profile - hitachi-chem.co.jp · 2.1 2.9 6.4 7.4 0.7 net sales by business segment (2006) 14.4%...

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Innovative,Focusedand Global

Hitachi Chemical Co., Ltd. (the “Company”) was established in 1962 and began operations in 1963

with the transfer of the business assets of the Chemical Products Division of Hitachi, Ltd. Since then,

based on the extensive technology platform it has accumulated over many years, the Company has

continuously worked to expand its field of operations, developing innovative technologies and new

markets as a chemical manufacturer engaged in a wide range of areas, including Electronics Related

Products, Advanced Performance Products, and Housing Equipment and Environmental Facilities.

As a “Technologically Innovative Corporation” that provides optimal solutions to its customers, Hitachi

Chemical and its consolidated subsidiaries (“Hitachi Chemical” or the “Group”) are combining and

harmonizing the superior technologies they have accumulated over the years in order to maximize the

values of the Group and contribute to a more prosperous society while maintaining a strong commitment

to protecting the environment.

PROFILE

FORWARD-LOOKING STATEMENTSThis Annual Report may contain certain statements that Hitachi Chemical believesare, or may be considered to be, “forward-looking statements.” These forward-looking statements generally include phrases such as “believe,” “expect,” “antici-pate,” “plan,” “foresee,” or other similar words or phrases. Similarly, statementsthat describe our objectives, plans, or goals are also forward-looking statements.All of these forward-looking statements are subject to certain risks and uncertain-ties that could cause our actual results to differ materially from those contem-plated by the relevant forward-looking statements. Please see “Business and OtherRisks” in the Management’s Discussion and Analysis of Operations and Finances.

Hitachi Chemical discloses information about itsactivities in various annual publications.

Disclosure of Management and BusinessStrategies and Related Financial DataPrimarily for shareholders and investors, the annualreport explains management, business and financialconditions of the previous fiscal year, as well as medium-term management and business policies.

ANNUAL REPORT

CONTENTS

Financial Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1To Our Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2Feature: Innovative, Focused and Global . . . . . . . . . . . . . 5Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12Board of Directors and Executive Officers . . . . . . . . . . . . 15Hitachi Chemical at a Glance . . . . . . . . . . . . . . . . . . . . . . . . 16Review of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18Financial Section

Six-Year Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24Management’s Discussion and Analysis of

Operations and Finances . . . . . . . . . . . . . . . . . . . . . . 25Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . 30Consolidated Statements of Income . . . . . . . . . . . . . 32Consolidated Statements of Stockholders’ Equity . . . 33Consolidated Statements of Cash Flows . . . . . . . . . . 34Notes to Consolidated Financial Statements . . . . . 35Report of Independent Auditors . . . . . . . . . . . . . . . . . . 47

Major Subsidiaries and Affiliates . . . . . . . . . . . . . . . . . . . . . 48Investor Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49

Disclosure of Information on Fulfilling CorporateSocial Responsibility (CSR)For all stakeholders, the sustainability report explainspolicies and details of the previous fiscal year’s activi-ties related to corporate social responsibilities, includ-ing environmental initiatives, social contribution,worker safety, corporate ethics and compliance.

SUSTAINABILITY REPORT

Disclosure of Information on R&D andIntellectual PropertyExplains policies on topics including HitachiChemical’s technology platform, R&D policies, andacquisition and maintenance of intellectual property,as well as R&D initiatives and trends in patent appli-cations and retention.

INTELLECTUAL PROPERTY REPORT

This annual report was printed on100% recycled paper. Printed in Japan

2006Year ended March 31, 2006

A n n u a l R e p o r t

Hitachi Chemical

2006Hitachi Chemical

Intellectual Property Report

TECHNOLOGICAL AND BUSINESS FIELDS

The source of the technology platform of Hitachi Chemical, upon whichits new products and businesses are based, can be traced back to the fouroriginal products developed in the early years of Hitachi Chemical Co., Ltd.With this initial technology platform as its foundation, Hitachi Chemicalhas developed and commercialized a variety of advanced chemicalproducts, including semiconductor and display related materials, printedwiring boards (PWBs) and materials for PWBs, organic and inorganicchemical products, advanced functional films, automotive parts,diagnostics, and housing equipment and environmental facilities. Today,Hitachi Chemical uses the extensive technology platform it has built up,even introducing outside technologies as necessary, to develop newbusiness in fields that offer good potential for high growthand allow the Group to make the most of its technologicalstrengths, centered on the four key business fields of telecommunications & displays, energy, lifesciences and automobiles.

INVESTOR INFORMATIONAs of March 31, 2006

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000(Yen)

2,135

1,472

1999.4~2000.3

2000.4~2001.3

2001.4~2002.3

945

2,700

1,650

3,200

789

2,400

1,938

1,701

987810

2002.4~2003.3

2003.4~2004.3

2004.4~2005.3

2005.4 5 6 7 8 9 10 11 12 2006.1 2 3

1,7951,914 1,920

1,996

1,719

1,9682,135 2,075 2,060

1,868

2,3802,520

2,0002,155

2,850

3,720

2,500

3,140

2,770

3,030

3,790

3,460

2,920 2,990

Hitachi Chemical Company, Ltd.

Head Office: Shinjuku-Mitsui Building 1-1, Nishi-Shinjuku 2-chome Shinjuku-ku, Tokyo 163-0449, JapanPhone: 81-3-3346-3111Fax: 81-3-3346-2977

Established: October 10, 1962

Paid-in Capital: ¥15,367 million

Number of Employees: 3,340

Common Stock: Authorized: 800,000,000 sharesIssued: 207,358,608 shares

Number of Shareholders: 13,437

Annual GeneralShareholders’ Meeting: June

Stock Exchange Listings: Tokyo, Osaka (Ticker Symbol Number: 4217)

Independent Auditor: Ernst & Young ShinNihon

Transfer Agent andRegistrar: Tokyo Securities Transfer Agent Co., Ltd.

Togin Building, Third Floor4-2, Marunouchi 1-chomeChiyoda-ku, Tokyo 100-0005, JapanPhone: 81-3-3212-4611

Investor Relations Contact: Corporate Planning OfficePublic and Investor Relations GroupHitachi Chemical Company, Ltd.Shinjuku-Mitsui Building1-1, Nishi-Shinjuku 2-chomeShinjuku-ku, Tokyo 163-0449, JapanPhone: 81-3-5381-2370Fax: 81-3-5381-3023

URL: www.hitachi-chem.co.jp

Stock Price Range (Tokyo Stock Exchange):

Hitachi Chemical Co., Ltd. Annual Report 2006 49

Net sales(Billions of yen)

06

602.7

05

555.6

04

521.4

03

494.2

02

480.8

01

586.3

Operating income(Billions of yen)

06

53.8

05

46.9

04

33.8

03

24.9

02

13.0

01

45.8

Net income(Billions of yen)

06

31.6

05

25.7

04

15.8

03

8.6

02

3.1

01

13.0

Return on equity (ROE)Return on assets (ROA)(%) ROE ROA

10.4

6.0

2.3

10.1

15.216.0

060504030201

3.92.1

2.9

6.47.4

0.7

Net sales by business segment (2006)

14.4%

Housing Equipment andEnvironmental Facilities

ElectronicsRelatedProducts

45.2%

Advanced Performance Products40.4%


Thousands ofU.S. dollars

Millions of yen (except per share data) 2006/2005(except per share data) (Note) % change

2006 2005 2004 2006

For the year:Net sales ...................................................................... ¥602,703 ¥555,568 ¥521,358 $5,151,308 8.5%Operating income .................................................... 53,833 46,910 33,774 460,111 14.8Net income................................................................. 31,593 25,714 15,784 270,026 22.9Additions to tangible and intangible fixed assets 38,687 33,159 26,331 330,658 16.7Research and development expenses ................ 26,934 25,059 24,908 230,205 7.5

At year-end:Total assets ................................................................. ¥444,185 ¥411,485 ¥393,835 $3,796,453 7.9%Total stockholders’ equity...................................... 215,235 180,910 157,311 1,839,615 19.0

Per share data:Net income (basic) ................................................... ¥ 152.01 ¥ 123.46 ¥ 75.47 $ 1.30 23.1%Net income (diluted) ............................................... 151.95 123.44 75.44 1.30 23.1Cash dividends declared......................................... 23.00 17.00 12.00 0.20 35.3Total stockholders’ equity...................................... 1,037.83 872.20 758.44 8.87 19.0

Value indicators:Return on sales (%) ................................................. 5.2 4.6 3.0Return on equity (ROE) (%) .................................. 16.0 15.2 10.4Return on assets (ROA) (%)................................... 7.4 6.4 3.9Debt/Equity ratio (DER) (times) ........................... 0.2 0.2 0.3

Note: U.S. dollar amounts in this annual report are translated from yen, solely for the convenience of the reader, at the rate of ¥117=US$1, the approximate exchange rate at the Tokyo Foreign Exchange Market as of March 31, 2006.

FINANCIAL HIGHLIGHTSHitachi Chemical Co., Ltd. and Consolidated SubsidiariesFor the Years Ended March 31, 2006, 2005 and 2004

During fiscal 2005, Hitachi Chemical continued to

expand and strengthen its businesses. As a result, we

achieved our fourth consecutive year of growth in sales and

income, and set new records for both. We also reached our

Mid-Term Management Policy target for fiscal 2007 of ¥600

billion in net sales two years in advance.

Hitachi Chemical continues to work steadily toward its

fiscal 2007 target of ¥60 billion in operating income.

By implementing corporate social responsibility (CSR)

activities, strengthening corporate governance and initiating

prudent environmental management practices, we intend to

grow as a group that earns the trust of our stakeholders.

Summary of Fiscal 2005 ResultsHitachi Chemical increased sales and income for the fourth consecutive

year in fiscal 2005, ended March 31, 2006. Net sales increased 8.5 percent

year-on-year to ¥602.7 billion, operating income climbed 14.8 percent to

¥53.8 billion, and net income rose 22.9 percent to ¥31.6 billion, each setting

new record highs. Net income per share (basic) increased to ¥152.01 from

¥123.46 year over year, and return on equity (ROE) rose to 16.0 percent from

15.2 percent.

In fiscal 2005, the Board of Directors approved cash dividends of ¥23.00

per share, an increase over the ¥17.00 per share awarded the previous year.

Expanded and Strengthening Our Businesses in Fiscal 2005In fiscal 2005, the worldwide business environment for Hitachi Chemical

remained favorable with regard to electronics-related industries and other

sectors. However, the rise in raw material prices showed no signs of abating,

while the downward trend in prices for finished products further accelerated.

As a result, conditions remained challenging for Hitachi Chemical, whose

business is centered on intermediate materials positioned between upstream

material industries and downstream finished product manufacturers.

Under these conditions, Hitachi Chemical shifted from a defensive to a

more aggressive management approach, with the goal of expanding and

strengthening our businesses. We placed priority on accelerating new

product development and creating new businesses, increasing our

Hitachi Chemical Co., Ltd. Annual Report 20062

Yasuji NagasePresident, Chief Executive Officer and Director

TO OUR SHAREHOLDERS


participation in fast-growing overseas markets such as Greater China, and improving the efficiency

of the Group’s operations.

As a result of these efforts, we achieved noteworthy growth in sales and income for fiscal 2005.

Of particular note, two years ahead of schedule we reached our fiscal 2007 net sales target that was

set in our Mid-Term Management Policy.

Nevertheless, although we attained new record income, this result was inadequate when compared

to our growth in net sales. While factors such as high raw material costs and declining product prices

caused downward pressure on profits, we will continue towards our goal of expanding new products

and creating a more profitable business structure. The Group companies made little progress in

improving their profitability, and this has been carried over as a priority issue in fiscal 2006. Moreover,

with regard to overseas operations, we have yet to make inroads in certain markets. These are major

issues that we need to address in order to achieve our Mid-Term Management Policy target of

operating income of ¥60 billion.

We expect high raw material costs and falling product prices to continue to pressure earnings in fiscal 2006. The Group will work

together to steadily deal with the three high priorities outlined below to increase sales and earnings, with the aim of remaining a

corporate group whose abilities and stature are favorably recognized by stakeholders.

Accelerating Creation of New Businesses and ProductsOur first priority is to accelerate the creation of new businesses and products, while strategically reinforcing the existing businesses

in which we are strong. This is critical for our Group to sustain growth and increase profitability. Our mission — to create new and

innovative value as a frontrunner — is Hitachi Chemical’s raison d’etre.

Our plan is to increase sales of new products from new businesses to 30 percent or more of net sales by fiscal 2007. As part of this

effort, we are working to quickly expand sales of core products by concentrating our investment of management resources in Key

Growth Products and Strategic Development Projects. We focused this approach only on Hitachi Chemical Co., Ltd. through fiscal

2005, but will now extend it to our Group companies in fiscal 2006. We have therefore set the goal of generating sales of ¥95 billion

from Key Growth Products in fiscal 2006, and ¥20 billion from Strategic Development Projects by fiscal 2008.

