are adding a new Critical Care operating segment to report results of ZOLL. We are forecasting higher operating income for this sector overall based on growing sales of Teribone™, Recomodulin™, and APS™ polysulfone-membrane artificial kidneys. Dividends per Share, Payout Ratio (¥) 15 12 9 6 3 0 13 295.0 10 10 11 14 (plan) 14 26.0 55.3 35.1 25.5 29.4 (forecast) (%) 300 120 90 60 30 0 FY 07 08 09 10 11 12 Favorable performance in these products is expected Dividends per share, left scale Payout ratio, right scale Creation of New Value for Society 11 Asahi Kasei Annual Report 2012 Under our “For Tomorrow 2015” strategic management initiative, we have launched three new projects: “Environment & Energy for Tomorrow,” “Residential Living for Tomorrow,” and “Health Care for Tomorrow.” These “For Tomorrow” projects aim to create new system-based, combined-unit businesses in each field by making the most of the Asahi Kasei Group’s diverse competencies. Environment & Energy for Tomorrow Leveraging diverse technology to create a future in harmony with the natural environment Masafumi Nakao Director Lead Executive Officer Asahi Kasei Utilizing the technology of the Asahi Kasei Group, we are advancing the development of innovative materials, devices, and systems for application at each stage from power generation to storage and consumption—including cutting-edge battery materials, lithium ion capacitor modules and systems, next-generation energy-saving devices, and LED materials. 1 Lithium ion capacitors Ultraviolet light emitting diodes In October 2011, we established a joint venture with FDK Corp. In December 2011, we acquired full ownership of Crystal IS, Inc. to accelerate the development of business related to the lithium (CIS), a US-based venture focused on the development of ultraviolet ion capacitor (LIC), a next-generation energy storage device. light emitting diodes (UV LEDs) using high-quality aluminum nitride LICs are capable of rapid charging and discharging at high (AlN) substrates. With shorter wavelength and higher energy than current, and feature high capacity, long life, and outstanding visible light, UV light can stimulate chemical reactions and provide a safety. Demand for LICs is anticipated to grow rapidly in the bactericidal effect. UV disinfection and sterilization are used for future, most notably in load leveling for renewable energy and in water treatment, medical devices, and many other applications, power regeneration for construction equipment and electric generally with a mercury-vapor light source. Featuring lower power vehicles. By combining FDK’s technology for integrated consumption, more compact size, and longer service life than manufacture of cells and modules together with the Asahi Kasei mercury-vapor lamps, UV LEDs are expected to facilitate the Group’s basic cell technology, the joint venture will accelerate development of portable disinfection equipment while enabling a product commercialization as a leader in the LIC market. wide range of new applications. By merging the technology of CIS Examples of LIC application Load leveling With rapid charge and discharge, LICs enable load leveling for intermittent renewable energy sources such as solar and wind. LIC Power regeneration LICs are ideal for electric vehicles with regenerative braking systems to recover energy and provide power at start-up. Power assistance When a large amount of electricity is needed instantaneously, such as when a photocopier starts up, the LIC provides additional power. Backup power At hospitals or other facilities where stable power supply is indispensible, LICs compensate for voltage sags due to lightning, etc. with the Asahi Kasei Group’s established technology for semiconductor thin films and devices, we will quickly build a new business for UV LEDs based on AlN substrates in this highly promising market. UV LEDs and aluminum nitride substrate 2 Asahi Kasei Annual Report 2012 12 Creation of New Value for Society Residential Living for Tomorrow Providing comfortable living to more customers, more quickly Masahito Hirai Executive Officer Asahi Kasei President Asahi Kasei Homes In addition to selling homes in the mature urban market, we also provide innovative lifestyle proposals that add new value for society by emphasizing such elements as healthy and comfortable living environments, interpersonal bonds, energy and resource conservation, and maximum utilization of land value. “HH2015” demonstration house In December 2011, we completed the construction of a demonstration house Seven zones in HH2015 called “HH2015” in Fuji, Shizuoka, Japan, Low-carbon zone which showcases the latest technology to meet the emerging changes in society Stationary bike-type power generator, etc. Natural energy zone Bifacial solar panels, etc. through synergy among various operations within the Asahi Kasei Group as well as with outside entities. This provides a venue to test how new technology in the fields of environment & energy and health care, such as solar power generation systems and home dialysis devices, can be applied in the residential setting, and allows us to evaluate the practicality and commercial prospects of various product designs and functions. R 3F 2F Plant-growing zone Kitchen with hydroponic culture system, etc. 1F Shared-house zone Communication board, etc. “HH2015” demonstration house Home health care zone Home dialysis, etc. Energy-saving, low-carbon, exterior zone Transpiration louver, etc. Pet dwelling zone Pet monitoring system, etc. 2 Yasuyuki Yoshida Director Primary Executive Officer Asahi Kasei Health Care for Tomorrow Providing unique products and technologies for a lively society of health and longevity Our main aim is to contribute to the advancement and widespread dissemination of Japanese medical technology as well as the establishment of Japanese society as a model for healthy longevity. While utilizing the technology and know-how of the Asahi Kasei Group, we proactively collaborate with outside organizations, both in industry and academia, bringing the disciplines of medicine and engineering together to take on the three challenges of “heightening emergency and critical care,” “utilizing medical IT to support healthy life,” and “applying cell therapy and regenerative medicine.” Asahi Kasei Annual Report 2012 13 3 Cell therapy and regenerative medicine In September 2011 we began joint R&D for cell processing use its technology, and enjoys Japan’s leading track record of cases equipment for cancer treatment with tella, Inc., a leader in the field treated. The joint R&D effort is focused on enabling the culture of of dendritic cell (DC) vaccine therapy*. Currently, most of the cells with higher, more stable quality in a shorter time and at process of culturing cells from patients and donors is performed reduced cost, by applying the experience and know-how in manually by cell culture technicians, making it difficult to maintain membrane and bioprocessing technology of Asahi Kasei and the efficient culturing procedures and achieve consistent quality of the cutting-edge technology of tella. cultured cells. Securing a stable, efficient supply of high-quality cells is therefore a key concern in this field. DC vaccine therapy, a promising field of cell therapy, targets and attacks only cancer cells without harming normal cells, with little concern of side effects. As a pioneer in this field, tella has contracted many medical institutions to * Dendritic cell (DC) vaccine therapy is a newly emerging and potent form of immunotherapy for the treatment of cancer. A cancer patient’s DCs are cultured in vitro in large numbers, and are conditioned to recognize spe- cific cancer antigens. After being returned to the patient’s body, these DCs transmit the antigen characteristics to lymphocytes, which then specifically target and attack cancer cells based on their antigens. Acquisition of ZOLL In April 2012, Asahi Kasei acquired ZOLL Medical Corporation, a major US manufacturer of critical care devices, for approximately US$2.21 billion. This acquisition provides an entry into the field of critical care, a major focus of our “Health Care for Tomorrow” project. ZOLL has a broad lineup of innovative products based on its world-leading core technology of resuscitation, including a new type of defibrillator for patients at high risk of sudden cardiac arrest. The company enjoys an outstanding reputation and strong brand value in the US, whose medical device market ZOLL headquarters in Massachusetts, US is highly influential around the world, and has a strong business platform in R&D, clinical development, dealing with medical regulations, manufacturing, and quality control. Together with ZOLL we are accelerating the expansion of operations in critical care. Combined with growth in our existing health care operations, this will enable our overall health care business sector to scale-up as a major pillar of our operating portfolio. The ZOLL AED Plus™ automated external defibrillator (AED), sold in Japan by Asahi Kasei since August 2011. Asahi Kasei Annual Report 2012 14 Creation of New Value for Society Acquisition of ZOLL Medical Corporation  Profile of ZOLL  Growth strategy ZOLL is a major US manufacturer of critical care devices and The initial focus is to further expand US sales of ZOLL’s growing systems. Its major strength is in defibrillators, with a rich product products such as defibrillators for patients at risk of sudden lineup that includes AEDs (automatic external defibrillators) for cardiac arrest and temperature management systems. We will public use as well as number of models for medical also further develop marketing channels in Europe and Asia to professionals. ZOLL is the leading US supplier of defibrillators enable the expansion of ZOLL’s operations in these regions, and used by hospitals and emergency medical services (EMS). With begin to study ways to gain synergy between ZOLL and our these and a wide range of other products for critical care, the existing health care businesses. Through such strategic company is well positioned to maintain its strong pace of advancements, we will together strengthen our presence in the growth. global critical care market. Company name ZOLL Medical Corporation Establishment 1980 ZOLL consolidated net sales trend Head office Chelmsford, MA, USA (US$ million) Main business Manufacture and sale of defibrillators, CPR devices, temperature management systems, and data management solutions Operation sites Chelmsford, MA; Pittsburgh, PA; Sunnyvale, CA; Broomfield, CO; and some 20 other sites in Europe and Asia CEO Richard A. Packer Employees 1,908 (as of October 2, 2011) 600 500 400 300 200 100 0 FY CAGR 16.0% (FY2001−2011) 524 444 398 385 310 256 212 218 185 150 119 01 02 03 04 05 06 07 08 09 10 11 Note: Fiscal year ending in September (beginning in October of the previous year) until 2011, fiscal year beginning in April (ending in March of the fol- lowing year) from 2012.  Background of the acquisition by Asahi Kasei Product portfolio based on “Chain of Survival”* Our relationship begun with a business alliance under which Asahi Kasei began the exclusive sale in Japan of ZOLL’s latest AED, the ZOLL AED Plus™, in August 2011. Subsequently, the management of the two companies deepened their interaction, and a merger agreement was signed in March 2012. We completed a TOB in April 2012, and ZOLL became a wholly owned subsidiary of Asahi Kasei.  Effect on Asahi Kasei’s financial performance Due to depreciation and amortization, we expect that it will take two to three years for the Critical Care segment to contribute to consolidated operating income. Anticipating synergy between ZOLL and our existing health care operations, we are scaling up our health care business sector to reach sales of ¥500 billion in fiscal 2020. * A guideline for the essential life-saving process in case of cardiac arrest as set forth by the American Heart Association (AHA), including procedures of reporting to EMS, CPR, defibrillation, and transfer to EMS. EARLY INTERVENTION ACCESS CPR DEFIBRILLATION ACLS POST RESUS CARE ZOLL products Defibrillators for patients at risk of sudden cardiac arrest Data man- agement suite for fire and EMS Non-invasive cardiac sup- port pump Automated external defi- brillators Defibrillators for hospitals and EMS Temperature management systems Asahi Kasei Annual Report 2012 At a Glance 15 By continuously transforming its business portfolio in anticipation of the changing needs of the times, the Asahi Kasei Group has developed and grown as one of Japan’s leading chemical manufacturers, with a selectively diversified array of businesses. Under our medium-term strategic management initiative “For Tomorrow 2015,” we are expanding our world-leading businesses as well as concentrating resources on fields related to the environment & energy, residential living, and health care, to create new businesses which meet emerging social needs. History of business portfolio transformation (sales composition) FY 1950 Net sales ¥13.5 billion Chemicals Fibers •Start of synthetic rubber business •Expansion into synthetic fiber business FY 1965 Chemicals Net sales ¥112.9 billion Fibers •Advancement into construction materials and housing businesses •Advancement into petrochemical business •Start of medical device business FY 1980 Homes & Construction Materials Fibers Net sales Chemicals ¥800.1 billion •Expansion of housing business •Expansion into pharmaceutical business •Expansion into LSI business FY 1995 Electronics Health Care Chemicals Net sales ¥1,210.2 billion Homes & Construction Materials Fibers Others 1.3% Net sales ¥18.6 billion Operating income ¥3.0 billion Construction Materials 2.9% ¥46.1 billion Net sales Operating income ¥1.8 billion Electronics 9.3% Net sales ¥146.1 billion Operating income ¥6.4 billion Fibers 7.0% Net sales ¥110.8 billion Operating income ¥3.1 billion Chemicals 43.2% Net sales ¥680.1 billion Operating income ¥44.5 billion Net sales ¥1,573.2 billion Health Care 7.6% Net sales ¥119.5 billion Operating income ¥8.8 billion Homes 28.7% Net sales ¥452.0 billion Operating income ¥46.3 billion FY 2011 Asahi Kasei Annual Report 2012 16 At a Glance Operating segments Core operating companies, main businesses/products Major consolidated subsidiaries Chemicals Asahi Kasei Chemicals Corp. Chemicals and derivative products: Ammonia, nitric acid, caustic soda, acrylonitrile (AN), styrene, adipic acid, methyl methacrylate (MMA), and acrylic resin. Polymer products: Stylac™-AS styrene-acrylonitrile, Stylac™-ABS acrylonitrile- butadiene-styrene, Tenac™ polyacetal, Xyron™ modified polyphenylene ether (mPPE), Leona™ nylon 66, Suntec™ polyethylene (PE), synthetic rubber and elastomer, polystyrene. Specialty products: Coating materials, latex, Ceolus™ microcrystalline cellulose, explosives, explosion-bonded metal clad, Microza™ UF and MF membranes and systems, ion-exchange membranes and electrolysis systems, Saran Wrap™ cling film, Ziploc™ storage bags, plastic film, sheet, and foam. Asahi Kasei Homes Corp. Order-built homes operations (unit homes and apartment buildings): Hebel Haus™ unit homes, Hebel Maison™ apartments. Real estate–related operations: Management of Hebel Maison™ rental units, Hebel Town™ housing developments, Atlas™ condominiums, brokerage of used Hebel Haus™ homes Remodeling: Exterior wall refurbishing, reroofing, redesign, interior renovation, solar panel installation. Financial and other services: Mortgage financing, etc. • Tong Suh Petrochemical Corp., Ltd. • Asahi Kasei Home Products Corp. • Asahi Kasei Pax Corp. • Asahi Kasei Plastics Singapore Pte. Ltd. • Asahikasei Plastics (America) Inc. • Japan Elastomer Co., Ltd. • Asahi Kasei Synthetic Rubber Singapore Pte. Ltd. • PS Japan Corp. • Asahi Kasei Performance Chemicals Corp. • Asahi Kasei Microza (Hangzhou) Co., Ltd. • Asahi Kasei Fudousan Residence Corp. • Asahi Kasei Reform Co., Ltd. • Asahi Kasei Mortgage Corp. • Asahi Kasei Jyuko Co., Ltd. • Asahi Kasei Home Construction Corp. Asahi Kasei Pharma Corp. Asahi Kasei Medical Co., Ltd. Pharmaceutical-related: Teribone™, Recomodulin™, Elcitonin™, Flivas™, Toledomin™, Bredinin™, and other pharmaceuticals, Lucica™ GA-L glycated albumin assay kit, L-series enriched liquid diets. Medical device–related: APS™ polysulfone-membrane artificial kidneys (dialyzers), therapeutic apheresis devices, Planova™ virus removal filters, Sepacell™ leukocyte reduction filters. • Asahi Kasei Pharma America Corp. • Asahi Kasei Medical (Hangzhou) Co., Ltd. • Asahi Kasei Bioprocess, Inc. • Asahi Kasei Medical Europe GmbH Homes Health Care Fibers Asahi Kasei Fibers Corp. Roica™ elastic polyurethane filament, Bemberg™ regenerated cellulose fiber, Eltas™ spunbond, Lamous™ artificial suede, and other nonwovens, Leona™ nylon 66 filament. • Hangzhou Asahikasei Spandex Co., Ltd. • Hangzhou Asahikasei Textiles Co., Ltd. • Thai Asahi Kasei Spandex Co., Ltd. • Asahi Kasei Spandex Europe GmbH • Asahi Kasei Spunbond (Thailand) Co., Ltd. Electronics Asahi Kasei Microdevices Corp. Asahi Kasei E-materials Corp. Electronic devices: Mixed-signal LSIs, Hall elements. Electronic materials: Hipore™ Li-ion battery separator, photomask pellicles, APR™ photosensitive resin and printing plate making systems, Pimel™ photosensitive polyimide/PBO precursor, Sunfort™ dry film photoresist, glass fabric for printed wiring boards. • AKM Semiconductor, Inc. • Asahi Kasei Electronics Materials (Suzhou) Co., Ltd. • Asahi Kasei Wah Lee Hi-Tech Corp. • Asahi-Schwebel (Taiwan) Co., Ltd. • Asahi Photoproducts (Europe) SA/NV Construction Materials Asahi Kasei Construction Materials Corp. Hebel™ and Hebel Powerboard™ autoclaved aerated concrete (AAC) panels, Neoma™ and Jupii™ phenolic foam insulation panels, Eazet™, ATT Column™, and other piling systems, BasePack™ column base attachment systems. • Asahi Kasei Extech Corp. • Asahi Kasei Foundation Systems Corp. Others Plant engineering, environmental engineering, research and analysis, personnel staffing and placement. • Asahi Research Center Co., Ltd. • Asahi Kasei Engineering Corp. • Asahi Kasei Amidas Co., Ltd. Fiscal 2011 composition of sales, operating income* Net sales (¥ billion) Operating income (¥ billion), operating margin (%) Asahi Kasei Annual Report 2012 17 Asahi Kasei Chemicals Corp. • Tong Suh Petrochemical Corp., Ltd. • Asahi Kasei Home Products Corp. • Asahi Kasei Pax Corp. • Asahi Kasei Plastics Singapore Pte. Ltd. • Asahikasei Plastics (America) Inc. • Japan Elastomer Co., Ltd. • Asahi Kasei Synthetic Rubber Singapore Pte. Ltd. • PS Japan Corp. • Asahi Kasei Performance Chemicals Corp. • Asahi Kasei Microza (Hangzhou) Co., Ltd. Asahi Kasei Homes Corp. • Asahi Kasei Fudousan Residence Corp. Order-built homes operations (unit homes and apartment buildings): Hebel • Asahi Kasei Reform Co., Ltd. Haus™ unit homes, Hebel Maison™ apartments. Real estate–related operations: Management of Hebel Maison™ rental units, Hebel Town™ housing developments, Atlas™ condominiums, brokerage of used Hebel Haus™ homes Remodeling: Exterior wall refurbishing, reroofing, redesign, interior renovation, solar panel installation. Financial and other services: Mortgage financing, etc. • Asahi Kasei Mortgage Corp. • Asahi Kasei Jyuko Co., Ltd. • Asahi Kasei Home Construction Corp. Asahi Kasei Pharma Corp. Asahi Kasei Medical Co., Ltd. Pharmaceutical-related: Teribone™, Recomodulin™, Elcitonin™, Flivas™, Toledomin™, Bredinin™, and other pharmaceuticals, Lucica™ GA-L glycated albumin assay kit, L-series enriched liquid diets. Medical device–related: APS™ polysulfone-membrane artificial kidneys (dialyzers), therapeutic apheresis devices, Planova™ virus removal filters, Sepacell™ leukocyte reduction filters. • Asahi Kasei Pharma America Corp. • Asahi Kasei Medical (Hangzhou) Co., Ltd. • Asahi Kasei Bioprocess, Inc. • Asahi Kasei Medical Europe GmbH Asahi Kasei Fibers Corp. Roica™ elastic polyurethane filament, Bemberg™ regenerated cellulose fiber, Eltas™ spunbond, Lamous™ artificial suede, and other nonwovens, Leona™ nylon 66 filament. • Hangzhou Asahikasei Spandex Co., Ltd. • Hangzhou Asahikasei Textiles Co., Ltd. • Thai Asahi Kasei Spandex Co., Ltd. • Asahi Kasei Spandex Europe GmbH • Asahi Kasei Spunbond (Thailand) Co., Ltd. Asahi Kasei Microdevices Corp. Asahi Kasei E-materials Corp. Electronic devices: Mixed-signal LSIs, Hall elements. Electronic materials: Hipore™ Li-ion battery separator, photomask pellicles, APR™ photosensitive resin and printing plate making systems, Pimel™ photosensitive polyimide/PBO precursor, Sunfort™ dry film photoresist, glass fabric for printed wiring boards. • AKM Semiconductor, Inc. • Asahi Kasei Electronics Materials (Suzhou) Co., Ltd. • Asahi Kasei Wah Lee Hi-Tech Corp. • Asahi-Schwebel (Taiwan) Co., Ltd. • Asahi Photoproducts (Europe) SA/NV Asahi Kasei Construction Materials Corp. Hebel™ and Hebel Powerboard™ autoclaved aerated concrete (AAC) panels, Neoma™ and Jupii™ phenolic foam insulation panels, Eazet™, ATT Column™, and other piling systems, BasePack™ column base attachment systems. • Asahi Kasei Extech Corp. • Asahi Kasei Foundation Systems Corp. Plant engineering, environmental engineering, research and analysis, personnel staffing and placement. • Asahi Research Center Co., Ltd. • Asahi Kasei Engineering Corp. • Asahi Kasei Amidas Co., Ltd. Net sales 43.2% Operating income 39.0% Net sales 28.7% Operating income 40.7% Net sales 7.6% Operating income 7.7% Net sales 7.0% Operating income 2.8% Net sales 9.3% Operating income 5.6% Net sales 2.9% Operating income 1.6% Net sales 1.3% Operating income 2.6% 800 600 400 200 0 FY 500 400 300 200 100 0 FY 150 100 50 0 FY 150 100 50 0 FY 200 150 100 50 0 FY 80 60 40 20 0 FY 30 20 10 0 FY * Percentages before corporate expenses and eliminations. 699.8 680.1 580.7 09 10 11 389.7 409.2 452.0 09 10 11 113.2 116.4 119.5 09 10 11 101.2 108.8 110.8 09 10 11 142.7 158.3 146.1 09 10 11 47.0 47.4 46.1 80 60 40 20 0 FY 50 40 30 20 10 0 FY 10.0 7.5 5.0 2.5 0.0 FY 6 4 2 0 (2) (4) FY 15 12 9 6 3 0 FY 3 2 1 0 09 10 11 FY 64.4 44.5 9.2 20.0 15.0 10.0 6.5 5.0 0.0 26.1 4.5 09 10 11 Operating income, left scale Operating margin, right scale 46.3 10.3 36.5 8.9 25.3 6.5 09 10 11 Operating income, left scale Operating margin, right scale 8.8 7.4 7.0 6.1 4.0 3.5 09 10 11 Operating income, left scale Operating margin, right scale 4.2 3.9 3.1 2.8 (2.7) (2.8) 15.0 12.0 9.0 6.0 3.0 0.0 10.0 7.5 5.0 2.5 0.0 6.0 4.0 2.0 0.0 (2.0) (4.0) 09 10 Operating income (loss), left scale 11 Operating margin, right scale 14.3 9.0 5.1 7.2 4.4 6.4 09 10 11 Operating income, left scale Operating margin, right scale 4.4 2.1 4.0 1.8 10 11 2.6 1.2 09 Operating income, left scale Operating margin, right scale 17.6 16.0 18.6 4 3 2 1 0 10.3 1.8 09 10 11 FY 09 16.0 3.0 10.7 1.7 10 11 Operating income, left scale Operating margin, right scale 10.0 8.0 6.0 4.0 2.0 0.0 6.0 4.0 2.0 0.0 20.0 15.0 10.0 5.0 0.0 Asahi Kasei Annual Report 2012 18 Operating Segments We are pursuing global growth opportunities in fields that make the most of our technological advantage and optimizing our operational configuration in line with the changing management climate, with a focus on enabling “living in health and comfort” and “harmony with the natural environment” throughout our broad range of business operations. Yuji Kobayashi President, Asahi Kasei Chemicals Chemicals Net sales ¥680.1 billion Operating income ¥44.5 billion vs. fiscal 2010 –2.8% vs. fiscal 2010 –30.9% Financial Highlights Fiscal year beginning April 1 Net sales Overseas sales ratio Operating income Operating margin R&D expenditure R&D expenditure as % of net sales Capital expenditure Depreciation and amortization 2009 ¥580.7 42.0% 26.1 4.5% 14.0 2.4% 27.6 32.4 2010 ¥699.8 43.5% 64.4 9.2% 15.5 2.2% 23.2 31.9 (¥ billion) 2011 2012 forecast ¥680.1 41.3% 44.5 6.5% 16.2 2.4% 39.1 29.6 ¥782.0 — 46.0 5.9% — — 50.0 — “For Tomorrow 2015” strategies Through flexible investment of management resources, we are building a business portfolio that will meet society’s future needs. 1. Aiming for leading position in globally competitive businesses • Acrylonitrile (AN): Constructing cost-competitive plants to meet global demand growth, aiming for world No. 1 position. • Solution-polymerized styrene-butadiene rubber (S-SBR): Proactive capacity expansion to meet strong demand growth in the fuel-efficient tire market. 2. Business expansion in growing emerging markets, particularly in Asia • Performance plastics: Expanding established position in Asian markets through enhanced application development capability and global production infrastructure. • Water treatment/membrane business: Further reinforcing membrane business, expanding operations in China. • Duranate™ HDI-based polyisocyanate: Expanding business in the rapidly growing Chinese market. • Health care materials: Major expansion of Ceolus™ microcrystalline cellulose in emerging markets, reinforcement of acetonitrile supply infrastructure. 3. Creation of new business and business fields as next strategic pillars • Establishment and expansion of new businesses in promising markets. 