annual report 2009 · profile nittobo annual report 2009 35 main offices, factories, and research...

2009-TIR500 Printed in Japan

4-1-28, Kudankita, Chiyoda-Ku, Tokyo 102-8489, JapanTel: +81-3-3514-3810Fax: +81-3-3238-4588URL: http://www.nittobo.co.jp/

*This report is printed on FSC-certified paper (mixed sources) using soy ink to minimize the impact on the environment.

Annual Report 2009Year ended March 31, 2009

Founded in 1918 as a manufacturer of textiles, Nittobo achieved success as the first Japanese company to manufacture glass fiber and rock wool in 1938. The Company subsequently prospered with diversification into such business areas as the medical and specialty chemicals fields, among others. Moreover, Nittobo is leveraging its cumulative strengths in technological development with the aim of further expanding its business domains. Today, we are dedicated to building a healthier and more comfortable living environment.

Forward-Looking StatementsThis annual report contains forward-looking statements concerning the Company’s business plans, strategies, and performance based on information available to management at the time of disclosure. Accordingly, readers are advised that actual results may differ from forward-looking statements due to variety of factors.

Contents

1 Consolidated Financial Highlights

2 To Our Shareholders

4 Overview by Segment

4 Glass Fiber Products Division

5 Building Materials Division

6 Textiles Division

7 Other Operations

8 Corporate Governance and Compliance

10 CEO, COO, Directors, Executive Officers and Corporate Auditors

11 Consolidated Six-Year Summary

12 Consolidated Financial Review

16 Consolidated Financial Data

16 Consolidated Balance Sheets

18 Consolidated Statements of Operations

19 Consolidated Statements of Changes in Equity

20 Consolidated Statements of Cash Flows

21 Notes to Consolidated Financial Statements

34 Independent Auditors’ Report

35 Corporate Data ⁄ Investor Information

Profile

35Nittobo Annual Report 2009

Main Offices, Factories, and Research Center

· Osaka Branch 4-3-10, Koraibashi, Chuo-ku, Osaka 541-0043, Japan

(Nissei Fushimicho Building New Building)

· Nagoya Branch 1-17-13, Nishiki, Naka-ku, Nagoya, Aichi 460-0003, Japan

(Meiko Building)

· Fukushima Factory Aza Higashi 1, Gonome, Fukushima 960-8161, Japan

· Fukuyama Enterprise Center Aza Shiojima 1, Fukuhara, Fukuyama-cho, Koriyama-shi,

Fukushima 963-8061, Japan

· Niigata Enterprise Center 6-50, Toshincho, Higashi-ku, Niigata 950-0065, Japan

· Tomari Enterprise Center Hirayanagi 500, Asahi-cho, Shimoniikawa-gun,

Toyama 939-0744, Japan

· Itami Production Center 1-6-1, Kuwazu, Itami-shi, Hyogo 664-8501, Japan

· Chiba Factory Roppo-cho 210, Inage-ku, Chiba 263-0004, Japan

· Fukushima Research Center (located in Fukushima Factory)

· Chiba Research Center (located in Chiba Factory)

· Itami Research Center (located in Itami Production Center)

· Biochemical Research Center (located in Fukuyama Enterprise Center)

Corporate Data/Investor Information (As of March 31, 2009)

Shareholder Type

Individuals and others

Financial institutions

Other domestic corporations

Foreign shareholders

Securities companies

20.38%

42.53%

Treasury stock13.79%

9.81%

11.44%

2.05%

Corporate Name Nittobo (Registered as Nitto Boseki Co., Ltd.)

Main Branch Aza Higashi 1, Gonome, Fukushima 960-8161,

Japan

Headquarters 4-1-28, Kudankita, Chiyoda-ku,

Tokyo 102-8489, Japan

Tel: +81-3-3514-3810

Fax: +81-3-3238-4588

URL: http://www.nittobo.co.jp/

Date of Establishment April 22, 1918

April 1, 1923

Fukushima Seiren Seishi K.K.

Company name changed

to Nitto Boseki Co., Ltd.

Paid-in Capital ¥19.6 billion

Employees 1,574 (Nonconsolidated)

3,607 (Consolidated)

Consolidated Subsidiaries

· Nittobo Materials Co., Ltd.

· Paramount Glass Manufacturing Co., Ltd.

· Soyo Co., Ltd.

· Nitto Glass Fiber Manufacturing Co., Ltd.

· Nittobo Acoustic Engineering Co., Ltd.

· Nittobo Togan Co., Ltd.

· Fuji Fiber Glass Co., Ltd.

· Nittobo Medical Co., Ltd.

· NTB TECHNOLOGY CO., LTD.

· Nittobo (China) Co., Ltd.

· Nitto Beverage Co., Ltd.

· Nittobo INTERLINING Co., Ltd.

· Nitto Glasstex Co., Ltd.

· Nittobo Macau Glass Weaving Co., Ltd.

　and 12 other companies

Major Shareholders

Name

Number of Shares Held (Thousands of shares)

Percentage of

Shares Held* (%)

Japan Trustee Services Bank, Ltd. (Trust account) 20,238 9.48

The Master Trust Bank of Japan, Ltd. (Trust account) 18,758 8.78

Mizuho Corporate Bank, Ltd. 10,593 4.96

Nippon Life Insurance Company 8,970 4.20

Japan Trustee Services Bank, Ltd. (Trust Account 4G) 8,621 4.04

The Dai-ichi Mutual Life Insurance Company 6,580 3.08

Sumitomo Life Insurance Company 5,412 2.53

NikkoCiti Trust and Banking Corporation (Investment Account) 4,098 1.92

Aioi Insurance Co., Ltd. 4,000 1.87

Onward Holdings Co., Ltd. 3,416 1.60

Share Information

Total Number of Shares Issued

Number of Shareholders

247,677,560

22,870

* The percentage of shares held excludes treasury stock.


Net Sales (Billions of yen) Operating Income (Billions of yen)

Net Income (Loss) (Billions of yen) Total Assets/Total Equity (Billions of yen)

0

30.0

60.0

90.0

0

(2.0)

2.0

(4.0)

(6.0)

(8.0)

(10.0)

4.0

(12.0)

6.0

0

12.0150.0

120.0 10.0

8.0

6.0

4.0

2.0

0

50.0

100.0

150.0

200.0

Total Equity

130.4

6.9 7.5

3.2 3.54.6

11.4130.3 10.3

2.6

5.9

(9.1)

62.1

162.9

67.2

159.3

72.0

164.9

75.9

156.1

56.4

147.4

138.8 136.5

114.8

’05 ’06 ’07 ’08 ’09 ’05 ’06 ’07 ’08 ’09

’05 ’06 ’07 ’08 ’09 ’05 ’06 ’07 ’08 ’09

Total Assets

Consolidated Financial HighlightsYears ended March 31

Thousands of Millions of yen U.S. dollars

2009 2008 2009

Net sales ¥ 114,813 ¥ 136,537 $ 1,168,819

Operating income 2,562 10,271 26,086

Income (loss) before income taxes and minority interests (11,489) 9,210 (116,962)

Net income (loss) (9,104) 5,928 (92,683)

Total assets 147,418 156,149 1,500,743

Total equity 56,442 75,929 574,594

Per share data:

Net income (loss) (Yen/U.S. dollars) ¥ (38.33) ¥ 23.98 $ (0.390)

Cash dividend (Yen/U.S. dollars) 4.00 4.00 0.041

Shareholders’ equity ratio (%) 37.2 47.3

Return on equity (%) (14.2) 8.2

Notes: 1. Yen amounts have been translated into U.S. dollars, for convenience only, at the rate of ¥98.23=US$1 (March 31, 2009). 2. The computation of net income per share is based on the average number of issued shares (excluding treasury stock).

2 Nittobo Annual Report 2009

To Our Shareholders

During fiscal 2009, the year ended March 31, 2009, the Nittobo Group began implementing wide-ranging initiatives in immediate response to sudden changes in operating conditions as the business environment remained unprecedent-edly severe. With all executives and employees joining forces in building momentum in the same direction, Nittobo has designated fiscal 2010 as a year for further solidifying its business foundation. We will achieve this goal through the execution of these and additional initiatives with a view to better preparing ourselves for renewed growth.

Fiscal 2009 Consolidated Business Results

The Japanese economy faced extremely difficult conditions during fiscal 2009. Global financial crises negatively affected the real economy, and the global economy consequently experienced a rapid contraction. Capital expenditures throughout the private sector slowed down, while consumer sentiment significantly deteriorated throughout the year. In such an environment, the Nittobo Group worked dili-gently to further bolster its business capabilities during the period under review—the final year of Relay 101, its three-year medium-term management plan. Under this plan, Nittobo focused on promoting business structure reforms and achiev-ing greater breadth and depth in its business domains. However, the Company was not able to prevent its per-formance from weakening due to violent fluctuations in oper-ating conditions. Specifically, net sales declined 15.9% year on year to ¥114,813 million, while operating income fell 75.1% to ¥2,562 million. Furthermore, the Company posted a net loss of ¥9,104 million.

Initiatives to Immediately Respond to Sudden Changes in Operating Conditions

Confronting such harsh economic conditions, Nittobo’s Board of Directors passed a resolution on the implementation of a raft of initiatives to immediately respond to sudden

changes in operating conditions at a meeting held on December 25, 2008. These initiatives were also designed to enable the Company to achieve greater breadth and depth in its operations, thereby creating additional value for society at large through its business. The entire Nittobo Group worked as a solid, well-coordinated entity to steadily advance imple-mentation.