We have also restructured our 12 business divisions and consolidated them into four business sectors — Electronic Materials,

Electronic Components, Advanced Performance Materials and Automotive Products. This is expected to speed up efforts across our

organization in converting new projects into businesses, regardless of their organizational position or product area. To promote

efficiency in new business and product development, we also newly established the New Business Development Office. This is a group

of specialists, who will sow the seeds of new technologies earmarked for medium and long-term growth, and will plan and develop

business models for their commercialization.

The New Business Development Office, our business sectors and R&D centers will closely cooperate as they apply the Group’s

technology platform to accelerate the creation of new businesses and new products that will broaden our traditional business domains

and keep pace with growing global markets.

Improving the Profitability of Group CompaniesOur second priority is raising the profitability of the Group companies. In fiscal 2005, we restructured and integrated three

companies, including Nikka Techno Service Co., Ltd., which was in charge of support services for our manufacturing facilities. However,

Cash dividends per share(Yen)

06

23

05

17

04

12

03

11

02

10

01

10

(Years ended March 31)

the successful completion of this task will require a more proactive approach and the

implementation of concrete initiatives. Therefore, in fiscal 2006, we will aggressively

promote new business tie-ups between our Group companies to enhance synergy.

We will also take measures to optimize the Group’s business structure, which will

include replacing the products of Group companies with those that offer higher

growth and profitability.

We established the Group Management Strategy Office to lead these measures. In

addition, those Group companies that need to unify their operations with business

divisions will be brought under the umbrella of our four business sectors. If necessary,

the general managers of the business divisions may also serve concurrently as

president of a Group company. Through these and other measures, we have created a system that enables our Group companies to

cooperate more closely in strategy development and management responsibilities.

Further Expansion of Overseas SalesOur third issue of priority is to further expand overseas sales. We achieved our fiscal 2007 goal

of increasing foreign sales to 30 percent of net sales ahead of schedule in fiscal 2005. We are

working to further boost overseas sales by aggressively tapping demand in growing markets. This

will be key to achieving our target of ¥60 billion in operating income. In fiscal 2006, we will work

to rapidly reap the benefits of our new factories in China as they start up on schedule. These are

plants that manufacture photosensitive dry films for printed wiring boards and encapsulation

materials for semiconductors, among other products that we produced in fiscal 2005. In European

and North American markets, where our business development has been slow when compared to

Asia, we will carry out specific measures for business expansion. We will also work to develop new

markets, focusing attention on the emerging BRIC countries of Brazil, Russia and India.

A Corporate Group that Earns the Trust of StakeholdersIn our Corporate Vision statement announced in fiscal 2004, Hitachi Chemical defined trust as the key value we heed and promote.

By implementing corporate social responsibility (CSR) activities, strengthening corporate governance and initiating prudent

environmental management practices, we intend to grow as a group that earns the trust of our stakeholders.

As a result of these efforts, for the first time in six years, in fiscal 2005, we were selected as a member of the Dow Jones Sustainability

World Index, the world’s first global social responsibility index (SRI). Hitachi Chemical was the only chemical company among the 36

Japanese corporations listed in the index, and we feel truly honored.

Hitachi Chemical will put every effort into attaining the targets we have set forth in the Mid-Term Management Policy as a

technologically innovative corporation that achieves sustained growth. As we do so, we are counting on the continued support of

our shareholders.

July 2006

TO OUR SHAREHOLDERS >>


Details of CSR and environmental activities are published in our sustainability report. Yasuji NagasePresident, Chief Executive Officer and Director

Percentage of net sales

Overseas sales

Overseas sales(Billions of yen, %)

06

184.3

05

145.0

04

126.6

03

107.0

02

99.5

01

117.4


24.321.720.720.0

26.1

30.6

Innovative

Focused

Global

Creating new businesses and products based onstrengthening the technology platform formaterials

Building a foundation for increased sales andincome through optimal deployment ofmanagement resources

Participation in overseas growth markets

Hitachi Chemical is working to expand its businesses and improve its

performance to achieve the numerical targets of its Mid-Term Management

Policy for fiscal 2007. In the feature section of Annual Report 2006, executive

officers responsible for the implementation of the three core strategies of

Hitachi Chemical’s Mid-Term Management Policy report on progress and

achievements during fiscal 2005 and future initiatives.


Feature: Innovative, Focused and Global

Innovative

Hitachi Chemical is working to strengthen its

technology platform for materials to create new

products and new businesses. What were some

activities in this area in fiscal 2005?

Based on our judgment that the Group’s R&D activities in

recent years had been weighted disproportionately on

development of application technologies, we established the

Laboratory for Polymer Technology in 2004 to strengthen our

technology platform for materials. This laboratory has two

primary missions. The first is deepening and strengthening the

wide-ranging material technologies owned by Hitachi Chemical.

The laboratory is building up results through joint research with

leading universities and use of the R&D resources of the Hitachi

Group, exemplified by its development of a new optical material

that combines nanoparticle formation technology with polymer

technology. Its other mission is to develop new polymer

technologies and use them to commercialize original plastic

products, as well as apply them to strengthen our existing

businesses. Looking ahead, a key issue will be how to use the

diverse technology platform of Hitachi Chemical to in-

crease synergy in research and development. The Laboratory for

Polymer Technology will continue to lead efforts to propose

material technologies to Group companies. In addition, we are

building a system for broadly advancing the Group’s research andKatsuki MiyauchiVice President and Executive Officer,General Manager of Research & Development Division

>>


Creating new businesses and products based onstrengthening the technology platform for materials

Hitachi Chemical is concentrating on quickly moving Strategic Development Projects upto the expansion stage. Our key tasks include deepening and strengthening ourtechnology platform for materials, developing new polymer technologies tocommercialize original plastic products, and deploying our technologies in existingbusinesses.

development by having the people responsible for R&D at all

Group companies share technological information within the

Group.

Hitachi Chemical is prioritizing research and development

by selecting Strategic Development Projects for faster

development of new products for the future. Please

describe the Company’s current progress.

In the Group, R&D projects are managed by classifying them

into four stages: incubation, cultivation, expansion and

preservation. Strategic Development Projects are large projects

in the incubation and cultivation stages that will drive future

growth. While the market for some projects has not arisen as we

anticipated, we are gradually seeing some successes. In fiscal 2006,

one of our Strategic Development Projects, “new multilayer

materials,” will be upgraded to a Key Growth Product, and has

entered the stage in which we are expanding sales in earnest.

From the standpoint of R&D efficiency, three years have passed

since we started the Strategic Development Project system, and

I feel that the divisions related to each project have been able to

go beyond organizational boundaries to conduct their activities

in greater collaboration. Starting from fiscal 2006, we have

expanded the Strategic Development Project system to Group

companies and increased the total number of projects to fifteen.

Please discuss the issues ahead and your policies for

achieving the fiscal 2008 sales targets for Strategic

Development Projects.

It all depends on how quickly we can move projects up to the

expansion stage – in other words, into Key Growth Products. I

think the key points will be timely identification of market trends,

periodic review and reshuffling of projects, and flexible

investment of management resources.

Also, for next-generation projects in particular, there will be

many instances in which the divisions in charge encompass

multiple research laboratories and business divisions, so cross-

divisional efforts will be imperative. Therefore, starting in April

2006, we set up a conference for all business divisions, including

Group companies, to debate and decide the development policies

for new products and new businesses. We will also apply this

mechanism in promoting Strategic Development Projects, which

will speed up decision making for allocating resources among

business divisions and enable business divisions and Group

companies to approach research and development with the same

perspective.


Excellent Thermal Resistant Insulating Adhesive

This thermal resistant insulating thermosetting adhesive is based on a siloxane-modified polyamideimide resin. The new material offers superior adhesion betweenvarious substrate materials such as shiny rolled copper, polyimide film, ceramics andliquid crystalline polymer, which is difficult to achieve with conventional epoxy-basedinsulation adhesives. In addition to its excellent thermal resistance, it exhibits fewproperty changes due to temperature change during user processing and has superiordynamic vending ability. It is also an eco-friendly product, free of halogen- or antimo-ny-based flame retardants, which have a large environmental load. For these reasons,growth in applications for this product is expected as an interlayer adhesive insulatingmaterial for ultrathin, high-density multilayer flexible printed wiring boards and as aninsulating material in high-frequency electrical components.

STRATEGIC DEVELOPMENT PROJECTS

Details of our intellectual property activities are published in our intellectual property report.

Takashi UranoExecutive Vice President, Executive Officer and Director

>>

Focused

Hitachi Chemical selects Key Growth Products to

ensure optimal distribution of management resources

and establish a foundation for sales and income

growth. What progress did the Company make in this

area in fiscal 2005?

Fiscal 2005 sales of our 10 Key Growth Products totaled ¥70.3

billion, meeting the target of ¥70 billion. At the same time, each

of these products competes in fields with rapid technological

innovation, and despite their high growth potential and

profitability, they have shorter product life cycles than before.

In addition to reinforcing our current Key Growth Products, an

important task is determining how to nurture Key Growth

Products for the future, primarily Strategic Development Projects

in the incubation and cultivation stages. Many of our current

Key Growth Products were selected three years ago. We cannot

afford to be complacent.

In fiscal 2006, we have moved three products to the next stage

and added three others, including a printed wiring board and

printed wiring board materials used in high-density mounting.

In addition, the scope of Key Growth Products has been expanded

to encompass Group companies and a total of 28 products. We

consider three points in the review process: first, the market

growth outlook; second, the product’s future potential; and third,

whether we have a superior base technology. We held discussions

Building a foundation for increased sales and incomethrough optimal deployment of management resources


Hitachi Chemical is focusing management resources on the Key Growth Products it hasdesignated. While further strengthening marketing, we will broaden our perspective tosteadily pick up new ideas for market development and reflect them in productdevelopment. We are concentrating on developing products with top share in theirmarkets.

from these perspectives, then chose the key products to be

expanded with concentrated investment of management

resources.

What benefits has the introduction of the system of Key

Growth Products had in terms of cooperation and

collaboration between internal research and business

divisions?

The system has led to clearly visible benefits. Under the name

of Key Growth Products, development, manufacturing, sales and

other divisions are able to move across organizational boundaries

with a single goal. This has raised efficiency, and I think it has

also cut down on wasted activity.

The sales target for fiscal 2006 is ¥95 billion. What

issues lie ahead and what are your policies for achieving

this target?

Traditionally, we have focused our efforts on specific market

areas, but in expanding our earnings scale, we will have to

aggressively develop business in peripheral areas that we had not

considered before. For example, one of our Key Growth Products

is die bonding films for semiconductors. By introducing a new

die bonding film that also has dicing tape functions, we enabled

customers to shorten the manufacturing process, and thus were

able to increase sales further. In addition to strengthening

marketing, this broader perspective allows us to steadily pick up

new ideas for market development that we had not previously

noticed, and it is important to reflect this in product develop-

ment.

Many of our Key Growth Products have the top share in their

markets. By raising our market position and expanding our

business scale through this approach, we will achieve our sales

targets. We will continue to raise our technological advantage

and emphasize technical services close to customers as we shift

to a high-profit business structure.

Hitachi Chemical Co., Ltd. Annual Report 2006 9Hitachi Chemical Co., Ltd. Annual Report 2006 9

Hitachi Chemical has developed an ultrathin multilayer printed wiring board (PWB)base material that uses extremely thin glass cloth of 20 micrometers or less as the corematerial. The core material is coated and impregnated with a low-elasticity thermoset-ting resin developed by Hitachi Chemical for a breakthrough product with highstrength, superior dimensional stability and the ability to be freely deformed as needed.The new base material enables production of four-layer PWBs that are less than halfthe thickness of conventional rigid-flexible PWBs and a significantly shorter manufac-turing process. In addition, its foldability makes it a material highly suited to helpingcustomers produce smaller, thinner and more sophisticated portable digital productssuch as digital camcorders and camera phones. Hitachi Chemical developed an eco-friendly halogen-free type in fiscal 2005.

Ultrathin Multilayer Printed Wiring Board Base MaterialsKEY GROWTH PRODUCTS

Kiyoshi TogawaSenior Vice President and Executive Officer,General Manager of Marketing & Sales Operations

>>

GlobalParticipation in overseas growth markets

In fiscal 2005, Hitachi Chemical reached its fiscal 2007

target of increasing overseas sales to 30 percent of net

sales earlier than planned. What key measures did

Hitachi Chemical carry out in fiscal 2005?

Amid brisk production of printed wiring boards and displays

in China, the Group has made aggressive investment and sales

expansion efforts in Greater China since fiscal 2004. In fiscal

2005, we started up a series of new factories for key products.