4. Optimization of petrochemical operations in Japan for stable profitability Asahi Kasei Annual Report 2012 19 19 Fiscal 2011 Review Major Investments Sales decreased by ¥19.7 billion (2.8%) to ¥680.1 billion, and operating income decreased by ¥19.9 billion (30.9%) to ¥44.5 billion. Operating income from chemicals and derivative products decreased as market demand in China and other Asian countries declined in the second half of the fiscal year, and terms of trade for monomer products such as acrylonitrile and adipic acid deteriorated significantly due to high prices for naphtha and other feedstocks and the strong yen. Operating income from polymer products increased as domestic Japanese demand in automotive applications recovered in the second half of the fiscal year after a downturn following the Great East Japan Earthquake, and also synthetic rubber for tires performed well. Operating income from specialty products increased as home-use products such as Saran Wrap™ performed well, as did functional additives. Fiscal 2012 Outlook Shipment volumes are expected to increase in fiscal 2012, especially for chemicals and derivative products, enabling increased sales and operating income despite deteriorating margins due to higher feedstock prices. Highlights Decision to construct second plant in Singapore for S-SBR for fuel efficient tires In December 2011, Asahi Kasei Chemicals finalized a decision to construct its second S-SBR plant with annual production capacity of 50,000 tons in Singapore. With tightening environmental regulations and heightening environmental awareness, Groundbreaking for our first S-SBR plant in Singapore Under construction in fiscal 2011 • New power generation facility for use with wood biomass fuel in Nobeoka, Miyazaki, Japan • New AN and MMA plants in Thailand • Capacity expansion for AN in Korea • New S-SBR plant (1st phase) in Singapore • New integrated R&D center in Kawasaki, Kanagawa, Japan R&D Throughout the Chemicals segment, R&D focused on the environment, resources, and energy is advanced to provide new value to society through the enhancement of our established core technologies and the acquisition of new technologies. In chemicals and derivative products, we are advancing the verification of two new process technologies to enable feedstock diversification: the “E-flex” process for highly efficient production of propylene using C2 fractions or bioethanol as feedstock, and the “BB-flex” process to produce butadiene from butene. Studies on their commercialization are in progress. We have also developed new process technology to produce diphenyl carbonate (DPC) using CO2 as feedstock, and are now studying plans for commercialization. In polymer products, we are advancing the development of a number of innovative products including polyamide with ultra-high demand for high-performance tires which provide improved fuel efficiency is growing throughout the world. Demand for S-SBR which enables the production of tires that provide greater fuel efficiency while main- taining safety performance is therefore growing briskly. With this second plant in addition to the plant currently under con- struction in Singapore, Asahi Kasei Chemicals will enhance its ability to pro- vide a stable supply of S-SBR as strong market growth continues. Decision to construct a new acetonitrile plant in Korea In January 2012, Asahi Kasei Chemicals finalized a decision to construct a new plant in Korea to produce acetonitrile—a byproduct of acrylonitrile (AN) used as a solvent in the manufacture of pharmaceuticals. The production of crude acetonitrile byproduct is expected to increase in Korea once a new AN plant currently under construction begins oper- heat resistance, high rigidity, and excellent moldability using novel molecular design; synthetic rubber for next-generation eco efficient tires; modified polyphenylene ether (mPPE) expandable beads with high flame retardance and high heat resistance; and a new resin having optically isotropic properties in all directions. Computer-aided engineering (CAE) technology we developed in-house has become an essential element of our R&D capability, and is playing an increasingly significant role in new market development and joint development with customers. Projects in specialty products include the development of LED encapsulants based on our silicone modification technology, and the development of low-cost, safe, and low-waste processes to manufacture active pharmaceutical ingredients (APIs) through a combination of our organic synthesis technology and process technology. In the field of membrane separation we have developed a phosphorus adsorbent with a porous structure to enable the world’s fastest selective, high-level removal and high-purity recovery of phosphorus from treated water, and trials are in progress at large-scale water treatment facilities. The creation and development of new products and businesses are advancing through the accelerated development of materials for renewable energy and energy conservation, combining technologies not only within the Asahi Kasei Group but also with outside entities. ating in 2013. The new acetonitrile plant, with a production capacity of 11,000 tons per year, will utilize the additional byprod- uct in Korea, serving as Asahi Kasei Chemicals’ second production base in addition to a plant in Kawasaki, Kanagawa, Japan with capacity of 14,000 tons per year. With these two facilities, Asahi Kasei Chemicals will be in a stron- ger position to provide a reliable supply of acetonitrile to meet growing demand in the pharmaceutical industry, especially in India and China. AN plant in Korea Asahi Kasei Annual Report 2012 20 Operating Segments Homes Net sales ¥452.0 billion Operating income ¥46.3 billion vs. fiscal 2010 +10.4% vs. fiscal 2010 +27.0% The order-built homes business will be expanded with dominant competitiveness as the differentiated market leader in the field of urban unit homes. Housing-related operations will be developed as an array of businesses, building and utilizing their own distinctive strengths. Masahito Hirai President, Asahi Kasei Homes Financial Highlights (¥ billion) Fiscal year beginning April 1 2009 2010 2011 2012 forecast Net sales Overseas sales ratio Operating income Operating margin R&D expenditure R&D expenditure as % of net sales Capital expenditure Depreciation and amortization ¥389.7 ¥409.2 ¥452.0 ¥482.0 — 25.3 6.5% 2.1 0.5% 6.0 4.3 — 36.5 8.9% 2.0 0.5% 6.3 4.3 — 46.3 — 50.0 10.3% 10.4% 2.1 0.5% 6.3 4.8 — — 5.0 — “For Tomorrow 2015” strategies Our focus is on enhancing three-story houses and other products which incorporate innovative lifestyle proposals in order to secure the leading position in the urban homes market. We aim to provide comfortable living to as many customers as possible, as quickly as possible, based on our commitment to providing fulfillment in living in a mature urban setting. 1. Houses, apartments • Establishment of No. 1 position as a differentiated market leader with new residential lifestyle proposals that meet emerging social needs. • Promotion of community-specific proposals to increase market share, and reinforcing marketing capabilities in selected urban areas of Japan. • Expansion of multi-dwelling homes business. 2. Real estate • Reinforcing condominium business based on obtaining accord among owners regarding exchange of equivalent value. • Maximizing utilization of land value through brokerage-related operations. • Heightening capability to secure tenants. 3. Expansion of housing-related operations • Expansion of remodeling and renovation work. • Enhancement of the energy-conservation product lineup. Asahi Kasei Annual Report 2012 21 21 Fiscal 2011 Review Sales increased by ¥42.7 billion (10.4%) to ¥452.0 billion, and operating income increased by ¥9.9 billion (27.0%) to ¥46.3 billion. Customer orders for order-built homes increased by ¥17.4 billion to ¥371.9 billion. Operating income from order-built homes increased as deliveries of both Hebel Haus™ unit homes and Hebel Maison™ apartment buildings increased. Operating income from pre-built homes remains unchanged since last year. Operating income from housing-related operations increased as real-estate rental operations performed well and remodeling operations expanded steadily. Fiscal 2012 Outlook With increased deliveries of order-built homes buoyed by a rise in orders, sales and operating income are forecasted to increase in fiscal 2012. R&D R&D is focused on enhancing core technologies. Shelter technology brings greater safety and security through earthquake resistance, seismic damping, base isolation, 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 energy conservation and reduced CO2 emissions. Lifestyle technology brings greater comfort, convenience, and satisfaction. Evaluation/simulation technology is being enhanced to enable customers to more intuitively appreciate the real-world effects of variations and modifications, ensuring that the design of each home is optimized to match each customer’s preferences. 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. Sales Trends (Asahi Kasei Homes consolidated) Orders Received (¥ billion) (¥ billion) 500 400 300 200 100 0 FY 409.9 72.7 29.9 386.2 64.7 24.5 297.1 307.3 409.2 79.3 27.8 302.1 389.7 75.3 32.1 282.3 482.0 100.0 27.0 452.0 88.7 23.7 339.6 355.0 07 08 09 10 11 12 Forecast Order-built homes Pre-built homes Others 500 400 300 200 100 0 FY 354.5 371.9 392.0 306.1 291.1 306.9 07 08 09 10 11 12 Forecast Highlights Establishment of Asahi Kasei Fudosan Residence Corp. Asahi Kasei Real Estate, Ltd. was renamed Asahi Kasei Fudosan Residence Corp. in October 2011 with the transfer of the housing development business from Asahi Kasei Homes Corp. for integrated operation of real estate–related businesses. The new configuration will enable the efficient provision of more optimal solutions to a wide range of customers’ needs related to urban residence and asset management. Launch of new homes featuring the feel of nature In April 2011, Asahi Kasei Homes launched Hebel Haus™ Soranoma Plus, a home featuring semi-outdoor space integrated with a second-story living room. This design facilitates maximum utilization of sunlight and natural wind while maintaining a high level of privacy for residents. This was followed with the November 2011 launch of Hebel Haus™ Sky Cottage, a home featuring a third- floor patio that extends from a large room on the top floor to form a large open area suited to variety of activities that facilitate family gatherings. Hebel Haus™ Soranoma Plus Hebel Haus™ Sky Cottage Asahi Kasei Annual Report 2012 22 Operating Segments In order to contribute to life and living for people around the world, we are focused on providing the world with innovative new drugs that address unmet medical needs, as a specialized global pharmaceutical company. Toshio Asano (left) President, Asahi Kasei Pharma With the ideal of healthy and affluent society that provides fair access to health care of a high standard, we are developing new medical enterprises that enable the development of innovative medical devices as well as the improvement, creation, and establishment of treatment technologies by leveraging our vast expertise and resources. Yutaka Shibata (right) President, Asahi Kasei Medical Health Care Net sales ¥119.5 billion Operating income ¥8.8 billion vs. fiscal 2010 +2.7% vs. fiscal 2010 +25.0% Financial Highlights Fiscal year beginning April 1 Net sales Overseas sales ratio Operating income Operating margin R&D expenditure 2009 ¥113.2 22.3% 4.0 3.5% 18.4 2010 ¥116.4 22.9% 7.0 6.1% 16.5 R&D expenditure as % of net sales 16.3% 14.2% 14.6% Capital expenditure Depreciation and amortization 9.2 12.2 7.4 11.4 10.7 11.5 (¥ billion) 2011 2012 forecast ¥119.5 23.9% 8.8 7.4% 17.5 ¥131.0 — 12.5 9.5% — — 11.0 — “For Tomorrow 2015” strategies Pharmaceutical-related We are growing business with our new high-selling drugs as major pillars of earnings, and focusing on the development of novel drugs in the fields of orthopedics and urology for worldwide markets. 1. Japanese operations We will continue to increase earnings by advancing the growth of Recomodulin™ and Teribone™ as high-selling drugs. R&D- related investments will be increased to further reinforce the new drug pipeline, and clinical development will be accelerated. In our main therapeutic field of orthopedics, we are advancing the development of drugs related to locomotive syndrome, including drugs for osteoporosis and rheumatoid arthritis, in order to build a world-leading position in this area. In diagnostics, we are working to expand use of the Lucica™ GA-L glycated albumin assay kit, while advancing the development of infectious disease diagnostic kits. 2. Overseas operations We are entering a new phase as a specialized global pharmaceutical company through the advancement of the clinical development of Recomodulin™ in Europe and the US, as well as reinforcement of our capabilities for clinical development and marketing in East Asia. In diagnostics, we are reinforcing efforts to obtain approval for Lucica™ GA-L overseas. Asahi Kasei Annual Report 2012 23 23 Fiscal 2011 Review Sales increased by ¥3.1 billion (2.7%) to ¥119.5 billion, and operating income increased by ¥1.8 billion (25.0%) to ¥8.8 billion. Although operating expenses in pharmaceuticals operations rose with an increase in the number of medical representatives and higher R&D expenses, operating income increased with growing sales of Recomodulin™ recombinant thrombomodulin and the November 2011 launch of sales of Teribone™, a new osteoporosis drug. In devices-related operations, shipments of Planova™ virus removal filters increased, but operating income remains unchanged as the strong yen impacted performance in each product group. membrane artificial kidneys in medical devices. Some impact from rising expenses for pharmaceuticals R&D is forecasted. Major Investments Completed in fiscal 2011 • Medical Material Laboratory, Nobeoka, Miyazaki, Japan R&D In pharmaceuticals, we are focused on contributing to “living in health and comfort” by addressing unmet medical needs which are increasing together with maturing markets and the aging population, particularly in the fields of orthopedics and urology. We are not only searching for new subjects for R&D, but also pursuing continuous proprietary technological innovation and enhanced collaboration with world-leading technologies. In medical devices and related systems, we are utilizing our comprehensive strength to advance R&D to provide products, technology, and services that extend the potential of medical treatment as well as heighten medical standards. We are further advancing technological developments in blood-related therapies (hemodialysis and therapeutic apheresis), leukocyte reduction, and virus removal, while also focusing on next-generation fields of research including regenerative medicine utilizing autohemotherapy. Fiscal 2012 Outlook Pharmaceutical Product Pipeline (as of May 2012) We are forecasting higher sales and operating income for the Health Care segment based on growing sales of Teribone™ and Recomodulin™ in pharmaceuticals, and APS™ polysulfone- Medical device–related Leveraging our technological strengths in membrane separation and selective absorption, we are expanding our dialysis-related business and developing new applications that meet therapeutic needs as we reinforce our global presence. 1. Blood purification To meet forecasted growth in demand for artificial kidneys, we are strengthening our hemodialysis business by developing new variations of APS™ polysulfone membrane artificial kidneys and making continuous investments for expansion. For therapeutic apheresis devices that enable new possibilities for the treatment of intractable diseases and for the prevention of illnesses, we are enhancing our manufacturing process technology and heightening competitiveness as we continue to grow as the world leader in this field. 2. Blood transfusion We will continue to meet expanding global needs for our world- leading Sepacell™ leukocyte reduction filters by enhancing the product lineup and reinforcing our capability. 3. Bioprocess products As the manufacturer of Planova™, a hollow-fiber membrane filter that is the world’s leading virus removal filter for enhancing safety in the production of biotherapeutics, we will maintain the stable supply of high-quality products to meet growing demand. Development stage Pending approval Code name, form, generic name AK-120, oral, famciclovir AK-156, injection, zoledronic acid AK-160, injection AT-877, oral, fasudil hydrochloride hydrate ART-123, injection, recombinant thrombomodulin alpha Phase III Phase II Phase II (overseas) Classifications Indication Remarks Antiviral Herpes simplex Bisphosphonate Osteoporosis Additional indication New efficacy, new dose; once- yearly administration Collagenase clostridium histolyticum Rho-kinase inhibitor Dupuytren’s contracture New biologic Pulmonary arterial hypertension Additional indication, new dosage form Recombinant human thrombomodulin Sepsis with disseminated intravascular coagulation New biologic AK106 Anti- inflammatory Rheumatoid arthritis New chemical entity Highlights Launch of Teribone™ osteoporosis drug in Japan In November 2011, Asahi Kasei Pharma launched the sale of a 56.5 μg subcutaneous injection formulation of Teribone™ (generic name: teriparatide acetate) for the osteoporosis, which affects an increasing number of people as the population ages. The drug facilitates bone formation for patients with just weekly admin- istration. Since osteoporosis car- ries an increased risk of vertebral and femoral fracture, with a high probability of resulting in con- finement to bed, this drug is expected to provide a valuable contribution to dealing with an important social issue. Teribone™ Asahi Kasei Annual Report 2012 24 Operating Segments Fibers We are proactively expanding unique businesses with growth potential as well as our world- leading businesses, based on the concepts of “harmony with the natural environment” and “living in health and comfort.” Toshio Takanashi President, Asahi Kasei Fibers Net sales ¥110.8 billion Operating income ¥3.1 billion vs. fiscal 2010 +1.9% vs. fiscal 2010 –25.2% Financial Highlights Fiscal year beginning April 1 Net sales Overseas sales ratio Operating income (loss) Operating margin R&D expenditure R&D expenditure as % of net sales Capital expenditure Depreciation and amortization 2009 ¥101.2 32.7% (2.8) (2.7)% 3.8 3.8% 4.6 7.7 2010 ¥108.8 34.4% 4.2 3.9% 3.2 2.9% 3.7 7.0 (¥ billion) 2011 2012 forecast ¥110.8 31.9% 3.1 2.8% 2.8 2.6% 5.7 6.4 ¥112.0 — 4.5 4.0% — — 11.0 — “For Tomorrow 2015” strategies Proactive expansion of unique businesses with growth potential as well as world- leading businesses, in accordance with the two perspectives of “harmony with the natural environment” and “living in health and comfort.” Leveraging our strengths as a materials specialist in various collaborative projects for the creation of new businesses. 1. Roica™ elastic polyurethane • Further development and commercialization of new high-function yarns. • Securing a presence in growing Asian markets and globally, with the plant in Thailand as a key manufacturing base. 2. Nonwovens • Spunbond: Earnings growth in Asia with polypropylene spunbond for hygiene materials produced at new plant in Thailand, expansion of Precisé™ spunbond nonwovens. • Bemliese™ cupro cellulosic nonwoven: Securing stable earnings in the IT field in Asia, expansion in the medical and cosmetics fields. • Lamous™ artificial suede: Steady expansion in Japanese, Europe, and US markets for car seat applications, development of new applications in industrial fields. • Eutec™ oil-water separation filter: Establishing niche market leadership in oil-water separation, expansion in applications with microfiltration, as well as in the solid-liquid and gas-liquid separation fields. 3. Bemberg™ regenerated cellulose • Expansion in overseas markets for lining, particularly in Europe and China. • Development and expansion of non-lining applications, including outerwear, innerwear, and beddings in Europe and the US. • Production processes innovation. 4. Leona™ nylon 66 filament • Stable earnings in tire cord applications. • Expansion in air-bag applications. Asahi Kasei Annual Report 2012 2525 Bemberg™, spunbond, and Leona™ filament. Major Investments Under construction in fiscal 2011 • New spunbond plant in Thailand cellulose, Leona™ nylon 66, and various nonwovens. In addition, the creation of new cellulose-related business and the development of new nonwovens are advancing in accordance with the concepts of “living in health and comfort” and “harmony with the natural environment.” R&D In cooperation with other companies within the Asahi Kasei Group as well as with outside companies, we are enriching and enhancing our R&D functions to achieve results more quickly. Development of high- value added grades based on our unique technologies and manufacturing process innovation are advancing for Roica™ polyurethane, Bemberg™ regenerated Asahi Kasei Award for Fashion Design Creativity in China In March 2012, Asahi Kasei participated in China International Fashion Week, a major fashion event held in Beijing twice a year, to recognize top Chinese fashion designers with its “Asahi Kasei Award for Fashion Design Creativity in China.” Together with the award ceremony, a fashion show by the prize- winning designer is held to showcase apparel made with Asahi Kasei’s top-quality Bemberg™ cupro cellulosic fiber. The prize has been awarded ten times since its start in 2007, and it has now become an influential recognition within the Chinese fashion industry. Through this award, Asahi Kasei will continue sup- porting the development of the coun- try’s fashion design talent while heightening recognition of the Asahi Kasei Group in China. Fiscal 2011 Review Sales increased by ¥2.1 billion (1.9%) to ¥110.8 billion, however operating income decreased by ¥1.1 billion (25.2%) to ¥3.1 billion. Although shipments of spunbond in diaper applications increased, shipments of Leona™ nylon 66 filament in airbag applications increased, and Bemberg™ regenerated cellulose performed well, operating income decreased as the strong yen and high feedstock costs impacted products throughout the segment. Fiscal 2012 Outlook We forecast increased sales and operating income with growing shipments of Highlights New functional knit Spiel™ which generates heat when stretched In November 2011, Asahi Kasei Fibers launched Spiel™, a new functional knit that generates heat when stretched. This material was created by leveraging the company’s advanced knitting tech- nology and high- performance Roica™ spandex yarn. The heat generation function of this product will not only meet heightening demand for comfort and eco-efficiency in daily clothing, but also have great potential to expand its applications to various apparel catego- ries such as sportswear. Asahi Kasei Fibers will continue to strengthen the Roica™ brand with additional develop- ments of innovative yarns and fabrics that respond to customer’s need. （グラデーション） Fashion show featuring top-quality Bemberg™ fabric Asahi Kasei Annual Report 2012 26 Operating Segments Making the most of our unique technology, we are building our position as a leading sup- plier of electronic components, which contin- ues to develop and supply category- leading products to the global market, and expand business as an electronic device manufacturer that customers throughout the world can rely on. Makoto Konosu (left) President, Asahi Kasei Microdevices We are focused on materials that lead to reduced environmental burdens—both materials for energy storage and power generation devices, and electronics- related materials that enable energy conservation—based on our corporate commitment of “contributing to sustainable growth and prosperity, using chemical technology for green electronic materials, enhancing the environmental performance of electronic products.” Tetsuro Ota (right) President, Asahi Kasei E-materials Electronics Net sales ¥146.1 billion Operating income ¥6.4 billion vs. fiscal 2010 –7.7% vs. fiscal 2010 –55.0% Financial Highlights Fiscal year beginning April 1 Net sales Overseas sales ratio Operating income Operating margin R&D expenditure 2009 ¥142.7 46.5% 7.2 5.1% 18.4 2010 ¥158.3 50.3% 14.3 9.0% 18.4 R&D expenditure as % of net sales 12.9% 11.6% 13.1% Capital expenditure Depreciation and amortization 22.8 23.6 20.3 23.9 13.4 21.0 (¥ billion) 2011 2012 forecast ¥146.1 50.8% 6.4 4.4% 19.2 ¥152.0 — 10.5 6.9% — — 20.0 — “For Tomorrow 2015” strategies Electronic devices We are continuing to develop and supply category-leading products to the global electronic devices market, with a strategic product lineup that makes most of our unique strength in having both silicon semiconductor technology and compound semiconductor technology. We are advancing business expansion through the development of new electronic devices such as infrared sensors and current sensors with the potential to establish market leadership in their respective categories, as exemplified in our electronic compass which has a dominant market share as an essential component of portable devices. In each application we are developing new high-quality products that keenly match customer’s needs, further building relationships of mutual trust and reliance, in a wide range of fields including infrastructure and automotive in addition to consumer electronics. Electronic materials We are expanding business and enhancing supply capabilities for our leading businesses such as semiconductor process materials and circuit board materials, with a focus on high- performance, green electronic materials that reduce environmental burdens. For Hipore™ LIB separator, by leveraging our superior technology and marketing platform we have gained as the market leader in consumer electronics applications, we will proactively expand production capacity and develop new membranes that match individual customer needs to establish a leading position in rapidly emerging automotive applications. We will also continue expanding production capacity for Sunfort™ dry film photoresist in China to meet growing demand, in accordance with our focus on expanding business in growth markets based on our technological advantage. Asahi Kasei Annual Report 2012 2727 core technologies for polymer design and synthesis, membrane formation, and precision surface processing. Environment and energy–related materials such as high- performance lithium-ion battery materials for both portable electronics and automotive applications, and materials for solar cells are currently under development, as are new materials which correspond to leading technological trends for finer patterning in both semiconductors and printed wiring boards. Fiscal 2011 Review Major Investments Sales decreased by ¥12.2 billion (7.7%) to ¥146.1 billion, and operating income decreased by ¥7.8 billion (55.0%) to ¥6.4 billion. Although sales of mixed-signal LSIs for smartphones were firm, operating income in electronic devices decreased as an effect of a general deterioration in the operating climate which resulted in sluggish growth in shipment volumes, and by declining product prices and the strong yen. Although sales of Hipore™ Li-ion battery separator increased, operating income in electronic materials decreased with declining product prices and high feedstock costs. Fiscal 2012 Outlook For electronic devices we are forecasting increased shipments, especially of LSIs for smartphones and other portable devices, and a recovery in demand for electronic materials, most notably Hipore™ LIB separator. For the segment overall, both sales and operating income are forecasted to increase from the previous year. Completed in fiscal 2011 • Capacity expansion for Hipore™ LIB separator (lines 2 and 3) in Hyuga, Miyazaki, Japan Under construction in fiscal 2011 • Capacity expansion for Hipore™ LIB separator (line 4) in Hyuga, Miyazaki, Japan R&D With a wealth of design assets and a sophisticated organization of design engineers, we develop unique electronic devices in a timely fashion to keep pace with the rapid technology innovation of the electronics industry. Advanced development of high-performance products is based on both compound semiconductor process technology gained through development of high-sensitivity magnetic sensors and mixed-signal LSI technology. Development of new electronic materials which contribute to energy and resource conservation, reduced environmental burdens, and living in health and comfort is advancing based on our Highlights New 6-axis electronic compass Asahi Kasei Microdevices developed its latest 6-axis electronic compass, the AK8978, for portable appliances in January 2012. Asahi Kasei’s electronic compasses have earned the leading global market share in smartphones and tablet PCs, and this is new 6-axis compass combines the company’s 3-axis electronic compass with a high-performance 3-axis accelerometer from Analog Devices, Inc. in a single package. AK8978, the latest 6-axis electronic compass Asahi Kasei Annual Report 2012 28 Operating Segments We are focused on the development and provision of products that provide safety, security, and comfort, based on constant innovation in our core areas of AAC-related products, foundation systems, insulation materials, and structural components. Tomihiro Maeda President, Asahi Kasei Construction Materials Construction Materials Net sales vs. fiscal 2010 ¥46.1 billion Operating income ¥1.8 billion –2.7% vs. fiscal 2010 –12.8% Financial Highlights Fiscal year beginning April 1 Net sales Overseas sales ratio Operating income Operating margin R&D expenditure R&D expenditure as % of net sales Capital expenditure Depreciation and amortization 2009 ¥47.0 — 1.2 2.6% 1.1 2.3% 1.2 3.3 2010 ¥47.4 — 2.1 4.4% 1.1 2.4% 1.7 2.8 2011 ¥46.1 — 1.8 4.0% 1.1 2.5% 1.6 2.4 (¥ billion) 2012 forecast ¥53.0 — 3.0 5.7% — — 1.5 — “For Tomorrow 2015” strategies Pursuing business expansion in fields of competitive superiority while transforming the business to be more solution oriented. We are focusing management resources on businesses where we can exert our strengths in markets which are growing in step with ongoing changes, such as heightening environmental awareness and a society-wide transformation to longer-lasting, more sustainable infrastructure. We are also advancing a transformation of business to achieve a shift from simply selling products to a more solution-oriented configuration encompassing peripheral fields and including systems and combination products based on the customer’s perspective. 1. AAC-related Enhancing cost competitiveness with measures to gain further efficiency and maintain stable profitability. Strengthening business for Hebel Powerboard™ AAC panels for wood-frame houses by extending peripheral operations, including with broader lineup of specialty coatings for greater durability and longer service life. Leveraging our superior technology to strengthen the exterior renovation business targeting the extensive number of houses built with our AAC panels. 2. Foundation systems Expanding business by further development of fields other than homes and buildings, including transmission towers, transportation infrastructure, and seismic reinforcement, centered on competitive Eazet™ and ATT Column™ small-diameter steel-pipe piling systems. 