Outline of the Initiatives

1. In its Textiles Division, Nittobo implemented initiatives aimed at stabilizing profitability in the Core Spun Yarn (C·S·Y ®) stretch fabric business. Specific initiatives includ-ed the streamlining of facilities and personnel at Nittobo Niigata Co., Ltd. Meanwhile, in view of the profit potential of the garment interlining business, the Company is strengthening the earnings platform of Bunkyo Seiren Co., Ltd., a Nittobo subsidiary. Through technological innova-tion for C·S·Y ® and garment interlining, Nittobo is acceler-ating operations to maximize the potential of the Textiles Division’s high-value-added business.

2. In its Building Materials Division, Nittobo has decided to withdraw from its Chiba Plant by around March 2012, with due consideration given to its responsibility as a supplier of applicable building materials. After the withdrawal, the Company plans to utilize the site for other promising busi-nesses. Also, Nittobo Materials Co., Ltd. will conduct

Katsumi Minamizono　Chief Executive Officer


business taking into account the withdrawal. The Company expects to replace the Chiba Plant’s current range of products with glass wool manufactured by con-solidated subsidiaries Nittobo Togan Co., Ltd. and Paramount Glass Manufacturing Co., Ltd. and the Glass Fiber Products Division’s industrial-use and composite materials. To this end, Nittobo is strengthening operations of the two subsidiaries and the division with the aim of continuously fulfilling its responsibilities as a supplier.

3. The Glass Fiber Products Division will maintain sales expan-sion of high-value-added products by “face-to-face” mar-keting activities, thereby enhancing customer satisfaction. At the same time, the division will accelerate product develop-ment and technological innovation to become a global lead-er in the glass fiber industry. Also, Nittobo will review the lineup of products manufactured at each production site and optimize its entire product supply structure.

4. In the area of new business development, Nittobo, which started out as a rock fiber (rock wool) business, is endeav-oring to discover new rock fiber applications based on innovative concepts, thereby progressing toward the launch of new businesses in environmental and other fields. Meanwhile, the Company will be working to expand the scope of business and create additional value in its Medical Operations.

5. In the administrative divisions and departments, Nittobo will facilitate more efficient operations.

Initiatives for Fiscal 2010

Toward the end of fiscal 2009, the Japanese economy saw signs of recovery in terms of production and exports. However, as economic uncertainties persist, the outlook gives no reason for optimism.

Under these circumstances, the Nittobo Group has desig-nated fiscal 2010 as a year for solidifying its business founda-tion toward preparing itself for renewed growth in the years to come. Accordingly, Nittobo is committed to comprehen-sively implementing the aforementioned initiatives. In line with such commitment, the Company has formulat-ed the following five business policies for fiscal 2010:

1. Strengthen customer relations 2. Accelerate technological innovation 3. Reinforce human resources 4. Enhance and effectively administer internal control systems 5. Promote back-to-basics operations

Strictly adhering to these policies, the Nittobo Group aims to utilize the efforts to be made during 2010 to overcome unprecedented adversity and recover its performance from fiscal 2011, leveraging its collective strengths and carrying out activit ies in an efficient and effective manner. Consequently, we plan to formulate our next medium-term management plan for fiscal 2011 onward based on the prog-ress made and results gained with the implementation of the fiscal 2010 initiatives. As a corporate citizen dedicated to building a healthier and more comfortable living environment, Nittobo will swiftly meet the demands of the times, creating and offering new value to assist the global community in sustaining its sound development. As we continue to implement strategies and initiatives aimed at raising the Nittobo Group’s value, we ask for the ongoing support and understanding of all sharehold-ers and investors.

Katsumi MinamizonoChief Executive Officer

Our Commitment: The Nittobo DeclarationMission Statement As a corporate citizen contributing to healthy and comfortable lifestyles, the Nittobo Group endeavors to raise its value within society through consistent efforts to realize a more affluent society for everyone.

Customers

Shareholders

Suppliers

Local communities Governments

Creditors

Investors

Executives and Employees

The Nittobo Declaration• Under the Nittobo BP Declaration, we aspire to be society’s best partner.• We take pleasure in continuously pursuing customer satisfaction, while faithfully

delivering safety and trust. We also believe in the importance of creating and sharing in the delight of our shareholders, investors, local communities and all stakeholders alike through our corporate activities.

• We respect the individual potential of each of our employees. Facilitated by teamwork, we aim to become a more powerful corporate entity, based on freedom of expression and the robust exchange of ideas.

• We believe in the interdependent development of our employees and the Group, and thus offer our employees opportunities to realize their potential and grow. Nittobo employees are first and foremost good citizens, reflective, open-minded and assured. In addition, we tenaciously achieve whatever we set out to do.

We recognize the far-ranging impact of our actions as a Group and approach each decision in a determined and enlightened manner.


Operating Results

Glass fiber yarn and fabric for printed circuit board (PCB) substrates performed robustly in the first half as a direct result of the Company’s efforts to expand sales of export products and accelerate those of high-performance prod-ucts. However, market conditions suddenly and significantly worsened in the second half. This turnaround caused a sharp drop in demand for glass fiber products in the auto-mobile, telecommunication and infrastructure industries, resulting in a year-on-year decline in sales in this category. Sales of glass fiber for FRP and FRTP contracted due to stagnant demand in the home appliance application catego-ry and to unprecedented, substantial inventory adjustments in the automobile and home electronics industries. Nittobo worked to maintain sales of industrial-use fabrics at optimal levels by revising product prices and acquiring overseas projects. Nevertheless, sales in this category dropped due to rapidly weakened sales in such areas as automotive components and building interior materials. As a result, sales in the Glass Fiber Products Division fell 20.5% year on year to ¥45,060 million. Operating income dropped 77.3% to ¥1,710 million.

In its Glass Fiber Products Division, Nittobo has established a comprehensive business structure as a manufacturer of glass fiber products that range from yarns to fabrics. The Company’s ultrafine yarn and ultrathin fabric technologies are making a significant contribution to value creation in electronics-related industries worldwide, and the Company is bolstering operations in such high-value-added application fields. At the same time, with the aim of further reinforcing its earnings base, Nittobo is working to sharp-en its competitive edge by developing differentiated, non-electronic materials, including glass fiber for fiber reinforced plastic (FRP) and fiber reinforced thermoplastic (FRTP) as well as a range of industrial-use materials in the automotive and electronic appliance fields.

Overview by Segment

Glass Fiber Products Division

Segment Profile and Strategy

0

60

50

40

30

20

10

0

60

50

40

30

20

10

(Billions of yen)

8.0

6.0

4.0

2.0

0

Operating Income (Billions of yen)Net Sales

Net Sales※ (Billions of yen)

0

2.0

1.5

1.0

0.5

1.61.6

13.712.8

’05 ’06 ’07 ’08 ’09 ’05 ’06 ’07 ’08 ’09

’04 ’05 ’06 ’07 ’08 ’04 ’05 ’06 ’07 ’08

7.5

1.7

56.7

45.1

Operating Income※ (Billions of yen)Proportion of Consolidated Net Sales

10.0%

Major Products and Services

• Glass fiber yarn • Glass fabric • Glass fiber for FRP and FRTP• High tensile strength glass fiber (leading-edge compound material) • Glass fiber products for industrial applications• FRP panels

Light Shade illumination coverRealized through the integration of glass fabric with fluorine resin film, the Light Shade illumination cover boasts superior flame-resis-tance, dimensional stability, translucency and light diffuseness.


In its Building Materials Division, Nittobo is in the process of streamlining or withdrawing from unprofit-able businesses, thereby strengthening the comprehensive strengths of the Group as a whole. Not satis-fied with merely manufacturing and marketing building material products, the Company is leveraging its technological expertise to expand operations in such areas as environmental, acoustic and plant engi-neering. Through these activities, Nittobo is building an earnings platform less susceptible to changes in operating conditions.

Building Materials Division


0

60

50

40

30

20

10

Net Sales (Billions of yen)

(1.0)

0

3.0

2.0

1.0

Operating Income (Loss) (Billions of yen)

1.4

(0.4)

54.0

46.3

’05 ’06 ’07 ’08 ’09 ’05 ’06 ’07 ’08 ’09


• Thermal insulation, acoustic and fireproof materials• Engineering Operations Sound and noise abatement systems and plant construction• Environmental services

Operating Results

Sales of thermal insulation materials, including rock wool and glass wool, were stagnant, negatively impacted by the slowdown in housing starts, which clearly demonstrated weakened consumer inclination toward house buying. In the interior materials business, sales of the Company’s mainstay fireproof acoustic ceiling panels decreased, reflect-ing a decline in office demand attributable to deteriorating performance across the entire private sector, which led to a spate of building construction postponements or cases of freezes being placed on new projects. In the Engineering Operations business, the number of orders received for production machinery work increased due to aggressive marketing targeted at existing customers and the acquisition of new customers. However, overall sales in this business declined due to a decrease in the number of acoustic-related construction projects. As a result, sales in the Building Materials Division declined 14.3% year on year to ¥46,321 million. The division posted an operating loss totaling ¥375 million, attributable to the aforementioned performance deterioration and escalat-ing prices of fuels and raw materials.