With the China Marketing & Sales Operations Department we

established in Hong Kong playing a central role, we worked to

steadily capture demand in Greater China for epoxy molding

compounds for semiconductor encapsulation, anisotropic con-

ductive films for displays, photosensitive dry films for printed

wiring boards and multilayer copper-clad laminates for printed

wiring boards. This was the major factor in our achievement of

the 30 percent overseas sales ratio.

I believe that three points are important in our Group’s

marketing. The first is how quickly we can provide customers

with leading-edge technology and materials that anticipate their

needs as a technologically innovative corporation. Second, we

must build a supply chain that sufficiently takes into account

the risks involved in supplying products. Third, besides our

network with customers around the world, we need to build a

network that flexibly links the operating bases of Group com-


Hitachi Chemical is concentrating on expanding overseas sales. We will add to ourachievements in China and Asia by developing operations in North America and Europe,as well as Russia, India and other emerging markets. We are strengthening the flexiblerelationships that link our operating bases in each area around the world, while makingsteady efforts to meet demand.

panies in each region to steadily capture demand and expand

sales.

In fiscal 2005, to further solidify this network, we held a forum

in Japan for the top executives of overseas sales subsidiaries and

drew up a medium-term action plan. Although we say we are

capturing demand in China, we have customers setting up

operations there who are based outside mainland China in the

United States, Europe, Japan and the Taiwan region. We need to

maintain close communication with them before they make the

decision to shift manufacturing, and consistently make proposals

based on an understanding of their needs. In other words, “sowing

seeds” is crucial. In that sense, I think fiscal 2005 was the year in

which we started to see clear results from the seeds sown through

collaboration among our Group’s operating bases.

An overseas sales ratio of 35 percent has been set as

the new target for fiscal 2007. What are the main

measures Hitachi Chemical will take to achieve it?

First, we will continue to steadily capture the growing demand

in Asia. In China, we began producing epoxy molding compounds

for semiconductor encapsulation in fiscal 2006, and a new

photosensitive dry film factory is scheduled to begin operating

in February 2007. The startup of such new factories on schedule

will strengthen stable supply to our customers, while

contributing to sales expansion and speeding up the return of

our investment.

In addition to demand in Asia, another key to achieving the

35 percent target will be sales expansion in North America and

Europe, as well as Russia, India and other emerging markets. One

of the markets we are focusing on is the automotive market.

Besides expanding sales in the Thai market, where automobile

factories are already in operation, we will set up a sales base with

material evaluation equipment in Detroit to strengthen our

approaches to car manufacturers in the United States. Also, we

are seeing a movement among customers to build factories in

Russia and Eastern Europe for automotive-related products and

digital home appliances such as flat-panel televisions, and we

believe this trend may accelerate rapidly. We will take advantage

of the Hitachi Group’s network, primarily in Europe, to make sure

we win orders. In addition, specific needs have emerged in North

America and Europe, such as printed wiring board materials that

can accommodate lead-free packaging. The Group’s product

lineup includes numerous products with a low environmental

load in addition to environmentally friendly printed wiring board

materials, and we will make use of these to cultivate business in

the North American and European markets.


The semiconductor industry in China has grown rapidly since its start, with recentsuccessive construction of large-scale factories with end-to-end production lines bymajor semiconductor manufacturers and expansion of production by local manufac-turers. Responding to growing demand for semiconductors in China, Hitachi Chemicalfurther strengthened its local semiconductor epoxy molding compound business byconstructing a production facility in Suzhou City, Jiangsu Province. With an annualproduction capacity of 6,000 tons, the facility produces high-performance epoxymolding compounds such as environmentally friendly products. Working steadily tocapture the surge in local demand for semiconductors, Hitachi Chemical plans toachieve at least a 40 percent share of the Chinese market for epoxy molding com-pounds in 2010.

Enhancing Development of the Semiconductor Epoxy Molding Compounds Business in ChinaOVERSEAS BUSINESS

BOARD OF DIRECTORSThe Board of Directors of Hitachi Chemical Co., Ltd., which is composed of eight Directors including three

Outside Directors, holds regular monthly meetings and extraordinary meetings when necessary. Outside Directorsare management executives, professionals and others selected for their familiarity with the Company’s manage-ment conditions and knowledge of relevant fields such as R&D and finance, where the Company has importantmanagement tasks.

In addition to approving the budgets and accounts, the Board of Directors uses the monthly and quarterly per-formance reports it receives from the Executive Officers to supervise the budget and business results. In order toensure the separation of operational and supervisory functions, the Company avoids the situation where theChairman of the Board serves concurrently as an Executive Officer, and limits the number of Executive Officersconcurrently serving as Directors to the required minimum of three. During fiscal 2005, the Board of Directors met15 times, with a 99 percent participation rate among Directors.

To strengthen the supervisory function of the Board of Directors, a Nominating Committee, Audit Committeeand Compensation Committee, each of which contains Outside Directors, have been established under the Board ofDirectors. During fiscal 2005, the Nominating Committee met twice, the Audit Committee met 10 times, and theCompensation Committee met four times. The Nominating Committee selected Director candidates for presentationto the Annual General Shareholders’ Meeting. The Audit Committee audited the execution of the duties of the


CORPORATE GOVERNANCE

Hitachi Chemical believes that one of its most important management tasks is establishing

a management structure that is sound, highly transparent and capable of responding swiftly

to changes in the market. As part of these efforts, in June 2003 the Company adopted a

“Company with Committees System” that separates operational and supervisory functions

to achieve highly objective, transparent management.

Annual General Shareholders‘ Meeting

Supervision

Execution

(* 3 Directors serve concurrently as Executive Officers)

Board of Directors (8 Directors* including 3 Outside Directors)

Nominating Committee5 Directors including3 Outside Directors

President and Chief Executive Officer

CSR Office Auditing Office

Executive Officers’ Meeting

Main task

Compensation Committee 3 Directors including2 Outside Directors

Audit Committee 4 Directors including3 Outside Directors

Main task Main tasks

Business Execution and Management Supervision Framework

Decisions on proposals forelection of Directors

Decisions on compensation forDirectors and Executive Officers

● Audit of Directors’ and ExecutiveOfficers' business operations andpreparation of audit report

● Decisions on candidates for Independent Auditor

Executive Vice President and Executive OfficerSenior Vice President and Executive Officer Vice President and Executive Officer Executive Officer

(An advisory body to theChief Executive Officer)

Studies issues of importance which mayaffect Hitachi ChemicalCo., Ltd. and the Group

IndependentAuditor

(Ernst & Young ShinNihon)

Directors and Executive Officers. The Compensation Committee set the policies for deciding the compensation ofDirectors and Executive Officers and determined the content of compensation for each individual. The AuditCommittee conducts audit activities with specialized staff who are employees independent from Executive Officersto ensure the independence of the Audit Committee. The Auditing Office performs internal audit work by order ofthe Chief Executive Officer, and cooperates in conducting audits if instructed to do so by the Audit Committee.

EXECUTIVE OFFICERS’ MEETINGComposed of all Executive Officers, the Executive Officers’ Meeting acts as an advisory body to the Chief

Executive Officer to ensure prudent decisions through multifaceted study of important issues that may affect themanagement of Hitachi Chemical Co., Ltd. or the Group. The Executive Officers’ Meeting, as a rule, holds regularmeetings twice a month and extraordinary meetings when necessary to accelerate decision-making and businessoperations. It participates in supervising the budget and business results by executing the decisions of the Board ofDirectors when the budget is determined or revised, and by presenting monthly and quarterly performance reportsto the Board of Directors.

Executive Officers and employees promptly report legal matters to the Audit Committee, as well as decisions byExecutive Officers in connection with important matters that affect the Company as a whole, the results of internalaudits conducted by the divisions in charge, and the status of reports prepared in accordance with the internalreporting system maintained by the Executive Officers.

COMPENSATION OF DIRECTORS, EXECUTIVE OFFICERS AND AUDITORSCompensation of Directors and Executive Officers is composed of monthly base compensation, performance-

based compensation and a retirement bonus. The performance-based compensation for Directors is set in anamount corresponding to the Company’s results for the fiscal year. The performance-based compensation forExecutive Officers is set in proportion to the Company’s results for the fiscal year, the results of the department inwhich each Executive Officer divides his duties, and individual performance and degree of performance improve-ment.


Monthly base compensation Performance-based compensation Retirement bonusClassification Number of Amount paid Number of Amount paid Number of Amount paid

people paid (Millions of yen) people paid (Millions of yen) people paid (Millions of yen)

Directors 9 83 8 14 — —(4) (19) (3) (3) (—) (—)

Executive 12 201 10 101 3 27Officers

Total 21 284 18 115 3 27

Note: Three of the nine Directors who were paid monthly base compensation and three of the eight Directors whowere paid performance-based compensation serve concurrently as Executive Officers.

Classification

(1) Total amount of compensation payable to the independent auditor of the 98Company and its subsidiaries, etc.

(2) Of the total amount in (1) above, the amount of payment as remuneration for the services defined in Article 2-1 (Audit Certification Work) of the Certified 95Public Accountant Law

(3) Of the total amount in (2) above, the amount of compensation payable to the 36independent auditor by the Company

Note: In the audit contract between the Company and the independent auditor, the compensation paid for audits under the former Law for Special Exceptions to the Commercial Code Concerning Audits of Joint-StockCompanies and audits under the Securities Exchange Law are not broken down and cannot be practicallyseparated, and therefore are included in the amount in (3).

Compensation Paid to Directors and Executive Officers (Fiscal 2005)

Amount of Compensation Paid to Independent Auditor (Fiscal 2005)

[Outside Directorsincluded in above]

Amount(Millions of yen)


CORPORATE GOVERNANCE >>

Company Divisions

Group Companies

CSR Office

Board of Directors


Audit Committee

Risk Management System

INTERNAL CONTROL SYSTEMThe Company has built and operates a system to ensure that business operations conform to laws and the

Company’s Articles of Incorporation, and to ensure that other business operations are appropriate. Specifically, the Company’s standards of corporate conduct serve as a basic code of conduct throughout Hitachi

Chemical, and the key parts of other important rules and basic systems are also shared across the Group. While pro-tecting the independence of each Group company, this promotes smooth coordination, raises the efficiency ofinternal audits and makes the internal control system effective.

RISK MANAGEMENTThe Company has created the Guidelines for Implementing Measures to Counter Risk at Hitachi Chemical. This

document prepares for target risk scenarios by specifying the responsibilities of all executives and employees inpreventing risk, the composition and role of the Emergency Response Task Force to be put in place during emergen-cies, and the communication standards to be followed. The CSR Office conducts regular audits of each division andGroup company in conjunction with related divisions to check the status of risk management and works to contin-uously improve measures to prevent risks from occurring and to deal with them if they occur. It also requires eachdivision to undertake self-audits.

Internal Control System

Board of Directors


IndependentAuditor

CorporateManagement Office

Internal Control CommitteeExecutive Officers’

Meeting

Company Divisions andGroup Companies

Auditing Office

Audit Committee

● Risk Management Group● Compliance Management Group● Safety & Environmental Management Group● Corporate Export Regulation Group


BOARD OF DIRECTORS AND EXECUTIVE OFFICERS As of June 22, 2006

Isao Uchigasaki Yasuji Nagase

Takashi Urano Keiichi Takeda

Tetsuo Odashiro Michiharu Nakamura

Masayoshi Hanabusa Hajime Nakajima

EXECUTIVE OFFICERSYasuji NagasePresident and Chief Executive Officer

Takashi UranoExecutive Vice President and Executive Officer (Oversight of new product and business development and technologyinnovation management, Quality assurance, Purchasing)

Keiichi TakedaSenior Vice President and Executive Officer (Oversight of administration, and finance)

Kiyoshi TogawaSenior Vice President and Executive Officer (Marketing and sales)

Katsuki MiyauchiVice President and Executive Officer (New product development)

Mikio SonogashiraVice President and Executive Officer (Advanced performance materials, Technology innovation management)

Kazuyoshi TsunodaVice President and Executive Officer (Electronic materials)

Naoki SuzukiExecutive Officer (Personnel, General affairs)

Shigeru HayashidaExecutive Officer (New business development)

Junichi OkudaExecutive Officer (Automotive parts)

Naoki TeramotoExecutive Officer (Printed wiring boards)

Shoichi HanaedaExecutive Officer (Corporate planning, Group company management, CSR activities)

DIRECTORSIsao Uchigasaki Chairman of the Board

Yasuji Nagase* Director

Takashi Urano* Director

Keiichi Takeda* Director

Tetsuo Odashiro Director

Michiharu Nakamura Outside Director (Executive Vice President and Executive Officer, Hitachi, Ltd.)