3. Insulation materials Expanding business centered on our two phenolic foam insulation panel products, Neoma™ and Jupii™, whose competitiveness is further increasing with the growing adoption of next- generation standards for insulation performance in energy-efficient homes. 4. Structural materials Increasing sales of BasePack™ column base attachment systems by raising awareness of its superior earthquake resistance. Expanding the overall structural materials business by reinforcing the product lineup with both new products and new variations of current products. Asahi Kasei Annual Report 2012 29 29 Fiscal 2011 Review Sales decreased by ¥1.3 billion (2.7%) to ¥46.1 billion, and operating income decreased by ¥0.3 billion (12.8%) to ¥1.8 billion. Although shipment volumes and product prices of Hebel™ autoclaved aerated concrete panels were recovering, performance in foundation systems was sluggish, and performance in insulation materials operations were impacted by the expiration of government policy such as the eco-point program to support energy conservation. Fiscal 2012 Outlook We forecast an increase in sales and operating income during fiscal 2012 with increased shipments of Hebel™ panels and of products throughout the foundation systems and insulation materials lineups. R&D R&D is focused on heightening basic technology in our four businesses of AAC, foundation systems, insulation materials, and steel-frame structural materials. We are also proactively advancing R&D to establish new solution-oriented businesses by creating services and products in fields peripheral to existing businesses, such as remodeling service for exterior AAC walls and non-construction applications for small- scale pilling systems such as Eazet™ and ATT Column™. Highlights Expansion of capacity for phenolic foam insulation panels In April 2012, Asahi Kasei Construction Materials finalized a decision to increase production capacity of Neoma™ high- performance phenolic foam insulation panels and Jupii™ floor insulation panels developed based on Neoma™ technology. The market for high- performance insulation panels is anticipated to grow dramatically against a background of heightened demand for energy conservation and better insulated homes, with renewed consumer interest in “smart” and “zero- energy” homes as well as the roadmap toward mandatory energy conservation standards for homes in 2020 which was recently issued by the Japanese government. Asahi Kasei Construction Materials will add a new production line at its plant in Ibaraki prefecture to secure stable supply of their products. As a Japan’s leading manufacturer of phenolic foam insulation panels, the company will continue to strengthen operations through the reliable supply of high-quality, high-performance products that contribute to improved thermal environments in architectural works. Neoma™ Jupii™ Asahi Kasei Annual Report 2012 30 Operating Segments Others Net sales ¥18.6 billion Operating income ¥3.0 billion vs. fiscal 2010 +15.9% vs. fiscal 2010 +74.0% Financial Highlights Fiscal year beginning April 1 Net sales Overseas sales ratio Operating income Operating margin R&D expenditure R&D expenditure as % of net sales Capital expenditure Depreciation and amortization 2009 ¥17.6 10.9% 1.8 2010 ¥16.0 7.5% 1.7 2011 ¥18.6 12.7% 3.0 (¥ billion) 2012 forecast ¥20.0 — 2.0 10.3% 10.7% 16.0% 10.0% 0.2 1.2% 0.9 0.8 0.3 1.7% 1.0 0.9 0.2 1.2% 0.8 0.9 — — 1.5 — Fiscal 2011 Review R&D Engineering developments in progress include inspection technology as well as a joint project for the development of high- performance inspection equipment. Sales increased by ¥2.5 billion (15.9%) from a year ago to ¥18.6 billion, and operating income increased by ¥1.3 billion (74.0%) to ¥3.0 billion. Operating income in engineering operation increased from fiscal 2010 due to firm performance of large-scale constructions and overseas plant operations. Fiscal 2012 Outlook We are forecasting increased sales from engineering operations in fiscal 2012, and increased sales for Others overall, but decreased operating income due to intensified competition. Asahi Kasei Annual Report 2012 31 Toward Sustainable Growth Contents 32 Corporate Governance 36 Corporate Social Responsibility 38 Directors, Corporate Auditors, Executive Officers Asahi Kasei Annual Report 2012 32 Corporate Governance Basic Concept for Corporate Governance We believe that constant effort to increase the efficiency and transparency of management is essential for continuous enhancement of the corporate value of the Asahi Kasei Group. One major reform for this purpose was the adoption of the structure of a holding company and core operating companies, since which time the Asahi Kasei Group has exercised corporate governance for the Group based on the following two principles. 1) Based on the structure of a holding company and core operating companies, the core operating companies are responsible for business execution and the holding company is responsible for oversight. 2) The Group Approval Authority Regulations are positioned as the highest ranking among all the regulations governing the overall Group for decision- making in executing business. Authority is distributed to each organ of the holding company and the core operating companies in accordance with the degree of influence on management. In this context, corporate governance is further enhanced by implementing various measures, including the election of multiple Outside Directors and the institutionalization of Internal Auditing and Internal Control. We will continue to advance measures to heighten corporate governance for the further enhancement of corporate value. Structures Related to Management Decision-Making, Execution, and Oversight Management Configuration (as of June 28, 2012) Holding company Shareholders Board of Corporate Auditors Board of Directors Group Advisory Committee Chairman President Strategic Management Council CSR Council Group staff functions • Strategic planning & analysis • Compliance & risk management • Resources administration New Business Development Internal Auditing Internal Control Core operating companies Asahi Kasei Fibers Asahi Kasei Chemicals Fiber, textiles Chemicals Asahi Kasei Construction Materials Construction materials Asahi Kasei Homes Asahi Kasei Microdevices Asahi Kasei E-materials Asahi Kasei Pharma Asahi Kasei Medical ZOLL Medical Housing Electronic devices Electronic materials Pharmaceuticals Medical devices and systems Critical care devices and systems Chemicals & Fibers business sector Homes & Construction Materials business sector Electronics business sector Health Care business sector Asahi Kasei Annual Report 2012 33 Board of Directors Oversees group management, and deliberates and decides on basic group policy and strategy, and on substantive proposals by the Strategic Management Council. The Chairman of the holding company chairs meetings of the Board of Directors. Meets once or twice per month. Strategic Management Council Deliberates and decides on substantive matters relating to the operation of the holding company and of the group. Its decisions are made by the President of the holding company, who chairs meetings of the council, after deliberation by the attending constituent members. Meets twice per month. Group Advisory Committee The advisory body to the holding company’s Board of Directors. Meets twice per year. Board of Corporate Auditors Comprises four Corporate Auditors, two of whom are Outside Corporate Auditors. Corporate Auditors exchange views, deliberate, and decide on substantive matters relating to auditing. Meets at least once per quarter. We employ an Executive Officer system, under which we have ten Directors, including three Outside Directors, and eighteen Executive Officers, including six who concurrently serve as Director, as well as a Corporate Auditor system, under which we have four Corporate Auditors, including two Outside Corporate Auditors. (as of June 28, 2012) To help ensure that Directors and Corporate Auditors may perform their duties to the fullest extent, in accordance with Article 426 Paragraph 1 of the Corporation Law our Articles of Incorporation provide for the indemnification of Directors (including former Directors) and Corporate Auditors (including former Corporate Auditors) from liability stipulated in Article 423 Paragraph 1 of the Corporation Law, through resolution of the Board of Directors, within limitations set forth by law or ordinance. Corporate Governance System An outline of the corporate governance system of the Asahi Kasei Group is as follows. 1) Asahi Kasei Corporation is a holding company and has elected to take the form of a company with a Board of Corporate Auditors. 2) Two Outside Directors were elected in June 2007 to enable oversight of the management of the Asahi Kasei Group based on their wealth of experience and broad range of insight, for the further strengthening of the management oversight function of the Board of Directors. Furthermore, an additional Outside Director was installed in June 2008 and the Company currently has three Outside Directors out of ten Directors. 3) The company has a Group Advisory Committee as an advisory body to the Board of Directors, enabling the receipt of various advice and recommendations of knowledgeable persons from outside the Company for the benefit of the overall management of the Asahi Kasei Group. 4) Internal Auditing serves as the corporate organ for internal audits of the execution of duties in the Asahi Kasei Group in accordance with basic corporate regulations for internal audits. Results of the internal audits conducted by each group staff function are also reported to Internal Auditing, so that all information regarding results of internal audits in the Asahi Kasei Group are centralized at Internal Auditing. 5) In accordance with the audit policy adopted by the Board of Corporate Auditors, each Corporate Auditor audits Directors in the discharge of their duties by attending Board of Directors’ meetings and examining business performance. Corporate Auditors of the Company and Corporate Auditors of the core operating companies exchange information on a regular basis. Our Corporate Auditors Office has multiple dedicated personnel who, independently from Directors, support the Corporate Auditors in their duties. 6) PricewaterhouseCoopers Aarata performs financial audits of the Company and the core operating companies in accordance with the Corporation Law and the Financial Instruments and Exchange Act. 7) Company standards stipulate that as a general rule a Director is not to concurrently serve as Director at four or more other companies whose shares are stock- market listed. 8) The Company has a performance-linked remuneration system as stated above, and remuneration of Directors is determined by the Board of Directors within the range stipulated therein. Given the above, the current corporate governance system of the Asahi Kasei Group is considered to be optimum within the formulation of a holding company/ core operating company configuration and a company with a Board of Corporate Auditors. Asahi Kasei Annual Report 2012 34 Corporate Governance 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. 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 Companies Act and Financial Instruments and Exchange Act. Partners of the Independent Auditors designated to perform the audit for fiscal 2011 were Mr. Keiichi Ohtsuka and Mr. Takahiro Nakazawa. 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. 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, and receives the results of the consolidated financial audit of Asahi Kasei each quarter and each fiscal year. Adoption of Shareholder Rights Plan The Asahi Kasei Group has established a basic corporate policy concerning the nature of parties who would control the company’s financial and operational decisions. 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 at the Ordinary General Meeting of Shareholders held in June 2008. Furthermore, renewal of the Shareholder Rights Plan was approved at the Ordinary General Meeting of Shareholders held in June 2011. 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 http://www.asahi-kasei.co.jp/asahi/en/news/2011/ e110511.html for more details. 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 it or an equivalent standard applies to all majority-held subsidiaries the world over. Protection of Personal Information Asahi Kasei is committed to the proper handling and use of personal information, in accordance with our basic policy. Education and training for all employees, including the distribution of an information security handbook which covers issues related to personal information protection, is monitored by the Corporate Ethics Committee. Asahi Kasei Annual Report 2012 35 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 Group Mission of “contributing to life and living for people around the world,” 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” 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. Compliance Monitoring by the Corporate Ethics Committee Monitoring of compliance and oversight of education and training for compliance throughout the Asahi Kasei Group are performed by the Corporate Ethics Committee, which was formed in July 1998. Where shortcomings are discovered, the committee formulates and implements measures for improvement. The committee discusses the training programs implemented at each group company, measures for prevention of sexual harassment, environmental countermeasures, the state of compliance with laws and regulations including personal information protection law, and operation of the Compliance Hotline. Risk Management The Asahi Kasei Group has a Risk Management Committee under its CSR Council to enhance the risk management system for prevention of operational crises and minimization of the effects should a crisis occur. Our Basic Risk Management Regulations, which were established by the Board of Directors in March 2007 (effective April 1, 2007), provide clear guidelines to heighten the capability and effectiveness for risk management and emergency response throughout the Asahi Kasei Group. After the Great East Japan Earthquake, the Asahi Kasei Group reviewed its preparedness for the possible occurrence of a major earthquake in areas such as Tokai, Minami-tokai, Nankai, and Hyuganada. Important matters were identified for group-wide implementation from the perspectives of 1) preparatory measures to minimize damage, 2) immediate earthquake response measures, and 3) restoration and recovery measures. All operating sites, plants, and offices have reviewed their earthquake and tsunami response preparations accordingly, and instituted programs for ongoing periodic review to ensure continuous improvement. When major flooding occurred in Thailand in October 2011, inundating one of our plants, the safety of all Asahi Kasei Group personnel throughout the country was swiftly confirmed. In addition, a broad communication network was established to connect all of our manufacturing bases and offices in Thailand during the early stages of flooding to enable personnel to smoothly share information about damage, evacuation, and risk management measures taken at each location. Asahi Kasei Annual Report 2012 36 Corporate Social Responsibility CSR at the Asahi Kasei Group CSR in Action We believe that CSR is achieved by raising corporate value for our various stakeholders through our business operations in accordance with our Group Mission of contributing to life and living for people around the world. CSR Fundamentals Based on a clear understanding of the effects of our operations on the global environment and local communities, our efforts and actions related to CSR are focused on four CSR Fundamentals: Compliance, Respect for Employee Individuality, Responsible Care*, and Corporate Citizenship. Asahi Kasei Group CSR The Community Community outreach The Employee Employee fulfillment 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 2010, fifty-four countries throughout the world have a Responsible Care program. Asahi Kasei Annual Report 2012 37 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. At the same time, it monitors specific CSR initiatives implemented by its seven committees, including the Corporate Ethics Committee to ensure regulatory compliance and the Responsible Care Committee to guide efforts for environment, health, and safety. President of holding company Corporate Ethics Committee • Preparation of Basic Policy and Code of Conduct for corporate ethics • Advancement of ethics education and operation of compliance hotline CSR Council Responsible Care Committee • Formulation of unified policy and action plans • Guidance and counsel for the subordinate committees • Preparation of CSR Reports • Monitoring of independent evaluation • Disclosure of CSR information in concert with Corporate Communications and Investor Relations • Deliberation of plans and results in regard to environmental protection, product safety, operational safety, etc. Global Environment Committee • Deliberation and adoption of group-wide measures to counter global warming Market Compliance Committee • Examination prior to all across-the-board price revisions to confirm compliance with Antimonopoly Law Export Control Committee • Compliance with export-related regulations Risk Management Committee • Formulation of plans and measures to respond to actual or potential crises Community Fellowship Committee • Formulation of policy, plans, and courses of action in regard to community fellowship activities Highlight Forest planting in China Since June 2011, the Asahi Kasei Group and China Business Network, a leading Chinese media group, have jointly advanced an environmental public service project in China to heighten people’s awareness for the preservation of natural forest and water environments. As a part of the project, the Asahi Kasei Group participated in an afforestation program in the Horqin desert of Inner Mongolia, planting 8,300 trees on April 10, 2012. Forest planting in Inner Mongolia, China Asahi Kasei Annual Report 2012 38 Directors, Corporate Auditors, Executive Officers (As of June 28, 2012) Ichiro Itoh Chairman & Representative Director Taketsugu Fujiwara Koji Fujiwara President & Representative Director Presidential Executive Officer Director Primary Executive Officer Yasuyuki Yoshida Director Primary Executive Officer Hideki Kobori Hiroshi Kobayashi Masafumi Nakao Director Senior Executive Officer Director Lead Executive Officer Director Lead Executive Officer Yukiharu Kodama Outside Director Morio Ikeda Outside Director Norio Ichino Outside Director Kenji Nakamae Corporate Auditor Yuji Mizuno Senior Executive Officer Hiroshi Sawayama Lead Executive Officer Toshio Asano Executive Officer Toshiyuki Kawasaki Corporate Auditor Ryo Matsui Lead Executive Officer Makoto Konosu Executive Officer Shoichiro Tonomura Executive Officer Kazuo Tezuka Outside Corporate Auditor Toshikatsu Sunami Lead Executive Officer Masahito Hirai Executive Officer Yoshihiro Wada Executive Officer Yuji Aoki Outside Corporate Auditor Shinichiro Nei Lead Executive Officer Yuji Kobayashi Executive Officer Naoki Okada Executive Officer Asahi Kasei Annual Report 2012 39 Financial Section Contents 40 Consolidated Eleven-Year Summary 42 Management’s Discussion and Analysis 48 Risk Analysis 50 Consolidated Balance Sheets 52 Consolidated Statements of Income 53 Consolidated Statements of Comprehensive Income 54 Consolidated Statements of Changes in Net Assets 55 Consolidated Statements of Cash Flows 56 Notes to Consolidated Financial Statements 79 Report of Independent Auditors Asahi Kasei Annual Report 2012 40 Consolidated Eleven-Year Summary Asahi Kasei Corporation and Consolidated Subsidiaries For the years ended March 31 2012 2011b,c 2010b,d 2009b,d 2009b 2008b,e 2007 2006f 2005 2004g 2003g 2003 2002 Net sales Chemicals Life & Living Chemical and Chemical-related ¥ 1,573,230 ¥ 1,555,945 ¥ 1,392,212 ¥ 1,521,178 ¥ 1,521,178 ¥ 1,663,778 ¥ 1,623,791 ¥ 1,498,620 ¥ 1,377,697 ¥ 1,253,534 ¥ 1,193,614 ¥ 1,193,614 ¥ 1,195,393 680,112 699,801 580,709 657,393 709,556 846,224 752,632 660,402 557,439 453,707 424,673 — — — — — — — — — — — — 52,558 51,942 59,149 59,813 52,908 — — — — — 477,581 440,698 Homes 451,965 409,224 389,728 409,882 409,882 386,227 405,695 404,539 375,755 361,273 320,553 Housing and Construction Materials — — — — — — — — — — — 383,654 408,474 Health Care Fibers Electronics Construction Materials Others Domestic sales Overseas sales Operating income Ordinary income Income (loss) before income taxes Net income (loss) Comprehensive income 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 wortha Net worth per share, yen Net worth/total assets, % Number of employees 119,483 110,849 146,113 46,146 18,562 1,151,705 421,525 104,258 107,567 94,866 55,766 62,561 39.89 85,124 78,440 66,269 14.00 116,387 108,761 158,337 47,418 16,017 1,106,656 449,289 122,927 118,219 98,342 60,288 45,088 43.11 66,014 84,092 62,320 11.00 113,207 101,201 142,700 47,024 17,642 1,021,803 370,409 57,622 56,367 46,056 25,286 119,619 116,405 129,655 60,927 27,297 1,127,213 393,965 34,959 32,500 19,031 4,745 — — 119,619 102,176 91,721 60,927 27,297 1,127,213 393,965 34,959 32,500 19,031 4,745 — 3.39 18.08 83,990 86,166 62,924 10.00 3.39 126,725 126,725 79,436 60,849 10.00 79,436 60,849 10.00 2012 2011 2010 2009 2009 2008 2007 2006 2005 2004 2003 2003 2002 ¥ 1,410,568 ¥ 1,425,879 ¥ 1,368,892 ¥ 1,379,337 ¥ 1,379,337 ¥ 1,425,367 ¥ 1,459,922 ¥ 1,376,044 ¥ 1,270,057 ¥ 1,249,206 ¥ 1,212,374 ¥ 1,212,374 ¥ 1,193,011 279,206 416,119 227,489 706,846 505.72 50.1 25,409 256,248 418,354 220,773 663,566 474.59 46.5 25,016 251,084 447,497 226,331 633,343 452.91 46.3 25,085 273,539 441,271 218,477 603,846 431.77 43.8 24,244 273,539 441,271 218,477 603,846 431.77 43.8 24,244 a. Net assets less minority interest. Through the year ended March 31, 2006, figures for shareholders’ equity shown. b. Beginning with the year ended March 31, 2012, the accounting policy for naphtha resale in the Chemicals segment was changed. This change is applied retroactively to net sales for the years ended March 31, 2008, through March 31, 2011. f. In the year ended March 31, 2006, Leona™ nylon 66 filament operations were transferred from the Fibers segment to the Chemicals segment. g. In the year ended March 31, 2004, business categories were aligned with the core operating companies in the holding company configuration adopted on 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 c. In the year ended March 31, 2011, the Services, Engineering and Others segment was replaced with the Others category. Figures under the previous classification are shown and Chemical-related sector is reclassified as the Chemicals segment. on the same line. • The Housing and Construction Materials sector is separated into the Homes segment and the Construction Materials segment. d. In the year ended March 31, 2010, the following segment name changes and intersegment transfers were made. For comparison purposes, results for the year ended March • The Fibers and Textiles sector is renamed the Fibers segment. 31, 2009, are recalculated to reflect these intersegment transfers. • The Pharma segment was renamed the Health Care segment, and the Electronics Materials & Devices segment was renamed the Electronics segment. Figures under the • With the divestment of liquors operations, the Liquors, Services and Others sector is renamed the Services, Engineering and Others segment. For comparison purposes, results for the year ended March 31, 2003, are recalculated in accordance with the revised categories. previous classifications are shown on the same line. • Electronic materials operations were transferred from the Chemicals segment and from corporate expenses to the Electronics segment. • Leona™ nylon 66 filament operations were transferred from the Chemicals segment to the Fibers segment. e. In the year ended March 31, 2008, the Life & Living segment was combined with the Chemicals segment. Millions of yen, except where noted — — — — 105,463 110,551 71,579 44,786 981,064 212,550 61,555 50,389 71,579 63,101 44,786 981,064 212,550 61,555 50,389 (100,869) (100,869) (66,791) (66,791) (47.63) 93,985 60,808 49,311 6.00 (47.63) 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 — — — 98,686 125,908 64,062 — 57,565 1,006,810 188,583 45,664 39,849 10,679 5,180 — 3.61 74,826 60,676 49,574 6.00 180,826 415,193 181,618 496,826 353.16 41.6 26,227 103,933 104,261 105,965 101,514 105,463 110,551 111,232 114,072 113,267 55,732 37,024 1,176,441 487,337 127,656 120,456 105,599 69,945 50.01 82,911 73,983 56,170 13.00 272,372 424,193 234,873 666,244 476.39 46.7 23,854 104,474 106,639 112,094 60,818 28,881 1,195,751 428,040 127,801 126,507 114,883 68,575 49.00 84,413 71,646 52,426 12.00 240,006 426,959 281,502 645,655 461.50 44.2 23,715 105,842 89,704 102,859 56,512 26,821 1,125,454 373,166 108,726 104,166 94,481 59,668 42.46 66,310 69,399 51,467 10.00 214,062 414,368 284,390 594,211 424.34 43.2 23,030 93,025 59,908 24,228 1,067,893 309,804 115,809 112,876 91,141 56,454 40.16 68,479 71,531 50,715 8.00 202,521 419,969 223,958 511,726 365.43 40.3 23,820 82,484 60,622 28,156 1,011,366 242,168 60,932 53,643 54,820 27,672 19.62 86,387 64,408 48,420 6.00 181,609 428,302 226,825 450,451 321.41 36.1 25,011 — — — — — — — For the years ended March 31 2012 2011b,c 2010b,d 2009b,d 2009b 2008b,e 2007 2006f 2005 2004g 2003g 2003 2002 ¥ 1,573,230 ¥ 1,555,945 ¥ 1,392,212 ¥ 1,521,178 ¥ 1,521,178 ¥ 1,663,778 ¥ 1,623,791 ¥ 1,498,620 ¥ 1,377,697 ¥ 1,253,534 ¥ 1,193,614 ¥ 1,193,614 ¥ 1,195,393 Asahi Kasei Annual Report 2012 41 Millions of yen, except where noted — — — — 680,112 699,801 580,709 657,393 709,556 846,224 752,632 660,402 557,439 453,707 424,673 Chemical and Chemical-related — — — — — — — — — — 52,558 51,942 59,149 59,813 52,908 — — — — — 477,581 440,698 Housing and Construction Materials — — — — — — — — — — 383,654 408,474 451,965 409,224 389,728 409,882 409,882 386,227 405,695 404,539 375,755 361,273 320,553 — — Net sales Chemicals Life & Living Homes Health Care Fibers Electronics Others Domestic sales Overseas sales Operating income Ordinary income Construction Materials Income (loss) before income taxes Net income (loss) Comprehensive income 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 wortha Net worth per share, yen Net worth/total assets, % Number of employees 119,483 110,849 146,113 46,146 18,562 1,151,705 421,525 104,258 107,567 94,866 55,766 62,561 39.89 85,124 78,440 66,269 14.00 279,206 416,119 227,489 706,846 505.72 50.1 25,409 116,387 108,761 158,337 47,418 16,017 1,106,656 449,289 122,927 118,219 98,342 60,288 45,088 43.11 66,014 84,092 62,320 11.00 256,248 418,354 220,773 663,566 474.59 46.5 25,016 113,207 101,201 142,700 47,024 17,642 1,021,803 370,409 57,622 56,367 46,056 25,286 18.08 83,990 86,166 62,924 10.00 251,084 447,497 226,331 633,343 452.91 46.3 25,085 119,619 116,405 129,655 60,927 27,297 1,127,213 393,965 34,959 32,500 19,031 4,745 3.39 79,436 60,849 10.00 273,539 441,271 218,477 603,846 431.77 43.8 24,244 — — — 119,619 102,176 91,721 60,927 27,297 1,127,213 393,965 34,959 32,500 19,031 4,745 — 3.39 79,436 60,849 10.00 273,539 441,271 218,477 603,846 431.77 43.8 24,244 a. Net assets less minority interest. Through the year ended March 31, 2006, figures for shareholders’ equity shown. b. Beginning with the year ended March 31, 2012, the accounting policy for naphtha resale in the Chemicals segment was changed. This change is applied retroactively to net sales for the years ended March 31, 2008, through March 31, 2011. on the same line. 31, 2009, are recalculated to reflect these intersegment transfers. previous classifications are shown on the same line. • Electronic materials operations were transferred from the Chemicals segment and from corporate expenses to the Electronics segment. • Leona™ nylon 66 filament operations were transferred from the Chemicals segment to the Fibers segment. e. In the year ended March 31, 2008, the Life & Living segment was combined with the Chemicals segment. 