HOUSELON EQS insulation materialParamount Glass Manufacturing Co., Ltd. —a Nittobo consolidated subsid-iary—has successfully developed the HOUSELON EQS residential-use ther-mal insulation material based on its high-performance glass wool. Being easily recyclable, HOUSELON EQS is an eco-friendly product.


Textiles Division


0

60

50

40

30

20

10


(0.6)

0.6

0.3

(0.3)

0

Operating Income (Loss) (Billions of yen)

0.6

0.4

12.1 9.9

’05 ’06 ’07 ’08 ’09 ’05 ’06 ’07 ’08 ’09


• Yarn (C·S·Y®)• Textiles• Apparel and other finished products• Garment interlining• Nittobo dishcloth

Operating Results

In core yarn and stretch fabric C·S·Y®, the Company endeavored to develop new products—both needs-oriented and needs-cultivating—while working to improve efficiency in its production and marketing processes. However, sales in this category declined, particularly in the second half, due to the apparel industry’s lackluster performance. In garment interlinings, the Company launched new, high-value-added products to expand sales amid stagnation in the apparel product market. However, sales of garment interlinings declined year on year as a result of the substan-tial contraction in the apparel product market and intensified price competition. As a result, sales in the Textile Division sank 18.2% year on year to ¥9,915 million. Operating income also plunged 33.2% to ¥378 million.

In its Textiles Division, Nittobo has energetically promoted business restructuring, improved its cost structure and shifted toward a business portfolio that predominantly consists of high-value-added products. These efforts have borne fruit, enabling the Company to steadily enhance its business structure. Meanwhile, Nittobo has painstakingly developed a comprehensive manufacturing method for a composite product, which inte-grates garment interlinings with the Nittobo stretch fabric, Core Spun Yarn C·S·Y®. This success has made significant contributions to solidifying the Company’s profit structure and enabling new value creation. In China, Nittobo is working to expand its garment interlining business by making production capacity enhance-ments and product and service quality improvements, as well as by strengthening its sales network.

SLIMSTAR 7Being the world’s lightest and finest trans-parent yarn and weighing less than 10 grams per square meter, SLIMSTAR 7 is contributing to the realization of more light-weight and thinner garments.


In charge of the entire Other Operations segment, including the Medical Division, the New Business Operation & Promotion Office continues to create new value and expand the scope of its operations as it works toward becoming the Group’s fourth business pillar. In order to develop next-generation key busi-nesses for the Nittobo Group, this office has reorganized the Other Operations’ R&D structure and there-by strengthened business incubator functions. Under the reinforced R&D framework, the office is taking on new challenges that are not being tackled by the three established business segments.


• Medical Operations Clinical diagnostic reagents in biochemistry, hematology and immunology• Beverage Operations 280ml- and 350ml-size PET bottle beverages and manufacture of large PET bottles• Specialty Chemicals Operations DANFIX® dye fixative, development of applications of PAS and PAA®

• New Business Operation & Promotion Hard coating agent SSG Coat and three-dimensional knit material PARAMAX• Office Building Leasing and Sports Facilities Business

Other Operations


0

60

50

40

30

20

10


0

2.0

1.5

1.0

0.5

1.6 1.6

13.7 13.5

’05 ’06 ’07 ’08 ’09 ’05 ’06 ’07 ’08 ’09

Operating Income (Billions of yen) Operating Results

In Medical Operations, which mainly handle clinical diagnos-tic reagents, Nittobo was able to minimize the decline in sales. The Company’s efforts in new product development and marketing capability reinforcement almost completely absorbed the negative impact of the smaller amounts of clinical reagents being used and intensified price competi-tion triggered by a revision to the national healthcare service fee system. In Beverage Operations, the Company maintained its sales volume almost on par with fiscal 2008 through the acquisition of new customers and other initiatives. Nevertheless, an across-the-board decline in product prices resulted in decreased sales. In its Specialty Chemicals Operations, the Company worked to enhance its product portfolio through the launch of functional-polymer and high-value-added products. However, sales of polymer products declined due to a slump in the electronics industry, which caused sales to deteriorate year on year. Other businesses, including real estate services, remained robust. As a result, sales of the Other Operations edged down 1.4% year on year to ¥13,517 million. Operating income remained almost unchanged from fiscal 2008 at ¥1,602 million.

Beverages and PET bottles Nitto Beverage Co., Ltd.—a Nittobo consoli-dated subsidiary—manufactures and sells beverages and PET bottles. More recently, this subsidiary is developing carbon-offset beverages as part of efforts to help combat global warming.


Corporate Governance and Compliance

Corporate Governance

Basic PoliciesAt Nittobo, all business activities are conducted with a high regard for maintaining the social trust of our stakeholders, including shareholders and investors. We have thus gone to great lengths to ensure that our management structure is both fair and transparent.

Corporate Governance StructureNittobo has established a Board of Directors and a Board of Corporate Auditors as well as internal control systems that enable efficient and effective responses to changes in the business environment. In June 2008, the Company intro-duced a management structure reform whereby its directors and executive officers do not hold concurrent positions. Implemented as part of ongoing efforts to refine the Company’s corporate governance structure, this reform was designed to clarify and strengthen the functions and roles of management and executive officers. In addition to the struc-tural reform, the Company has implemented a raft of mea-sures to reinforce its corporate governance, as follows.

A) Nittobo has introduced an executive officer system to enhance the decision-making and supervisory functions of the Board of Directors as well as the business execu-tion functions of executive officers, thereby strengthening its management structure to permit rapid responses to changes in operating conditions.

B) In conjunction with building a management structure under which it can flexibly meet changes in the business environment, Nittobo has limited the term of office for directors to one year to better clarify the management responsibility for each financial year.

C) The Board of Directors is composed of nine directors, including one external director. By welcoming an external director, Nittobo has established a structure that bolsters the Board of Directors’ function of supervising business execution by executive officers.

D) The Board of Corporate Auditors consists of four corpo-rate auditors, including two external appointees, estab-lishing a highly transparent and fair structure for monitoring management.

E) The dismissal of directors is subject to an ordinary reso-lution by the Board of Directors in accordance with Article 339, Section 1 and Article 341 of Japan’s Corporation Law.

Board of DirectorsIn addition to its monthly ordinary meetings, the nine- member Board of Directors holds extraordinary meetings on an as-required basis. The Board of Directors focuses on decision making for important management matters and the supervision of business execution by directors and execu-tive officers. Information concerning directors’ performance is documented and recorded for future reference. Also, based on the executive officer system that Nittobo introduced in June 2003, the Company’s eight executive officers are tasked with the execution of smooth business operations. In conjunction with their executive responsibili-ties, the executive officers hold weekly meetings regarding business operations to deliberate on important business matters and make decisions on items other than those decided by the Board of Directors.

Board of Corporate AuditorsAs stated above, the Board of Corporate Auditors consists of four corporate auditors, including two external appoin-tees. Full-time corporate auditors regularly attend meetings organized by the executive officers to deliberate on such important items as the Company’s management policy and strategy and to make decisions on items other than those decided by the Board of Directors. Corporate auditors are provided with frequent opportunities to exchange opinions with the CEO while directly receiving reports on business execution status from general employees. Furthermore, the Board of Corporate Auditors holds meetings with the accounting auditor at least three times a year and bimonthly meetings with the Audit Office to confer on audit plans, progress status and results. Also, each corporate auditor audits the execution of the Board of Directors’ duties in line with the audit policies and the role of individual corporate auditors, as defined by the Board of Corporate Auditors.

Internal Audit Nittobo established the Audit Office to serve as an indepen-dent internal audit organization. Comprised of six person-nel—five full-time employees and one concurrently appointed employee—this office undertakes audits of the execution of business operations throughout the Nittobo Group. In addition, the Audit Office conducts compliance-related audits. Meanwhile, Nittobo’s major subsidiaries have also estab-lished their own Audit Offices. These Audit Offices are work-ing to better secure sound business operations at their respective corporate organizations.


General Meeting of Shareholders

Executive Officers

Glass Fiber Products Division

Building Materials Division

Textiles Division

Medical Operations, Beverage Operations,

Specialty Chemicals Operations and

New Business Operation & Promotion Office

AdministrationDivision

Accounting AuditorBoard of Directors, Directors

Audit Office

Board of Corporate Auditors, Corporate Auditors

Corporate Conduct Committee

COO

CEO

Accounting Auditor

Corporate Conduct Committee

Board of Directors, Directors

CEO

COO

Board of Corporate Auditors, Corporate Auditors

Audit Office

Executive Officers

Compliance

Internal Control Systems To act as principles underlying its internal control systems, Nittobo has formulated the “Nittobo Declaration” and action guidelines—namely, the “Mission Statement” and the “Code of Behavior.” As top management is proactively setting best-practice examples of these principles, the Company is step-ping up efforts to familiarize all executives and employees with them. As part of endeavors to improve the effectiveness of its internal control systems, Nittobo has established the Corporate Conduct Committee and the Compliance Department. These bodies work to enhance the awareness of compliance among Group employees while striving to strengthen follow-up frameworks to ensure that the Company’s internal control systems are sound and effective.