Masayoshi Hanabusa Outside Director (Chairman of the Board, Hitachi Capital Corporation)

Hajime Nakajima Outside Director (Chairman, Kepner-Tregoe Japan, LLC, Japan Branch)

*Serves concurrently as Executive Officer

DIRECTORS SERVING ON COMMITTEESNominating Committee: Isao Uchigasaki, Yasuji Nagase, Michiharu Nakamura, Masayoshi Hanabusa, Hajime Nakajima

Audit Committee: Tetsuo Odashiro, Michiharu Nakamura, Masayoshi Hanabusa, Hajime Nakajima

Compensation Committee: Yasuji Nagase, Michiharu Nakamura, Masayoshi Hanabusa

Main Products Segment Sales

45.2%

06

272.7

05

246.4

Percentage of Net Sales

(Billions of yen)


06

243.4

05

224.7

40.4%

(Billions of yen)


06

86.6

05

84.5

14.4%

(Billions of yen)

Elec

tron

ics

Rela

ted

Prod

ucts

Adva

nced

Per

form

ance

Pro

duct

sH

ousi

ng E

quip

men

t an

d En

viro

nmen

tal F

acili

ties

As of March 31, 2006

HITACHI CHEMICAL AT A GLANCE

Notes: 1. Three companies, including Shin-Kobe Electric Machinery Co., Ltd., are included in the total number of companies listed for two segments, Electronics Related Products and Advanced Performance Products. Seven companies, including Hitachi Kasei Shoji Co., Ltd., carry out activities in all segments and are included in the total number of companies listed for each segment.

2. Years in graphs represent fiscal years ended March 31.3. Beginning with the year ended March 31, 2006, Hitachi Chemical changed the name of the former Chemical-Related Products to Advanced Performance Products. In addition,

carbon anode materials for lithium ion batteries and electromagnetic interference shielding films for plasma display panels, both included in the former Chemical-Related Products, are now included in Electronics Related Products. In this report, segment sales and operating income from prior fiscal years have been restated in accordance with the change in business segments to allow year-on-year comparison.


Industrial Materials■ Electrical Insulating Varnishes■ Solder Resist■ Synthetic Resins for Paints■ Expandable Polystyrene Beads■ Graphite Coating for Cathode

Ray Tubes■ Adhesives

Carbon and Ceramics■ Carbon Brushes■ Carbon and Graphite Products■ Ceramics■ Single Crystals

Automotive Parts■ Automotive Molded Products■ Plastic Back Door Modules■ Disc Brake Pads

Advanced FunctionalFilms

■ Adhesive Films■ Cross-linked Foamed

Polyethylene

Others■ Diagnostics■ Batteries■ Powdered Metal

Products

■ Prefabricated Bathroom Units■ Home Bathtubs■ System Kitchens■ Compact Sized Kitchen Units■ Toilet Seats with Warm Water Cleansing

and Bidet Functions■ Home Boilers■ Domestic Wastewater Treatment Systems■ Fiber Reinforced Plastic Water Tanks■ Natural Refrigerant Heat Pump Water Heaters

Semiconductor and Display Related Materials■ Slurry for Chemical Mechanical Planarization■ Heat-Resistant Fine Polymers■ Die Bonding Materials■ Epoxy Molding Compounds■ Anisotropic Conductive Films for Displays■ Light Guides for Liquid Crystal Displays■ Electromagnetic Interference Shielding Films for Plasma

Display Panels

Printed Wiring Boards and Related Products■ Multilayer Printed Wiring Boards■ Multiwire Boards■ Flexible Printed Wiring Boards■ Package Substrates■ Copper-Clad Laminates for Printed Wiring Boards■ Photosensitive Dry Films for Printed Wiring Boards■ Plating Chemicals for Printed Wiring Boards

Others■ Carbon Anode Materials for Lithium Ion Batteries■ Capacitors

Highlights Consolidated Subsidiaries (Total: 62 Companies)Operating Income

06

37.7

05

31.9

Percentage of Operating Income

70.5%

(Billions of yen)


06

14.9

05

13.3

27.8%

(Billions of yen)


06

0.9

05

1.7

1.7%

(Billions of yen)


■ Expanded production capacity of slurry for chemical mechanical planarization at Yamazaki Works

■ Installed evaluation facilities for φ300mm silicon wafers for use in research and development for slurry for chemical mechanical planarization at Yamazaki Works

■ Expanded production capacity of die bonding films for semiconductors at Goi Works

■ Expanded consignment production capacity of multilayer materials for printed wiring boards in Hong Kong

■ Completed a production base for epoxy molding compounds for semiconductors at Hitachi Chemical (Suzhou) Co., Ltd.(operations began in April 2006)

■ Doubled production capacity of photosensitive dry films for printed wiring boards at Hitachi Chemical (Dongguan) Co., Ltd.

■ Decided on construction of a slitting facility for photosensitive dry films for printed wiring boards in Yantai, China(operations began in May 2006)

■ Decided on construction of a production base for photosensitive dry films for printed wiring boards at Hitachi Chemical (Suzhou) Co., Ltd.(operations scheduled to begin in February 2007)

■ Began operation of a joint venture for unsaturated polyester resins through equal investment with Dainippon Ink and Chemicals, Incorporated

■ Increased equity stake in Hitachi Chemical Automotive Products (Thailand) Co., Ltd. to make it a consolidated subsidiary

■ Sold the styrene-related weatherproofing resin business

■ Started production of powdered metal products in Dongguan, China

■ Expanded production capacity of high-performance acrylate monomer at Goi Works

■ Started production of friction materials for automobiles in Foshan, China

■ Started production of electrical insulating varnishes at Hitachi Chemical (Dongguan) Co., Ltd.

■ Expanded production capacity of IC tags at Goshomiya Works

■ Expanded production capacity of advanced functional films at Goshomiya Works

■ Transfer and new opening of a showroom for housing equipment inMorioka. Established new showroom in Tsukuba.

■ Launched the Mist Shower Unit Energy-Saving Water Heating System that employs a natural refrigerant heat pump water heater

■ Launched new system kitchen with increased storage capacity and more color variations

■ Launched new prefabricated bathroom unit with more bathtub andwall variations

Shin-Kobe Electric Machinery Co., Ltd.Hitachi AIC Inc.Hitachi Chemical (Singapore) Pte. Ltd.Hitachi Chemical (Johor) Sdn. Bhd.Hitachi Chemical Asia-Pacific Pte. Ltd.Hitachi Kasei Shoji Co., Ltd. and 20 others

Total: 26 companies

Shin-Kobe Electric Machinery Co., Ltd.Hitachi Powdered Metals Co., Ltd.Hitachi Chemical Automotive Products Co., Ltd.Hitachi Kasei Polymer Co., Ltd.Japan Brake Industrial Co., Ltd.Hitachi Kasei Shoji Co., Ltd. and 33 others

Total: 39 companies

Hitachi Housetec Co., Ltd.Hitachi Housetec East Co., Ltd.Hitachi Housetec West Co., Ltd.Hitachi Kasei Maintenance Co., Ltd.Hitachi Kasei Shoji Co., Ltd. and 9 others

Total: 14 companies

KEY INITIATIVES IN FISCAL 2005Hitachi Chemical introduced a device within the Company

for evaluating slurry for chemical mechanical planarization of

φ300mm silicon wafers to increase the speed of development

and expanded production facilities for die bonding materials in

response to increased demand for flash memory. To meet the

ongoing rise in demand in China, Hitachi Chemical established

a production base for epoxy molding compounds for semicon-

ductors in Suzhou, Jiangsu Province, China and worked to rein-

force the local production network for photosensitive dry films

and advanced copper-clad laminates for printed wiring boards

(PWBs). Other initiatives included aggressive efforts to expand

sales into overseas markets for carbon anode materials for

lithium ion batteries, electromagnetic interference (EMI)

shielding films for plasma display panels (PDPs) and other

high-value-added products.

SALES OF MAIN PRODUCTSSemiconductor and Display Related Materials

In semiconductor-related materials, sales of epoxy molding

compounds increased due to an increase in overseas sales of

halogen-free products and products compatible with lead-free

soldering, which have less environmental impact. Sales of slurry

for chemical mechanical planarization of silicon wafers

increased substantially for copper wiring in high-speed devices.

Slurry for chemical mechanical planarizationAnisotropic conductive films for displays

Sales in this segment forfiscal 2005 increased10.7 percent year-on-year to ¥272.7 billion,and operating incomeincreased 18.1 percentto ¥37.7 billion.

Electronics Related Products

REVIEW OF OPERATIONS


Electronics Related Products

2006 2005 Change (%)

Segment sales . . . . . . . . . . . . . . . . . . ¥272.7 ¥246.4 10.7%Operating income . . . . . . . . . . . . . . 37.7 31.9 18.1Assets . . . . . . . . . . . . . . . . . . . . . . . . 209.5 185.4 13.0Depreciation and amortization

of tangible and intangible fixed assets . . . . . . . . . . . . . . . . . . . 11.8 11.6 1.5

Additions to tangible and intangible fixed assets . . . . . . . . . 17.1 15.2 12.9

(Billions of yen)


Sales of die bonding materials, which combine dicing tape

functions to contribute strongly to shortening the manufactur-

ing process, continued to grow significantly due to adoption by

a broad range of customers.

In display-related materials, stronger demand from digital

consumer appliance manufacturers in Asia supported substan-

tial growth in sales of anisotropic conductive films for displays,

despite intensified price competition. Sales of EMI shielding

films for PDPs increased substantially due to a surge in domes-

tic and overseas demand.

Printed Wiring Boards and Related ProductsSales of multilayer PWBs for semiconductor testers

increased, but overall sales of PWBs were flat due to a decline

in sales of flexible PWBs caused by the overseas shift of cus-

tomer production bases and a decline in sales of multiwire

boards because of lower demand.

In printed wiring board related products, sales of copper-

clad laminates for heat-resistant PWBs increased due to higher

sales for use in semiconductor package substrates. Sales of

photosensitive dry films for PWBs expanded on steady efforts

to meet increased demand in Asia.

OthersSales of carbon anode materials for lithium ion batteries

increased due to higher demand for use in mobile phones and

notebook computers.

In the capacitor category, strong sales of liquid crystal display

(LCD) televisions and other factors supported an increase in

sales of aluminum electrolytic capacitors, which are used in

applications such as inverters. However, a drop in demand for

digital camera applications led to a decline in sales of tantalum

capacitors, resulting in an overall decrease in sales of capacitors.

Die bonding films for semiconductors Photosensitive dry films for PWBsEMI shielding films for PDPs


KEY INITIATIVES IN FISCAL 2005Hitachi Chemical shifted toward higher-value-added prod-

ucts, reorganized low-profit businesses and upgraded produc-

tion methods to improve its profit structure, and continued to

create new technologies and businesses. In addition, the Group

adjusted product prices to reflect the sharp rise in raw material

costs, and worked to expand overseas sales of high-value-

added products such as adhesive films.

SALES OF MAIN PRODUCTSIndustrial Materials

Sales of electrical insulating varnishes for applications such

as protecting the surfaces of LCD circuitry expanded steadily in

Japan and overseas, while housing-related and other sales of

acrylic resin, which is mainly used in paints, were firm. Sales of

shell molding resins increased due to greater demand for use in

automotive applications. Sales of expandable polystyrene beads

also increased as a result of factors such as greater demand for

use in automobile components and growth in sales of products

that contain recycled materials. The unsaturated polyester resin

business was transferred to a joint venture on April 1, 2005.

Carbon and CeramicsIn ceramics and related materials, sales of components for

semiconductor manufacturing equipment and automobile

water pumps grew steadily. Due to a steady increase in sales

volume that offset the significant impact of escalating price

Advanced Performance Products

REVIEW OF OPERATIONS >>


Disc brake padsSolder resist for chip on film (COF)

Sales in this segment forfiscal 2005 increased 8.3percent year-on-year to¥243.4 billion, andoperating incomeincreased 12.1 percentto ¥14.9 billion.

Advanced Performance Products

2006 2005 Change (%)

Segment sales . . . . . . . . . . . . . . . . . . ¥243.4 ¥224.7 8.3%Operating income . . . . . . . . . . . . . . 14.9 13.3 12.1Assets . . . . . . . . . . . . . . . . . . . . . . . . 195.3 185.6 5.2Depreciation and amortization

of tangible and intangible fixed assets . . . . . . . . . . . . . . . . . . . 12.8 11.5 11.4


(Billions of yen)


competition, sales of gadolinium silicon oxide (GSO) single

crystals for positron emission tomography (PET) medical equip-

ment and other applications remained at the same level as in

the previous fiscal year.

In carbon and graphite products, sales of carbon friction

materials increased as a result of expanded customer demand,

and although sales of carbon brushes declined due to a drop in

demand for railcar use, overall sales of carbon and graphite

products increased.