103,933 104,261 105,965 101,514 105,463 110,551 111,232 114,072 113,267 55,732 37,024 1,176,441 487,337 127,656 120,456 105,599 69,945 104,474 106,639 112,094 60,818 28,881 1,195,751 428,040 127,801 126,507 114,883 68,575 105,842 89,704 102,859 56,512 26,821 1,125,454 373,166 108,726 104,166 94,481 59,668 93,025 59,908 24,228 1,067,893 309,804 115,809 112,876 91,141 56,454 82,484 60,622 28,156 1,011,366 242,168 60,932 53,643 54,820 27,672 105,463 110,551 71,579 — 44,786 981,064 212,550 61,555 50,389 71,579 63,101 44,786 981,064 212,550 61,555 50,389 (100,869) (100,869) (66,791) (66,791) — — — — — — — — — 126,725 126,725 50.01 82,911 73,983 56,170 13.00 49.00 84,413 71,646 52,426 12.00 42.46 66,310 69,399 51,467 10.00 40.16 68,479 71,531 50,715 8.00 19.62 86,387 64,408 48,420 6.00 (47.63) 93,985 60,808 49,311 6.00 (47.63) 93,985 60,808 49,311 6.00 98,686 125,908 64,062 — 57,565 1,006,810 188,583 45,664 39,849 10,679 5,180 — 3.61 74,826 60,676 49,574 6.00 2012 2011 2010 2009 2009 2008 2007 2006 2005 2004 2003 2003 2002 ¥ 1,410,568 ¥ 1,425,879 ¥ 1,368,892 ¥ 1,379,337 ¥ 1,379,337 ¥ 1,425,367 ¥ 1,459,922 ¥ 1,376,044 ¥ 1,270,057 ¥ 1,249,206 ¥ 1,212,374 ¥ 1,212,374 ¥ 1,193,011 272,372 424,193 234,873 666,244 476.39 46.7 23,854 240,006 426,959 281,502 645,655 461.50 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 25,011 176,788 427,188 198,697 407,639 290.92 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 f. In the year ended March 31, 2006, Leona™ nylon 66 filament operations were transferred from the Fibers segment to the Chemicals segment. g. In the year ended March 31, 2004, business categories were aligned with the core operating companies in the holding company configuration adopted on 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 c. In the year ended March 31, 2011, the Services, Engineering and Others segment was replaced with the Others category. Figures under the previous classification are shown and Chemical-related sector is reclassified as the Chemicals segment. d. In the year ended March 31, 2010, the following segment name changes and intersegment transfers were made. For comparison purposes, results for the year ended March • The Housing and Construction Materials sector is separated into the Homes segment and the Construction Materials segment. • The Fibers and Textiles sector is renamed the Fibers segment. • With the divestment of liquors operations, the Liquors, Services and Others sector is renamed the Services, Engineering and Others segment. • The Pharma segment was renamed the Health Care segment, and the Electronics Materials & Devices segment was renamed the Electronics segment. Figures under the For comparison purposes, results for the year ended March 31, 2003, are recalculated in accordance with the revised categories. Asahi Kasei Annual Report 2012 42 Management’s Discussion and Analysis Fiscal year 2011 (April 1, 2011 – March 31, 2012) Operating Environment Operating income decreased by ¥18.7 billion (15.2%) to ¥104.3 billion. As a percentage of net sales, cost of sales The Japanese economy slowed down significantly during the increased by 0.9 percentage points to 74.9%. SG&A fiscal year, with the global economy being affected by the increased by ¥8.2 billion, increasing as a percentage of net sovereign debt crisis in Europe, and with exports to China and sales by 0.3 percentage points to 18.4% despite the increase other emerging markets slowing down in the second half after in sales. Operating margin decreased by 1.3 percentage having been relatively solid during the early part of the fiscal points to 6.6%. year. Although manufacturing activity generally recovered from the stagnant period following the Great East Japan Earthquake, Japan’s economic circumstances remained challenging, with corporate earnings suppressed by the Non-operating income and expenses, ordinary income Net non-operating income was ¥3.3 billion, an ¥8.0 billion persistent strength of the yen and high prices for feedstocks improvement from the ¥4.7 billion net non-operating expenses and fuel. Overview of Consolidated Results of a year earlier, largely due to the recording of a ¥2.2 billion gain on reversal of provision for removal cost of property, plant and equipment and a ¥3.7 billion decrease in foreign exchange loss. As a result, ordinary income decreased by The accounting policy for naphtha resale transactions was ¥10.7 billion (9.0%) to ¥107.6 billion. changed during the fiscal year under review. Comparisons with the previous year’s results as described below are based on this change being applied retroactively. This also applies to Extraordinary income and loss Extraordinary income of ¥3.0 billion included a ¥2.3 billion gain Results by Operating Segment. on step acquisitions. Extraordinary loss of ¥15.7 billion included ¥8.5 billion in business structure improvement Net sales, operating income Consolidated net sales for the fiscal year increased by ¥17.3 expenses and a ¥3.5 billion loss on disposal of noncurrent assets. The net extraordinary loss of ¥12.7 billion was ¥7.2 billion (1.1%) to ¥1,573.2 billion. Overseas sales decreased, billion lower than a year ago. largely in Chemicals, by ¥27.8 billion (6.2%) to ¥421.5 billion, and decreased by 2.1 percentage points as a portion of consolidated net sales from 28.9% to 26.8%. Domestic sales Net income With ordinary income of ¥107.6 billion and the net increased by ¥45.0 billion (4.1%) to ¥1,151.7 billion with extraordinary loss of ¥12.7 billion, income before income strong performance in the Homes segment. taxes and minority interests was ¥94.9 billion. Income tax Net Sales, Overseas Sales Ratio (¥ billion) 2,000 1,500 1,000 500 0 Operating Income, Operating Margin (¥ billion) 150 120 90 60 30 0 (%) 40 30 20 10 0 SG&A, SG&A Ratio (%) 15 (¥ billion) 300 12 240 9 6 3 0 180 120 60 0 (%) 20 16 12 8 4 0 Net Income, Net Income per Share (¥ billion) 80 60 40 20 0 (¥) 60 45 30 15 0 FY 07 08 09 10 11 FY 07 08 09 10 11 FY 07 08 09 10 11 FY 07 08 09 10 11 Net sales, left scale Operating income, left scale SG&A, left scale Net income, left scale Overseas sales ratio, right scale Operating margin, right scale SG&A ratio, right scale Net income per share, right scale Asahi Kasei Annual Report 2012 43 expense was ¥38.0 billion (current income taxes of ¥31.2 billion combined with a deferred income tax obligation of ¥6.8 Homes Sales increased by ¥42.7 billion (10.4%) from a year ago to billion). Minority interests in income of consolidated ¥452.0 billion, and operating income increased by ¥9.9 billion subsidiaries were ¥1.1 billion. As a result, net income (27.0%) to ¥46.3 billion. Orders for order-built homes decreased by ¥4.5 billion (7.5%) to ¥55.8 billion, and net increased by ¥17.4 billion to ¥371.9 billion. income per share decreased by ¥3.22 to ¥39.89 from the Operating income from order-built homes increased as ¥43.11 of a year earlier. Results by Operating Segment deliveries of both Hebel Haus™ unit homes and Hebel Maison™ apartment buildings increased. Operating income from pre-built homes was largely unchanged from a year ago. Operating income from housing-related operations increased The Asahi Kasei Group’s operations are described by major as real-estate rental operations performed well and business classification: six reportable segments of Chemicals, remodeling operations expanded steadily. Homes, Health Care, Fibers, Electronics, and Construction Materials, together with an “Others” category. Chemicals Sales decreased by ¥19.7 billion (2.8%) from a year ago to Health Care Sales increased by ¥3.1 billion (2.7%) from a year ago to ¥119.5 billion, and operating income increased by ¥1.8 billion (25.0%) to ¥8.8 billion. ¥680.1 billion, and operating income decreased by ¥19.9 Although operating expenses in pharmaceuticals billion (30.9%) to ¥44.5 billion. operations rose with an increase in the number of medical Operating income from chemicals and derivative representatives and higher R&D expenses, operating income products decreased as market demand in China and other increased with growing sales of Recomodulin™ recombinant Asian countries declined in the second half, and terms of thrombomodulin and the November 2011 launch of sales of trade for monomer products such as acrylonitrile and adipic Teribone™, a new osteoporosis drug. In devices-related acid deteriorated significantly due to high prices for naphtha operations, shipments of Planova™ virus removal filters and other feedstocks and the strong yen. Operating income increased, but operating income was largely unchanged as from polymer products increased as engineering plastics the strong yen impacted performance in each product group. recovered in the second half after a downturn following the Great East Japan Earthquake, and synthetic rubber for tires performed well. Operating income from specialty products increased as home-use products such as Saran Wrap™ performed well, as did functional additives. ROE (%) 12 9 6 3 0 Chemicals (¥ billion) 800 600 400 200 4.5% 9.2% Homes Health Care (¥ billion) (¥ billion) (¥ billion) (¥ billion) (¥ billion) 80 500 60 150 60 40 6.5% 20 0 400 300 200 100 48 120 10.3% 36 90 8.9% 6.5% 24 60 7.4% 6.1% 12 30 3.5% 0 FY 09 10 11 0 0 FY 09 10 11 20 16 12 8 4 0 Net sales, left scale Net sales, left scale Net sales, left scale Operating income, right scale Operating income, right scale Operating income, right scale Operating margin (%) Operating margin (%) Operating margin (%) FY 07 08 09 10 11 0 FY 09 10 11 Asahi Kasei Annual Report 2012 44 Management’s Discussion and Analysis Fibers Sales increased by ¥2.1 billion (1.9%) from a year ago to Construction Materials Sales decreased by ¥1.3 billion (2.7%) from a year ago to ¥110.8 billion, but operating income decreased by ¥1.1 billion ¥46.1 billion, and operating income decreased by ¥0.3 billion (25.2%) to ¥3.1 billion. (12.8%) to ¥1.8 billion. Although shipments of spunbond in diaper applications Although shipment volumes and product prices of increased, shipments of Leona™ nylon 66 filament in airbag Hebel™ autoclaved aerated concrete panels were recovering, applications increased, and Bemberg™ regenerated cellulose performance in foundation systems was sluggish, and performed well, operating income decreased as the strong performance in insulation materials operations were impacted yen and high feedstock costs impacted products throughout by the expiration of government policy such as the eco-point the segment. program to support energy conservation. Electronics Sales decreased by ¥12.2 billion (7.7%) from a year ago to Others Sales increased by ¥2.5 billion (15.9%) from a year ago to ¥146.1 billion, and operating income decreased by ¥7.8 billion ¥18.6 billion, and operating income increased by ¥1.3 billion (55.0%) to ¥6.4 billion. (74.0%) to ¥3.0 billion. Although sales of mixed-signal LSIs for smartphones were firm, operating income in electronic devices decreased as an effect of a general deterioration in the operating climate which resulted in sluggish growth in shipment volumes, and by declining product prices and the strong yen. Although sales of Hipore™ Li-ion battery separator increased, operating income in electronic materials decreased with declining product prices and high feedstock costs. Fibers (¥ billion) 150 120 90 60 30 0 3.9% -2.7% FY 09 10 11 7.5 6.0 4.5 3.0 2.8% 1.5 0 (1.5) (3.0) (4.5) 200 160 120 80 40 0 FY Electronics Construction Materials Others (¥ billion) (¥ billion) (¥ billion) (¥ billion) (¥ billion) (¥ billion) 30 90 24 18 12 6 0 60 30 0 9.0% 5.1% 4.4% 6 4 2 4.4% 2.6% 4.0% 40 30 20 10 0 0 (¥ billion) 12 16.0% 10.3% 10.7% 9 6 3 0 09 10 11 FY 09 10 11 FY 09 10 11 Net sales, left scale Net sales, left scale Net sales, left scale Net sales, left scale Operating income (loss), right scale Operating income, right scale Operating income, right scale Operating income, right scale Operating margin (%) Operating margin (%) Operating margin (%) Operating margin (%) Asahi Kasei Annual Report 2012 45 Liquidity and Capital Resources Financial position Total assets at fiscal year end were ¥1,410.6 billion, ¥15.3 billion (1.1%) lower than a year earlier. Net assets increased by ¥43.7 billion (6.5%) from ¥675.6 billion to ¥719.3 billion. Net income was ¥55.8 billion, and net unrealized gain on other securities increased by ¥10.5 billion, while dividend payments were ¥18.2 billion. As a result, net worth per share increased by ¥31.14 to ¥505.72, net worth/ Although inventories increased by ¥23.0 billion, current total assets increased from 46.5% to 50.1%, and debt-to- assets decreased by ¥33.9 billion (4.5%) to 721.8 billion, equity ratio decreased by 0.12 to 0.26. mainly as cash and deposits decreased by ¥37.4 billion and notes and accounts receivable—trade decreased by ¥7.4 billion. Noncurrent assets increased by ¥18.6 billion (2.8%) to ¥688.8 billion, notably with a ¥14.1 billion increase in intangible assets and a ¥11.2 billion increase in investment securities largely due to higher fair market value. Current liabilities decreased by ¥34.2 billion (7.1%) to ¥449.6 billion, mainly as a result of a ¥34.4 billion decrease in short-term loans payable. Noncurrent liabilities decreased by ¥24.8 billion (9.3%) to ¥241.7 billion, mainly as a result of a ¥29.0 billion decrease in long-term loans payable. Interest-bearing debt decreased by ¥69.8 billion to ¥184.1 billion. Total Assets, Net Worth Net Worth to Total Assets (¥ billion) 1,500 1,200 900 600 300 0 (%) 50 40 30 20 10 0 FY 07 08 09 10 11 FY 07 08 09 10 11 Total assets Net worth Asahi Kasei Annual Report 2012 46 Management’s Discussion and Analysis Capital expenditure Capital expenditure (capex) was primarily for new and expanded production plant and equipment in long-term growth fields. Investments were also made for rationalization, Notable capex by operating segment was as follows. Chemicals Rationalization of equipment in Mizushima, other labor-saving, maintenance and IT systems to bring greater rationalization, labor-saving, and maintenance. product reliability and cost reductions. Capex by operating segment shown below is for property, plant and equipment and intangible assets (other than goodwill), combined, excluding consumption tax. Homes Leases, rationalization, labor-saving, and maintenance. A total of ¥85.1 billion was invested during the fiscal year for the expansion of businesses with competitive superiority, Health Care Construction of laboratory for medical materials research, particular in the Chemicals, Health Care, and Electronics rationalization, labor-saving, and maintenance. segments, as well as for modification and rationalization. Totals for the year (¥ million) Compared to previous year (%) Fibers Rationalization, labor-saving, and maintenance. Chemicals Homes Health Care Fibers Electronics Construction Materials Others Combined 39,080 6,272 10,678 5,697 13,429 1,631 786 77,572 Corporate assets and eliminations 7,551 Consolidated 85,124 168.6 99.5 143.8 155.3 66.3 96.9 80.1 122.2 301.0 128.9 Electronics Capacity expansion for Hipore™ Li-ion battery separator, capacity expansion for LSIs, IT systems, rationalization, labor- saving, and maintenance. Construction Materials Rationalization, labor-saving, and maintenance. Others Rationalization, labor-saving, and maintenance. Corporate assets R&D equipment, IT systems, and maintenance. Interest-Bearing Debt, D/E Ratio Capex, Depreciation and Amortization (¥ billion) (¥ billion) 350 300 250 200 150 100 50 0 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0.0 150 120 90 60 30 0 FY 07 08 09 10 11 FY 07 08 09 10 11 Interest-bearing debt, left scale Capex D/E ratio, right scale Depreciation and amortization Asahi Kasei Annual Report 2012 47 Cash flows Free cash flows* were a positive ¥51.8 billion, as cash Cash flows from financing activities In addition to ¥71.6 billion of net cash used to reduce interest- generated, principally from income before income taxes and bearing debt, including loans, ¥18.2 billion was used for minority interests and from depreciation and amortization, dividend payments. Net cash used in financing activities was exceeded cash used, principally for purchase of noncurrent ¥91.0 billion, ¥64.9 billion more than a year earlier. assets and purchase of investment securities. Cash flows from financing activities were a net ¥91.0 billion used, principally due to decrease in short-term loans payable. As a result, cash and cash equivalents at fiscal year end were * Total of net cash provided by (used in) operating activities and net cash provided by (used in) investment activities. ¥96.4 billion, ¥38.1 billion less than a year earlier. Financial Policy Cash flows from operating activities Cash used included ¥22.5 billion for increase in inventories and ¥46.9 billion for income taxes paid. Income before income taxes and minority interests generated ¥94.9 billion and depreciation and amortization generated ¥78.4 billion. Net cash provided by operating activities was ¥141.3 billion, ¥6.9 billion less than a year earlier. Cash flows from investing activities Cash used included ¥67.4 billion for purchase of property, plant and equipment for continuing expansion of competitively superior operations and enhancement of overall competitiveness, ¥9.2 billion for purchase of intangible assets, and ¥7.1 billion for purchase of additional shares in subsidiaries resulting in change in scope of consolidation. Net cash used in investing activities was ¥89.5 billion, ¥10.7 billion more than a year earlier. We aim to increase free cash flows with increased earnings through enhanced cost efficiency, greater product competitiveness, and business structure improvements, and with greater capital efficiency through utilization of group finance and maintenance of optimum inventory levels. Free cash flows will be used as a source of funds for strategic investments to further enhance corporate value under the “For Tomorrow 2015” strategic management initiative focused on the expansion of world-leading businesses and the creation of new value for society by expanding operations in the fields of the environment & energy, residential living, and health care. A wide range of fund-raising methods including bank borrowings, bonds, and commercial paper will be utilized dynamically in accordance with the financial circumstances of the Asahi Kasei Group in order to obtain stable financing at low cost. Advancing these measures will enable us to reinforce our financial condition while providing an appropriate return to shareholders. Free Cash Flows Cash Flows (¥ billion) 80 60 40 20 0 (20) (40) (60) (80) (¥ billion) 200 100 0 (100) (200) FY 07 08 09 10 11 FY 07 08 09 10 11 Net cash provided by operating activities Net cash used in investing activities Net cash provided by (used in) financing activities Asahi Kasei Annual Report 2012 48 Risk Analysis Operating risks and non-operating risks which may materially influence investor decisions are described below. The management maintains awareness of the possibility that these scenarios may emerge and, to the fullest possible extent, implements measures to avoid their emergence and to minimize their impact on corporate performance in the event that they do emerge. The description of risks given here includes elements which may emerge in the future, but as it is based on current evaluations at the time of preparation of this report, it does not include risks which could not be foreseen. Crude oil and naphtha prices Housing-related tax policy, interest rate fluctuation Operating costs in operations based on petrochemicals Operations in the Homes segment are affected by are affected by prices for crude oil and naphtha. If crude oil Japanese tax policies as they relate to home acquisition and naphtha prices rise, selling prices for products derived and by fluctuations in Japanese interest rates. Changes in from these feedstocks must be increased in a timely Japanese tax policy, including consumption taxes, or manner to maintain sufficient price spreads. Price spreads fluctuations in Japanese interest rates may result in may diminish, thereby affecting our consolidated diminished housing demand, thereby affecting our performance and financial condition. consolidated performance and financial condition. Exchange rate fluctuation Profitability of electronics-related businesses Operations based overseas maintain accounts in the local The electronics industry is characterized by sharp market currency where they operate. The yen value of items cycles. The profitability of electronics-related businesses carried in these accounts is affected by the rate of may decline significantly in a relatively short time, thereby exchange at the time of conversion to yen. Although affecting our consolidated performance and financial measures such as currency exchange hedges are utilized condition. Because products in this field rapidly become to minimize the short-term effects of exchange rate obsolete, the timely development and commercialization of fluctuations, such fluctuations may exceed the foreseeable leading-edge devices and materials is required. New range over the short to long term, thereby affecting our product development may be delayed, or demand consolidated performance and financial condition. fluctuations may exceed expectations, thereby affecting our consolidated performance and financial condition. Overseas operations Pharmaceuticals and medical devices Overseas operations may face a variety of risks which cannot be foreseen, including the existence or emergence Pharmaceutical and medical device businesses may be of economically unfavorable circumstances due to legal significantly affected by government measures to curtail and regulatory changes, vulnerability of infrastructure, health care expenditure or other changes in government difficulty in hiring/retaining qualified employees, or other policy. Unforeseeable side effects or complications may factors, and social or political instability due to terrorism, emerge, significantly affecting these businesses. The war, or other factors. Overseas operations may be pharmaceutical business additionally faces the possibility impaired by such scenarios, thereby affecting our that product approval may be withdrawn as a result of consolidated performance and business plans. Japan’s reexamination system, and that competition may Asahi Kasei Annual Report 2012 49 intensify as a result of the market entry of generics. For Business and capital alliances pharmaceuticals and medical devices under development, regulatory approval may fail to be obtained, market Acquisitions, business alliances, and capital alliances may demand may be lower than expected, and the national bear lower results or less synergy than anticipated due to reimbursement prices may be lower than expected. Such deterioration of the operating environment, thereby scenarios may affect our consolidated performance and affecting our consolidated performance and financial financial condition. condition. Poor performance at companies in which we have invested may require the recording of an impairment loss for goodwill, etc., thereby affecting our consolidated Industrial accidents and natural disasters performance and financial condition. 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 opportunity loss due to plant shutdown caused by damage to plant facilities, supply chain disruptions which impede raw materials procurement, etc., 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. Asahi Kasei Annual Report 2012 50 Consolidated Balance Sheets Asahi Kasei Corporation and Consolidated Subsidiaries March 31, 2012 and 2011 ASSETS Current assets: Cash and deposits (Notes 9 and 11) Notes and accounts receivable—trade (Note 5(e)) Short-term investment securities (Notes 9, 11 and 12) Merchandise and finished goods Work in progress Raw materials and supplies Deferred tax assets (Note 15) Other Allowance for doubtful accounts Total current assets Noncurrent assets: Property, plant and equipment Buildings and structures (Note 5(b), (d)) Accumulated depreciation Buildings and structures, net Millions of yen Thousands of U.S. dollars (Note 1) 2012 2011 2012 ¥102,875 266,056 360 138,133 87,450 53,623 19,454 54,835 (1,017) 721,770 ¥140,319 273,414 371 129,898 76,551 49,799 23,131 63,240 (1,072) 755,651 410,057 (235,060) 174,997 409,263 (231,474) 177,789 $1,252,587 3,239,450 4,383 1,681,882 1,064,775 652,904 236,868 667,661 (12,383) 8,788,141 4,992,780 (2,862,048) 2,130,732 14,658,529 Machinery, equipment and vehicles (Note 5(b), (d)) 1,203,905 1,192,132 Accumulated depreciation Machinery, equipment and vehicles, net Land (Note 5(d)) Lease assets (Note 10) Accumulated depreciation Lease assets, net Construction in progress Other (Note 5(b), (d)) Accumulated depreciation Other, net Subtotal Intangible assets Goodwill Other Subtotal (1,075,668) (1,047,912) (13,097,139) 128,237 55,667 11,694 (4,804) 6,890 37,787 122,426 (109,884) 12,542 416,119 144,220 55,243 8,581 (3,118) 5,463 22,173 118,718 (105,252) 13,466 418,354 1,561,390 677,791 142,384 (58,493) 83,891 460,088 1,490,637 (1,337,928) 152,709 5,066,590 8,502 36,687 45,189 5,087 26,015 31,101 103,519 446,694 550,213 Investments and other assets Investment securities (Notes 5(a), 11 and 12) 177,513 166,317 2,161,366 Long-term loans receivable (Note 11) Deferred tax assets (Note 15) Other Allowance for doubtful accounts Subtotal 5,559 18,965 25,692 (240) 5,181 22,005 27,507 (237) 67,685 230,914 312,821 (2,922) 227,489 220,773 2,769,865 Total noncurrent assets 688,798 670,228 8,386,680 Total assets ¥ 1,410,568 ¥ 1,425,879 $ 17,174,820 The accompanying notes are an integral part of these statements. Asahi Kasei Annual Report 2012 51 Millions of yen Thousands of U.S. dollars (Note 1) 2012 2011 2012 LIABILITIES AND NET ASSETS Liabilities: Current liabilities: Notes and accounts payable—trade (Notes 5(e) and 11) ¥143,194 Short-term loans payable (Notes 5(b), 11 and 21) Commercial paper (Notes 11 and 21) Lease obligations (Notes 10, 11 and 21) Accrued expenses Income taxes payable (Note 11) Advances received Provision for periodic repairs Provision for product warranties Provision for removal cost of property, plant and equipment Asset retirement obligations (Note 17) Other (Note 5(e)) Total current liabilities Noncurrent liabilities: Bonds payable (Notes 11 and 21) Long-term loans payable (Notes 5(b), 11 and 21) Lease obligations (Notes 10 and 11) Deferred tax liabilities (Note 15) Provision for retirement benefits (Note 14) Provision for directors’ retirement benefits Provision for periodic repairs Provision for removal cost of property, plant and equipment Asset retirement obligations (Note 17) Long-term guarantee deposited (Note 11) Other Total noncurrent liabilities Total liabilities Net assets: Shareholders’ equity Capital stock Authorized—4,000,000,000 shares Issued and outstanding—1,402,616,332 shares Capital surplus Retained earnings (Note 8(b)(ii)) Treasury stock (2012—4,925,730 shares, 2011—4,420,688 shares) Total shareholders’ equity Accumulated other comprehensive income Net unrealized gain on other securities Deferred gains or losses on hedges Foreign currency translation adjustments Total accumulated other comprehensive income Minority interests Total net assets Commitments and contingent liabilities (Notes 5(c) and 10) 74,490 15,000 2,207 92,663 8,380 49,950 6,045 2,151 1,818 460 53,242 449,600 25,000 62,710 4,707 11,402 ¥136,407 108,889 23,000 1,522 88,750 24,085 52,346 3,239 2,465 2,885 512 39,668 483,768 25,000 91,722 3,802 6,374 $1,743,504 906,977 182,637 26,872 1,128,248 102,033 608,182 73,603 26,190 22,136 5,601 648,265 5,474,248 304,395 763,546 57,312 138,829 106,277 107,309 1,294,009 806 1,977 4,204 3,242 18,286 3,072 241,683 691,283 103,389 79,404 516,401 (2,388) 696,805 40,148 (1,734) (28,374) 10,040 12,439 719,285 1,119 2,131 6,110 3,316 18,340 1,284 266,509 750,277 103,389 79,402 478,681 (2,115) 659,357 29,647 (140) (25,299) 4,209 12,036 9,814 24,072 51,187 39,474 222,647 37,404 2,942,688 8,416,937 1,258,846 966,809 6,287,605 (29,076) 8,484,171 488,835 (21,113) (345,477) 122,245 151,455 675,602 8,757,884 Total liabilities and net assets ¥ 1,410,568 ¥ 1,425,879 $ 17,174,820 The accompanying notes are an integral part of these statements. Asahi Kasei Annual Report 2012 52 Consolidated Statements of Income Asahi Kasei Corporation and Consolidated Subsidiaries Years Ended March 31, 2012 and 2011 Net sales (Note 18) Cost of sales (Note 6(b)) Gross profit Selling, general and administrative expenses (Note 