Risk Management Nittobo is endeavoring to identify the myriad risks potentially facing its business operations, to raise awareness of those identified among all Group employees and ultimately to pre-vent exposure to them. All these risk management activities are undertaken in compliance with the Company’s in-house regulations, “Rules for Risk Management.”

Also, the Company has entered into contracts with differ-ent attorneys specializing in individual areas of its corporate management and daily operations, receiving their guidance and advice on an as-needed basis. Through the use of these attorneys, Nittobo is working to strengthen its struc-ture to better manage legal risks. Should a contingency occur, all parties involved would work together in line with the “Rules for Risk Management” and meet the situation, thereby minimizing the damage and other adverse effects on Nittobo’s business operations and performance. At the same time, the Company is bolstering other initia-tives to better identify risks, prevent exposure to them and minimize the impact from the aftermath of risk exposure. These initiatives include improving its corporate culture and operational processes and securing a high level of manage-ment transparency as well as educating its employees on risk management.

Nittobo’s Corporate Governance and Compliance Structure


Directors Ichiro Maekawa Iwao Anzai Satoshi Suyama Hideo Kusano Naoya Kobayashi Kunihisa Hama*

Managing Executive Officers Nobuo Kawabata Akihiko Watanabe Toyoshi Nishizaka

Executive Officers Tadashi Akai Hideo Kato Eiji Fujisawa Hisao Sato

Corporate Auditors Hideo Kanatani Kiyohide Nakazato Hiroshi Nakamura** Keisuke Sasahara**

CEO, COO, Directors, Executive Officers and Corporate Auditors

Katsumi MinamizonoChief Executive Officer

Yoshitada ShiratoriChief Operating Officer

Chief Executive Officer Katsumi Minamizono

Chief Operating Officer Yoshitada Shiratori

Managing Directors Mitsuo Iwashita Hideaki Shimizu

(As of June 26, 2009)

* External Director** External Corporate Auditor

Nittobo Annual Report 2009 11

Consolidated Six-Year SummaryNitto Boseki Co., Ltd. and Consolidated Subsidiaries

Millions of yen

Thousands of U.S. dollars

(Note 1)

2009 2008 2007 2006 2005 2004 2009

Years ended March 31Net sales ¥114,813 ¥136,537 ¥138,776 ¥130,442 ¥130,292 ¥127,312 $1,168,819Cost of sales 88,585 101,818 103,582 98,552 99,528 99,923 901,808Selling, general and administrative expenses 23,666 24,448 23,815 24,406 23,856 24,138 240,925Operating income 2,562 10,271 11,379 7,484 6,908 3,251 26,086Income (loss) before income taxes and minority interests (11,489) 9,210 8,007 5,390 6,471 3,165 (116,962)Income taxes (2,394) 3,044 3,247 1,747 3,187 1,177 (24,370)Net income (loss) (9,104) 5,928 4,615 3,471 3,158 1,870 (92,683)

Total assets 147,418 156,149 164,911 159,311 162,904 161,549 1,500,743Total equity 56,442 75,929 72,025 67,200 62,128 61,070 574,594

Capital expenditures 8,629 5,932 6,799 7,629 9,994 3,289 87,840Depreciation expense 6,294 5,795 5,337 5,359 5,457 6,225 64,077

Per share data:Net income (loss) (Yen/U.S. dollars) ¥ (38.33) ¥ 23.98 ¥ 18.66 ¥ 14.03 ¥ 12.76 ¥ 7.56 $ (0.390)Cash dividend (Yen/U.S. dollars) 4.00 4.00 3.00 3.00 3.00 3.00 0.041Shareholders’ equity ratio (%) 37.2 47.3 42.5 42.2 38.1 37.8Return on equity (%) (14.2) 8.2 6.7 5.4 5.1 3.1

Number of employees (Person) 3,607 3,615 3,647 3,804 3,908 4,018

Notes: 1. Yen amounts have been translated into U.S. dollars, for convenience only, at the rate of ¥98.23=US$1. 2. The computation of net income per share is based on the average number of issued shares (excluding treasury stock). 3. According to a new accounting standard for presentation of equity, which is effective for fiscal years ending on or after May 1, 2006, stock acquisition

rights, minority interests and any deferred gain or loss on derivatives under hedge accounting are now presented as components of equity. Accordingly, the amounts of equity as of March 31, 2009, 2008 and 2007 are not directly comparable to shareholders’ equity of prior years stated above.


Consolidated Financial Review

SCOPE OF CONSOLIDATIONThe accompanying consolidated financial statements have been prepared from accounting records maintained by Nitto Boseki Co., Ltd. (“Nittobo” or “the Company”), its 26 consolidated sub-sidiaries and one affiliate using the equity method and encom-pass the Group’s activities in Textiles, Building Materials, Glass Fiber Products and Other operations. Home Insul Co., Ltd.—a former consolidated subsidiary—has been eliminated from the scope of consolidation following its liquidation in Septem-ber 2008. Following the August 2008 sale of all the Company’s shares in Decolanitto Corporation, this former equity-method affiliate was also eliminated.

NET SALESConsolidated net sales for fiscal 2009, the year ended March 31, 2009, amounted to ¥114,813 million, a decrease of ¥21,724 million, or 15.9%, compared with fiscal 2008. This decline was attributable to weak results in all business segments. The Glass Fiber Products Division performed steadily during the first half of fiscal 2009 due to the Company’s efforts to promote sales of high-value-added products. However, the Glass Fiber Products Division’s sales for the period declined, owing to sudden deterioration in market conditions in the second half. Sales in the Building Materials Division weakened, adversely affected by a slowdown in housing starts and office demand. Sales in the Textile Division also experienced a rapid downturn, negatively impacted by the apparel industry’s lackluster performance.

SEGMENT INFORMATION

Glass Fiber Products DivisionGlass fiber yarn and fabric for printed circuit board (PCB) sub-strates performed robustly in the first half as a direct result of the Company’s efforts to expand sales of export products and accelerate sales of high-performance products. However, market conditions suddenly and significantly worsened in the second half. This turnaround caused a sharp drop in demand for glass fiber products in the automobile, telecommunication

and infrastructure industries, resulting in a year-on-year decline in sales in this category. Sales of glass fiber for fiber reinforced plastic (FRP) and fiber reinforced thermoplastic (FRTP) contracted due to stagnant demand in the home appliance application category and due to unprecedented, substantial inventory adjustments in the automobile and home electronics industries. Nittobo worked to maintain sales of industrial-use fabrics at optimal levels by revising product prices and acquiring over-seas projects. Nevertheless, sales in this category dropped due to rapidly weakened sales in such areas as automotive compo-nents and building interior materials. As a result, sales in the Glass Fiber Products Division fell 20.5% year on year to ¥45,060 million. Operating income dropped 77.3% to ¥1,710 million.

Building Materials DivisionSales of thermal insulation materials, including rock wool and glass wool, were stagnant, negatively impacted by the slow-down in housing starts, which clearly demonstrated weakened consumer inclination toward house buying. In the interior materials business, sales of the Company’s mainstay fireproof acoustic ceiling panels decreased, reflecting a decline in office demand attributable to deteriorating perfor-mance across the entire private sector, which led to a spate of building construction postponements or cases of freezes being placed on new projects. In the Engineering Operations business, the number of orders received for production machinery work increased due to aggressive marketing targeted at existing customers and the acquisition of new customers. However, overall sales in this business declined due to a decrease in the number of acoustic-related construction projects. As a result, sales in the Building Materials Division declined 14.3% year on year to ¥46,321 million. The Division posted an operating loss totaling ¥375 million, attributable to the afore-mentioned performance deterioration and escalating prices of fuels and raw materials.

Textiles DivisionIn core yarn and stretch fabric C•S•Y®, the Company endeavored to develop new products—both needs-oriented and needs-cul-tivating—while working to improve efficiency in its production and marketing processes. However, sales in this category de-clined, particularly in the second half, again due to the apparel industry’s lackluster performance. In garment interlinings, the Company launched new, high-value-added products to expand sales amid stagnation in the apparel product market. However, sales of garment interlinings declined year on year as a result of the substantial contraction in the apparel product market and intensified price competition. As a result, sales in the Textile Division sank 18.2% year on


0

30.0

60.0

90.0

120.0

150.0

’05 ’06 ’07 ’08 ’09

136.5

114.8130.4

138.8130.3


year to ¥9,915 million. Operating income also plunged 33.2% to ¥378 million.

Other OperationsMedical OperationsIn Medical Operations, which mainly handle clinical diagnostic reagents, Nittobo was able to minimize the decline in sales. The Company’s efforts in new product development and marketing capability reinforcement almost completely absorbed the nega-tive impact of the smaller amounts of clinical reagents being used and intensified price competition triggered by a revision to the national healthcare service fee system.

Beverage OperationsIn Beverage Operations, the Company maintained its sales vol-ume almost on par with fiscal 2008 through the acquisition of new customers and other initiatives. Nevertheless, an across-the-board decline in product prices resulted in decreased sales.

Specialty Chemicals OperationsIn its Specialty Chemicals Operations, the Company worked to enhance its product portfolio through the launch of functional-polymer and high-value-added products. However, sales of polymer products declined due to a slump in the electronics in-dustry, which caused sales to deteriorate year on year.

Other businesses, including real estate services, remained robust. As a result, sales of Other Operations edged down 1.4% year on year to ¥13,517 million. Operating income remained al-most unchanged from fiscal 2008 at ¥1,602 million.