Automotive PartsProduction increases by major customers led to growth in

sales of plastic molded backdoor modules and other automo-

tive molded products, and sales of disc brake pads increased

due to expanded use by customers. During fiscal 2005, Hitachi

Chemical increased its equity stake in a joint venture in

Thailand and made it a consolidated subsidiary.

Advanced Functional FilmsIn addition to expanded sales of adhesive films, which are

used to protect the surface of fiber optic panels for LCDs, sales

of cross-linked foamed polyethylene for roof and pipe insula-

tion increased in conjunction with the growth of capital

investment by the private sector.

OthersSales of powdered metal products increased as sales of auto-

mobile engine components with superior fuel efficiency and

high-performance car air conditioners grew steadily.

Sales of rechargeable batteries increased due to higher capi-

tal investment demand in the telecommunications industry and

greater adoption in new-model cars.


GSO single crystal scintillators Batteries for automobilesLCD optical sheet protective films

KEY INITIATIVES IN FISCAL 2005Hitachi Chemical worked to strengthen its core bathroom

equipment business and the kitchen business, which have

strong synergy, and shifted its focus from a price-oriented

market to a feature-oriented market by developing and

expanding sales of new, primarily middle- and high-grade,

products. In addition, the Group continued to promote broad-

based alliances with other companies in the housing equip-

ment field.

SALES OF MAIN PRODUCTSSales of heat-pump water heaters that use a natural coolant

with improved energy efficiency for all-electric homes

increased significantly, while sales of compact kitchens rose

steadily with an increase in construction of housing complexes.

However, sales of prefabricated bathroom units decreased

from the previous fiscal year reflecting a decline in single-fam-

ily home construction and heightened price competition in

products for housing complexes. Sales of system kitchens also

fell as a result of a slump in the single-family home market,

and sales of domestic wastewater treatment systems declined

year-on-year due to lower demand and other factors.

Housing Equipment and Environmental Facilities

REVIEW OF OPERATIONS >>


System kitchensPrefabricated bathroom units for detachedhouses

Sales in this segment forfiscal 2005 increased 2.6percent year-on-year to¥86.6 billion. Operatingincome decreased 45.0percent to ¥0.9 billion.

Housing Equipment and Environmental Facilities

2006 2005 Change (%)

Segment sales . . . . . . . . . . . . . . . . . . ¥86.6 ¥84.5 2.6%Operating income . . . . . . . . . . . . . . 0.9 1.7 (45.0)Assets . . . . . . . . . . . . . . . . . . . . . . . . 40.7 41.9 (2.7)Depreciation and amortization

of tangible and intangible fixed assets . . . . . . . . . . . . . . . . . . . 2.7 2.9 (6.2)


(Billions of yen)



Toilet seats with warm water cleansingand bidet functions Domestic wastewater treatment systemsVanity tables

Natural refrigerant heat pump water heaters use CO2 as a coolant that draws inheat from the surrounding air and uses this heat energy to make hot water. Highlyefficient and economical, they use one-third of the electricity required for conven-tional electric water heaters. Hitachi Housetec Co., Ltd. is strengthening business forthis product in response to heightened environmental awareness and the trendtoward all-electric housing.

In fiscal 2005, we launched a model with a hot water tank just 435mm thick, mak-ing it easy to install in urban housing with narrow lots. We also added a model with amist shower option, which offers health and beauty benefits. The Yuki Works ofHitachi Housetec Co., Ltd. responded to increasing demand by expanding productionof natural refrigerant heat pump water heaters.

To date, we have been selling this product for detached housing, and plan to beginoffering a new product for housing complexes during fiscal 2006 to further expandsales.

Natural Refrigerant Heat Pump Water Heaters:Enhanced Business Expansion

Mist shower nozzle


SIX-YEAR SUMMARYHitachi Chemical Co., Ltd. and Consolidated SubsidiariesFor the Years Ended March 31, 2006, 2005, 2004, 2003, 2002 and 2001

Thousands ofU.S. dollars

Millions of yen (except per share data)(except per share data) (Note 1)

2006 2005 2004 2003 2002 2001 2006

For the year:Net sales............................................................ ¥602,703 ¥555,568 ¥521,358 ¥494,226 ¥480,777 ¥586,314 $5,151,308Operating income .......................................... 53,833 46,910 33,774 24,930 13,048 45,814 460,111Net income....................................................... 31,593 25,714 15,784 8,644 3,141 13,022 270,026Cash dividends declared .............................. 4,768 3,523 2,487 2,279 2,072 2,021 40,752Additions to tangible and intangible fixed assets................................ 38,687 33,159 26,331 23,576 27,349 37,920 330,658

Depreciation .................................................... 27,200 25,904 26,505 27,703 29,034 29,009 232,479Research and development expenses ...... 26,934 25,059 24,908 22,933 22,894 22,408 230,205

At year-end:Total assets....................................................... ¥444,185 ¥411,485 ¥393,835 ¥407,148 ¥418,408 ¥457,117 $3,796,453Total liabilities................................................. 205,148 209,029 216,144 240,798 254,892 299,526 1,753,402Interest-bearing liabilities........................... 37,522 36,235 46,997 64,301 90,573 105,737 320,701Total stockholders’ equity ........................... 215,235 180,910 157,311 146,443 143,692 134,095 1,839,615

Per share data:Net income (basic) (Note 2)........................ ¥ 152.01 ¥ 123.46 ¥ 75.47 ¥ 39.91 ¥ 15.28 ¥ 64.42 $ 1.30Net income (diluted) (Note 2).................... 151.95 123.44 75.44 39.54 — 63.53 1.30Cash dividends declared .............................. 23.00 17.00 12.00 11.00 10.00 10.00 0.20Total stockholders’ equity ........................... 1,037.83 872.20 758.44 704.87 693.35 663.34 8.87

Value indicators:Operating margin (%)................................... 8.9 8.4 6.5 5.0 2.7 7.8Return on sales (%) ....................................... 5.2 4.6 3.0 1.7 0.7 2.2Return on equity (ROE) (%) ........................ 16.0 15.2 10.4 6.0 2.3 10.1Return on assets (ROA) (%) ........................ 7.4 6.4 3.9 2.1 0.7 2.9Stockholders’ equity ratio (%) ................... 48.5 44.0 39.9 36.0 34.3 29.3Debt/equity ratio (DER) (times) ................. 0.2 0.2 0.3 0.4 0.6 0.8Inventory turnover (times).......................... 14.1 14.3 14.4 13.8 11.8 13.0Net property, plant and

equipment turnover (times) ................... 4.2 4.1 3.8 3.4 3.2 3.9

Number of employees .................................... 17,065 16,551 16,764 17,061 17,287 18,390

Notes: 1. U.S. dollar amounts in this annual report are translated from yen, solely for the convenience of the reader, at the rate of ¥117=US$1, the approximate exchange rate at the Tokyo Foreign Exchange Market as of March 31, 2006.

2. Effective April 1, 2002, the Company adopted Accounting Standards Board of Japan Statement No. 2, “Calculations of Earnings Per Share of the current net earnings.”See Note 1 (q) to the consolidated financial statements on page 36.

RESULTS OF OPERATIONSCONSOLIDATED SUBSIDIARIES

Hitachi Chemical comprised 62 companies as of March 31,2006, unchanged from the previous fiscal year-end, as a resultof factors including new establishment, restructuring and con-solidation of companies.

The two newly added subsidiaries are one example of HitachiChemical’s efforts to strengthen overseas business development.The companies that were added to the scope of consolidationare Hitachi Chemical (Yantai) Co., Ltd., a newly established com-pany in China that will process and market photosensitive dryfilms for printed wiring boards, and the newly consolidated sub-sidiary discussed above, Hitachi Chemical Automotive Products(Thailand) Co., Ltd. Hitachi Chemical integrated the IbarakiWorks of Shimodate Sangyo Co., Ltd. and Hitachi ChemicalAutomotive Products Co., Ltd. into Nikka Techno Service Co., Ltd.Hitachi Chemical also merged Nikka Sangyo Co., Ltd. into HitachiKasei Shoji Co., Ltd.

CHANGES IN BUSINESS SEGMENTSBeginning with the year ended March 31, 2006, Hitachi

Chemical changed the name of the former Chemical-RelatedProducts segment to the Advanced Performance Products seg-ment. In addition, carbon anode materials for lithium ion batter-ies and electromagnetic interference shielding films for plasmadisplay panels, both included in the former Chemical-RelatedProducts segment, are now included in the Electronics RelatedProducts segment.

Segment sales and operating income from prior fiscal yearshave been restated in accordance with the change in businesssegments to allow year-on-year comparison.

ECONOMIC TRENDS DURING THE YEAR ENDED MARCH31, 2006

In the Japanese economy during the fiscal year, domesticdemand recovered steadily despite problems such as the increasein the prices of crude oil and other raw materials. Continuedeconomic growth in the United States and Asia supporteddemand overseas, and capital investment expanded substantiallyagainst a backdrop of improved corporate performance. Personal

consumption also tended toward growth, as improvement in theemployment and personal income environment and a strongstock market helped give consumers a positive outlook. In thesecond half of the fiscal year, the shift to an increase in the con-sumer price index was among the indicators that Japan’s econo-my may finally be responding to efforts to solve the difficultstructural issues that have resulted in deflation.

Internationally, the U.S. economy remained robust due to avariety of factors. Improved employment conditions helped con-sumer spending remain firm, and capital investment and housinginvestment continued to expand. In Asia, the Chinese economycontinued to grow rapidly. Newly industrializing economies andthe economies of the ASEAN nations remained strong as a resultof solid external demand, centered on electronics-related mar-kets. Exports drove continued economic growth in the EuropeanUnion.

NET SALESFor the year ended March 31, 2006, net sales increased 8.5

percent year-on-year, or ¥47.1 billion, to a record ¥602.7 billion.Sales increased in each business segment. Sales in the ElectronicsRelated Products segment increased 10.7 percent year-on-year,due largely to significant growth in sales of materials for semi-conductors and displays. Sales in the Advanced PerformanceProducts segment increased 8.3 percent year-on-year. In addi-tion to an increase in sales of electrical insulating varnishes thatare used as protective coating in products such as electroniccomponents, sales of automotive-related products increased dueto factors including the addition of Hitachi ChemicalAutomotive Products (Thailand) Co., Ltd. as a consolidated sub-sidiary. Sales in the Housing and Environmental Facilities seg-ment increased 2.6 percent year-on-year, as increased sales ofnatural refrigerant heat pump water heaters and other productscompensated for lower sales of prefabricated bathroom units fordetached housing and domestic wastewater treatment systems.

Overseas sales increased 27.1 percent year-on-year, or ¥39.3billion, to ¥184.3 billion. Primary factors included higher sales inChina and elsewhere in Asia. The ratio of overseas sales to netsales increased 450 basis points to 30.6 percent.


MANAGEMENT’S DISCUSSION ANDANALYSIS OF OPERATIONS ANDFINANCES

FINANCIAL STRATEGYThe financial policies of Hitachi Chemical Co., Ltd. (hereafter,

the “Company”) and its consolidated subsidiaries (collectively,“Hitachi Chemical” or “the Group”) are designed to maintain asound balance sheet by raising asset utilization efficiency, main-taining appropriate liquidity and securing appropriate capital foroperating needs.

Hitachi Chemical increased interest-bearing liabilities by 3.6percent year-on-year, or ¥1.3 billion, to ¥37.5 billion during theyear ended March 31, 2006. A primary reason for the increasewas the inclusion of subsidiary Hitachi Chemical AutomotiveProducts (Thailand) Co., Ltd. in the scope of consolidation. This

company manufactures and markets molded products for auto-mobiles. On the other hand, cash and cash equivalents at theend of the past fiscal year stood at ¥60.8 billion. In addition,Hitachi Chemical’s unfunded pension obligation decreased 45.7percent year-on-year, or ¥11.2 billion, to ¥13.3 billion as a resultof factors including an increase in pension plan assets due tohigher equity prices during the fiscal year.

Hitachi Chemical will continue to maintain a sound balancesheet while working to smoothly obtain external financing tofund both operations and the investments required to meet itsobjectives, including building a balanced business portfolio.

For the Year Ended March 31, 2006


MANAGEMENT’S DISCUSSION AND ANALYSIS OF OPERATIONS AND FINANCES >>

COST OF SALES AND SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Despite efforts to reduce costs, high costs for materialscaused cost of sales to increase 9.0 percent year-on-year, or¥36.5 billion, to ¥441.0 billion, and cost of sales increased 40basis points as a percentage of net sales to 73.2 percent. Selling,general and administrative expenses increased 3.6 percent year-on-year, or ¥3.7 billion, to ¥107.8 billion, due to factors includ-ing higher research and development expenses, but decreased 80basis points as a percentage of net sales to 17.9 percent as aresult of structural improvement initiatives to reduce fixed andother expenses.