6(a)) Operating income (Note 18) Non-operating income: Interest income Dividends income Equity in earnings of affiliates Gain on reversal of provision for removal cost of property, plant and equipment Other Total non-operating income Non-operating expenses: Interest expense Foreign exchange loss Donations Other Total non-operating expenses Ordinary income Extraordinary income: Gain on sales of investment securities Gain on sales of noncurrent assets (Note 6(c)) Reversal of allowance for doubtful accounts Gain on business transfer Gain on step acquisitions (Note 16) Total extraordinary income Extraordinary loss: Loss on sales of investment securities Loss on valuation of investment securities Loss on disposal of noncurrent assets (Note 6(d)) Impairment loss (Note 6(e)) Environmental expenses (Note 6(f)) Cumulative adjustment for adoption of accounting standard for asset retirement obligations Loss on disaster (Note 6(g)) Business structure improvement expenses (Note 6(h)) Total extraordinary loss Income before income taxes and minority interests Income taxes (Note 15) — current — deferred Total income taxes Income before minority interests Minority interests in income Net income The accompanying notes are an integral part of these statements. Millions of yen Thousands of U.S. dollars (Note 1) 2012 2011 2012 ¥ 1,573,230 ¥ 1,555,945 $ 19,155,363 1,178,968 1,151,204 14,354,901 394,261 290,003 104,258 1,434 2,744 669 2,236 3,734 10,817 2,685 162 979 3,681 7,507 107,567 191 494 — — 2,277 2,961 — 1,898 3,546 460 277 — 1,027 8,454 15,662 94,866 31,152 6,829 37,981 56,885 1,119 407,741 281,814 122,927 4,800,451 3,531,024 1,269,427 1,118 2,273 2,212 — 4,248 9,851 3,313 3,880 1,009 6,357 14,560 118,219 416 463 84 736 — 1,699 380 651 4,879 2,404 1,185 1,240 821 10,016 21,576 98,342 39,628 (2,952) 36,675 61,667 1,379 17,460 33,410 8,146 27,225 45,465 131,706 32,692 1,972 11,920 44,819 91,404 1,309,716 2,326 6,015 — — 27,724 36,053 — 23,110 43,175 5,601 3,373 — 12,505 102,934 190,698 1,155,071 379,301 83,149 462,450 692,621 13,625 ¥55,766 ¥60,288 $678,997 Consolidated Statements of Comprehensive Income Asahi Kasei Corporation and Consolidated Subsidiaries Years Ended March 31, 2012 and 2011 Income before minority interests Other comprehensive income Net increase or decrease in unrealized gain on other securities Deferred gains or losses on hedges Foreign currency translation adjustment Share of other comprehensive income of affiliates accounted for using equity method Total other comprehensive income (Note 7) Comprehensive income (Note 7) Comprehensive income attributable to: Owners of the Parent Minority interests The accompanying notes are an integral part of these statements. Asahi Kasei Annual Report 2012 53 Millions of yen 2012 ¥56,885 10,553 (1,594) (1,029) (2,255) 5,676 62,561 61,597 ¥963 2011 ¥61,667 (7,059) (31) (7,114) (2,375) (16,579) 45,088 44,042 ¥1,047 Thousands of U.S. dollars (Note 1) 2012 $692,621 128,491 (19,408) (12,529) (27,456) 69,110 761,731 749,994 $11,725 Asahi Kasei Annual Report 2012 54 Consolidated Statements of Changes in Net Assets Asahi Kasei Corporation and Consolidated Subsidiaries Years Ended March 31, 2012 and 2011 Shareholders’ equity Accumulated other comprehensive income Millions of yen Capital stock Capital surplus Retained earnings (Note 8(b)) Treasury stock Total shareholders’ equity Net unrealized gain on other securities Deferred gains or losses on hedges Foreign currency translation adjustment Total accumulated other comprehensive income Minority interests Total net assets Balance at March 31, 2011 ¥ 103,389 ¥ 79,402 ¥ 478,681 ¥ (2,115) ¥ 659,357 ¥ 29,647 ¥(140) ¥ (25,299) ¥4,209 ¥ 12,036 ¥ 675,602 Changes during the fiscal year Dividends from surplus Net income Purchase of treasury stock Disposal of treasury stock Change of scope of equity method Increase resulting from corporate split Effect of change in the reporting period of consolidated subsidiaries and affiliates Net changes of items other than shareholders’ equity Total changes of items during the period (18,173) 55,766 1 (291) 18 (111) 71 168 (18,173) 55,766 (291) 19 (111) 71 168 (18,173) 55,766 (291) 19 (111) 71 168 — 1 37,720 (273) 37,448 10,501 (1,594) (3,075) 5,832 403 43,683 10,501 (1,594) (3,075) 5,832 403 6,235 Balance at March 31, 2012 ¥ 103,389 ¥ 79,404 ¥ 516,401 ¥ (2,388) ¥ 696,805 ¥ 40,148 ¥ (1,734) ¥ (28,374) ¥ 10,040 ¥ 12,439 ¥ 719,285 Shareholders’ equity Accumulated other comprehensive income Millions of yen Capital stock Capital surplus Retained earnings (Note 8(b)) Treasury stock Total shareholders’ equity Net unrealized gain on other securities Deferred gains or losses on hedges Foreign currency translation adjustment Total accumulated other comprehensive income Minority interests Total net assets Balance at March 31, 2010 ¥ 103,389 ¥ 79,403 ¥ 432,114 ¥ (2,017) ¥ 612,888 ¥ 36,692 ¥ (109) ¥ (16,128) ¥ 20,455 ¥ 11,346 ¥ 644,688 Changes during the fiscal year Dividends from surplus Net income Purchase of treasury stock Disposal of treasury stock Change of scope of consolidation Change of scope of equity method Net changes of items other than shareholders’ equity Total changes of items during the period (13,984) 60,288 307 (43) (0) (116) 18 (13,984) 60,288 (116) 18 307 (43) (13,984) 60,288 (116) 18 307 (43) — (0) 46,568 (98) 46,469 (7,045) (31) (9,170) (16,246) 691 30,914 (7,045) (31) (9,170) (16,246) 691 (15,555) Balance at March 31, 2011 ¥ 103,389 ¥ 79,402 ¥ 478,681 ¥ (2,115) ¥ 659,357 ¥ 29,647 ¥ (140) ¥ (25,299) ¥4,209 ¥ 12,036 ¥ 675,602 Shareholders’ equity Accumulated other comprehensive income Thousands of U.S. dollars (Note 1) Capital stock Capital surplus Retained earnings (Note 8(b)) Treasury stock Total shareholders’ equity Net unrealized gain on other securities Deferred gains or losses on hedges Foreign currency translation adjustment Total accumulated other comprehensive income Minority interests Total net assets Balance at March 31, 2011 $ 1,258,846 $ 966,784 $ 5,828,333 $ (25,752) $ 8,028,211 $ 360,977 $(1,705) $ (308,036) $51,248 $ 146,548 $ 8,226,008 Changes during the fiscal year Dividends from surplus Net income Purchase of treasury stock Disposal of treasury stock Change of scope of equity method Increase resulting from corporate split Effect of change in the reporting period of consolidated subsidiaries and affiliates Net changes of items other than shareholders’ equity Total changes of items during the period (221,271) 678,997 (221,271) 678,997 (3,543) (3,543) 12 219 (1,352) 864 231 (1,352) 864 2,046 2,046 (221,271) 678,997 (3,543) 231 (1,352) 864 2,046 — 12 459,272 (3,324) 455,960 127,858 (19,408) (37,441) 71,009 4,907 531,876 127,858 (19,408) (37,441) 71,009 4,907 75,916 Balance at March 31, 2012 $ 1,258,846 $ 966,809 $ 6,287,605 $ (29,076) $ 8,484,171 $ 488,835 $ (21,113) $ (345,477) $ 122,245 $ 151,455 $ 8,757,884 The accompanying notes are an integral part of these statements. Asahi Kasei Annual Report 2012 55 Millions of yen Thousands of U.S. dollars (Note 1) 2012 2011 2012 Consolidated Statements of Cash Flows Asahi Kasei Corporation and Consolidated Subsidiaries Years Ended March 31, 2012 and 2011 Cash flows from operating activities: Income before income taxes and minority interests Depreciation and amortization Impairment loss Amortization of goodwill Amortization of negative goodwill Increase (decrease) in provision for periodic repairs Decrease in provision for product warranties (Decrease) increase in provision for removal cost of property, plant and equipment Decrease in provision for retirement benefits Interest and dividend income Interest expense Equity in earnings of affiliates Gain on sales of investment securities Loss on valuation of investment securities Gain on sale of property, plant and equipment Loss on disposal of noncurrent assets Gain on business transfer Gain on step acquisition Decrease (increase) in notes and accounts receivable—trade Increase in inventories Increase in notes and accounts payable—trade Increase in accrued expenses (Decrease) increase in advances received Other, net Subtotal Interest and dividend income, received Interest expense paid Income taxes paid Net cash provided by operating activities Cash flows from investing activities: Payments into time deposits Proceeds from withdrawal of time deposits Purchase of property, plant and equipment Proceeds from sales of property, plant and equipment Purchase of intangible assets Purchase of investment securities Proceeds from sales of investment securities Purchase of additional shares in subsidiaries resulting in change in scope of consolidation Additional purchase of investments in consolidated subsidiaries Proceeds from business transfer Payments of loans receivable Collection of loans receivable Other, net Net cash used in investing activities Cash flows from financing activities: Increase in short-term loans payable Decrease in short-term loans payable Proceeds from issuance of commercial paper Redemptions of commercial paper Proceeds from long-term loans payable Repayment of long-term loans payable Repayments of lease obligations Purchase of treasury stock Proceeds from disposal of treasury stock Cash dividends paid Cash dividends paid to minority shareholders Other, net Net cash used in financing activities ¥94,866 78,440 460 1,179 (231) 2,652 (317) (2,973) (999) (4,178) 2,685 (669) (191) 1,898 (494) 3,546 — (2,277) 4,918 (22,532) 6,859 3,905 (2,488) 21,331 185,391 5,555 (2,787) (46,899) 141,260 (11,930) 10,917 (67,435) 1,205 (9,224) (5,251) 543 (7,080) — — (5,144) 5,224 (1,328) (89,503) 45,588 (76,627) 15,000 (23,000) 2,384 (32,911) (2,063) (299) 19 (18,173) (805) (143) (91,030) Effect of exchange rate change on cash and cash equivalents Net (decrease) increase in cash and cash equivalents Cash and cash equivalents at beginning of year Increase in cash and cash equivalents resulting from changes in scope of consolidation Effect of change in the reporting period of consolidated subsidiaries and affiliates Cash and cash equivalents at end of year (Note 9) (823) (40,096) 134,450 1,528 469 ¥96,351 The accompanying notes are an integral part of these statements. ¥98,342 84,092 2,404 1,073 (266) (2,990) (1,139) 3,754 (2,050) (3,391) 3,313 (2,212) (36) 651 (463) 4,879 (736) — (36,454) (4,841) 13,618 2,922 15,309 (3,405) 172,376 4,458 (3,424) (25,282) 148,128 (11,720) 6,773 (63,651) 1,092 (5,333) (7,619) 1,303 — (408) 2,538 (5,840) 6,513 (2,486) (78,838) 71,335 (72,682) 46,000 (42,000) 6,910 (19,878) (1,345) (119) 18 (13,984) (547) 147 (26,144) (2,698) 40,449 93,125 $1,155,071 955,071 5,601 14,355 (2,813) 32,290 (3,860) (36,199) (12,164) (50,871) 32,692 (8,146) (2,326) 23,110 (6,015) 43,175 — (27,724) 59,881 (274,346) 83,514 47,547 (30,293) 259,722 2,257,287 67,637 (33,934) (571,034) 1,719,956 (145,258) 132,923 (821,076) 14,672 (112,310) (63,935) 6,611 (86,205) — — (62,632) 63,606 (16,169) (1,089,772) 555,071 (932,996) 182,637 (280,044) 29,027 (400,718) (25,119) (3,641) 231 (221,271) (9,802) (1,741) (1,108,365) (10,021) (488,202) 1,637,039 876 — ¥134,450 18,605 5,710 $1,173,152 Asahi Kasei Annual Report 2012 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 prime minister of Japan as required by the Financial Instruments and Exchange Act in Japan, are prepared in accordance with accounting principles generally accepted in Japan, which are differ- ent in certain respects from the application and disclosure require- ments of International Financial Reporting Standards. The accompanying consolidated financial statements are a translation of those filed with the prime minister of Japan and incorporate cer- tain modifications to enhance foreign readers’ understanding of the financial statements. In addition, the notes to the consolidated financial statements include certain financial information which is not required under the disclosure regulations in Japan, but is pre- sented herein as additional information. The U.S. dollar amounts presented in the consolidated financial statements are included solely for the convenience of readers. These translations should not be construed as representations that the Japanese yen amounts actually represent, or have been or could be converted into U.S. dollars. As the amounts shown in U.S. dollars are for convenience only, and are not intended to be com- puted in accordance with generally accepted translation proce- dures, the approximate current exchange rate of ¥82=US$1 prevailing on March 31, 2012, has been used. Consolidation and investments in affiliated companies The consolidated financial statements consist of the accounts of the parent company and 105 subsidiaries (101 subsidiaries at March 31, 2011, hereinafter collectively referred to as the “Company”) which, with minor exceptions due to immateriality, are all majority and wholly owned companies, including 9 core operat- ing companies (Asahi Kasei Chemicals Corp., Asahi Kasei Homes Corp., Asahi Kasei Pharma Corp., Asahi Kasei Kuraray Medical Co., Ltd., Asahi Kasei Medical Co., Ltd., Asahi Kasei Fibers Corp., Asahi Kasei Microdevices Corp., Asahi Kasei E-materials Corp. and Asahi Kasei Construction Materials Corp.), and Tong Suh Petrochemical Corp. Ltd. (Korea). Material inter-company transac- tions and accounts have been eliminated. Investments in unconsolidated subsidiaries and 20% to 50% owned companies in which the Company exercises significant influ- ence are accounted for, with minor exceptions due to immateriality, using the equity method of accounting. There were 46 such unconsoli- dated subsidiaries and 20% to 50% owned companies to which the equity method is applied at March 31, 2012 (49 at March 31, 2011), including Asahi Kasei Metals Ltd., Asahi Kasei Geotechnologies Co., Ltd. and Asahi Organic Chemicals Industry Co., Ltd. Certain subsidiaries’ results are reported in the consolidated financial statements using a fiscal year ending December 31. Material differences in inter-company transactions and accounts arising from the use of different fiscal year-ends are appropriately adjusted for through consolidation procedures. Among the consolidated subsidiaries whose closing date was December 31 until the fiscal year ended March 31, 2011, account- ing treatment for 8 companies was changed from the conventional method of applying appropriate accounting adjustments to reflect their significant transactions which occur between December 31 and March 31. Beginning with the fiscal year ended March 31, 2012, those 8 subsidiaries either provisionally close their accounts on March 31, or have changed their formal closing date to March 31. The impact of this change is shown in the consolidated state- ments of changes in net assets and, as an adjustment to cash and cash equivalents at the beginning of the fiscal year, in the consoli- dated statements of cash flows as “effect of change in the reporting period of consolidated subsidiaries and affiliates.” All assets and liabilities of acquired companies are measured at their fair value and any difference between the net assets and the cost of investment is recognized as goodwill or negative goodwill. Goodwill, and negative goodwill incurred through business combi- nations which took place before April 1, 2010, are amortized by straight-line method over a reasonable period during which their effects would last, with the exception of minor amounts which are charged to income as incurred. 2. Significant accounting policies (a) Cash and cash equivalents For cash flow statement purposes, cash and cash equivalents include all highly liquid investments, generally with original maturi- ties of three months or less, which are readily convertible to known amounts of cash, and therefore present an insignificant risk of changes in value due to changes in interest rates. (b) Inventories Inventories held for sale in the ordinary course of business are stat- ed at the lower of cost or net realizable value. Residential lots and dwellings for sale are stated at specifically identified costs. (c) Noncurrent assets and depreciation/amortization Property, plant and equipment (except for lease assets) are stated at cost. Significant renewals and improvements are capitalized at cost, while maintenance and repairs are charged to income as incurred. Depreciation is provided for under the declining-balance method for property, plant and equipment, except for buildings which are depreciated using the straight-line method, at rates based on estimated useful lives of the assets, principally ranging from 5 to 60 years for buildings and from 4 to 22 years for machin- ery and equipment and vehicles. Intangible fixed assets (except for lease assets), including soft- ware for internal use, are amortized using the straight-line method over the estimated useful lives of the assets. The estimated useful life of software for internal use is mainly 5 years. Lease assets (financing lease transactions without title transfer) are depreciated/amortized on a straight-line basis over the period of the lease with no residual value. For financing lease transactions without title transfer whose transaction date is before March 31, 2008, the previous method of accounting for lease transactions continues to be applied, with periodic lease charges for financing leases being charged to income as incurred. (d) Significant allowances i) Allowance for doubtful accounts Estimates of the unrecoverable portion of receivables, generally based on historical rates and for specific receivables of particu- lar concern based on individual estimates of recoverability, are recognized as allowance for doubtful accounts. ii) Provision for periodic repairs The portion of foreseeable periodic repair expenses deemed to correspond to normal wear and tear of plant and equipment as of the closing date of the consolidated fiscal period is recog- nized as provision for periodic repairs. iii) Provision for product warranties Estimates of product warranty expenses based on historical rates and the amount required for remediation of deficient eave assembly specification are recognized as provision for product warranties. iv) Provision for removal cost of property, plant and equipment Provision for removal cost of property, plant and equipment is recorded based on estimated future removal cost of property, plant and equipment at each year end. v) Provision for retirement benefits Provision for retirement benefits represent the estimated present value of projected benefit obligations in excess of the fair value of the plan assets. Unrecognized actuarial gains/losses, result- ing from variances between actual results and economic esti- mates or actuarial assumptions, are amortized on a straight-line basis primarily over the following 10 years. Unrecognized prior service costs are amortized on a straight-line basis primarily over the following 10 years. vi) Provision for directors’ retirement benefits Provision is made for lump-sum indemnities to directors and corporate auditors equal to the estimated liability calculated under the internal rules of the Company. (e) Significant revenue and expense recognition i) Construction activities that are realizable as of current fiscal year end The percentage-of-completion method (progress of work is esti- mated using the percentage of costs incurred to the total projected costs). Asahi Kasei Annual Report 2012 57 ii) Other construction activities The completed-contract method (f) Financial instruments i) Securities Securities are classified into four categories: trading securities, held-to-maturity debt securities, equity securities of unconsoli- dated subsidiaries and affiliates, and other securities. At March 31, 2012 and 2011, the Company did not have trading securi- ties or held-to-maturity debt securities. Equity securities of unconsolidated subsidiaries and affiliates are accounted for, with minor exceptions due to immateriality, using the equity method of accounting. Other securities whose fair values are readily determinable are carried at fair value with net unrealized gains or losses, net of income taxes, being included as a component of net assets. Other securities whose fair values are not readily determinable are stated at cost. In cases where any significant decline in the realizable value is assessed to be other than temporary, the cost of other securities is devalued by the impaired amount and is charged to income. Realized gains and losses are determined using the average cost method and are reflected in the consoli- dated income statements. ii) Derivative financial instruments All derivatives are stated at fair value. Gains or losses arising from changes in fair value are recognized in the period in which they arise, except for derivatives that are designated as hedging instruments. Gains or losses arising from changes in fair value of these qualifying hedges are deferred as “Deferred gains or 3. Changes in significant accounting policies (a) Change in accounting policy Change in accounting policy of naphtha resale transactions Asahi Kasei Chemicals Corp., a consolidated subsidiary of Asahi Kasei Corp., resells a portion of the naphtha it has originally pur- chased and subsequently purchases other naphtha for use, in order to improve raw material quality as well as save production costs. Through the third quarter of the fiscal year ended March 31, 2012, the naphtha resale amount was included in net sales, and the cost for purchased naphtha was included in cost of sales. During the fourth quarter of the fiscal year ended March 31, 2012, the Company changed its accounting policy for naphtha resale transactions to charging or crediting to cost of sales the net differ- ence between sales and cost of sales for resold naphtha. The proportion of naphtha resale amounts within the group’s total sales has increased over the years as a result of changes in the business environment. At the beginning of the current fiscal year, Asahi Kasei Chemicals Corp., absorbed by merger one of its subsidiaries, Sanyo Petrochemical, Co., Ltd., which had been engaged in naphtha resale transactions as a principal business, and Asahi Kasei Chemicals Corp., reassessed its accounting policy for naphtha resale transactions. Because its principal business is to produce petrochemical products, Asahi Kasei Chemicals Corp. concluded that the new accounting policy, which includes in cost of sales the net difference between sales and cost of sales relevant to resold naphtha, more appropriately reflects the substance of naph- tha resale transactions, resulting in a more appropriate presentation of its chemical business, as compared to the existing accounting policy, which presents sales and cost of sales relevant to naphtha resale transactions on a gross basis. This new accounting policy was applied retroactively in the fourth quarter of the fiscal year ended March 31, 2012, when it became clear that naphtha resale transactions continue to increase, as well as in the prior fiscal year, and the respective financial information pre- sented for the prior fiscal year is restated accordingly. As an impact of this accounting change, both net sales and cost of sales for the fiscal year ended March 31, 2011, decreased by ¥42,442 million. This accounting change has no impact on operating income, ordinary income, and income before income taxes. Furthermore, this accounting change does not have any cumulative impact on net assets at the beginning of the prior fiscal year nor per share information for the prior fiscal year. losses on hedges” until being offset against gains or losses of the underlying hedged assets and liabilities. (g) Taxes Accrued income taxes are stated at the estimated amount of pay- ables for corporation, enterprise, and inhabitant taxes. The asset and liability approach is used to recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. In Japan, the consumption tax system is designed so that all goods and services are taxed at a flat rate of 5% unless otherwise specified. Assets, liabilities, and profit and loss accounts are stated net of consumption tax. The Company has elected to file its return under the consolidated tax filing system in Japan. (h) Translation of foreign currencies Foreign currency receivables and payables are translated into Japanese yen at the exchange rates prevailing at the balance sheet date. Resulting gains and losses are charged to income for the period. Assets and liabilities of foreign subsidiaries are translated into Japanese yen at year-end exchange rates, and income and expens- es of same are translated into Japanese yen at the average exchange rate for the fiscal year. Shareholders’ equity of foreign sub- sidiaries is translated into Japanese yen at the historical exchange rates. The translation differences in Japanese yen amounts arising from the use of different rates are recognized as foreign currency translation adjustments in the consolidated balance sheets. A portion of the foreign currency translation adjustment is allocated to minority interest and the Company’s portion is presented as a separate com- ponent of net assets in the consolidated balance sheets. (b) Change in presentation i) Consolidated balance sheets Until the fiscal year ended March 31, 2011, “provision for removal cost of property, plant and equipment” was included in “accrued expenses” under current liabilities. In the fiscal year ended March 31, 2012, the Company disclosed this provision in the consolidated balance sheets as a separate line item. This is because of a change in the estimate of the removal cost, as stated in the footnote for “change in accounting estimates,” which resulted in a reversal of the provision of removal cost being reported in the consolidated statements of income, as “gain on reversal of provision for removal cost of property, plant and equipment” under non-operating income. The current and noncurrent portions of the provision are reported separately under current liabilities and noncurrent liabilities. In order to reflect this change, the balance sheets as of March 31, 2011, have also been reclassified accordingly, result- ing in “accrued expenses” being ¥8,995 million lower than pre- viously reported, reflecting the separation of ¥2,885 million as “provision for removal cost of property, plant and equipment” (the current portion) under current liabilities, and of ¥6,110 mil- lion as “provision for removal cost of property, plant and equip- ment” (the noncurrent portion) under noncurrent liabilities. ii) Consolidated statements of income Through the fiscal year ended March 31, 2011, “donations” were included in “others” under non-operating expenses. In the fiscal year ended March 31, 2012, “donations” exceeded 10% of total of non-operating expenses, and therefore are reported separately. The consolidated statements of income for the fiscal year ended March 31, 2011, have also been reclassified accordingly, resulting in “others” under non-operating expenses being ¥1,009 million lower than previously reported, reflecting the separation of ¥1,009 million as “donations.” “Litigation related expenses,” which were reported separate- ly in the fiscal year ended March 31, 2011, are now less than 10% of total of non-operating expenses and therefore included in “others” in the fiscal year ended March 31, 2012. The consol- idated statement of income for the fiscal year ended March 31, 2011, has been reclassified accordingly, resulting ¥1,908 million which had been reported as “litigation related expenses” now being included in “others.” Asahi Kasei Annual Report 2012 58 Notes to Consolidated Financial Statements iii) Consolidated statements of cash flows “(Decrease) increase in provision for removal cost of property, plant and equipment,” which had been included in “increase in accrued expenses” under cash flows from operating activities until the fiscal year ended March 31, 2011, is reported sepa- rately in the fiscal year ended March 31, 2012. This is due to a change in the presentation of the balance sheets which resulted in “provision for removal cost of property, plant and equipment” being reported separately from “accrued expenses.” The con- solidated statement of cash flows for the fiscal year ended March 31, 2011, has been reclassified accordingly, resulting in “increase in accrued expenses” being ¥3,754 million lower than previously reported, reflecting the separate reporting of the same amount as “(decrease) increase in provision for removal cost of property, plant and equipment.” (c) Change in accounting estimates To provide for the future removal cost of property, plant and equip- ment, an estimate of the required amount has been set aside as “pro- vision for removal cost of property, plant and equipment,” and it has been included as part of “accrued expenses.” During the fiscal year ended March 31, 2012, based on an updated estimate of the removal cost due to a change in the removal method, the Company reversed the corresponding accrued expenses and presented the remaining balance as “provision for removal cost of property, plant and equip- ment” as a separate line item in the consolidated balance sheets. As a result of this change in accounting estimates, both ordi- nary income and income before taxes for the fiscal year ended March 31, 2012, increased by ¥2,236 million. 