OPERATING EXPENSES, OPERATING INCOMEThe cost of sales for fiscal 2009 amounted to ¥88,585 million, a decrease of ¥13,233 million compared with fiscal 2008. Gross profit totaled ¥26,228 million, a year-on-year decline of ¥8,491 million. After accounting for selling, general and administrative expenses, which totaled ¥23,666 million, consolidated operating income fell ¥7,709 million, or 75.1%, to ¥2,562 million in the fiscal year under review.

OTHER INCOME (EXPENSES), INCOME (LOSS) BEFORE INCOME TAXES AND MINORITY INTERESTSIn fiscal 2009, the Company incurred other expenses-net ¥14,051 million, which included restructuring costs totaling ¥9,419 million, and a ¥1,626 million loss on revaluation of invest-ments in securities. Accounting for the aforementioned factors, loss before in-come taxes and minority interests amounted to ¥11,489 million, a turnaround from the income before income taxes and minority interests totaling ¥9,210 million recorded for fiscal 2008.

NET INCOME (LOSS)Corporate, enterprise and inhabitants’ taxes, together with the application of tax-effect accounting and consideration of de-ferred income taxes, resulted in a tax benefit of ¥2,394 million, easing the Company’s tax burden by a total of ¥5,438 million compared with fiscal 2008. Taking this tax benefit into account, net loss for the period under review amounted to ¥9,104 million, a turnaround from net income totaling ¥5,928 million posted in fiscal 2008.

Operating Income and Operating Income Margin

(Billions of yen; %)

0

2.5

5.0

7.5

10.0

12.5

0

3.0

6.0

9.0

12.0

15.0

’05 ’06 ’07 ’08 ’09

7.5

11.4

8.2

10.3

7.56.9

5.75.3

2.2

2.6

■ Operating income, left■ Operating income margin, right

Net Income (Loss) and Return on Equity

0

1.0

3.0

2.0

4.0

6.0

5.0

’05 ’06 ’07 ’08

8.2

0

3.0

6.0

9.0

12.0

15.05.9

3.5

4.6

3.26.7

5.4

5.1

’09

(14.2)

(9.1)

(Billions of yen; %)

■ Net income (loss), left■ Return on equity, right


DIVIDEND POLICYNittobo recognizes that returning profits to its shareholders re-mains one of the paramount issues of management. By giving full consideration to the Company’s profit trends and retained earnings, in order to strengthen its business base, Nittobo is working to achieve stable dividend payouts over the long term. The Company has not fixed the number of times that it makes dividend payments annually. Pursuant to Article 454, Paragraph 5 of the Companies Act of Japan, Nittobo’s Articles of Incorpo-ration stipulate that the Company may pay out interim dividends to its shareholders. Also, Nittobo’s Board of Directors makes decisions regarding the payment of interim dividends, while the General Meeting of Shareholders makes decisions regarding the payment of year-end dividends. Taking into account its performance for fiscal 2009 and the dividend policy described above, the Company decided to pay out year-end dividends totaling ¥4 per share, the same as that for fiscal 2008. Retained earnings will be utilized for dynamic in-vestment and other activities to reinforce our business competi-tiveness.

FINANCIAL POSITIONAs of March 31, 2009, total assets stood at ¥147,418 million, a decrease of ¥8,731 million from March 31, 2008. Current assets decreased ¥5,659 million to ¥82,796 million. The major contrib-utory factor was a ¥8,864 million decrease in trade notes and accounts receivable, which more than offset a ¥1,656 million in-crease in merchandise and finished goods and a ¥1,530 million increase in raw materials and supplies. Net property, plant and equipment and total investments and other assets amounted to ¥64,622 million, down ¥3,072 million compared with the end of the previous fiscal year. This was mainly brought about by a de-cline in investment securities totaling ¥3,089 million. The total of current and long-term liabilities stood at ¥90,976 million as of March 31, 2009, up ¥10,756 million from March 31, 2008. Current liabilities increased ¥5,123 million to ¥50,750 mil-lion. Major factors included a ¥5,100 million decrease in trade notes and accounts payable and a ¥12,675 million increase in short-term bank loans. Long-term liabilities as of March 31, 2009 increased ¥5,633 million year on year to ¥40,226 million. This was primarily due to an increase of ¥3,697 million in long-term debt. Total equity as of March 31, 2009 decreased ¥19,487 million year on year to ¥56,442 million. Primary factors for the decrease included a ¥10,086 million decrease in retained earnings and a ¥5,992 million increase in deductions associated with the acqui-sition of treasury stock.

CASH FLOWSCash Flows from Operating ActivitiesNet cash provided by operating activities amounted to ¥1,922 million, a year-on-year decrease of ¥11,351 million from fis-cal 2008, primarily due to decrease in net income during fiscal 2009.

Cash Flows from Investing ActivitiesNet cash used in investing activities stood at ¥9,354 million, a year-on-year increase of ¥2,806 million from fiscal 2008. Ma-jor cash inflows included proceeds from sale of property, plant and equipment, which totaled ¥92 million. Major cash outflows included purchases of property, plant and equipment totaling ¥8,277 million, representing a year-on-year increase of ¥2,086 million, and purchases of investment securities, which totaled ¥1,252 million.

Cash Flows from Financing ActivitiesNet cash provided by financing activities totaled ¥8,230 mil-lion, a year-on-year increase of ¥16,646 million from fiscal 2008. Major cash inflows included a net increase in short-term bank loans, which totaled ¥12,704 million. Major cash outflows includ-ed repayments of long-term debt, which amounted to ¥8,079 million.

R&D ACTIVITIES, PATENTSThe Nittobo Group operates in wide-ranging fields, including glass fiber products, building materials and textiles while con-ducting medical, beverage and specialty chemicals operations. Nittobo allows each division to take initiatives in the develop-ment of new products and technologies and the upgrading of product quality. At the same time, the NEXT Committee, which comes under the control of the Technical Headquarters, coor-dinates activities at three research centers in Fukushima, Chiba and Itami to enhance the Company’s fundamental and core technologies and create new technologies. The committee is also undertaking R&D projects aimed at creating new business-es in cooperation with Project Promotion Offices at individual divisions. As of March 31, 2009, the number of patents held in Japan and overseas by the Company totaled 524, and the Company made a total of 44 patent applications in Japan and overseas during fiscal 2009. During fiscal 2009, Nittobo spent ¥1,820 mil-lion on its R&D activities.


CAPITAL EXPENDITURES, DEPRECIATION EXPENSESCapital expenditure by each division during fiscal 2009 was channeled into the maintenance and upgrading of their facilities, the strengthening of production capacity and the optimization of the product lineup by shifting to high-value-added products. The Company’s capital expenditures for the period amounted to ¥8,629 million. A breakdown of this figure by division shows that: the Glass Fiber Products Division spent ¥4,121 million to expand glass fiber production capacity, streamline the product lineup with more high-value-added glass fiber products and upgrade its existing glass fiber fabric manufacturing facilities; the Building Materials Division spent ¥2,900 million to boost glass wool pro-duction capacity and renovate related facilities; the Textiles Divi-sion spent ¥104 million for the maintenance and renovation of garment interlining manufacturing facilities and equipment; and the Other Operations invested ¥364 million mainly for the main-tenance and upgrading of beverage production facilities. Depreciation expenses for the period totaled ¥6,294 million, up ¥499 million from fiscal 2008.

BUSINESS RISKSRisks that may have a significant impact on the Company’s performance and financial standing include the following (as of March 31, 2009).

Risks Associated with Fluctuations in IT-related DemandThe Glass Fiber Products Division—Nittobo’s mainstay busi-ness—handles glass fiber yarn and fabrics for IT-use PCB sub-strates, which are susceptible to dynamic market fluctuations. The Company is advancing its restructuring initiatives, including the expansion of operations in areas where such fluctuations are of a relatively smaller scale and the development of new high-value-added products. However, should such fluctuations grow to a considerable level, the Company’s performance and finan-cial results may be materially affected.

Risks Associated with Fluctuations in Exchange RatesThe Glass Fiber Products Division, which sustains high over-seas sales ratios, is constantly working to minimize its exposure to risks related to foreign exchange rates by carefully observing rate fluctuations and effectively utilizing forward-exchange con-tracts. However, it is not possible to completely avert the nega-tive impact of rate fluctuations, and accordingly, the Company’s performance and financial results may be adversely affected in such circumstances. In addition, Nittobo is endeavoring to make its products in individual divisions stand out from those of its competitors in terms of quality, functionality and services. The Company ac-knowledges that some products manufactured by overseas companies are competitive enough to replace Nittobo products, depending on the conditions in the foreign exchange market. Should the foreign exchange market favor these competitors, the Company’s products may lose their price competitiveness against imported products in the Japanese market, and this may negatively impact the Company’s performance and financial re-sults.

Risks Associated with Raw Materials and Fuel PricesNittobo consumes a great amount of crude oil and other fuels in the manufacturing of its mainstay products—namely, glass fi-ber and glass wool. Because of the nature of its business, the Company may be exposed to risks associated with fluctuations in the price of crude oil, fuels and other raw materials. Despite the Company’s efforts to shift to more inexpensive fuels and promote energy saving, a sharp rise in crude oil prices and re-sulting surge in prices of other fuels and raw materials may have an adverse effect on the Company’s performance and financial results.