Research and development expenses, which were primarilyinvested in Key Growth Products and Strategic DevelopmentProjects, increased 7.5 percent year-on-year, or ¥1.9 billion, to¥26.9 billion. Research and development expenses represented4.5 percent of net sales.

OPERATING INCOMEOperating income increased 14.8 percent year-on-year, or

¥6.9 billion, to a record ¥53.8 billion, and increased 50 basispoints as a percentage of net sales to 8.9 percent.

By business segment, operating income for Electronics RelatedProducts increased 18.1 percent, or ¥5.8 billion, to ¥37.7 billionas increased sales volume of high-value-added products com-pensated for lower selling prices and higher raw material costs.The ratio of segment operating income to segment net salesincreased 80 basis points to 13.8 percent. Operating income forAdvanced Performance Products increased 12.1 percent year-on-year, or ¥1.6 billion, to ¥14.9 billion, as increased sales of high-value-added products and reduced cost of sales compensated forhigher raw material prices. The ratio of segment operatingincome to segment net sales increased 20 basis points to 6.1 per-cent. Operating income for Housing Equipment and

Environmental Facilities decreased 45.0 percent, or ¥0.7 billion,to ¥0.9 billion, largely because higher sales volume did not fullycompensate for lower selling prices and higher raw materialprices. The ratio of segment operating income to segment netsales decreased 90 basis points to 1.1 percent.

OTHER INCOME (EXPENSES)Other income totaled ¥0.6 billion, a year-on-year improve-

ment of ¥1.8 billion. Factors supporting the improvementincluded a gain on sale of property, plant and equipment of ¥0.9billion and an exchange gain of ¥0.8 billion.

As a result, income before income taxes and minority interestsincreased 19.0 percent year-on-year, or ¥8.7 billion, to ¥54.4 bil-lion.

NET INCOMEIncome taxes increased 16.3 percent year-on-year, or ¥3.0 bil-

lion, to ¥21.1 billion, due to Hitachi Chemical’s continued solidperformance. The effective tax rate, defined as the ratio ofincome taxes to income before income taxes and minority inter-ests, decreased 90 basis points to 38.7 percent. Minority interestsdecreased 7.0 percent year-on-year, or ¥0.1 billion, to ¥1.7 bil-lion.

As a result, net income increased 22.9 percent, or ¥5.9 billion,to a record ¥31.6 billion. The ratio of net income to net salesincreased 60 basis points to 5.2 percent. Return on total stock-holders’ equity (ROE) increased 80 basis points to 16.0 percent,and return on total assets (ROA) increased 100 basis points to7.4 percent. Net income per share (basic) increased to ¥152.01from ¥123.46 for the previous fiscal year.

60 12

50 10

40 8

30 6

20 4

10 2

01 02 03 04 05 06

53.845.8

13.024.9

33.8

46.9

Percentage of net salesOperating income

8.97.8

2.7

5.06.5

8.4

0 0

(Billions of yen) (%)Operating income,Percentage of net sales


18

15

12

9

6

3

001 02 03 04 05 06ROA

ROE

15.2

6.4

10.4

3.9

2.1

6.0

2.3

10.1

7.4

16.0

2.9

(%)

0.7

Return on equity (ROE), Return on assets (ROA)


40 200

30 150

20 100

10 50

01 02 03 04 05 06

152.01

31.6

13.0

3.18.6

15.8

25.7

64.42

15.2839.91

75.47

Net income per share (basic)Net income

(Yen)(Billions of yen)

123.46

0 0

Net income,Net income per share (basic)


30

20

10

01 02 03 04 05 06

26.9

4.522.4

3.8

4.8 4.6

22.9 22.9 24.94.8

25.1

0Research and development expensesPercentage of net sales

6

4

2

0

4.5

(%)(Billions of yen)Research and development expenses, Percentage of net sales


FINANCIAL CONDITIONCASH FLOWS

Cash and cash equivalents as of March 31, 2006 decreased¥0.1 billion from a year earlier to ¥60.8 billion.

Net cash provided by operating activities was ¥41.3 billion, adecrease of ¥19.3 billion from the previous fiscal year. Incometax payments on a cash basis increased because of the increasein taxable income. Another factor in the year-on-year decreaseincluded reduced liquidation of trade receivables.

Net cash used in investing activities was ¥37.8 billion, anincrease of ¥4.8 billion from the previous fiscal year. A primaryfactor was an increase in capital expenditures.

Net cash used in financing activities amounted to ¥5.7 billion,a decrease of ¥7.4 billion from the previous fiscal year. Factors inthe year-on-year change included an increase in short-termdebt and reduced payments on long-term debt.

Cash Flows (Billions of yen)

2006 2005 2004

Cash flows from operating activities ¥ 41.3 ¥ 60.6 ¥ 27.3Cash flows from investing activities (37.8) (33.0) (23.4)Cash flows from financing activities (5.7) (13.1) (19.6)Cash and cash equivalents at end of year 60.8 61.0 46.2


ASSETS As of March 31, 2006, total assets increased 7.9 percent from

a year earlier, or ¥32.7 billion, to ¥444.2 billion. Current assets increased 6.7 percent from a year earlier, or

¥15.3 billion, to ¥242.1 billion. Trade receivables increased ¥11.3billion from a year earlier to ¥118.4 billion. Inventories increased¥3.3 billion from a year earlier to ¥44.3 billion because highersales resulted in an increase in inventory to support increasedproduction volume. Consequently, inventory turnover was 14.1times, compared to 14.3 times in the previous fiscal year. Theallowance for doubtful receivables decreased ¥0.2 billion from ayear earlier to ¥3.9 billion.

Net property, plant and equipment increased 9.9 percent froma year earlier, or ¥13.4 billion, to ¥148.5 billion as a result of theincrease in capital expenditures. Net property, plant and equip-ment turnover was 4.2 times, compared to 4.1 times in the pre-vious fiscal year. Intangible assets increased ¥1.1 billion from ayear earlier. Investments and other assets increased 6.6 percentfrom a year earlier, or ¥2.9 billion, to ¥47.4 billion. The primaryreasons for the change included a ¥5.0 billion increase in invest-ments in securities and investments in affiliated companies

under the equity method, mainly because of higher equity pricescompared to a year earlier, while deferred tax assets decreased¥1.5 billion from a year earlier.

ADDITIONS TO TANGIBLE AND INTANGIBLE FIXED ASSETSDuring the year ended March 31, 2006, additions to tangible

and intangible fixed assets increased 16.7 percent from a yearearlier, or ¥5.5 billion, to ¥38.7 billion. Investment to expandproduction facilities for high-added-value products centered onconstruction of new facilities and expansion of existing facilitiesin China, and on expansion and rationalization of domestic facil-ities as well as additional facilities for trial production and eval-uation. Depreciation and amortization increased 5.0 percentcompared with the previous fiscal year, or ¥1.3 billion, to ¥27.2billion.

In Electronics Related Products, additions to tangible andintangible fixed assets totaled ¥17.1 billion, and included con-struction of a production facility for epoxy molding compoundsfor semiconductors at Hitachi Chemical (Suzhou) Co., Ltd. andenhancement and rationalization of a production facility forphotosensitive dry films for printed wiring boards at HitachiChemical (Dongguan) Co., Ltd.

In Advanced Performance Products, additions to tangible andintangible fixed assets totaled ¥19.1 billion, and includedenhancement and rationalization of production facilities foradhesive films and contactless IC cards at Goshomiya Works.

In Housing Equipment and Environmental Facilities, additionsto tangible and intangible fixed assets totaled ¥2.5 billion, andincluded rationalization of production facilities for water heatersand other housing equipment at Hitachi Housetec Co., Ltd.

LIABILITIES AND STOCKHOLDERS’ EQUITY Total liabilities as of March 31, 2006 decreased 1.9 percent

from a year earlier, or ¥3.9 billion, to ¥205.1 billion.


500

400

300

200

100

01 02 03 04 05 06

444.2457.1418.4 407.1 393.8 411.5

0

(Billions of yen)Total assets

(As of March 31)

50

40

30

20

10

0

15

12

9

6

3

001 02 03 04 05 06

44.314.146.1

13.011.8

35.7

13.8

36.6

14.441.014.3

Inventory turnoverInventories

(Billions of yen) (Times)

35.8

Inventories,Inventory turnover


50

40

30

20

10

01 02 03 04 05 06

38.7

27.229.0

37.9

27.329.023.6 26.327.7 26.5

33.225.9

Additions to tangible andintangible fixed assetsDepreciation

0

(Billions of yen)Additions totangible and intangible fixedassets, Depreciation



MANAGEMENT’S DISCUSSION AND ANALYSIS OF OPERATIONS AND FINANCES >>

Current liabilities increased 4.2 percent from a year earlier, or¥6.6 billion, to ¥165.7 billion. Although income taxes decreased,trade payables increased ¥10.6 billion from a year earlier as aresult of the increase in net sales.

The current ratio, defined as the ratio of current assets to cur-rent liabilities, increased to 146.1 percent from 142.6 percent ayear earlier. Working capital, defined as current assets minuscurrent liabilities, increased 12.8 percent, or ¥8.7 billion, to ¥76.4billion.

Total interest-bearing liabilities increased 3.6 percent from a

year earlier, or ¥1.3 billion, to ¥37.5 billion. As of March 31, 2006, stockholders’ equity increased 19.0 per-

cent from a year earlier, or ¥34.3 billion, to ¥215.2 billion. Theratio of stockholders’ equity to total assets increased to 48.5percent from 44.0 percent a year earlier. The debt-to-equityratio, defined as total interest-bearing liabilities divided bystockholders’ equity, was 0.2 times. Stockholders’ equity pershare of common stock outstanding as of March 31, 2006increased to ¥1,037.83 from ¥872.20 a year earlier.

DIVIDEND POLICY The Company considers its operating environment, perform-

ance and future business prospects in allocating earnings to divi-dends and internal capital reserves. The Company takes the divi-dend payout ratio into consideration in distributing earnings toshareholders, and uses internal capital reserves to effectivelybuild on its strong financial structure while investing in researchand development of promising new high-value-added products

and adding vitality to existing businesses. Based on these policies, the Company fully considered issues

including its performance for the year ended March 31, 2006, itsoutlook for the operating environment in the current fiscal year,the dividend payout ratio, research and development, and capitalexpenditures in deciding to increase cash dividends per share ofcommon stock by ¥6 to ¥23 for the fiscal year ended March 31,2006 from ¥17 for the previous fiscal year.

OUTLOOK FOR THE YEAR ENDING MARCH 31, 2007Hitachi Chemical forecasts that currently solid economic con-

ditions will continue, aided by favorable personal consumptionand active capital investment supported by improved corporateperformance. However, there are concerns that the U.S. econo-my, which has been the engine of the global economy, is facingan adjustment period due to factors such as a slowdown inhousing investment and an increase in the current-accountdeficit, which would exert an unfavorable impact on theeconomies of Japan and Asia. In addition, the interest rate dif-ferential between Japan and the United States is decreasing. Thiscould cause the yen to appreciate, which would cause the exportenvironment to worsen. Moreover, reform of pension andhealthcare systems could reduce disposable income, which would

have a negative impact on consumer spending. Concerns such asthese temper optimism that solid economic expansion will con-tinue.

Under these conditions, Hitachi Chemical will structure astrong earnings base that can accommodate changes in theoperating environment, and will continue to enhance its abilityto consistently create attractive new products and businessesthat support further growth. Hitachi Chemical will also fulfill itscorporate social responsibilities to support sustainable growth,while practicing environmental management. For the year end-ing March 31, 2007, Hitachi Chemical forecasts that net saleswill increase 2.5 percent year-on-year to ¥618 billion, and netincome will increase 1.3 percent year-on-year to ¥32 billion.

BUSINESS AND OTHER RISKS Hitachi Chemical operates globally in a diverse range of fields,

using sophisticated, specialized technologies. For this reason, avariety of factors may materially impact Group operations. These

major business and other risks are described below. Statementsconcerning the future represent the judgment of HitachiChemical as of March 31, 2006.

150

100

50

1.5

1.0

0.5

001 02 03 04 05 06

37.5

105.7 90.6

64.347.0

36.2

00.2

0.80.6

0.40.3

0.2DERInterest-bearing liabilities

(Times)(Billions of yen)Interest-bearing liabilities, Debt/equity ratio(DER)

(As of March 31)

250 75

200 60

150 45

100 30

50 15

01 02 03 04 05 06

215.2

134.1 143.7 146.4 157.3180.9

Stockholders’ equity ratioStockholders’ equity

(Billions of yen)

0 0

(%)

48.5

29.3 34.3 36.039.9 44.0

Stockholders’ equity, Stockholders’ equity ratio

(As of March 31)


(1) Exchange Rate Fluctuations Hitachi Chemical holds assets and liabilities from overseas

operations that are affected by fluctuations in foreign exchangerates. Due to product exports and raw material imports usuallydenominated in U.S. dollars, and at times in other local curren-cies, exchange rate fluctuations may exert a material impact onthe performance of the Group. The appreciation of the yenagainst the U.S. dollar and other currencies may exert a materialimpact on earnings by weakening the competitiveness of prod-ucts exported to overseas markets. The Group pursues measuresto attenuate the risk from exchange rate fluctuations, but can-not guarantee that exchange rate fluctuations will not affectperformance.