4. Additional information With regard to accounting changes and corrections of prior period errors which are made on or after the beginning of the fiscal year ended March 31, 2012, the Company has applied the “Accounting Standard for Accounting Changes and Error Corrections” 5. Notes to Consolidated Balance Sheets (Accounting Standards Board of Japan (“ASBJ”) Statement No. 24) and the “Guidance on Accounting Standard for Accounting Changes and Error Corrections” (ASBJ Guidance No. 24). (a) Investment securities Among investment securities, shares of unconsolidated subsidiaries and affiliates as of March 31, 2012 and 2011, amounted to ¥64,099 million (US$780,458 thousand) and ¥63,690 million, respectively. Included in those amounts are investments in joint ventures of ¥31,415 million (US$382,503 thousand) and ¥34,266 million, respectively. (b) Pledged assets and secured debt A summary of assets pledged as collateral and secured debt as of March 31, 2012 and 2011, is shown below: Pledged assets Buildings and structures Machinery, equipment and vehicles Other Secured debt Short-term loans payable Long-term loans payable Millions of yen 2012 ¥ 251 7 0 ¥ 258 ¥ 107 315 ¥ 423 2011 ¥ 341 12 0 ¥ 353 ¥ 109 423 ¥ 531 Thousands of U.S. dollars 2012 $ 3,056 85 0 $ 3,141 $ 1,303 3,835 $ 5,150 Besides the above, investment securities pledged to suppliers as transaction guarantee at March 31, 2012 and 2011, were ¥40 million (US$487 thousand) and ¥87 million, respectively. (c) Contingent liabilities Contingent liabilities at March 31, 2012 and 2011, arising in the ordinary course of business are as follows: Loans guaranteed Commitment for guarantees Letters of awareness Completion guarantees Notes discounted Millions of yen 2012 ¥ 33,464 491 114 17,163 17 ¥ 51,249 2011 ¥ 31,592 760 309 15,002 37 ¥ 47,700 Thousands of U.S. dollars 2012 $ 407,452 5,978 1,388 208,974 207 $ 623,999 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 impact to the Company’s consolidated financial statements. (d) Deferred gain on property, plant and equipment deducted for tax purposes The accumulated reduced-value entries, which is directly deducted from property, plant and equipment, as of March 31, 2012 and 2011, were ¥7,631 million (US$92,914 thousand) and ¥7,268 million, respectively. The breakdown of reduced-value entries as of March 31, 2012 and 2011, is as follows: Buildings and structures Machinery, equipment and vehicles Land Other Millions of yen 2012 ¥ 3,134 4,103 230 164 ¥ 7,631 2011 ¥ 3,095 3,810 226 137 ¥ 7,268 Thousands of U.S. dollars 2012 $ 38,159 49,957 2,800 1,997 $ 92,914 Asahi Kasei Annual Report 2012 59 (e) Notes maturing on March 31, 2012 Although financial institutions in Japan were closed on March 31, 2012, and notes maturing on that date were actually settled on the fol- lowing business day, April 2, 2012, those were accounted for as if settled on March 31, 2012. The breakdown of those notes at March 31, 2012 were as follows: Notes and accounts receivable—trade Notes and accounts payable—trade Current liabilities—other 6. Notes to Consolidated Statements of Income (a) 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* Millions of yen 2012 ¥3,443 1,807 ¥372 2011 ¥— — ¥— Millions of yen 2012 ¥33,435 101,863 ¥48,537 2011 ¥ 33,946 94,383 ¥44,745 Thousands of U.S. dollars 2012 $41,921 22,002 $4,529 Thousands of U.S. dollars 2012 $407,099 1,240,265 $590,978 * The aggregate amounts of research and development expenses included in manufacturing costs and selling, general and administrative expenses for the years ended March 31, 2012 and 2011, were ¥66,269 million (US$806,879 thousand) and ¥62,320 million, respectively. (b) Gain or loss on devaluation of inventories Inventories held for sale in the ordinary course of business are stated at the lower of cost or net realizable value. Loss or (gain) on devalua- tion of inventories for the years ended March 31, 2012 and 2011, was as follows: (c) Gain on sales of noncurrent assets Major components of gain on sales of noncurrent assets are as follows: Land Machinery Other Millions of yen 2012 ¥983 2011 ¥(429) Millions of yen 2012 ¥261 101 ¥132 2011 ¥423 — ¥40 (d) Loss on disposal of noncurrent assets Loss on disposal of noncurrent assets for the years ended March 31, 2012 and 2011, was primarily loss on abandonment and sale of buildings, machinery and equipment, etc. The abandonment and sale of buildings, machinery and equipment, etc. was performed under a single, all-inclusive contract for each facility. (e) Impairment losses Impairment losses for the years ended March 31, 2012 and 2011, were as follows: Use Production facility for glass fabric Asset class Machinery and equipment, etc. Location Moriyama, Shiga Production facility for semiconductor Buildings, etc. Tateyama, Chiba Production facility for microcrystalline cellulose Machinery and equipment, etc. Nobeoka, Miyazaki Idle assets Production facility for resin molding Land Iizuka, Fukuoka Machinery and equipment, etc. Kawasaki, Kanagawa Production facility for fine-pattern devices Machinery and equipment, etc. Hyuga, Miyazaki Production facility for ammonia Production facility for synthetic fibers Production facility for resin molding Production facility for benzene Research facility for pharmaceuticals Machinery and equipment, etc. Machinery and equipment, etc. Machinery and equipment, etc. Machinery and equipment, etc. Machinery and equipment, etc. Kurashiki, Okayama USA Fuji, Shizuoka Kurashiki, Okayama Fuji, Shizuoka Rental facilities Buildings, etc. Nobeoka, Miyazaki Production facility for synthetic resin Machinery and equipment, etc. Kurashiki, Okayama Millions of yen 2012 ¥ 3,761 1,120 137 127 119 77 — — — — — — — 2011 ¥— — — — — 79 3,154 1,977 708 651 330 295 52 Thousands of U.S. dollars 2012 $11,969 Thousands of U.S. dollars 2012 $ 3,178 1,230 $ 1,607 Thousands of U.S. dollars 2012 $ 45,793 13,637 1,668 1,546 1,449 938 — — — — — — — Asahi Kasei Annual Report 2012 60 Notes to Consolidated Financial Statements Grouping of operating assets is based on managerial accounting categories, with consideration given to production process, geograph- ic location, and domain of authority for making investment decisions. Idle assets are recorded separately in each fixed assets class. With respect to production and research facilities as shown in the above table, the book value was reduced to the recoverable amount due to diminished profitability. The recoverable amount is stated as value for future usage, which is calculated based on discounted future cash flow with applicable discount rate of 6% as of March 31, 2012 and 2011. For idle land of which the market value has significantly decreased, the book value is reduced to the recoverable amount. The recover- able amount is measured at the net selling price primarily based on the value appraised by real estate appraisers. The resulting extraordi- nary losses for production facility for glass fabric and semiconductor were recorded under business structure improvement expenses for the year ended March 31, 2012. (f) Environmental expenses Environmental expenses for the years ended March 31, 2012 and 2011, were mainly for decontamination of idle land, etc. (g) Loss on disaster Major components of loss on disaster were as follows: Repair or maintenance expenses related to delivered homes in housing operations Fixed costs incurred during suspension of operations Others (h) Business structure improvement expenses Major components of business structure improvement expenses were as follows: Impairment of fixed assets Loss on restructuring group company Loss on disposal and devaluation of inventory and others 7. Notes to Consolidated Statements of Comprehensive Income Recycling adjustment and tax effects on other comprehensive income are as follows: Net unrealized gain on other securities Changes during the fiscal year Recycling adjustment Pre-tax effect Tax effect Net increase or decrease in unrealized gain on other securities Deferred gain or loss on hedges Changes during the fiscal year Recycling adjustment Pre-tax effect Tax effect Deferred gains or losses on hedges Foreign currency translation adjustment Changes during the fiscal year Pre-tax effect Foreign currency translation adjustment Share of other comprehensive income of affiliates accounted for using equity method Changes during the fiscal year Recycling adjustment Share of other comprehensive income of affiliates accounted for using equity method Total other comprehensive income Millions of yen 2012 ¥423 58 546 ¥ 1,027 2011 ¥— 410 411 ¥ 821 Millions of yen 2012 ¥ 4,881 1,883 1,691 ¥ 8,454 2011 ¥4,842 — 5,174 ¥ 10,016 Millions of yen 2012 ¥ 12,194 228 12,421 (1,868) 10,553 (2,005) (180) (2,185) 591 (1,594) (1,029) (1,029) (1,029) (2,251) (4) (2,255) ¥5,676 Thousands of U.S. dollars 2012 $5,150 706 6,648 $ 12,505 Thousands of U.S. dollars 2012 $59,430 22,927 20,589 $ 102,934 Thousands of U.S. dollars 2012 $ 148,472 2,776 151,236 (22,744) 128,491 (24,413) (2,192) (26,604) 7,196 (19,408) (12,529) (12,529) (12,529) (27,408) (49) (27,456) $69,110 Asahi Kasei Annual Report 2012 61 8. Notes to Consolidated Statements of Changes in Net Assets For the year ended March 31, 2012 (a) Class and total number of issued and outstanding shares and treasury stock Issued and outstanding shares Common stock Total Treasury stock Common stock (Notes 1 & 2) Total Number of shares as of March 31, 2011 Increase in number of shares during the fiscal year Decrease in number of shares during the fiscal year Number of shares as of March 31, 2012 Thousands of shares 1,402,616 1,402,616 4,421 4,421 — — 541 541 — — 36 36 1,402,616 1,402,616 4,926 4,926 Notes: 1. The increase of 541 thousand shares in common stock of treasury stock was due to purchase of shares in quantities of less than one share unit. 2. The decrease of 36 thousand shares in common stock of treasury stock was due to sale of shares in quantities of less than one share unit. (b) Dividends i) Cash dividends paid 1) The following was resolved by the Board of Directors on May 11, 2011. Dividends for common stock Total dividends Dividend per share Date of record Payment date ¥8,389 million (US$102,143 thousand) ¥6.00 (US$0.07) March 31, 2011 June 7, 2011 2) The following was resolved by the Board of Directors on November 2, 2011. Dividends for common stock Total dividends Dividend per share Date of record Payment date ¥9,784 million (US$119,128 thousand) ¥7.00 (US$0.09) September 30, 2011 December 1, 2011 ii) Dividends for which the date of record falls within the fiscal year under review but the payment date occurs in the following fiscal year The following was resolved by the Board of Directors on May 9, 2012. Dividends for common stock Total dividends Source of dividends Dividend per share Date of record Payment date ¥9,784 million (US$119,128 thousand) Retained earnings ¥7.00 (US$ 0.09) March 31, 2012 June 6, 2012 For the year ended March 31, 2011 (a) Class and total number of issued and outstanding shares and treasury stock Issued and outstanding shares Common stock Total Treasury stock Common stock (Notes 1 & 2) Total Number of shares as of March 31, 2010 Increase in number of shares during the fiscal year Decrease in number of shares during the fiscal year Number of shares as of March 31, 2011 Thousands of shares 1,402,616 1,402,616 4,228 4,228 — — 230 230 — — 37 37 1,402,616 1,402,616 4,421 4,421 Notes: 1. The increase of 230 thousand shares in common stock of treasury stock was due to purchase of shares in quantities of less than one share unit. 2. The decrease of 37 thousand shares in common stock of treasury stock was due to sale of shares in quantities of less than one share unit. (b) Dividends i) Cash dividends paid 1) The following was resolved by the Board of Directors on May 10, 2010. Dividends for common stock Total dividends Dividend per share Date of record Payment date ¥6,992 million ¥5.00 March 31, 2010 June 7, 2010 Asahi Kasei Annual Report 2012 62 Notes to Consolidated Financial Statements 2) The following was resolved by the Board of Directors on November 2, 2010. Dividends for common stock Total dividends Dividend per share Date of record Payment date ¥6,992 million ¥5.00 September 30, 2010 December 1, 2010 ii) Dividends for which the date of record falls within the fiscal year under review but the payment date occurs in the following fiscal year The following was resolved by the Board of Directors on May 11, 2011. Dividends for common stock Total dividends Source of dividends Dividend per share Date of record Payment date ¥8,389 million Retained earnings ¥6.00 March 31, 2011 June 7, 2011 9. Note to Consolidated Statements of Cash Flows Cash and cash equivalents Reconciliation of cash and cash equivalents on the consolidated statements of cash flows to the amounts disclosed on the consolidated balance sheets at March 31, 2012 and 2011, is as follows: Cash and deposits Time deposits with deposit term of over 3 months Money market funds and others included in short-term investment securities Cash and cash equivalents 10. Leases (a) Financing lease transactions Financing lease transactions without title transfer i) Components of lease assets are as follows: Millions of yen 2012 ¥ 102,875 (6,884) 360 ¥96,351 2011 ¥ 140,319 (6,240) 371 ¥ 134,450 Thousands of U.S. dollars 2012 $ 1,252,587 (83,818) 4,383 $ 1,173,152 1) Property, plant and equipment: Mainly model homes (buildings and structures) for housing operations. 2) Intangible fixed assets: Software ii) Depreciation of lease assets: As stated in Note 2. Significant accounting policies (c) Noncurrent assets and depreciation/amortization. The financing lease trans- actions without title transfer which occurred prior to March 31, 2008, are accounted for on a basis similar to operating lease. Such lease transactions accounted for as operating lease be accounted for as financing lease, cost and related accumulated amortiza- tion, computed using the straight-line method over the term of the lease, at March 31, 2012 and 2011, would have been as follows: Machinery, equipment and vehicles Property, plant and equipment, other Intangible fixed assets, other Buildings and structures Machinery, equipment and vehicles Property, plant and equipment, other Intangible fixed assets, other Millions of yen 2012 Accumulated depreciation/ amortization ¥89 253 163 ¥505 Millions of yen 2011 Accumulated depreciation/ amortization ¥ 1,868 134 497 179 ¥ 2,678 Net amount ¥53 47 19 ¥119 Net amount ¥ 250 78 142 62 ¥ 532 Cost ¥143 300 182 ¥625 Cost ¥ 2,118 212 639 241 ¥ 3,210 Asahi Kasei Annual Report 2012 63 Machinery, equipment and vehicles Property, plant and equipment, other Intangible fixed assets, other Thousands of U.S. dollars 2012 Accumulated amortization $1,084 3,080 1,985 $6,149 Cost $1,741 3,653 2,216 $7,610 Net amount $645 572 231 $1,449 The future lease payments under the Company’s financing leases at March 31, 2012 and 2011, including amounts representing inter- est, were as follows: Due within one year Due after one year Millions of yen 2012 ¥70 49 ¥ 119 2011 ¥ 412 119 ¥ 532 Thousands of U.S. dollars 2012 $852 597 $ 1,449 Lease charges were ¥359 million (US$4,371 thousand) and ¥1,213 million for the years ended March 31, 2012 and 2011, respectively. The amortization amounts of the leased assets, computed using the straight-line method over the term of the leases and no residual value, were ¥359 million (US$4,371 thousand) and ¥1,213 million for the years ended March 31, 2012 and 2011, respectively. No impairment loss is allocated to the leased assets. (b) Operating lease transactions Future lease payments for the non-cancelable portion of the Company’s operating leases at March 31, 2012 and 2011, were as follows: Thousands of U.S. dollars Millions of yen Due within one year Due after one year 11. Financial instruments (a) Overview of financial instruments i) Policy related to financial instruments The Company raises long-term funds as required mainly for its planned capital expenditures by borrowing from banks, borrowing from life insurance companies, issuing bonds, etc. A portion of the surplus funds is invested only in highly stable financial assets. Short-term working funds are raised by bank borrowings, issuance of commercial paper, etc. Derivative transactions are mainly entered into for the pur- pose of reducing risks related to assets and liabilities which are exposed to risks of fluctuations of exchange rate and interest rate. Derivatives are not traded for speculative pur- poses. ii) Components of financial instruments, their risks and risk management structure As operating receivables, notes and accounts receivable— trade, are exposed to credit risk of customers. As the busi- ness of the Company spans a wide range of fields, operating receivables are not excessively concentrated on specific customers, but each group company monitors and manages the credit condition for each customer. Investment securities are exposed to the risk of fluctua- tions in market price, but they are mainly equity securities of companies with which the Company has business relation- ships. These securities are held for the purpose of maintain- ing the business relationships. Fair value is periodically evaluated, and the financial condition of the issuing compa- ny is monitored. As operating liabilities, notes and accounts payable— trade, generally have a payment term of 1 year or less. Variable interest-rate borrowings are exposed to the risk of interest rate fluctuations, but derivatives (interest currency swaps, interest-rate swaps) are used as hedges to fix inter- est expenses for a portion of long-term variable interest-rate borrowings. 2012 ¥4,975 5,147 2011 ¥4,456 7,856 ¥ 10,121 ¥ 12,312 2012 $60,575 62,669 $ 123,231 Operating receivables and operating liabilities include those denominated in currencies other than Japanese yen, and are thus exposed to the risk of exchange rate fluctua- tions. In order to minimize the effects of short-term exchange-rate fluctuations, the Company hedges with derivative transactions (forward exchange contracts), in prin- ciple, within the range of the underlying receivables and lia- bilities amount. Derivative transactions are exposed to the credit risk of transacting financial institutions, but the credit condition of those financial institutions is reviewed through periodical monitoring. Such transactions are performed and managed in accordance with the Company’s internal regulations which stipulate the related authority, procedures, limits, etc. Borrowings are exposed to liquidity risk, but the parent company specifies standards for required on-hand funds based on the Company’s funding plans, prepares and revis- es plans for cash receipts and disbursements as appropri- ate, and enters into commitment-line agreements with transacting financial institutions to manage such risk. Loan securitization in housing business is exposed to the risk of interest rate fluctuations between the time of orig- ination of housing loans and the time of execution of their securitization, but derivative transactions (interest rate swaps) are entered into to reduce such risk. iii) Supplementary explanation of fair value of financial instruments The fair value of financial instruments is based on their quot- ed market price, if available. In the case where no quoted market price is available, a reasonably estimated fair value is used. As variable factors are incorporated in its estimation, fair value may change due to the adoption of different assumptions, conditions, etc. Amount of contract regarding derivative transactions in the Note 13 “Derivative financial instruments” is not itself an indication of the market risk of the derivative transactions. Asahi Kasei Annual Report 2012 64 Notes to Consolidated Financial Statements (b) Fair value of financial instruments Amounts carried on the consolidated balance sheets, their fair values, and the differences between them as of March 31, 2012 and 2011, are as shown below. Financial instruments whose fair values are deemed extremely difficult to determine are not included in this table (See Notes 2), 3) and 4) below). Cash and deposits Notes and accounts receivable—trade Allowance for doubtful accounts (*1) Investment securities Other securities Long-term loans receivables Total assets Notes and accounts payable—trade Short-term loans payable Commercial paper Income taxes payable Bonds payable Long-term loans payable Lease obligations Long-term guarantee deposited Total liabilities Derivative financial instruments (*2) Cash and deposits Notes and accounts receivable—trade Allowance for doubtful accounts (*1) Short-term investment securities Other securities Investment securities Other securities Long-term receivables Allowance for doubtful accounts (*1) Total assets Notes and accounts payable—trade Short-term loans payable Commercial paper Income taxes payable Bonds payable Long-term loans payable Lease obligations Long-term guarantee deposited Total liabilities Derivative financial instruments (*2) Millions of yen 2012 Fair value ¥ 102,875 Difference ¥— 265,118 — Carrying amount ¥ 102,875 266,056 (938) 265,118 105,130 6,539 479,662 143,194 44,751 15,000 8,380 25,000 91,942 6,914 6,109 341,289 ¥(2,822) Carrying amount ¥ 140,319 273,414 (1,028) 272,386 105,130 7,097 480,220 143,194 44,751 15,000 8,380 25,953 93,901 6,915 6,006 344,100 ¥(2,822) Millions of yen 2011 Fair value ¥ 140,319 272,386 116 116 93,921 5,860 (11) 5,849 512,590 136,407 76,611 23,000 24,085 25,000 123,493 5,324 5,845 419,766 ¥(419) 93,921 6,249 512,991 136,407 76,611 23,000 24,085 25,311 125,156 5,343 5,731 421,644 ¥(419) — 558 558 — — — — (953) (1,959) (1) 102 (2,811) ¥— Difference ¥— — — — 400 400 — — — — (311) (1,663) (19) 114 (1,879) ¥— Asahi Kasei Annual Report 2012 65 Carrying amount $ 1,252,587 3,239,450 (11,421) 3,228,029 1,280,044 79,618 5,840,278 1,743,504 544,880 182,637 102,033 304,395 1,119,469 84,184 74,382 4,155,473 $(34,360) Thousands of U.S. dollars 2012 Fair value $ 1,252,587 Difference $— 3,228,029 — 1,280,044 86,412 5,847,072 1,743,504 544,880 182,637 102,033 315,999 1,143,322 84,196 73,128 4,189,699 $(34,360) — 6,794 6,794 — — — — (11,604) (23,852) (12) 1,242 (34,226) $— fair values are based on present value of principal and interest discounted using the current assumed rates for similar long-term loans payable. Of long-term loans payable bearing variable interest rates, fair value of those subject to special treatment of interest rate swaps is based on present value by totaling the amount of principal and interest, together with related interest rate swaps, discounted by the interest rate that would apply if equivalent long-term loans were newly entered. For other long-term loans payable, book value is used as fair value as they are deemed to reflect market interest rates within a short term. 4) Lease obligations The carrying amounts shown are the total amount of lease obligations under current liabilities and lease obligations under noncurrent liabilities. Present value is calculated by discounting the total amount of principal and interest using the presumed interest rate that would apply if lease transactions were newly made, is used as the fair value. 5) Long-term guarantee deposited In case where the deposit period can be estimated, the fair value of long-term guarantee deposited is determined discounted cashflow over that period. iii) Derivative transactions Refer to the Note 13 “Derivative financial instruments.” Note 2) Note 3) Note 4) For equity investments in nonpublic companies, with a carrying amount as of March 31, 2012 and 2011, amounting to ¥72,743 million (US$885,706 thousand) and ¥72,652 million, respectively, fair value is not included in short-term investment securities or in investment securities, as no quoted market price is available and it is deemed extremely difficult to determine fair value due to the impossibility of estimating future cash flows. A portion of the carrying amount of long-term loans payable, as of March 31, 2012 and 2011, amounting to ¥507 million (US$6,173 thousand) and ¥507 million, respectively, is for loans from the Japan Science and Technology Agency, and the timing of repayment is yet to be determined as it begins after development success is certified. Fair value is not included as it is deemed extremely difficult to determine due to the impossibility of estimating future cash flows. For long-term guarantee deposited, the fair value of a portion having a carrying amount as of March 31, 2012 and 2011, amounting to ¥12,178 million (US$148,277 thousand) and ¥12,495 million, respectively, is not included as no quoted market price is available and it is deemed extremely difficult to determine fair value due to the impossibility of estimating future cash flows. For monetary credits and securities with maturity, amount scheduled for redemption subsequent to the closing date. Millions of yen 2012 Cash and deposits Notes and accounts receivable—trade Allowance for doubtful accounts (*1) Investment securities Other securities Long-term loans receivables Total assets Notes and accounts payable—trade Short-term loans payable Commercial paper Income taxes payable Bonds payable Long-term loans payable Lease obligations Long-term guarantee deposited Total liabilities Derivative financial instruments (*2) (*1) This reduction represents specific allowance for doubtful accounts related to notes and accounts receivable—trade, and long-term loans receivable. (*2) The amounts represent net amount of assets and liabilities resulted from derivative transactions. In the case of a net liability, the amount is shown in parentheses. Note 1) Method to determine the estimated fair value of financial instruments; securities and derivative financial instruments i) Assets 1) Cash and deposits, notes and accounts receivable—trade As their fair value approximates book value due to their short maturity, the corresponding book value amount is used as fair value. 2) Short-term investment securities and investment securities The stock exchange prices are used to determine fair value of these traded stocks. Refer to the Note 12 “Marketable securities and investment securities” for information on securities classified holding purpose. 3) Long-term loans receivables The carrying amounts shown include long-term loans receivable scheduled for repayment within one year. Their fair values are determined based on the present value of principal and interest, discounted using current assumed rates for similar long-term loans receivable. For long-term loans receivable bearing variable interest rates, as they are deemed to reflect market interest rates within a short term, book values are used as fair value. ii) Liabilities 1) Notes and accounts payable—trade; short-term loans payable; commercial paper; income taxes payable As their fair values approximate book value due to their short maturity, the corresponding book value amounts are used as fair value. 2) Bonds payable Fair value of the bonds payable issued by the parent company is based on the quoted market price determined by the market price. For those without quoted market price that are subject to special treatment for interest rate swaps, fair value is based on the present value by totaling the amount of principal and interest, together with related interest rate swaps, discounted by the interest rate that would apply if equivalent bonds were newly issued. 