Capital Expenditures andDepreciation Expenses

(Billions of yen)

0

2.0

4.0

6.0

8.0

10.0

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6.87.6

10.0

5.35.9 5.8

’09

8.6

6.35.45.5


Consolidated Financial Data

Consolidated Balance SheetsNitto Boseki Co., Ltd. and Consolidated SubsidiariesAs of March 31, 2009 and 2008

Millions of yen


(Note 1)

2009 2008 2009

ASSETS

Current assets:

Cash and bank deposits ¥ 19,584 ¥ 19,085 $ 199,370

Receivables:

Notes and accounts—trade 29,183 38,047 297,085

Non-consolidated subsidiaries and affiliates 495 2,192 5,036

Other 1,384 961 14,087

Less: Allowance for doubtful accounts (93) (116) (945)

Inventories (Note 3) 28,430 25,335 289,421

Deferred tax assets (Note 12) 3,431 2,253 34,933

Prepaid expenses and other current assets 382 698 3,895

Total current assets 82,796 88,455 842,882

Property, plant and equipment (Notes 4 and 6):

Land 17,515 18,030 178,305

Buildings and structures 47,352 49,956 482,052

Machinery and equipment 103,016 109,799 1,048,724

Construction in progress 3,589 980 36,534

Lease assets 59 596

Less: Accumulated depreciation (125,022) (129,473) (1,272,746)

Net property, plant and equipment 46,509 49,292 473,465

Investments and other assets:

Investment securities (Notes 6 and 7) 5,748 8,129 58,512

Investments in and advances to unconsolidated subsidiaries and affiliates 2,273 2,981 23,151

Deferred tax assets (Note 12) 6,462 4,127 65,783

Other assets (Note 6) 3,630 3,165 36,950

Total investments and other assets 18,113 18,402 184,396

Total assets ¥ 147,418 ¥ 156,149 $ 1,500,743

The accompanying notes are an integral part of these consolidated financial statements.


Millions of yen


(Note 1)

2009 2008 2009

LIABILITIES AND EQUITY

Current liabilities:

Short-term bank loans (Note 5) ¥ 17,356 ¥ 4,681 $ 176,689

Current portion of long-term debt (Note 6) 6,095 7,242 62,052

Current portion of lease obligations (Note 6) 13 132

Payables:

Notes and accounts—trade 13,988 19,088 142,398

Unconsolidated subsidiaries and affiliates 87 2,162 884

Other 6,894 2,739 70,184

Income taxes payable (Note 12) 425 2,790 4,326

Deferred tax liabilities (Note 12) 9 58 89

Accrued expenses and other current liabilities 5,883 6,867 59,888

Total current liabilities 50,750 45,627 516,642

Long-term liabilities:

Long-term debt (Note 6) 18,101 14,404 184,273

Lease obligations (Note 6) 49 494

Liability for retirement benefits (Note 8) 14,214 13,011 144,699

Retirement allowances for directors and corporate auditors 367

Reserve for rebuilding furnaces 4,340 3,990 44,181

Deferred tax liabilities (Note 12) 117 170 1,189

Other long-term liabilities 3,405 2,651 34,671

Total long-term liabilities 40,226 34,593 409,507

Total liabilities 90,976 80,220 926,149

Commitments and Contingent liabilities (Notes 9, 15 and 16)

Equity (Notes 10 and 17):

Common stock,

authorized, 400,000,000 shares; issued,

247,677,560 shares in 2009 and 2008 19,699 19,699 200,543

Capital surplus 23,062 23,062 234,782

Retained earnings 19,438 29,524 197,882

Unrealized gain on available-for-sale securities 625 1,704 6,359Deferred loss on derivatives under hedge accounting (1) (6)

Foreign currency translation adjustments (1,927) (14) (19,628)

Treasury stock, at cost

34,145,596 shares in 2009 and 516,963 shares in 2008 (6,108) (116) (62,177)

Total 54,788 73,859 557,755

Minority interests 1,654 2,070 16,839

Total equity 56,442 75,929 574,594

Total liabilities and equity ¥147,418 ¥156,149 $1,500,743


Consolidated Statements of OperationsNitto Boseki Co., Ltd. and Consolidated SubsidiariesFor the years ended March 31, 2009 and 2008

Millions of yen


(Note 1)

2009 2008 2009

Net sales ¥114,813 ¥136,537 $1,168,819

Cost of sales 88,585 101,818 901,808

Gross profit 26,228 34,719 267,011

Selling, general and administrative expenses 23,666 24,448 240,925

Operating income 2,562 10,271 26,086

Other income (expenses):

Interest and dividend income 287 248 2,922

Interest expense (573) (611) (5,829)

Amortization of transition obligation for retirement benefit cost (572) (578) (5,820)

Loss on valuation of investment securities (1,626) (18) (16,555)

Loss on impairment of long-lived assets (Note 4) (763) (7,766)

Loss on revaluation of inventories (359) (3,659)

Loss on disposal of inventories (908) (9,246)

Restructuring cost (Note 11) (9,419) (95,888)

Foreign exchange gain (loss) 192 (517) 1,954

Environmental treatment expenses (499)

Loss on business withdrawal (Note 4) (1,207)

Gain on sale of property, plant and equipment 25 706 257

Equity in earnings of affiliates 439 730 4,471

Other—net (774) 685 (7,889)

Other income (expenses)—net (14,051) (1,061) (143,048)

Income (loss) before income taxes and minority interests (11,489) 9,210 (116,962)

Income taxes (Note 12):

Current 610 3,945 6,209

Deferred (3,004) (901) (30,579)

Total income taxes (2,394) 3,044 (24,370)

Minority interests in net income 9 238 91

Net income (loss) ¥ (9,104) ¥ 5,928 $ (92,683)

YenU.S. dollars

(Note 1)

Per share of common stock:

Net income (loss) (Note 17) ¥ (38.33) ¥ 23.98 $ (0.390)

Cash dividends applicable to the year 4.00 4.00 0.041



Consolidated Statements of Changes in EquityNitto Boseki Co., Ltd. and Consolidated SubsidiariesFor the years ended March 31, 2009 and 2008

Millions of yen

Outstanding Number

of Shares of Common

Stock (thousands)

Common Stock

Capital Surplus

Retained Earnings

Unrealized Gain on

Available-for-Sale

Securities

Deferred loss on

Derivatives under Hedge Accounting

Foreign Currency

Translation Adjustments

Treasury Stock

Minority Interests

Total Equity

Balance as of March 31,

2007 247,221 ¥19,699 ¥23,062 ¥24,307 ¥ 3,175 ¥ (19) ¥ (92)¥1,893 ¥72,025Increase in retained

earnings for merger of

unconsolidated

subsidiaries 31 31

Net income 5,928 5,928

Cash dividends, ¥3.00 per

share (742) (742)

Purchase of treasury stock (60) (24) (24)

Net change in the year (1,471) 5 177 (1,289)


2008 247,161 ¥19,699 ¥23,062 ¥29,524 ¥ 1,704 ¥ (14) ¥ (116)¥2,070 ¥75,929

Net loss (9,104) (9,104)

Cash dividends, ¥4.00 per

share (989) (989)

Purchase of treasury stock (33,629) (5,992) (5,992)

Net change in the year 7 (1,079) (1) (1,913) (416) (3,402)Balance as of March 31,

2009 213,532 ¥19,699 ¥23,062 ¥19,438 ¥ 625 ¥(1) ¥(1,927) ¥(6,108)¥1,654 ¥56,442

Thousands of U.S. dollars (Note 1)

Common

StockCapital Surplus

Retained Earnings

Unrealized Gain on

Available-for-Sale

Securities

Deferred loss on

Derivatives under Hedge Accounting

Foreign Currency

Translation Adjustments

Treasury Stock

Minority Interests

Total Equity


2008 $200,543 $234,782 $300,559 $ 17,348 $ $ (151)$ (1,179)$21,069 $772,971

Net loss (92,683) (92,683)

Cash dividends, $0.038 per

share (10,065) (10,065)

Purchase of treasury stock (60,998) (60,998)

Net change in the year 71 (10,989) (6) (19,477) (4,230) (34,631)Balance as of March 31,

2009 $200,543 $234,782 $197,882 $ 6,359 $(6) $(19,628)$(62,177)$16,839 $574,594



Consolidated Statements of Cash FlowsNitto Boseki Co., Ltd. and Consolidated SubsidiariesFor the years ended March 31, 2009 and 2008

Millions of yen


(Note 1)

2009 2008 2009

Cash flows from operating activities:

Income (loss) before income taxes and minority interests ¥ (11,489) ¥ 9,210 $ (116,962)

Adjustments to reconcile income (loss) before income taxes and

minority interests to net cash provided by operating activities:

Income taxes paid (3,023) (4,045) (30,778)

Depreciation and amortization 6,294 5,795 64,077

Loss on impairment of long-lived assets 763 7,753

Loss on sale and devaluation of securities—net 1,665 18 16,952

Loss (gain) on sale and disposal of tangible and intangible assets—net 343 (356) 3,493

Restructuring cost 9,419 95,888

Loss on business withdrawal 1,207

Equity in earnings of affiliates (439) (730) (4,469)

Changes in assets and liabilities, net of effects from newly consolidated

subsidiaries:

Decrease in trade receivables 10,470 6,355 106,583

Increase in inventories (3,438) (495) (35,004)

Decrease in trade payables (7,048) (6,067) (71,754)

Increase in liability for retirement benefits 237 567 2,409

Payments for restructuring (116) (258) (1,180)

Other—net (1,716) 2,072 (17,442)

Net cash provided by operating activities 1,922 13,273 19,566

Cash flows from investing activities

Increase in time deposits—net (79) (200) (803)

Purchases of property, plant and equipment (8,277) (6,191) (84,263)

Proceeds from sale of property, plant and equipment 92 823 936

Purchases of investment securities (1,252) (1,537) (12,747)

Proceeds from sales of investment securities 41 1 421

Other—net 121 556 1,236

Net cash used in investing activities (9,354) (6,548) (95,220)

Cash flows from financing activities:

Increase (decrease) in short-term bank loans—net 12,704 (1,459) 129,330

Proceeds from long-term debt 10,630 4,150 108,215

Repayments of long-term debt (8,079) (10,306) (82,249)

Dividends paid (1,032) (742) (10,501)

Purchase of treasury stock (5,992) (24) (60,999)

Other—net (1) (35) (13)

Net cash provided by (used in) financing activities 8,230 (8,416) 83,783

Foreign currency translation adjustments on cash and cash equivalents (364) 107 (3,703)

Net increase (decrease) in cash and cash equivalents 434 (1,584) 4,426

Cash and cash equivalents increased by merger of unconsolidated

subsidiaries by consolidated subsidiaries 54

Cash and cash equivalents, beginning of year 18,841 20,371 191,800

Cash and cash equivalents, end of year ¥ 19,275 ¥ 18,841 $ 196,226



Note 1: Basis of presenting consolidated financial statements(a) The accompanying consolidated financial statements have been prepared from accounting records maintained by Nitto Boseki Co., Ltd. (the “Company”) and its consolidated subsidiaries in accordance with the provisions set forth in the Japa-nese Financial Instruments and Exchange Act and its related accounting regulations and in conformity with accounting prin-ciples generally accepted in Japan, which are different in certain respects as to application and disclosure requirements of International Financial Reporting Standards. However, in order to facilitate the understanding of readers outside Japan, cer-tain reclassifications are made to the consolidated financial statements prepared for domestic purposes. In addition, certain reclassifications have been made in the 2008 financial statements to conform to the classifications used in 2009. All amounts are in millions of yen, rounded to the nearest whole unit.(b) U.S. dollar amounts presented in the accompanying consolidated financial statements are included solely for convenience and should not be construed as representations that Japanese yen amounts have been or could in the future be converted into U.S. dollars. The rate of ¥98.23 to US$1, prevailing on March 31, 2009, has been used for translation into U.S. dollar amounts in the accompanying consolidated financial statements.

Note 2: Significant accounting policies(a) ConsolidationThe consolidated financial statements as of March 31, 2009 include the accounts of the Company and its 26 consolidated (27 in 2008) subsidiaries (the “Companies”). Under the control or influence concept, those companies in which the Company, directly or indirectly, is able to exercise control over operations are fully consolidated, and those companies over which the Companies have the ability to exercise significant influence are accounted for by the equity method. The excess of the cost of an acquisition over the fair value of the net assets of the acquired subsidiary at the date of acqui-sition is amortized over a period of five years. All significant intercompany balances and transactions have been eliminated in consolidation. All material unrealized profit included in assets resulting from transactions within the Companies is eliminated. The equity method is applied to an affiliate (two in 2008), NITTOBO ASCO Glass Fiber Co., Ltd. Twelve unconsolidated subsidiaries and seven affiliates (eight in 2008) to which the equity method does not apply have been removed from the Company’s scope of consolidation because the income and retained earnings of each company has an immaterial effect on the Company’s overall operations. Investments in unconsolidated subsidiaries and other affiliates are carried at moving-average cost. Cash dividends from these companies are recorded in the Company’s financial statements when cash dividends are approved at the general meetings of shareholders. Concerning the translation of foreign currency financial statements of consolidated foreign subsidiaries, such statements are translated into Japanese yen at the current exchange rate as of the balance sheet date except for equity, which is trans-lated at the historical rate. The revenue and expense accounts of consolidated foreign subsidiaries are translated into Japa-nese yen at the annual average exchange rate. Translation differences resulting therefrom are reflected in the accompanying balance sheets as “Foreign currency translation adjustments” and “Minority interests” in the “Equity” section.

(b) Unification of Accounting Policies Applied to Foreign Subsidiaries for the Consolidated Financial Statements In May 2006, the Accounting Standards Board of Japan (the “ASBJ”) issued ASBJ Practical Issues Task Force (PITF) No. 18, “Practical Solution on Unification of Accounting Policies Applied to Foreign Subsidiaries for the Consolidated Financial State-ments.” PITF No. 18 prescribes: (1) the accounting policies and procedures applied to a parent company and its subsidiaries for similar transactions and events under similar circumstances should in principle be unified for the preparation of the con-solidated financial statements; (2) financial statements prepared by foreign subsidiaries in accordance with either International Financial Reporting Standards or the generally accepted accounting principles in the United States of America tentatively may be used for the consolidation process; (3) however, the following items should be adjusted in the consolidation process so that net income is accounted for in accordance with Japanese GAAP unless they are not material:1) Amortization of goodwill2) Scheduled amortization of actuarial gain or loss of pensions that has been directly recorded in equity3) Expensing capitalized research and development costs4) Cancellation of fair value model accounting for property, plant and equipment and investment properties and incorporation

of cost model accounting5) Recording the prior years’ effects of changes in accounting policies in the income statement where retrospective

adjustments to financial statements have been incorporated6) Exclusion of minority interests from net income

Notes to Consolidated Financial Statements


PITF No. 18 was effective for fiscal years beginning on or after April 1, 2008 with early adoption permitted. The Companies ap-plied this accounting standard effective April 1, 2008.

(c) Business combinationIn October 2003, the Business Accounting Council (the “BAC”) issued a Statement of Opinion, “Accounting for Business Com-binations,” and on December 27, 2005 the ASBJ issued ASBJ Statement No. 7, “Accounting Standard for Business Divestitures” and ASBJ Guidance No. 10, “Guidance for Accounting Standard for Business Combinations and Business Divestitures.” The accounting standard for business combinations allows companies to apply the pooling of interests method of accounting only when certain specific criteria are met such that the business combination is essentially regarded as a uniting-of-interests. For business combinations that do not meet the uniting-of-interests criteria, the business combination is considered to be an acqui-sition and the purchase method of accounting is required. This standard also prescribes the accounting for combinations of enti-ties under common control and for joint ventures.

(d) Sales recognitionNet sales of goods are recognized when the goods are shipped to customers.

(e) Foreign currency transactionsAll short-term and long-term monetary receivables and payables denominated in foreign currencies are translated into Japa-nese yen at the exchange rates at the balance sheet date. The foreign exchange gains and losses from translation are recog-nized in the income statement.

(f) Cash and cash equivalentsCash and cash equivalents comprise mainly short-term investments, primarily those liquid investments with a maturity of three months or less from purchase which are readily convertible into cash. In addition, there is only an insignificant risk, as any fluctuations in value are minor. For the purposes of the consolidated statements of cash flows, cash and cash equivalents comprise the following balance-sheet accounts.

Millions of yen


(Note 1)

2009 2008 2009

Cash and bank deposits ¥19,584 ¥19,085 $ 199,370Less: time deposits with maturities over three months (309) (244) (3,144)Total: cash and cash equivalents ¥19,275 ¥18,841 $ 196,226

(g) Marketable and investment securitiesMarketable and investment securities are classified and accounted for as follows: All securities are classified as available-for-sale securities. Marketable available-for-sale securities are reported at fair value, with unrealized gains and losses, net of applicable taxes, reported in a separate component of equity. Non-marketable available-for-sale securities are stated at cost, determined by the moving-average method. For other than temporary declines in fair value, investment securities are reduced to net realiz-able value by a charge to income.

(h) InventoriesPrior to April 1, 2008, inventories were stated principally at cost, determined by the moving-average method. In July 2006, the ASBJ issued ASBJ Statement No. 9, “Accounting Standard for Measurement of Inventories.” This standard requires that inventories held for sale in the ordinary course of business be measured at the lower of cost or net selling value, which is de-fined as the selling price less additional estimated manufacturing costs and estimated direct selling expenses. The replace-ment cost may be used in place of the net selling value, if appropriate. The standard was effective for fiscal years beginning on or after April 1, 2008 with early adoption permitted. The effect of this change was to decrease operating income and to increase loss before income taxes and minority interests for the year ended March 31, 2009 by ¥129 million ($1,313 thousand) and ¥488 million ($4,971 thousand), respectively.

(i) Property, plant and equipmentProperty, plant and equipment are stated at cost. Depreciation of property, plant and equipment of the Company and its con-solidated domestic subsidiaries is computed principally by the declining-balance method based on the estimated useful lives of the assets, while the straight-line method is applied to buildings acquired by the Company and its consolidated domestic subsidiaries on or after April 1, 1998. Depreciation of all property, plant and equipment of consolidated foreign subsidiaries is computed by the straight-line method based on the estimated useful lives of the assets.