3) Long-term loans payable The carrying amounts shown include long-term loans payable that are scheduled for repayment within one year of March 31, 2012 and 2011, amounted to ¥29,739 million (US$362,097 thousand) and ¥32,278 million, respectively. Their Note 5) Cash and deposits Notes and accounts receivable—trade Short-term investment securities, investment securities Government and municipal bonds Long-term receivables Due within one year Due after one year, within five years Due after five years, within ten years Due after more than ten years ¥ 102,875 266,056 2 979 ¥ 369,913 ¥— — — 5,344 ¥ 5,344 ¥— — — 215 ¥ 215 ¥ — — — — ¥ — Asahi Kasei Annual Report 2012 66 Notes to Consolidated Financial Statements Cash and deposits Notes and accounts receivable—trade Short-term investment securities, investment securities Government and municipal bonds Long-term receivables Cash and deposits Notes and accounts receivable—trade Short-term investment securities, investment securities Government and municipal bonds Long-term receivables Millions of yen 2011 Due within one year Due after one year, within five years Due after five years, within ten years Due after more than ten years ¥ 140,319 273,414 2 679 ¥ 414,414 ¥— — 2 5,166 ¥ 5,168 ¥ — — — 15 ¥ 15 ¥ — — — — ¥ — Thousands of U.S. dollars 2012 Due after one year, within five years Due after five years, within ten years Due after more than ten years $— — — 65,068 $ 65,068 $— — — 2,618 $ 2,618 $ — — — — $ — Due within one year $ 1,252,587 3,239,450 24 11,920 $ 4,503,994 Note 6) For bonds payable, long-term loans payable, lease obligations, and other interest-bearing debt, amount scheduled for repayment subsequent to the closing date. Refer to Note 21 “Borrowings.” 12. Marketable securities and investment securities (a) Other securities with available fair value The aggregate cost, carrying amount which were identical to fair value, and gross unrealized gains and losses of debt and equity securities classified as other securities for which fair values are available at March 31, 2012 and 2011, are as follows: Securities with unrealized gains: Equity securities Securities with unrealized losses: Equity securities Carrying amount Millions of yen 2012 Cost Unrealized gains (losses) ¥97,644 ¥ 32,027 ¥ 65,617 7,486 ¥ 105,130 10,840 ¥ 42,867 (3,354) ¥ 62,263 Note) For equity investment in nonpublic companies, with a carrying amount of ¥72,743 million, fair value is not included in short-term investment securities or in investment securities, as no quoted market price is available and it is deemed extremely difficult to determine fair value. Securities with unrealized gains: Equity securities Securities with unrealized losses: Equity securities Debt securities Carrying amount Millions of yen 2011 Cost Unrealized gains (losses) ¥ 85,780 ¥ 32,629 ¥ 53,151 8,141 116 8,256 ¥ 94,037 11,440 116 11,555 ¥ 44,185 (3,299) — (3,299) ¥ 49,852 Note) For equity investment in nonpublic companies, with a carrying amount of ¥72,652 million, fair value is not included in short-term investment securities or in investment securities, as no quoted market price is available and it is deemed extremely difficult to determine fair value. Securities with unrealized gains: Equity securities Securities with unrealized losses: Equity securities Thousands of U.S. dollars 2012 Carrying amount Cost Unrealized gains (losses) $ 1,188,896 $ 389,955 $ 798,941 91,148 $ 1,280,044 131,986 $ 521,941 (40,838) $ 758,103 Note) For equity investment in nonpublic companies, with a carrying amount of US$885,706 thousand, fair value is not included in short-term investment securities or in investment securities, as no quoted market price is available and it is deemed extremely difficult to determine fair value. Asahi Kasei Annual Report 2012 67 (b) The realized gains and losses on the sale of other securities during the year ended March 31, 2012 and 2011, are as follows: Selling amount Gain on sales of securities Loss on sales of securities Millions of yen 2012 ¥ 541 191 — 2011 ¥ 1,292 416 380 Thousands of U.S. dollars 2012 $6,587 2,326 — (c) Loss on other devaluation of investment securities whose fair values are readily determinable for the years ended March 31, 2012 and 2011, was ¥1,898 million (US$23,110 thousand) and ¥651 million, respectively. 13. Derivative financial instruments (a) Derivative financial instruments for which hedge accounting is not applied i) Foreign exchange forward contracts Classification Items Amount of contract Amount of contract over 1 year Fair value Profit (loss) from valuation Millions of yen 2012 Off-market transactions Foreign exchange forward contracts Selling U.S. dollar Euro Thai baht Singapore dollar Buying U.S. dollar ¥ 12,155 4,070 594 21 2,138 ¥ 18,978 ¥ — — — — — ¥ — ¥ (376) (227) (32) (0) 6 ¥ (630) ¥ (376) (227) (32) (0) 6 ¥ (630) Millions of yen 2011 Classification Items Amount of contract Amount of contract over 1 year Fair value Profit (loss) from valuation Foreign exchange forward contracts Off-market transactions Selling U.S. dollar Euro Thai baht Buying U.S. dollar ¥ 13,234 2,359 469 1,505 ¥ 17,567 ¥ — — — — ¥ — ¥ (159) (104) (15) 12 ¥ (268) ¥ (159) (104) (15) 12 ¥ (268) Thousands of U.S. dollars 2012 Classification Items Amount of contract Amount of contract over 1 year Fair value Profit (loss) from valuation Off-market transactions Foreign exchange forward contracts Selling U.S. dollar Euro Thai baht Singapore dollar Buying U.S. dollar $ 147,997 49,556 7,232 256 26,032 $ 231,073 $ — — — — — $ — $ (4,578) (2,764) (390) (0) 73 $ (4,578) (2,764) (390) (0) 73 $ (7,671) $ (7,671) Asahi Kasei Annual Report 2012 68 Notes to Consolidated Financial Statements (b) Derivative financial instruments for which hedge accounting is applied i) Foreign exchange forward contracts Classification Items Hedged assets/liabilities Amount of contract Foreign exchange forward contracts Millions of yen 2012 Amount of contract over 1 year Principle- based accounting Selling U.S. dollar Euro U.S. dollar Buying U.S. dollar Accounts receivable—trade Accounts receivable—trade Investment securities Accounts payable—trade ¥8,001 146 144,500 264 ¥ 152,911 ¥ 410 — — — ¥ 410 Classification Items Hedged assets/liabilities Amount of contract Foreign exchange forward contracts Millions of yen 2011 Amount of contract over 1 year Selling U.S. dollar Principle- based accounting Euro Buying U.S. dollar Euro Singapore dollar Accounts receivable—trade Accounts receivable—trade Accounts payable—trade Accounts payable—trade Accounts payable—trade ¥9,467 936 370 4 13 ¥ 10,790 ¥ — — — — — ¥ — Classification Items Hedged assets/liabilities Amount of contract Foreign exchange forward contracts Thousands of U.S. dollars 2012 Amount of contract over 1 year Fair value ¥(390) (1) (1,804) 2 ¥ (2,192) Fair value ¥ (121) (40) 9 (0) 0 ¥ (152) Fair value Principle- based accounting Selling U.S. dollar Euro U.S. dollar Buying U.S. dollar Accounts receivable—trade $97,419 $ 4,992 $(4,749) Accounts receivable—trade 1,778 — (12) Investment securities 1,759,406 — (21,965) Accounts payable—trade 3,214 — 24 $ 1,861,817 $ 4,992 $ (26,689) ii) Interest rate swaps, and interest rate and currency swaps Classification Special treatment for interest rate swaps Special treatment for interest rate and currency swaps Items Hedged assets/liabilities Amount of contract Interest rate swaps Millions of yen 2012 Amount of contract over 1 year Fair value Pay fixed/receive floating Long-term loans payable ¥ 27,044 ¥ 16,304 Interest rate and currency swaps U.S. dollar receive fixed/ Japanese yen pay floating U.S. dollar receive floating/ Thai baht pay fixed Bonds payable 5,000 5,000 Long-term loans payable 747 498 ¥ 32,791 ¥ 21,802 (*) (*) (*) — Asahi Kasei Annual Report 2012 69 Items Hedged assets/liabilities Amount of contract Interest rate swaps Millions of yen 2011 Amount of contract over 1 year Fair value Classification Special treatment for interest rate swaps Receive fixed/pay floating Long-term loans payable Pay fixed/receive floating Long-term loans payable ¥5,000 43,884 ¥— 25,915 Special treatment for interest rate and currency swaps Interest rate and currency swaps U.S. dollar receive fixed/ Japanese yen pay floating U.S. dollar receive floating/ Thai baht pay fixed Bonds payable 5,000 5,000 Long-term loans payable 1,093 ¥ 54,978 820 ¥ 31,735 (*) (*) (*) (*) — Classification Special treatment for interest rate swaps Special treatment for interest rate and currency swaps Items Hedged assets/liabilities Amount of contract Interest rate swaps Thousands of U.S. dollars 2012 Amount of contract over 1 year Fair value Pay fixed/receive floating Long-term loans payable $ 329,283 $ 198,515 Interest rate and currency swaps U.S. dollar receive fixed/ Japanese yen pay floating U.S. dollar receive floating/ Thai baht pay fixed Bonds payable 60,879 60,879 Long-term loans payable 9,095 6,064 $ 399,257 $ 265,457 (*) (*) (*) — (*) Fair value of interest rate swaps and interest currency swaps, for which special treatment is applied, is included in fair value of the corresponding long-term loans payable and bonds payable for which hedge accounting is applied. 14. Provision for retirement benefits Upon terminating employment, employees of the parent company and its major subsidiaries in Japan are entitled, under most circumstanc- es, to lump-sum severance indemnities and/or pension payments determined by reference mainly to their current basic rate of pay and length of service. Additional benefits may be granted to employees depending on the conditions under which termination of employment occurs. Certain foreign subsidiaries have defined benefit pension plans or defined contribution plans. The obligation for these severance indemnity benefits is provided for through accruals, contributory funded defined benefit pension plans, contributory funded defined benefit enterprise pension plans and non-contributory funded tax-qualified pension plans. Information on provision for retirement benefits at March 31, 2012 and 2011, was as follows: (a) Projected benefit obligations (b) Fair value of plan assets (c) Unfunded benefit obligations [(a)+(b)] (d) Unrecognized actuarial gains/losses (e) Unrecognized prior service costs (f) Amount shown on balance sheet [(c)+(d)+(e)] (g) Prepaid pension cost (h) Provision for retirement benefits [(f)-(g)] Millions of yen 2012 2011 Thousands of U.S. dollars 2012 ¥ (311,561) ¥ (310,990) $ (3,793,510) 161,838 (149,723) 49,107 (1,309) (101,925) 4,353 164,396 (146,593) 46,746 (2,692) (102,539) 4,769 1,970,510 (1,823,000) 597,918 (15,938) (1,241,020) 53,001 ¥ (106,277) ¥ (107,309) $ (1,294,009) Note: The figures in the above table do not include additional benefit payables amounting to ¥93 million (US$1,132 thousand) and ¥111 million at March 31, 2012 and 2011, respectively. The amounts were recorded as part of current liabilities on the consolidated balance sheets at March 31, 2012 and 2011. Periodic retirement benefit expenses for employees for the years ended March 31, 2012 and 2011, include the following components: Service cost* Interest cost Expected return on plan assets Amortization of unrecognized actuarial gains/losses Amortization of unrecognized prior service costs Retirement benefit expenses Millions of yen 2012 ¥9,744 6,312 (4,060) 4,760 (1,380) 2011 ¥9,031 7,237 (4,219) 2,317 (1,378) Thousands of U.S. dollars 2012 $ 118,641 76,854 (49,434) 57,957 (16,803) ¥ 15,376 ¥ 12,987 $ 187,215 Note: In addition to the above costs, additional benefits amounting to ¥340 million (US$4,140 thousand) and ¥878 million were charged to income for the years ended March 31, 2012 and 2011, respectively. * Not including contributions made by employees. Asahi Kasei Annual Report 2012 70 Notes to Consolidated Financial Statements The assumptions used in calculation of the above information are as follows: Discount rate Expected rate of return on plan assets 2012 Mainly 2.0% Mainly 2.5% 2011 Mainly 2.0% Mainly 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 15. 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, 2012 and 2011, were as follows: Deferred tax assets: Provision for retirement benefits Tax loss carry forwards Accrued bonuses Unrealized gain on noncurrent assets and others Impairment loss Unrealized loss on investment securities Loss on disposal of noncurrent assets Provision for repairs Depreciation Asset retirement obligations Accrued enterprise tax Devaluation of inventories Provision for product warranties Deferred gains or losses on hedges Environmental expenses Allowance for doubtful accounts Other Subtotal deferred tax assets Less: Valuation allowance Total deferred tax assets Deferred tax liabilities: Unrealized gain on other securities Deferred gain on property, plant and equipment Identified intangible assets during business combination Reserve for accelerated depreciation Other Total deferred tax liabilities Millions of yen 2012 2011 ¥37,608 16,377 8,272 4,233 4,104 3,411 3,434 2,989 1,964 1,415 1,368 1,022 889 834 662 341 7,897 96,821 (24,557) 72,263 (24,168) (11,862) (3,698) (249) (5,269) (45,247) ¥43,436 12,741 8,904 4,302 4,605 3,287 5,533 2,316 2,146 1,456 2,322 1,459 1,171 78 953 412 7,368 102,488 (21,904) 80,585 (22,454) (13,402) — (247) (5,720) (41,822) Thousands of U.S. dollars 2012 $457,908 199,403 100,718 51,540 49,970 41,532 41,812 36,394 23,913 17,229 16,657 12,444 10,824 10,155 8,060 4,152 96,152 1,178,875 (299,002) 879,861 (294,265) (144,430) (45,026) (3,032) (64,154) (550,919) Net deferred tax assets ¥27,017 ¥38,762 $328,954 Net deferred tax assets (liabilities) at March 31, 2012 and 2011, were included in the following line items on the consolidated balance sheets. Current assets—deferred tax assets Non-current assets—deferred tax assets Current liabilities—deferred tax liabilities Non-current liabilities—deferred tax liabilities Millions of yen 2012 ¥ 19,454 18,965 — (11,402) 2011 ¥ 23,131 22,005 — (6,374) Thousands of U.S. dollars 2012 $ 236,868 230,914 — (138,829) Asahi Kasei Annual Report 2012 71 Reconciliation of the differences between the statutory tax rate and the effective income tax rate for the years ended March 31, 2012 and 2011, was as follows: Statutory tax rate 2012 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 Equity in earnings of unconsolidated subsidiaries and affiliates Undistributed earnings of foreign subsidiaries Difference of tax rates for foreign subsidiaries Valuation allowance R&D expenses deductible from income taxes Decrease in deferred tax asset due to the change in statutory tax rate 1.5 0.5 (0.3) (0.5) (3.2) 1.4 (6.3) 5.7 Non-deductible expenses and non-taxable income Equalization of inhabitants taxes Equity in earnings of unconsolidated subsidiaries and affiliates Undistributed earnings of foreign subsidiaries Difference of tax rates for foreign subsidiaries Valuation allowance R&D expenses deductible from income taxes Decrease in deferred tax asset due to the change in statutory tax rate Other Effective income tax rate 0.6 40.0% Other Effective income tax rate 2011 40.7% 1.4 0.4 (0.8) 0.7 (4.4) 4.0 (5.1) — 0.4 37.3% Change in deferred tax assets and deferred tax liabilities due to changes in the corporate income tax rate The “Act for Partial Amendment of the Income Tax Act, etc., for the Purpose of Creating a Taxation System Responding to Changes in Economic and Social Structures” (Act No.114 of 2011) and the “Act on Special Measures for Securing Financial Resources Necessary to Implement Measures for Reconstruction from the Great East Japan Earthquake” (Act No.117 of 2011) were issued on December 2, 2011 and the income tax rate is to be changed accordingly with the effect on business terms beginning on April 1, 2012 onward. In accordance with the change, statutory effective tax rates used to calculate the amounts of deferred tax assets and liabilities have been applied as follows depending on the timing of reversal for each temporary item. Timing of reversal April 1, 2012 through March 31, 2015 April 1, 2015 onward Tax rate 38.0% 35.6% As a result of this change, net deferred tax assets (after netting deferred tax liabilities) decreased by ¥2,296 million, net unrealized gain on other securities increased by ¥3,133 million and deferred gains or losses on hedges decreased by ¥46 million, respectively, and income taxes—deferred increased by ¥5,383 million. 16. Business combinations Business combinations accounted for by purchase method were as follows: 1. Artisan Pharma, Inc. (a) Outline of business combination 1) Name of acquiree Artisan Pharma, Inc. 2) Nature of the businesses Clinical trials for new drugs, sale of pharmaceuticals 3) Main reasons for the acquisition In 2006, Asahi Kasei Pharma Corp. established Artisan Pharma, Inc. together with several venture capital firms, and licensed its ART-123 (recombinant thrombomodulin alpha, marketed as Recomodulin™ in Japan) to the new company for the advancement of overseas development. Artisan Pharma conducted a global Phase IIb clinical trial for ART- 123 for the treatment of DIC in sepsis, which was complet- ed in 2010. Artisan Pharma’s shareholders subsequently advanced discussions on the best approach for implemen- tation of a Phase III clinical trial, reaching the conclusion that it would be optimal for Asahi Kasei Pharma to acquire full ownership and perform the clinical trial on its own in order to facilitate the processes and procedures for the trial and receive approval for ART-123 as swiftly as possible. 4) The acquisition date November 4, 2011 5) Statutory form of business combination Stock purchase for cash as consideration 6) Name of company after transaction Artisan Pharma, Inc. (currently, Asahi Kasei Pharma America Corp.) 7) Acquired voting right Voting right before the acquisition 37.65% Additional voting right acquired as of the acquisition date 62.35% Voting right after the acquisition 100.00% 8) Major reasons for identifying the acquirer Stock purchase for cash as consideration by Asahi Kasei Pharma Corp. which is a wholly owned subsidiary of Asahi Kasei Corp. (b) The period of acquiree’s results included in the consolidated financial statements From January 1, 2012, to March 31, 2012 (c) Cost of acquisition and details Stock purchase price Acquisition related direct cost Purchase price Millions of yen ¥ 5,661 34 ¥5,695 Thousands of U.S. dollars $ 68,927 414 $69,341 All stocks held as of the acquisition date are remeasured to their fair value at acquisition date. (d) The difference between the purchase price and the sum of carrying amounts of each investment ¥2,143 million (US$26,093 thousand) The difference is recognized as gain on step acquisitions on the consolidated statements of income. (e) The amount of goodwill, measurement principle, amortization method and useful life 1) Amount of goodwill ¥2,323 million (US$28,284 thousand) 2) Measurement principle Goodwill is measured as the excess of the purchase price over the fair value of identifiable assets acquired and liabili- ties assumed. 3) Amortization method and useful life Straight-line method over 10 years Asahi Kasei Annual Report 2012 72 Notes to Consolidated Financial Statements (f) Details of assets acquired and liabilities assumed as of the acquisition date Current assets Noncurrent assets Total assets Current liabilities Noncurrent liabilities Total liabilities Millions of yen Thousands of U.S. dollars 2012 ¥198 5,774 5,973 46 2,323 ¥ 2,369 2012 $2,411 70,303 72,726 560 28,284 $ 28,845 (g) Outline of contingent consideration stated on the share purchase agreement and its accounting treatment in the subsequent period 1) Nature of contingent consideration The contingent consideration depends on the degree of achievement of a specified milestone and others after the acquisition date. 2) Accounting treatment in the subsequent period In case additional consideration is paid, purchase price is adjusted as if it was paid as of the acquisition date then the amount of goodwill and its amortization expense are changed accordingly. (h) Amount of identifiable intangible assets other than goodwill, its details and major weighted average useful life 1) Purchase price allocated to intangible assets and its major item In process Research & Development ¥5,768 million (US$70,230 thousand) 2) Major weighted average useful life Intangible assets are amortized over their economic useful lives. Additional voting right acquired as of the acquisition date 93.27% Voting right after the acquisition 100.00% 8) Reason for identifying the acquirer Stock purchase for cash as consideration by Asahi Kasei Corporation. (b) The period of acquiree’s results included in consolidated financial statements From January 1, 2012 to March 31, 2012 (c) Cost of acquisition and its detail Stock purchase price Acquisition related direct cost Purchase price Millions of yen ¥ 3,737 105 ¥3,842 Thousands of U.S. dollars $ 45,501 1,278 $46,779 All stocks held as of the acquisition date are remeasured to their fair value at acquisition date. (d) The difference between the purchase price and the sum of carrying amounts of each investment ¥134 million (US$1,632 thousand) The difference is recognized as gain on step acquisitions on the consolidated statements of income. (e) The amount of goodwill, measurement principle, amortization method and useful life 1) Amount of goodwill ¥1,882 million (US$22,915 thousand) 2) Measurement principle Goodwill is measured as the excess of purchase price over the fair value of identifiable assets acquired and liabilities assumed. 3) Amortization method and useful life Straight-line method over 10 years (f) Details of assets acquired and liabilities assumed as of the (i) Pro forma effects on the consolidated statements of acquisition date income assumed the business combination occurs at the beginning of fiscal year and its measurement. Information is omitted due to immateriality. This note is not audit- ed. 2. Crystal IS, Inc. (a) Outline of business combination 1) Name of acquiree Crystal IS, Inc. 2) Nature of the businesses Development of high-quality aluminum nitride (AIN) sub- strates, ultraviolet light emitting diodes (UV LEDs) and its application 3) Main reasons for the acquisition This acquisition makes the way for the Company’s entry into the highly promising UV LED market and further develop- ment in the field of energy-conserving devices by evolving synergies between acquired outstanding technology for sin- gle-crystal AIN substrates and its options for commercializa- tion of the UV LEDs and the Company’s existing technologies in electronic component. 4) The acquisition date December 28, 2011 5) Statutory form of business combination Stock purchase for cash as consideration 6) Name of company after transaction Crystal IS, Inc. 7) Acquired voting right Voting right before the acquisition 6.73% Current assets Noncurrent assets Total assets Current liabilities Noncurrent liabilities Total liabilities Millions of yen Thousands of U.S. dollars 2012 ¥135 3,065 3,200 47 1,194 ¥ 1,240 2012 $1,644 37,319 38,963 572 14,538 $ 15,098 (g) Amount of identifiable intangible assets other than goodwill, its details and major weighted average useful life 1) Purchase price allocated to intangible assets and its major item Technology related asset and others ¥2,981 million (US$36,296 thousand) 2) Major weighted average useful life 20 years (h) Pro forma effects on the consolidated statements of income assumed the business combination occurs at the beginning of fiscal year and its measurement. Information is omitted due to immateriality. This note is not audited. Asahi Kasei Annual Report 2012 73 17. Asset retirement obligations (a) Outline of asset retirement obligations Due to commitments pertaining to restoration to original state before vacating in accordance with land lease agreements such as for offices, and due to commitments to dismantle leased buildings upon termination of lease period, etc., in accordance with lease agreements for model home parks, relevant asset retirement obli- gations are recorded in the consolidated balance sheet. In accordance with building lease agreements such as for the head offices, commitments pertaining to restoration to original state before vacating are recognized as asset retirement obligations. However, instead of recording them as the relevant asset retirement obligations under liabilities, the amount of lease deposit that cannot ultimately be expected to be collected was estimated in a reason- able manner, and of that, the amount corresponding to the fiscal year ended March 31, 2012, was recorded under operating expenses. (b) Method of calculating the amount of relevant asset retirement obligations The calculation of asset retirement obligations is based on the fol- lowing: expected term of use of 4 to 55 years, inflation rate of 0.0% to 4.1%, and discount rate of 0.3% to 6.0%. (c) Increase (decrease) in the total amount of asset retirement obligations in the fiscal year ended March 31, 2012 Balance at beginning of year Increase due to asset retirement obligations accrued Adjustment due to passage of time Decrease due to fulfillment of asset retirement obligations Decrease due to foreign exchange fluctuation Balance at end of year Millions of yen 2012 ¥ 3,828 148 151 (317) (108) 2011 ¥ 4,038 346 173 (420) (310) Thousands of U.S. dollars 2012 $ 46,609 1,802 1,839 (3,860) (1,315) ¥ 3,701 ¥ 3,828 $ 45,063 For the amount of lease deposit, which will be written off for a certain percentage at the end of the lease period, was charged to expense rather than recording the Asset Retirement Obligation. Increase (decrease) in those expensed amounts for the fiscal year ended March 31, 2012 and 2011 are as follows: Balance at beginning of year Increase due to new lease agreements Decrease due to the cancelation of existing lease agreements Balance at end of year 18. Business segment information (a) Overview of reportable segments The Company is organized under a holding company configuration with core operating companies performing operations in eight busi- ness fields. Separate financial information is available in these eight units, and the Board of Directors carries out periodic review to allocate management resources and evaluate business performance. The eight units are combined into six reportable segments of Chemicals, Homes, Health Care, Fibers, Electronics, and Construction Materials through application of Paragraph 13 of “Accounting Standard for Disclosures about Segments of an Enterprise and Related Information.” Main products of the six reportable segments are as follows: Chemicals The Company produces, processes and sells chemicals and deriv- ative products (such as ammonia, nitric acid, caustic soda, acrylo- nitrile, styrene, adipic acid, methyl methacrylate (MMA) and acrylic resin), polymer products (such as Stylac™-AS styrene-acrylonitrile, Stylac™-ABS acrylonitrile-butadiene-styrene, Tenac™ polyacetal, Xyron™ modified polyphenylene ether (mPPE), Leona™ polyamide 66, Suntec™ polyethylene, synthetic rubber, and polystyrene), spe- cialty products (such as coating materials, latex, Ceolus™ micro- crystalline cellulose, explosives, explosion-bonded metal clad, Microza™ UF and MF membranes and systems, ion-exchange membranes and electrolysis systems, Saran Wrap™ cling film, Ziploc™ storage bags, and plastic films, sheets, and foams). Homes The Company constructs Hebel Haus™ order-built unit homes and Hebel Maison™ apartments, and operates related businesses such as condominiums, residential land development, remodeling, real estate, and home financing. Millions of yen 2012 ¥ 1,619 37 (13) ¥ 1,643 2011 ¥ 1,553 66 — ¥ 1,619 Thousands of U.S. dollars 2012 $ 19,713 451 (158) $ 20,005 Health Care The Company manufactures and sells pharmaceuticals (such as Recomodulin™, Elcitonin™, Flivas™, Toledomin™, and Bredinin™), Lucica™ GA-L assay kits, L series enriched liquid diets, APS™ polysulfone-membrane artificial kidneys, therapeutic apheresis devices, Planova™ virus removal filters, and Sepacell™ leukocyte reduction filters. Fibers The Company produces, processes, and sells Roica™ elastic poly- urethane filament, Bemberg™ cupro fiber, nonwoven fabrics (such as Eltas™ spunbond and Lamous™ artificial suede), Leona™ nylon 66 filament, and polyester filament. Electronics The Company manufactures and sells Hipore™ Li-ion battery sepa- rators, photomask pellicles, APR™ photosensitive resin and print- ing plate making systems, Pimel™ photosensitive polyimide precursor, Sunfort™ dry film photoresist, mixed-signal LSIs, Hall elements, and glass fabric for printed wiring boards. Construction Materials The Company produces and sells Hebel™ autoclaved aerated con- crete (AAC) panels, Neoma™ phenolic foam insulation panels, foundation piles, and steel-frame structural components. (b) Methods to determine net sales, income or loss, assets, and other items by reportable business segment Profit by reportable business segment is stated on an operating income basis. Intersegment net sales and transfers are based on the values of transactions undertaken between third parties. Asahi Kasei Annual Report 2012 74 Notes to Consolidated Financial Statements (c) Information concerning net sales, income or loss, assets, and other items for each reportable segment Millions of yen 2012 Sales: External customers ¥ 680,112 ¥ 451,965 ¥ 119,483 ¥ 110,849 ¥ 146,113 ¥ 46,146 ¥ 1,554,668 ¥ 18,562 ¥ 1,573,230 Chemicals Homes Health Care Fibers Electronics Construction Materials Subtotal Others (Note 1) Total Intersegment Total Operating income Assets Other items 20,506 63 23 1,743 608 15,268 38,211 23,665 61,876 700,617 452,028 119,506 112,593 146,721 61,414 1,592,879 42,227 1,635,106 44,486 46,340 8,804 3,140 6,423 1,824 111,015 2,969 113,984 580,351 293,452 180,241 106,000 162,951 42,620 1,365,615 57,462 1,423,077 Depreciation (Note 2) Amortization of goodwill Investments in affiliates accounted for using equity method Increase in property, plant and equipment, and intangible assets 29,215 4,794 10,892 6,445 20,911 2,419 435 34,413 — — 657 260 — 39 3,825 2,020 — — 74,676 1,131 852 47 75,528 1,179 40,518 17,519 58,037 39,080 6,272 10,678 5,697 13,429 1,631 76,787 786 77,572 Notes: 1. The “Others” category is equivalent to the previous Services, Engineering and Others segment, including plant engineering and environmental engineering, research and analysis, and employment agency/staffing operations. 