Effective for the year ended March 31, 2009, the Company and its consolidated domestic subsidiaries changed the esti-mated economic useful lives for machinery and equipment in accordance with the Japanese revised corporate tax code. The effect of this change was to decrease operating income and to increase loss before income taxes and minority interests for the year ended March 31, 2009 by ¥208 million ($2,113 thousand), respectively. Representative useful lives are as follows: Buildings and structures 3-50 years Machinery and equipment 3-22 years The useful lives for lease assets are the terms of the respective leases. From the fiscal year ended March 31, 2008, in accordance with the revised Japanese corporate tax code, the Company and its domestic consolidated subsidiaries are applying the following depreciation method for tangible fixed assets acquired on and before March 31, 2007. When the depreciated value of a tangible fixed asset reaches 5% of its acquisition cost (under the depreciation method applicable before revision) in a certain fiscal year, such residual value (5% of acquisition cost) is de-preciated in an equal amount over five years from the following fiscal year. This amount is included in depreciation expense.

(j) Long-lived assetsThe Companies review their long-lived assets for impairment whenever events or changes in circumstance indicate the car-rying amount of an asset or asset group may not be recoverable. An impairment loss would be recognized if the carrying amount of an asset or asset group exceeds the sum of the undiscounted future cash flows expected to result from the con-tinued use and eventual disposition of the asset or asset group. The impairment loss would be measured as the amount by which the carrying amount of the asset exceeds its recoverable amount, which is the higher of the discounted cash flows from the continued use and eventual disposition of the asset or the net selling price at disposition.

(k) Liability for retirement benefits and pension planTo facilitate the payment of retirement benefits to employees, the Company makes provisions to the allowance for retirement benefits based on the estimated total benefit payments and pension plan assets at the end of the current fiscal year. The prior service cost is amortized over a 15-year period, which is within the average remaining service period of employees. A transitional obligation is amortized by the Company in equal installments over 15 years. Recognized actuarial gain/loss is amortized from the next fiscal year, over the average employee remaining service period when the actuarial difference was incurred (15-17 years).

(Additional information)Prior to April 1, 2008, Fuji Fiber Glass Co., Ltd., which is a consolidated subsidiary of the Company, had a lump-sum sever-ance indemnity plan and a qualified pension plan, but effective from April 1, 2008, the company transferred its qualified pen-sion plan to a defined benefit corporate pension plan. Upon this transfer, a decrease of the projected benefit obligation of ¥205 million was recognized as income. In addition, the projected benefit obligation of the company was computed using a simplified method, but effective from the year ended March 31, 2009, it has been computed using the general method in order to improve the accuracy of the computation of the projected benefit obligation and to make the appropriate inter-period allo-cation of expenses. As the result of this change, an increase of the projected benefit obligation of ¥339 million was recognized as cost. Such income and cost were included in cost of sales. (l) Retirement allowances for directors and corporate auditorsPrior to April 1, 2008, retirement allowances for directors and corporate auditors were recorded to state the liability at the amount that would be required if all directors and corporate auditors retired at each balance sheet date. Following a resolution by the Board of Directors to abolish the unfunded retirement benefits plan for directors and corporate auditors at the close of the shareholders’ meeting on June 27, 2008, the shareholders approved the payments to directors and corporate auditors to settle the retirement benefits plan. As a result, retirement allowances for directors and corporate auditors of ¥288 million ($2,932 thousand) were transferred to other long-term liabilities. Actual payments of the retirement benefits to directors and corporate auditors will be made upon retirement from their posts.

(m) Reserve for rebuilding furnacesReserve for rebuilding furnaces is provided for based on estimated costs to be incurred during the next periodic repair works on its facilities over the service period until the next repair works.

(n) LeasesIn March 2007, the ASBJ issued ASBJ Statement No. 13, “Accounting Standard for Lease Transactions,” which revised the previous accounting standard for lease transactions issued in June 1993. The revised accounting standard for lease transac-tions was effective for fiscal years beginning on or after April 1, 2008 with early adoption permitted for fiscal years beginning on or after April 1, 2007.


Under the previous accounting standard, finance leases that were deemed to transfer ownership of the leased property to the lessee were to be capitalized. However, other finance leases were permitted to be accounted for as operating lease trans-actions if certain “as if capitalized” information is disclosed in the note to the lessee’s financial statements. The revised accounting standard requires that all finance lease transactions should be capitalized to recognize lease assets and lease obligations in the balance sheet. In addition, the revised accounting standard permits leases which existed at the transi-tion date and do not transfer ownership of the leased property to the lessee to be accounted for as operating lease transactions. The Companies applied the revised accounting standard effective April 1, 2008. In addition, the Companies accounted for leases which existed at the transition date and do not transfer ownership of the leased property to the lessee to be accounted for as operating lease transactions. There was no significant impact of this accounting change on net income. All other leases are accounted for as operating leases.

(o) Income taxesThe provision for income taxes is computed based on the pretax income included in the consolidated statements of income. The asset and liability approach is used to recognize deferred tax assets and liabilities for the expected future tax conse-quences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. Deferred taxes are measured by applying currently enacted tax laws to the temporary differences.

(p) Derivatives and hedging activitiesThe Companies use derivative financial instruments to manage their exposure to fluctuations in foreign exchange and interest rates. Foreign exchange forward contracts and interest rate swaps are utilized by the Companies to reduce foreign currency exchange and interest rate risks. The Companies do not enter into derivatives for trading or speculative purposes. For derivatives used for hedging purposes, if derivatives qualify for hedge accounting because of high correlation and ef-fectiveness between the hedging instruments and the hedged items, gains or losses on derivatives are deferred until maturity of the hedged transactions. The foreign currency forward contracts employed to hedge foreign exchange exposures for export sales are measured at fair value and the unrealized gains/losses are recognized in income. Forward contracts applied for forecasted (or committed) transactions are also measured at fair value, but the unrealized gains/losses are deferred until the underlying transactions are completed. The interest rate swaps which qualify for hedge accounting and meet specific matching criteria are not remeasured at market value, but the differential paid or received under the swap agreements is recognized and included in interest expenses or income. The effectiveness of the hedging instruments, except for interest rate swaps that meet the criteria listed above, is assessed based on the fluctuations of the hedging instruments and the hedged items, comparing the accumulated market fluctuations of both items.

(q) Bonuses to directors and corporate auditorsBonuses to directors and corporate auditors are accrued at the year end in which such bonuses are attributable.

(r) Per share informationBasic net income (loss) per share is computed by dividing net income (loss) available to common shareholders by the weight-ed-average number of common shares outstanding for the period. Diluted net income per share is not disclosed because the Companies have nothing which might dilute the per share infor-mation for the years ended March 31, 2009 and 2008. Cash dividends per share presented in the accompanying consolidated statements of income are dividends applicable to the respective years, including dividends to be paid after the end of the year.

(s) New accounting pronouncementsBusiness CombinationsOn December 26, 2008, the ASBJ issued a revised accounting standard for business combinations, ASBJ Statement No. 21, “Ac-counting Standard for Business Combinations.” Major accounting changes under the revised accounting standard are as follows:(1) The current accounting standard for business combination allows companies to apply the pooling of interests method of

accounting when certain specific criteria are met such that the business combination is essentially regarded as a uniting-of-interests. The revised standard requires the use of the purchase method to account for such business combinations, and the pooling of interests method of accounting is no longer allowed.

(2) The current accounting standard requires the research and development costs to be charged to income as incurred. Un-der the revised standard, an in-process research and development (IPR&D) project acquired by business combination is capitalized as an intangible asset.

(3) The current accounting standard requires a bargain purchase gain (negative goodwill) to be systematically amortized with-in 20 years. Under the revised standard, the acquirer recognizes a bargain purchase gain in profit or loss on the acquisition


date after reassessing whether it has correctly identified all of the assets acquired and all of the liabilities assumed with a review of such procedures used.

This standard is applicable to business combinations undertaken on or after April 1, 2010 with early adoption permitted for fiscal years beginning on or after April 1, 2009.

Asset Retirement ObligationsOn March 31, 2008, the ASBJ published a new accounting standard for asset retirement obligations, ASBJ Statement No. 18, “Accounting Standard for Asset Retirement Obligations” and ASBJ Guidance No. 21, “Guidance on Accounting Standard for Asset Retirement Obligations.” Under this accounting standard, an asset retirement obligation is defined as a legal obliga-tion imposed either by law or contract that results from the acquisition, construction, development and the normal operation of a tangible fixed asset and is associated with the retirement of such tangible fixed asset. The asset retirement obligation is recognized as the sum of the discounted cash flows required for the future asset retirement and is recorded in the period in which the obligation is incurred if a reasonable estimate can be made. If a reasonable estimate of the asset retirement obliga-tion cannot be made in the period the asset retirement obligation is incurred, the liability should be recognized when a reason-able estimate of asset retirement obligation can be made. Upon initial recognition of a liability for an asset retirement obliga-tion, an asset retirement cost is capitalized by increasing the carrying amount of the related fixed asset by the amount of the liability. The asset retirement cost is subsequently allocated to expense through depreciation over the remaining useful life of the asset. Over time, the liability is accreted to its present value each period. Any subsequent revisions to the timing or the amount of the original estimate of undiscounted cash flows are reflected as an increase or a decrease in the carrying amount of the liability and the capitalized amount of the related asset retirement cost. This standard is eff

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