2. Amortization of goodwill is not included. Millions of yen 2011 Sales: External customers ¥ 699,801 ¥ 409,224 ¥ 116,387 ¥ 108,761 ¥ 158,337 ¥ 47,418 ¥ 1,539,928 ¥ 16,017 ¥ 1,555,945 Chemicals Homes Health Care Fibers Electronics Construction Materials Subtotal Others (Note 2) Total Intersegment Total Operating income Assets Other items 18,657 160 81 1,732 729 14,152 35,510 23,950 59,461 718,457 409,384 116,468 110,493 159,066 61,570 1,575,439 39,968 1,615,406 64,379 36,476 7,045 4,197 14,258 2,091 128,444 1,706 130,151 563,034 265,342 165,277 102,163 178,739 39,570 1,314,126 49,268 1,363,394 Depreciation (Note 3) 31,460 4,266 10,833 6,945 23,882 2,795 443 36,295 — — 610 272 5 14 4,124 2,759 — — 80,181 1,073 862 — 81,043 1,073 43,450 15,975 59,425 Amortization of goodwill Investments in affiliates accounted for using equity method Increase in property, plant and equipment, and intangible assets 23,174 6,304 7,427 3,668 20,267 1,684 62,524 981 63,505 Notes: 1. As stated in change in accounting policy for naphtha resale transactions, a new accounting method was adopted from the fiscal year ended March 31, 2012. Due to the change, sales to external customers in the Chemicals segment was restated retroactively. 2. The “Others” category is equivalent to the previous Services, Engineering and Others segment, including plant engineering and environmental engineering, research and analysis, and employment agency/staffing operations. 3. Amortization of goodwill is not included. Chemicals Homes Health Care Fibers Electronics Construction Materials Subtotal Others (Note 1) Total Thousands of U.S. dollars 2012 Sales: External customers $ 8,280,920 $ 5,503,044 $ 1,454,803 $ 1,349,677 $ 1,779,045 $ 561,865 $ 18,929,356 $ 226,008 $ 19,155,363 Intersegment Total Operating income Assets Other items 249,677 767 280 21,222 7,403 185,900 465,250 288,141 753,391 8,530,586 5,503,811 1,455,083 1,370,912 1,786,448 747,766 19,394,606 514,148 19,908,754 541,653 564,227 107,196 38,232 78,205 22,209 1,351,699 36,150 1,387,849 7,066,249 3,573,018 2,194,582 1,290,637 1,984,062 518,933 16,627,481 699,647 17,327,128 Depreciation (Note 2) 355,717 58,371 132,619 78,473 254,609 29,453 909,241 10,374 919,615 Amortization of goodwill Investments in affiliates accounted for using equity method Increase in property, plant and equipment, and intangible assets 5,296 419,006 — — 8,000 — 475 3,166 46,573 24,595 — — 13,771 572 14,355 493,340 213,308 706,648 475,831 76,367 130,013 69,366 163,509 19,859 934,945 9,570 944,503 Notes: 1. The “Others” category is equivalent to the previous Services, Engineering and Others segment, including plant engineering and environmental engineering, research and analysis, and employment agency/staffing operations. 2. Amortization of goodwill is not included. Asahi Kasei Annual Report 2012 75 (d) Reconciliation of differences between total amounts of reportable segments and amounts appearing in the consolidated financial statements (adjustment of difference) Sales Total of reporting segments Net sales in “Others” category Elimination of intersegment transactions Net sales on consolidated statements of income Operating income Total of reporting segments Operating income in “Others” category Elimination of intersegment transactions Corporate expenses, etc.* Operating income on consolidated statements of income Millions of yen 2012 2011 ¥ 1,592,879 42,227 (61,876) ¥ 1,573,230 ¥ 1,575,439 39,968 (59,461) ¥ 1,555,945 Millions of yen 2012 ¥ 111,015 2,969 690 (10,416) ¥ 104,258 2011 ¥ 128,444 1,706 708 (7,932) ¥ 122,927 *Corporate expenses, etc. include corporate revenue, basic research expense, and group management expense, etc. which are not allocated to reporting segments. Assets Total of reporting segments Assets in “Others” category Elimination of intersegment transactions Corporate assets* Total assets on consolidated balance sheets Millions of yen 2012 2011 ¥ 1,365,615 57,462 (206,324) 193,814 ¥ 1,410,568 ¥ 1,314,126 49,268 (167,618) 230,103 ¥ 1,425,879 Thousands of U.S. dollars 2012 $ 19,394,606 514,148 (753,391) $ 19,155,363 Thousands of U.S. dollars 2012 $ 1,351,699 36,150 8,401 (126,823) $ 1,269,427 Thousands of U.S. dollars 2012 $ 16,627,481 699,647 (2,512,164) 2,359,844 $ 17,174,820 * Corporate assets include assets of the parent company and those of a financial subsidiary—surplus operating funds (cash and deposits), long-term investment capital (investment securities, etc.), and land, etc. Total of reportable segments Others Adjustments (Note 1) Amounts from consolidated financial statements Millions of yen Thousands of U.S. dollars Millions of yen Thousands of U.S. dollars Millions of yen Thousands of U.S. dollars Millions of yen Thousands of U.S. dollars Other items 2012 2011 2012 2012 2011 2012 2012 2011 2012 2012 2011 2012 Depreciation (Note 2) ¥ 74,676 ¥ 80,181 $ 909,241 ¥852 ¥862 $10,374 ¥ 2,912 ¥3,049 $ 35,456 ¥ 78,440 ¥ 84,092 $955,071 Amortization of goodwill Investments in associates accounted for using equity method Increase in property, plant and equipment, and intangible assets 1,131 1,073 13,771 47 — 572 — — — 1,179 1,073 14,355 40,518 43,450 493,340 17,519 15,975 213,308 — — — 58,037 59,425 706,648 ¥ 76,787 ¥ 62,524 $ 934,945 ¥786 ¥981 $9,570 ¥ 7,551 ¥2,509 $ 91,940 ¥ 85,124 ¥ 66,014 $ 1,036,454 Notes: 1. Adjustments include elimination of intersegment transactions and corporate expenses, etc. 2. Amortization of goodwill is not included. (e) Related Information i) Information on products and services Please refer to (c) Information concerning net sales, income or loss, assets, and other items for each reportable segment. ii) Geographic information 1) Net sales Millions of yen Japan China 2012 Other regions Total Japan China 2011 Other regions Thousands of U.S. dollars 2012 Total Japan China Other regions Total ¥1,151,705 ¥151,286 ¥270,238 ¥1,573,230 ¥1,106,656 ¥169,637 ¥279,652 ¥1,555,945 $14,022,951 $1,842,031 $3,290,369 $19,155,363 Note: As stated in change in accounting policy for naphtha resale transactions, a new accounting method was adopted from the fiscal year ended March 31, 2012. Due to the change, net sales generated from Japan in the fiscal year ended March 31, 2011, was restated retroactively. 2) Property, plant and equipment Geographic information is not shown because over 90% of the amount of property, plant and equipment on the consolidated bal- ance sheets is located in Japan. 3) Information by major customer Information by major customer is not shown because no customer accounts for 10% or more of net sales on the statements of income. Asahi Kasei Annual Report 2012 76 Notes to Consolidated Financial Statements 19. Information on related parties Related party transactions Transactions between consolidated subsidiaries of the company submitting the consolidated financial statements and related parties Subsidiaries, affiliates, etc. of the company submitting the consolidated financial statements Type of related party Name of company Location Paid-in capital Business line Holding ratio of voting rights (of which, indirect holding ratio) 48.5% (48.5%) Debt guarantee Relationship with the related party Completion guarantee Nature of transaction ¥17,163 million in 2012, ¥15,002 million in 2011 Transaction amount — Item — Balance at end of year An affiliated company PTT Asahi Chemical Co., Ltd. Rayong, Thailand 14,246 million Thai baht Chemicals 20. Per share information Reconciliation of the differences between basic and diluted net assets per share and net income per share for the years ended March 31, 2012 and 2011, was as follows: Basic net assets per share Basic net income per share (a) Net assets per share Total net assets Amount deducted from total net assets of which, minority interests Net assets allocated to capital stock Yen U.S. dollars 2012 ¥ 505.72 ¥39.89 2011 ¥ 474.59 ¥43.11 2012 $6.16 $0.49 Millions of yen 2012 2011 Thousands of U.S. dollars 2012 ¥719,285 ¥675,602 $ 8,757,884 12,439 (12,439) 12,036 (12,036) 151,455 (151,455) ¥706,846 ¥663,566 $ 8,606,429 Number of shares of capital stock outstanding at fiscal year end used in calculation of net assets per share (thousand) 1,397,691 1,398,196 1,397,691 (b) Net income per share Net income Amount not allocated to capital stock Net income allocated to capital stock Weighted-average number of shares of capital stock (thousand) Millions of yen 2012 2011 Thousands of U.S. dollars 2012 ¥55,766 ¥60,288 $678,997 — — — ¥55,766 1,397,872 ¥60,288 1,398,311 $678,997 1,397,872 As the Company had no dilutive securities at March 31, 2012 and 2011, the Company does not disclose diluted net income per share for the years ended March 31, 2012 and 2011. Asahi Kasei Annual Report 2012 77 21. Borrowings (a) Bonds payable at March 31, 2012 and 2011, comprised the following: Unsecured 1.90% Euro yen bonds due in 2013 Unsecured 1.46% yen bonds due in 2019 Note 1) The current portion of bonds payable is recorded under current liabilities on the consolidated balance sheets. 2) In the case of floating interest rates, the rate at the end of March is shown. 3) The aggregate annual maturities of long-term debt after March 31, 2012, are as follows: Year ending March 31 2013 2014 2015 2016 2017 and thereafter (b) Loans payable at March 31, 2012 and 2011 are comprised of the following: Short-term loans payable with interest rate 0.70% Current portion of long-term loans payable with interest rate 0.91% Current portion of lease obligations with interest rate 2.10% Long-term loans payable (except portion due within one year) with interest rate 1.13% Lease obligations (except portion due within one year) with interest rate 1.81% Commercial paper with interest rate 0.11% (due within one year) Millions of yen 2012 ¥5,000 20,000 2011 ¥5,000 20,000 Thousands of U.S. dollars 2012 $60,879 243,516 ¥ 25,000 ¥ 25,000 $ 304,395 Millions of yen ¥— 5,000 — — 20,000 ¥ 25,000 Millions of yen 2012 ¥44,751 29,739 2,207 62,710 4,707 15,000 2011 ¥76,611 32,278 1,522 91,722 3,802 23,000 Thousands of U.S. dollars $— 60,879 — — 243,516 $ 304,395 Thousands of U.S. dollars 2012 $544,880 362,097 26,872 763,546 57,312 182,637 Note 1) Interest rates shown are weighted average interest rates for the balance outstanding at the end of March. 2) The aggregate annual maturities of long-term loans payable and lease obligations (except portion due within one year) after March 31, 2013, are as follows: ¥ 159,114 ¥ 228,935 $ 1,937,343 Year ending March 31 2014 2015 2016 2017 2018 and thereafter Long-term loans payable Lease obligations Millions of yen ¥ 23,071 6,862 2,197 4,212 ¥ 25,860 Thousands of U.S. dollars $ 280,908 83,550 26,750 51,285 $ 314,867 Millions of yen ¥ 2,039 1,365 923 370 ¥10 Thousands of U.S. dollars $ 24,826 16,620 11,238 4,505 $122 3) The timing of repayments for the loan payables from Japan Science and Technology Agency have yet to be determined as they begin after the development success is certified. Thus, the related aggregate annual maturities for these long-term loans payable after March 31, 2012, are not included in the above. Asahi Kasei Annual Report 2012 78 Notes to Consolidated Financial Statements (d) Other From the fiscal year ending March 31, 2013, the result of the acquired business is disclosed in a new segment by the name of “Critical Care”. 2. Borrowing for the acquisition of ZOLL The parent company entered into the following loan agreement on April 9, 2012 per the resolution of the board of the meeting on February 23, 2012 and executed the borrowing on April 25, 2012 as follows: I) Borrower: Asahi Kasei Corporation II) Lenders : Sumitomo Mitsui Banking Corporation, Mizuho Corporate Bank, Ltd., The Bank of Tokyo-Mitsubishi UFJ, Ltd., The Norinchukin Bank, Sumitomo Mitsui Trust Bank, Limited, UBS AG, Tokyo Branch III) Nature of loan: Loan facility agreement (syndicate loan) in US$ and yen IV) Amount: US$500 million and ¥144,500 million V) Purpose of the loan (1) Financing the consideration payable for shares in ZOLL (2) Financing the purchase of the authorized and unissued shares of ZOLL pursuant to the option granted to Its man- agement and employees and others under the Merger Agreement (3) Financing the consideration payable to minority shareholders of ZOLL in the process of the merger (4) Financing agreed fees, costs and other expenses associat- ed with the transaction VI) Interest rate: Base rate plus spread VII) Drawdown date: April 25, 2012 VIII) Term: October 25, 2012 IX) Pledge: Not applicable X) Guarantee: Not applicable XI) Financial covenant: Applicable 22. Subsequent events 1. Acquisition of ZOLL Medical Corporation On March 12, 2012, the parent company made an agreement with a major US critical care medical device maker, ZOLL Medical Corporation (headquarters: Massachusetts, US; CEO: Richard A. Packer; listed in the US on NASDAQ: ZOLL; hereinafter “ZOLL”) regarding its acquisition of ZOLL by a tender offer through a sub- sidiary in the US and a subsequent merger with cash as consider- ation. All procedures related to this acquisition were completed on April 26, US Eastern time and ZOLL became a wholly owned sub- sidiary. (a) Purpose of this acquisition I) By utilizing the know-how and the resources built up through the Company’s established pharmaceutical and medical device businesses, it will be possible to accelerate the expansion of ZOLL’s business in Japan and Asia, and also contribute to the reinforcement of the competitiveness of ZOLL’s products. II) Having ZOLL’s globally strong platform in critical care will enable the Company to obtain additional investment opportunities for further growth. III) Through sharing information on customer needs with the Company’s established medical device business and through joint marketing, etc., the Company will be able to obtain oppor- tunities for global business expansion and to deal with new therapeutic fields. (b) Profile of ZOLL I) Company name: ZOLL Medical Corporation II) Year of incorporation: 1980 III) Headquarters: Massachusetts, US IV) CEO: Richard A. Packer V) Sales (US GAAP): US$523.7 million (fiscal 2011) VI) Operating income (US GAAP): US$48.2 million (fiscal 2011) VII) Number of employees: 1,908 (as of October 2, 2011) VIII) Main business locations: US, Germany (c) Outline of this acquisition I) Implementer of the tender offer A special purpose company (SPC) established under a US sub- sidiary of the parent company. II) Object of this acquisition ZOLL Medical Corporation III) Type of shares purchased Common shares IV) Purchase price US$93 per share V) Purchase period Initial period: From March 26 to April 20, 2012, US Eastern time Subsequent offering period: From April 23 to April 25, 2012, US Eastern time VI) Change in ownership ratio of ZOLL’s shares as a result of this acquisition Ownership ratio prior to this acquisition: 0% Ownership ratio after this tender offer and this acquisition: 100% VII) Funds required for this acquisition US$2.21 billion The amount shown is that required to purchase the total num- ber of ZOLL’s outstanding shares and to make payments relat- ed to stock options and restricted shares. Report of Independent Auditors Asahi Kasei Annual Report 2012 79 Asahi Kasei Annual Report 2012 80 Major Subsidiaries and Affiliates As of April 1, 2012 Company Main products/business line Paid-in capital (million) Equity interest (%) Chemicals Segment Asahi Kasei Chemicals Corp.* Asahi Kasei Pax Corp.* Chemicals Packaging products and solutions Asahi Kasei Finechem Co., Ltd.* Specialty chemicals Asahi Kasei Home Products Corp.* Cling film, other household products Asahi Kasei Metals Ltd. Aluminum paste Asahi Kasei Geotechnologies Co., Ltd. Sale of civil engineering materials Asahi SKB Co., Ltd. Shotgun cartridges Asahi Kasei Clean Chemical Co., Ltd. Water treatment equipment, environmental chemicals Asahi Kasei Technoplus Co., Ltd.* Processing of plastic and fiber Japan Elastomer Co., Ltd.* Synthetic rubber Sundic Inc. Biaxially oriented polystyrene sheet Wacker Asahikasei Silicone Co., Ltd. Silicone Kayaku Japan Co., Ltd. PS Japan Corp.* Industrial explosives Polystyrene Asahikasei Plastics (America) Inc.* Compounded performance resin operations Asahi Kasei Plastics North America, Inc.* Coloring and compounding of performance resin Sun Plastech Inc.* Sale of purging compound Tong Suh Petrochemical Corp., Ltd.* Acrylonitrile, sodium cyanide Asahi Kasei Chemicals Korea Co., Ltd. Sale of adipic acid Asahi Kasei Performance Chemicals Corp.* High-performance HDI-based polyisocyanate Asahi Kasei Microza (Hangzhou) Co., Ltd.* Industrial filtration membranes and systems Asahikasei Plastics (Shanghai) Co., Ltd. Sale of performance resin Asahi Kasei Plastics (Hong Kong) Co., Ltd. Sale of performance resin Asahikasei (Suzhou) Plastics Compound Co., Ltd. Coloring and compounding of performance resin Asahi-DuPont POM (Zhangjiagang) Co., Ltd. Polyacetal Asahi Kasei Synthetic Rubber Singapore Pte. Ltd. Synthetic rubber Asahi Kasei Plastics Singapore Pte. Ltd.* Performance resin Polyxylenol Singapore Pte. Ltd.* PPE powder Asahikasei Plastics (Thailand) Co., Ltd. Coloring and compounding of performance resin 3,000 490 325 250 250 132 100 100 160 1,000 1,500 1,050 60 5,000 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 99.4 75.0 50.0 50.0 50.0 62.1 32.0** 100.0 21.7** 100.0 ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ US$ US$ US$ 1.0 KRW 237,642 KRW 1,500 CNY CNY CNY US$ CNY US$ US$ US$ US$ THB 149 69 18 2.6 50 32.0 85 46.0 35.0 140 100.0 100.0 100.0 100.0 100.0 100.0 100.0 51.0 50.0 100.0 100.0 70.0 100.0 48.5 25.7 100.0 PTT Asahi Chemical Co., Ltd. PT Nippisun Indonesia Acrylonitrile, methyl methacrylate Coloring and compounding of styrenic resin Asahi Kasei Plastics Europe SA/NV* Sale of compounded performance resin THB 14,246 US$ A 6.3 5.0 Homes Segment Asahi Kasei Homes Corp.* Asahi Kasei Fudousan Residence Corp.* Asahi Kasei Jyuko Co., Ltd.* Asahi Kasei Mortgage Corp.* Asahi Kasei Reform Co., Ltd.* Housing Real estate development, brokerage, and related business Steel frames Financial services Home maintenance and remodeling Asahi Kasei Home Construction Corp.* Construction of homes Health Care Segment Asahi Kasei Pharma Corp.* Asahi Kasei Medical Co., Ltd.* Med-Tech Inc.* Pharmaceuticals Hemodialyzers, therapeutic apheresis devices, other medical devices and related systems Medical devices Asahi Kasei Pharma America Corp. Clinical trials for new drugs, sale of pharmaceuticals Asahi Kasei Bioprocess, Inc.* Bioprocess equipment and systems Asahi Kasei Medical America Inc.* Sale of medical devices, medical systems ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ US$ US$ US$ Asahi Kasei Medical Trading (Korea) Co., Ltd.* Sale of medical devices, medical systems KRW 1,000 Asahi Kasei Medical (Hangzhou) Co., Ltd.* Hemodialyzers; sale of medical devices Asahi Kasei Medical Trading (Taiwan) Co. Ltd.* Asahi Kasei Medical Europe GmbH* * Consolidated subsidiary ** Including capital reserve Sale of medical devices, medical systems Sale of medical devices, medical systems CNY NT$ A 165 5 12 3,250 100.0 3,200 100.0 2,820 1,000 250 100 100.0 100.0 100.0 100.0 3,000 100.0 3,000 100.0 140 89.9 30.0 0.5 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Company Asahi Kasei Bioprocess Europe SA/NV* Asahi Pharma Spain, SL Main products/business line Sale of virus removal filters Pharmaceuticals Asahi Kasei Medical Trading Ltd. Sti. Sale of medical devices, medical systems Fibers Segment Asahi Kasei Fibers Corp.* Kyokuyo Sangyo Co., Ltd.* Fibers, textiles Processing of fibers and textiles DuPont-Asahi Flash Spun Products Co., Ltd. Flash spun products Asahi Kasei Spandex America, Inc.* Hangzhou Asahikasei Spandex Co., Ltd.* Spandex Spandex Hangzhou Asahikasei Textiles Co., Ltd.* Warp-knit spandex textiles Formosa Asahi Spandex Co., Ltd. Spandex Asahi Chemical (HK) Ltd.* Promotion and marketing of fibers and textiles Asahi Kasei Spunbond (Thailand) Co., Ltd. Spunbond nonwovens Thai Asahi Kasei Spandex Co., Ltd.* Asahi Kasei Spandex Europe GmbH* Spandex Spandex Asahi Kasei Fibers Italy SRL* Sale of cupro cellulosic fiber Asahi Kasei Fibers Deutschland GmbH Sale of artificial suede Electronics Segment Asahi Kasei Microdevices Corp.* Asahi Kasei E-materials Corp.* Asahi Kasei Epoxy Co., Ltd.* Electronic devices Electronic materials Epoxy resin Asahi Kasei Power Devices Corp.* Power management semiconductors Asahi Kasei Microsystems Co., Ltd.* LSIs Asahi-Schwebel Co., Ltd.* Asahi Kasei Electronics Co., Ltd.* AKM Semiconductor, Inc.* Glass fabric Hall elements Sale of LSIs Asahi Kasei Annual Report 2012 81 Paid-in capital (million) A A 0.5 0.1 Equity interest (%) 100.0 100.0 YTL 0.1 100.0 ¥ ¥ ¥ US$ CNY CNY NT$ HK$ THB THB A A A ¥ ¥ ¥ ¥ ¥ ¥ ¥ US$ 3,000 80 450 100.0 100.0 50.0 55.3** 100.0 154 78 1,003 100.0 82.5 50.0 65 100.0 900** 1,350 90.0 60.0 19.6** 100.0 3.0 0.3 100.0 100.0 3,000 3,000 300 100 50 50 50 2.9 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Asahi Kasei E-materials Korea Inc. Energy and electronic materials KRW 5,500 100.0 Asahi Kasei Microdevices Korea Corp. Electronic devices marketing and technical support Asahi Kasei Electronics Materials (Suzhou) Co., Ltd.* Dry film photoresist Asahi Kasei Microdevices (Shanghai) Co., Ltd. Electronic devices marketing and technical support Asahi Kasei Microdevices Taiwan Corp. Electronic devices marketing and technical support Asahi Kasei EMD Taiwan Corp. Asahi Kasei Wah Lee Hi-Tech Corp.* Sale of pellicles Dry film photoresist Asahi-Schwebel (Taiwan) Co., Ltd.* Glass fabric Asahi Kasei Microdevices Europe SAS Electronic devices marketing and technical support Asahi Photoproducts (Europe) SA/NV* Sale of photopolymer, printing-plate making systems Asahi Photoproducts (UK) Ltd.* Sale of photopolymer, printing-plate making systems Construction Materials Segment Asahi Kasei Construction Materials Corp.* Construction materials Asahi Kasei Foundation Systems Corp.* Installation of piles Asahi Kasei Extech Corp.* Others Asahi Research Center Co., Ltd.* Asahi Kasei Engineering Corp.* Asahi Kasei Trading Co., Ltd.* Asahi Kasei Commerce Co., Ltd.* Asahi Kasei Amidas Co., Ltd.* AJS Inc. Exterior wall panel installation Information and analysis Plant, equipment, process engineering Sale of Asahi Kasei products Sale of Asahi Kasei products Employment agency, consulting Computer software, IT systems Asahi Organic Chemicals Industry Co., Ltd. Synthetic resin, fabricated plastic products KRW CNY CNY NT$ NT$ NT$ NT$ A A £ ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ 820 181 14 10 1.0 49 326 3.0 3.4 0.3 3,000 200 50 1,000 400 98 94 80 800 5,000 100.0 100.0 100.0 100.0 100.0 80.6 51.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 49.0 30.1 Asahi Kasei America, Inc.* Crystal IS, Inc. Asahi Kasei Business Management (Shanghai) Co., Ltd. * Consolidated subsidiary ** Including capital reserve Business support services Development of aluminum nitride substrates and UV LEDs Business support services US$ US$ US$ 0.1 100.0 28.4** 100.0 3 100.0 Asahi Kasei Annual Report 2012 82 Company Information Corporate Profile (as of March 31, 2012) Company Name Asahi Kasei Corporation Date of Establishment May 21, 1931 Paid-in Capital ¥103,388,521,767 Employees 25,409 (consolidated) 1,102 (non-consolidated) Asahi Kasei Group Offices Asahi Kasei Corporation Core Operating Companies 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 3-3-23 Nakanoshima, Kita-ku Osaka 530-8205 Japan Phone: +81-6-7636-3111 Fax: +81-6-7636-3077 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 Asahi Kasei (China) Co., Ltd. 8/F, One ICC Shanghai International Commerce Centre No. 999 Huai Hai Zhong Road Shanghai 200031 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 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 Medical 1-105 Kanda Jinbocho, Chiyoda-ku Tokyo 101-8101 Japan Phone: +81-3-3296-3750 Asahi Kasei Fibers 3-3-23 Nakanoshima, Kita-ku Osaka 530-8205 Japan Phone: +81-6-7636-3500 Asahi Kasei Microdevices 1-105 Kanda Jinbocho, Chiyoda-ku Tokyo 101-8101 Japan Phone: +81-3-3296-3911 Asahi Kasei E-materials 1-105 Kanda Jinbocho, Chiyoda-ku Tokyo 101-8101 Japan Phone: +81-3-3296-3939 Asahi Kasei Construction Materials 1-105 Kanda Jinbocho, Chiyoda-ku Tokyo 101-8101 Japan Phone: +81-3-3296-3500 ZOLL Medical Corporation 269 Mill Rd., Chelmsford, MA 01824-4105 USA Phone: +1-978-421-9655 Asahi Kasei Annual Report 2012 Investors Information 83 (As of March 31, 2012) Largest Shareholders % of equity* Stock Listings Tokyo, Osaka, Nagoya, Fukuoka, Sapporo Stock Code 3407 Authorized Shares 4,000,000,000 Outstanding Shares 1,402,616,332 Transfer Agent Sumitomo Mitsui Trust Bank, Ltd. 4-5-33 Kitahama, Chuo-ku Osaka 541-8639 Japan (As of April 1, 2012) Master Trust Bank of Japan, Ltd. (trust account) Nippon Life Insurance Co. Japan Trustee Services Bank, Ltd. (trust account) Asahi Kasei Group Employee Stockholding Assn. Sumitomo Mitsui Banking Corp. SSBT OD05 Omnibus Account Treaty Clients The Chase Manhattan Bank, N.A. London Secs Lending Omnibus Account Mizuho Corporate Bank, Ltd. Independent Auditors PricewaterhouseCoopers Aarata Tokio Marine & Nichido Fire Insurance Co., Ltd. Number of Shareholders 114,772 Sumitomo Life Insurance Co. * Percentage of equity ownership after exclusion of treasury stock. Distribution by Type of Shareholder Distribution by Number of Shares Held Japanese financial institutions 44.69% Foreign investors 25.52% Less than 1,000 0.29% Japanese individuals and groups 23.49% 1,000–9,999 12.51% Other Japanese companies 4.37% 10,000–99,999 7.36% Japanese securities companies 1.93% 100,000 or more 79.84% Stock Chart Share price (¥) 600 400 200 0 5.48 5.22 4.55 3.44 2.53 2.04 1.91 1.45 1.45 1.40 Volume (thousand shares) 350,000 300,000 250,000 200,000 150,000 100,000 50,000 0 ’09/10 11 12 ’10/1 2 3 4 5 6 7 8 9 10 11 12 ’11/1 2 3 4 5 6 7 8 9 10 11 12 ’12/1 2 3 In this annual report, the TM symbol indicates a trademark or registered trademark of Asahi Kasei Corporation, affiliated companies, or third parties granting rights to Asahi Kasei Corporation or affiliated companies. A S A H I K A S E I C O R P O R A T O N I A N N U A L R E P O R T 2 0 1 2 1-105 Kanda Jinbocho, Chiyoda-ku, Tokyo 101-8101 Japan www.asahi-kasei.co.jp Corporate Communications Tel: +81-3-3296-3008, Fax: +81-3-3296-3162 Printed in Japan 2012.09

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