(2) Major Raw Material Price Fluctuations Many of Hitachi Chemical’s products use petrochemical prod-

ucts as raw materials. The purchase prices of petrochemicalproducts are susceptible to fluctuations in crude oil prices. Inaddition, fluctuations in the markets for other raw materialsmay increase procurement costs and exert a material impact onGroup performance.

(3) Acquisitions, Joint Ventures and Strategic Alliances Hitachi Chemical may acquire outside companies, establish

joint ventures and implement strategic alliances in order todevelop new technologies and products, and raise competitive-ness. These complex initiatives involve integration of businesses,technologies, products and personnel that requires time andexpenses. Failure to implement these initiatives as planned mayexert a material impact on Group operations. The success ofthese business alliances is determined in part by factors beyondthe Group’s control including alliance partner decisions andcapabilities, and market trends. Implementation of these initia-tives may cause the Group to incur acquisition-related expensesincluding expenses for integration and restructuring of acquiredbusinesses. In addition, the Group cannot guarantee that it willsucceed in integrating acquired businesses or that its initiativeswill achieve all or part of initial objectives.

(4) Potential Risk in Overseas Activities Hitachi Chemical produces and sells products in Japan, coun-

tries in Asia, the United States and in other regions. Exposure topolitical and social risks in these overseas markets may exert amaterial impact on the financial position and performance ofthe Group.

(5) Public Regulations Hitachi Chemical business activities are subject to various reg-

ulations in the countries in which it operates. The regulationsinclude legal obligations related to foreign investment, trade,competition, intellectual properties, taxes, exchange rates, theenvironment and recycling. Significant changes to these regula-tions could restrict operations, increase costs and exert a materi-al impact on Group performance.

(6) Financial Risk Hitachi Chemical holds equities and other marketable securi-

ties. A decrease in the value of these marketable securities mayexert a material impact on the financial position and perform-ance of the Group. In addition, long-term procurement of fundsfrom capital markets exposes the Group to risk associated withinterest rate fluctuations and credit.

(7) Retirement Benefit Obligations Hitachi Chemical bears considerable retirement benefit

expense obligations that are computed using actuarial calcula-tions. These appraisals involve important assumptions aboutconditions for estimating the fair value of pension assets includ-ing mortality rates, decrement rates, retirement rates, salarychanges, discount rates and expected rates of return on pensionassets. In making these assumptions, the Group must take intoaccount numerous factors including personnel conditions, cur-rent market conditions and future interest rate trends. Althoughthe Group makes reasonable assumptions about conditions basedon key factors, it cannot guarantee that projections will agreewith actual results. A decline in discount rates leads to anincrease in actuarial retirement benefit obligations. An increaseor decrease in retirement benefit obligations may influence theactuarial difference amortized over the period of employment.Accordingly, changes in conditions may exert a material impacton the financial position and performance of the Group.

(8) Relationship with the Parent Company As of March 31, 2006, Hitachi, Ltd., the parent company of

Hitachi Chemical Co., Ltd., holds 51.2 percent of the Company’stotal number of shares issued and 51.2 percent (exclusive ofindirect shareholdings) of the total number of shares with votingrights. Hitachi, Ltd. oversees numerous associated companies,and engages in a wide variety of operations covering the manu-facture, sale and service of products in seven industrial fields:information and telecommunication systems, electronic devices,power and industrial systems, digital media and consumer prod-ucts, high functional materials and components, logistics andservices, and financial services. Hitachi Chemical Co., Ltd. is partof the Hitachi Group’s high performance materials and compo-nents business, and three of its eight directors serve concurrentlyas directors or executive officers of Hitachi, Ltd. (as of June 22,2006). The close relations between Hitachi Chemical Co., Ltd. andits parent company in areas including technical and personnelcooperation and product supply may lead to situations in whichHitachi Group developments exert a material impact on themanagement strategy and other policies of Hitachi Chemical.

Thousands ofMillions of yen U.S. dollars (Note 2)

ASSETS 2006 2005 2006

Current assets:

Cash and cash equivalents (Note 1 (c)) ................................................................. ¥ 60,810 ¥ 60,959 $ 519,744

Trade receivables:

Notes............................................................................................................................. 12,927 13,823 110,487

Accounts...................................................................................................................... 105,513 93,307 901,821

118,440 107,130 1,012,308

Inventories (Notes 4 and 14)..................................................................................... 44,319 41,027 378,795

Other current assets (Note 5) ................................................................................... 22,399 21,737 191,444

Less allowance for doubtful receivables................................................................ (3,906) (4,080) (33,385)

Total current assets.............................................................................................. 242,062 226,773 2,068,906

Property, plant and equipment, at cost (Notes 6, 7 and 19)........................... 552,324 526,848 4,720,718

Less accumulated depreciation.................................................................................. (403,775) (391,693) (3,451,068)

Net property, plant and equipment................................................................. 148,549 135,155 1,269,650

Intangible assets:

Cost in excess of net assets acquired....................................................................... — 145 —

Other intangible assets................................................................................................. 6,176 4,952 52,786

Total intangible assets.......................................................................................... 6,176 5,097 52,786

Investments and other assets:

Investments in affiliated companies under the equity method...................... 7,313 7,121 62,504

Investments in securities (Note 3) ............................................................................ 17,039 12,232 145,633

Other assets (Note 5) .................................................................................................... 23,878 25,954 204,085

Less allowance for doubtful receivables................................................................. (832) (847) (7,111)

Total investments and other assets.................................................................. 47,398 44,460 405,111

¥ 444,185 ¥ 411,485 $ 3,796,453

See accompanying notes to consolidated financial statements.


CONSOLIDATED BALANCE SHEETSHitachi Chemical Co., Ltd. and Consolidated SubsidiariesMarch 31, 2006 and 2005


LIABILITIES, MINORITY INTERESTS AND STOCKHOLDERS’ EQUITY 2006 2005 2006

Current liabilities:

Short-term debt (Note 7) ............................................................................................ ¥ 13,464 ¥ 10,381 $ 115,077

Current portion of long-term debt (Note 7) ......................................................... 11,241 2,477 96,077

Trade payables:

Notes .............................................................................................................................. 415 343 3,547

Accounts ....................................................................................................................... 72,831 62,340 622,487

73,246 62,683 626,034

Accrued expenses ........................................................................................................... 27,881 27,441 238,299

Income taxes (Note 5)................................................................................................... 12,715 16,630 108,675

Other current liabilities ................................................................................................ 27,149 39,470 232,043

Total current liabilities ......................................................................................... 165,696 159,082 1,416,205

Long-term debt (Note 7)................................................................................................ 12,817 23,377 109,547

Retirement and severance benefits (Note 8) ........................................................ 20,287 19,229 173,393

Other liabilities (Note 5) ................................................................................................ 6,348 7,341 54,257

Total liabilities......................................................................................................... 205,148 209,029 1,753,402

Minority interests ............................................................................................................ 23,802 21,546 203,436

Stockholders’ equity:

Common stock:

Authorized—800,000,000 shares;

Issued—207,358,608 shares in 2006 and

207,310,708 shares in 2005 (Note 9) ................................................... 15,367 15,328 131,342

Capital surplus................................................................................................................. 34,258 34,219 292,803

Earnings surplus (Note 11) .......................................................................................... 162,293 134,963 1,387,120

Net unrealized holding gain on securities ............................................................. 5,176 2,684 44,239

Foreign currency translation adjustments ............................................................. (1,777) (6,231) (15,188)

Treasury stock, at cost, 51,072 shares in 2006

and 39,717 shares in 2005 (Note 12)................................................................... (82) (53) (701)

Total stockholders’ equity ................................................................................... 215,235 180,910 1,839,615

Commitments and contingencies (Note 13)

¥444,185 ¥411,485 $3,796,453



2006 2005 2004 2006

Net sales.................................................................................................. ¥ 602,703 ¥ 555,568 ¥ 521,358 $ 5,151,308Cost of sales (Note 14)....................................................................... (441,022) (404,557) (385,308) (3,769,419)

Gross profit ..................................................................................... 161,681 151,011 136,050 1,381,889

Selling, general and administrative expenses (Note 14) ...... (107,848) (104,101) (102,276) (921,778)Operating income ......................................................................... 53,833 46,910 33,774 460,111

Other income (expenses):Interest income ................................................................................ 585 655 830 5,000Dividend income .............................................................................. 213 241 228 1,821Equity in earnings of affiliated companies ............................. 275 717 1,059 2,350Exchange gain (loss)......................................................................... 660 (113) (570) 5,641Interest expenses............................................................................... (1,120) (984) (1,054) (9,573)Loss on disposal of property, plant and equipment ............. (1,703) (1,471) (2,037) (14,556)Product warranty expenses .......................................................... (254) (1,397) (2,208) (2,171)Gain on sale of investments in securities.................................. 92 104 255 787Royalty.................................................................................................. 806 1,068 867 6,889Net gain (loss) on sale of property, plant and equipment... 269 (609) 966 2,299Gain on transfer of substitutional portion (Note 8).............. — 6,746 — —Loss on transition to defined contribution pension plan (Note 8) ... — (1,011) — —Loss on termination of pension fund trust .............................. — (777) — —Restructuring charges ..................................................................... — (4,809) — —Impairment losses for fixed assets (Note 15)........................... — (640) — —Other, net ........................................................................................... 773 1,093 (472) 6,607

596 (1,187) (2,136) 5,094Income before income taxes and minority interests ....... 54,429 45,723 31,638 465,205

Income taxes (Note 5) ........................................................................ (21,087) (18,128) (14,495) (180,231)Income before minority interests ........................................... 33,342 27,595 17,143 284,974

Minority interests ............................................................................... (1,749) (1,881) (1,359) (14,948)Net income .................................................................................... ¥ 31,593 ¥ 25,714 ¥ 15,784 $ 270,026

U.S. dollarsYen (Note 2)

Basic net income per share (Note 16)......................................... ¥ 152.01 ¥ 123.46 ¥ 75.47 $ 1.30Diluted net income per share (Note 16) .................................... 151.95 123.44 75.44 1.30See accompanying notes to consolidated financial statements.


CONSOLIDATED STATEMENTS OF INCOME Hitachi Chemical Co., Ltd. and Consolidated SubsidiariesFor the Years Ended March 31, 2006, 2005 and 2004


2006 2005 2004 2006

Common stock (Note 9):Balance at beginning of year........................................................ ¥ 15,328 ¥ 15,288 ¥ 15,284 $ 131,009Exercise of stock options (Note 10)............................................. 39 40 4 333Balance at end of year .................................................................... 15,367 15,328 15,288 131,342

Capital surplus:Balance at beginning of year........................................................ 34,219 34,178 34,174 292,470Exercise of stock options (Note 10)............................................. 38 41 4 325Gain on sale of treasury stock (Note 12) ................................. 1 0 0 8Balance at end of year .................................................................... 34,258 34,219 34,178 292,803

Earnings surplus:Balance at beginning of year........................................................ 134,963 112,101 99,111 1,153,530Net income.......................................................................................... 31,593 25,714 15,784 270,026Cash dividends (Note 11)................................................................ (4,145) (2,694) (2,487) (35,427)Bonuses to directors (Note 11)..................................................... (118) (109) (307) (1,009)Effect of exclusion of consolidated subsidiaries..................... — (49) — —Balance at end of year .................................................................... 162,293 134,963 112,101 1,387,120

Net unrealized holding gain on securities:Balance at beginning of year........................................................ 2,684 2,603 1,067 22,940Net change during the year .......................................................... 2,492 81 1,536 21,299Balance at end of year .................................................................... 5,176 2,684 2,603 44,239

Foreign currency translation adjustments:Balance at beginning of year........................................................ (6,231) (6,821) (3,165) (53,256)Net change during the year .......................................................... 4,454 590 (3,656) 38,068Balance at end of year .................................................................... (1,777) (6,231) (6,821) (15,188)

Treasury stock (Note 12):Balance at beginning of year........................................................ (53) (38) (28) (453)Acquisition for treasury .................................................................. (29) (15) (10) (248)Sale of treasury stock ...................................................................... 0 0 0 0Balance at end of year .................................................................... (82) (53) (38) (701)

Total stockholders’ equity .......................................................... ¥215,235 ¥180,910 ¥157,311 $1,839,615See accompanying notes to consolidated financial statements.


CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY Hitachi Chemical Co., Ltd. and Consolidated SubsidiariesFor the Years Ended March 31, 2006, 2005 and 2004


2006 2005 2004 2006Cash flows from operating activities (Note 17):

Net income.......................................................................................... ¥ 31,593 ¥ 25,714 ¥ 15,784 $ 270,026Adjustments to reconcile net income to net cashprovided by operating activities:Depreciation ................................................................................... 27,200 25,904 26,505 232,479Amortization of cost in excess of net assets acquired ..... 151 2,299 530 1,291Deferred income taxes ................................................................ 445 (612) 8,394 3,803Loss on disposal of property, plant and equipment, net.. 1,248 3,116 1,151 10,667Income applicable to minority interests................................ 1,749 1,881 1,359 14,948Equity in earnings of affiliated companies .......................... (275) (717) (1,059) (2,350)(Increase) decrease in trade receivables ................................ (6,651) 91 (9,450) (56,846)Increase in inventories ................................................................ (2,181) (4,727) (1,547) (18,641)Increase in trade payables ......................................................... 7,485 4,891 6,014 63,974Increase (decrease) in accrued expenses .............................. (569) 1,254 3,293 (4,863)Increase (decrease) in accrued income taxes....................... (4,013) 11,834 (5,782) (34,299)Increase (decrease) in retirement and severance benefits .... 1,054 (11,291) (10,865) 9,008Other................................................................................................. (15,952) 971 (6,980) (136,342)

Net cash provided by operating activities........................ 41,284 60,608 27,347 352,855

Cash flows from investing activities:Capital expenditures ........................................................................ (35,045) (29,422) (24,780) (299,530)Proceeds from sale of property, plant and equipment......... 613 974 1,732 5,239Purchase of subsidiaries’ and affiliated companies’ stock

and investments in securities ................................................... (492) (2,367) (646) (4,205)Proceeds from sale of subsidiaries’ and affiliated companies’

stock and investments in securities ............................................ 170 334 452 1,453Investment in loans receivable ..................................................... (214) (456) (124) (1,829)Collection of loans receivable....................................................... 113 471 182 966Other ..................................................................................................... (2,965) (2,536) (174) (25,342)

Net cash used in investing activities .................................. (37,820) (33,002) (23,358) (323,248)

Cash flows from financing activities:Increase (decrease) in short-term debt...................................... 1,861 (5,537) (12,201) 15,906Proceeds from long-term debt..................................................... — — 1,000 —Payments on long-term debt........................................................ (3,042) (4,551) (5,508) (26,000)Dividends paid to stockholders..................................................... (4,145) (2,694) (2,487) (35,427)Dividends paid to minority stockholders of

consolidated subsidiaries............................................................ (396) (403) (416) (3,385)Other ..................................................................................................... 49 66 (2) 419

Net cash used in financing activities ................................. (5,673) (13,119) (19,614) (48,487)Effect of exchange rate changes on cash and cash equivalents.... 2,060 267 (1,591) 17,607

Net increase (decrease) in cash and cash equivalents ....... (149) 14,754 (17,216) (1,273)Cash and cash equivalents at beginning of year ...................... 60,959 46,205 63,421 521,017Cash and cash equivalents at end of year................................... ¥ 60,810 ¥ 60,959 ¥ 46,205 $ 519,744See accompanying notes to consolidated financial statements.


CONSOLIDATED STATEMENTS OF CASH FLOWS Hitachi Chemical Co., Ltd. and Consolidated SubsidiariesFor the Years Ended March 31, 2006, 2005 and 2004

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(a) Basis of PresentationThe accompanying consolidated financial statements of Hitachi Chemical Co., Ltd. (the “Company”) and consolidatedsubsidiaries are prepared on the basis of accounting principles generally accepted in Japan, which are different in certainrespects as to the application and disclosure requirements of International Financial Reporting Standards, and are com-piled from the consolidated financial statements (the “MOF” report) prepared by the Company as required by theSecurities and Exchange Law of Japan.

In addition, for the convenience of readers outside Japan, the consolidated financial statements, including the notes tothe consolidated financial statements, include certain reclassifications and additional information which is not requiredunder accounting principles generally accepted in Japan.

(b) Principles of ConsolidationThe consolidated financial statements include the accounts of the Company and those of its majority-owned subsidiaries,whether directly or indirectly controlled. All significant intercompany accounts and transactions have been eliminated inconsolidation.

Most of the investments in affiliated companies are stated at their underlying equity value, and the appropriate por-tion of the earnings of such companies is included in earnings. The investments in affiliated companies which do notmaterially affect earnings and equity are stated at cost.

The cost in excess of net assets, based on the fair value, acquired by the Company is being amortized on a straight-linebasis over its estimated useful period by each individual investment in subsidiaries, not exceeding twenty years or, if theamount is not material, charged immediately to earnings.

(c) Cash and Cash EquivalentsFor the purpose of the statements of cash flows, the Company considers all highly liquid investments with insignificantrisk of change in value, which have maturities of generally three months or less when purchased, to be cash equivalents.Due to this reason, certain investments, which were reported in the MOF report as deposits to related companies in theamounts of ¥23,647 million ($202,111 thousand) in 2006 and ¥27,786 million in 2005 were reclassified as cash and cashequivalents in the respective consolidated financial statements.

(d) Allowance for Doubtful ReceivablesGeneral provision for doubtful receivables is provided by applying a certain reserve percentage of the receivables basedon experience from past transactions. When considered necessary, specific reserves are made based on the assessment ofindividual receivables.

(e) Investments in SecuritiesSecurities are to be classified into one of the following three categories and accounted for as follows:

• Securities that are generally used with the objective of generating profits on short-term differences in price are classifiedas trading securities and measured at fair value, with unrealized holding gains and losses included in earnings.

• Securities that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturitysecurities and measured at amortized cost.

• Securities classified as neither trading securities nor held-to-maturity securities are classified as other securities.Unrealized holding gains and losses of other securities with fair values are reported as a net amount in a separatecomponent of stockholders' equity until realized. Other securities without fair values are carried at cost.

In computing realized gain or loss, cost of other securities is principally determined by the moving-average method.

(f) InventoriesInventories are stated principally at the lower of cost or market (certain consolidated subsidiaries use the cost method).Cost is determined by the moving-average method.

(g) Property, Plant and EquipmentProperty, plant and equipment are stated at cost and depreciated over the estimated useful lives of the respective assetsby the declining-balance method, except for certain buildings of the Company and domestic consolidated subsidiaries,placed in service after April 1, 1998, which are depreciated by the straight-line method.

(h) Intangible AssetsIntangible assets are amortized mainly on a straight-line basis. Cost incurred for computer software for internal use iscapitalized and amortized on a straight-line basis over its estimated useful life.

(i) LeasesFinance leases, except those where the legal title of the underlying property is transferred from the lessor to the lessee atthe end of the lease term, are accounted for as operating leases.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Hitachi Chemical Co., Ltd. and Consolidated SubsidiariesFor the Years Ended March 31, 2006, 2005 and 2004

(j) Impairment of Fixed AssetsEffective April 1, 2004, the Company adopted “Accounting Standard for Impairment of Fixed Assets” issued by theBusiness Accounting Deliberation Council and the related implementation guidance issued by the Accounting StandardsBoard of Japan. Under this standard and implementation guidance, fixed assets are reviewed for impairment wheneverevents or changes in circumstances indicate that the carrying amount may not be recoverable. When amounts of undis-counted future cash flows of fixed assets are less than the carrying amounts, the fixed assets are determined to beimpaired. Then, an amount by which the carrying amount exceeds the recoverable amount is recognized as an impair-ment loss in earnings. The recoverable amount of fixed assets is the greater of the net selling price or the present valueof the future cash flows expected to be derived from the fixed assets. The Company and consolidated subsidiaries iden-tify groups of assets by their business units as the smallest identifiable group of assets that generates cash inflows fromcontinuing use that are largely independent of the cash inflows from other assets or groups of assets.

Previously, no impairment of fixed assets was reviewed, tested or recognized.As a result of the adoption of this standard, income before income taxes and minority interests decreased for the year

ended March 31, 2005 by ¥640 million.

(k) Retirement and Severance BenefitsAllowance for retirement and severance benefits for employees is provided based on the estimated retirement benefitobligation and the pension assets.

Prior service benefits and costs are recognized as income or expense on a straight-line basis over certain years, princi-pally over 10 years, not exceeding the expected average remaining working lives of the employees active at the date ofthe amendment. Actuarial gains and losses are recognized as income or expense on a straight-line basis from the nextyear over certain years, principally over 10 years, not exceeding the expected average remaining working lives of theemployees participating in the plans.

A retirement allowance for directors and executive officers has been made for the vested benefits to which they areentitled if they were to retire or sever immediately at the balance sheet date.

The Company adopted “Amendment of Accounting Standards for Retirement Benefits” (Accounting Standard No. 3,Accounting Standards Board of Japan, March 16, 2005) and “Implementation Guidance on Amendment of AccountingStandards for Retirement Benefits” (Accounting Implementation Guidance No. 7, Accounting Standards Board of Japan,March 16, 2005), both of which are effective for fiscal years beginning on or after April 1, 2005.

The adoption of this change did not have a material impact on consolidated financial statements.

(l) Derivative Financial InstrumentsIn principle, net assets or liabilities arising from derivative financial instruments are measured at fair value, with unreal-ized gain or loss included in earnings. Hedging transactions, that meet the criteria of hedge accounting as regulated in“Accounting Standard for Financial Instruments,” are accounted for using deferral hedge accounting, which requires theunrealized gain or loss to be deferred as a liability or asset until gain or loss relating to the hedge object is recognized.

(m) Foreign Currency TranslationsForeign currency transactions are translated into yen on the basis of the exchange rates in effect at the transaction date.At year-end, monetary assets and liabilities denominated in foreign currencies are translated into yen at the exchangerates in effect at the balance sheet date. Gains or losses resulting from the translation of foreign currencies, includinggains and losses on settlement, are credited or charged to earnings as incurred.

The financial statements of the consolidated foreign subsidiaries are translated into the reporting currency of yen asfollows: all assets and liabilities are translated at the exchange rates in effect at the balance sheet date; stockholders’equity accounts are translated at historical rates; income and expenses are translated at an average of the exchangerates in effect during the year; and a comprehensive adjustment resulting from the translation of assets, liabilities andstockholders’ equity is included in minority interests and, as “Foreign currency translation adjustments,” a separate com-ponent of stockholders’ equity.

(n) Income TaxesDeferred income taxes are accounted for under the asset and liability method, and deferred tax assets and liabilities arerecognized for the expected future tax consequences attributable to differences between the financial statement carry-ing amount of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are meas-ured using enacted tax rates expected to be applied to taxable income in the years in which those temporary differencesare expected to be recovered or settled.

(o) Treasury StockTreasury stock is recorded at cost as a deduction of stockholders’ equity. When the treasury stock is reissued as common stock, thedifference between the issuance price and the cost of the treasury stock is credited or charged to capital surplus.

(p) Stock-Based CompensationAs of March 31, 2006, the Company has five stock-based compensation plans. However, under accounting principlesgenerally accepted in Japan, accounting standards for stock-based compensation have not been provided for. Therefore,no stock-based compensation cost is reflected in earnings.

(q) Net Income per ShareBasic net income per share is computed by dividing income available to common stockholders by the weighted averagenumber of common shares outstanding during each year. Diluted net income per share reflects the potential dilutionthat could occur if securities or other contracts to issue common stock were exercised or converted into common stockor resulted in the issuance of common stock that then shared in the earnings of the entity.

(r) ReclassificationsCertain reclassifications have been made to the prior years' consolidated financial statements in order to conform to thecurrent year presentations.


2. BASIS OF FINANCIAL STATEMENT TRANSLATIONThe accompanying consolidated financial statements are expressed in yen and, solely for the convenience of the reader,have been translated into U.S. dollars at the rate of ¥117=US$1, the approximate exchange rate prevailing at the TokyoForeign Exchange Market as of March 31, 2006. This translation should not be construed as a representation that anyamounts shown could be converted into U.S. dollars.

3. INVESTMENTS IN SECURITIESThe following is a summary of the amortized cost basis, gross unrealized holding gains or losses and aggregate fair valueof other securities by major security types as of March 31, 2006 and 2005.

Millions of yen

Amortized Gross gains Aggregate Amortized Gross gains Aggregatecost basis or losses fair value cost basis or losses fair value

2006 2005

Other securities with gross unrealized holding gains:Equity securities ............................................................. ¥4,157 ¥9,748 ¥13,905 ¥4,103 ¥5,146 ¥9,249Debt securities ................................................................ — — — 6 2 8Other securities .............................................................. 223 2 225 — — —

................................................................................... 4,380 9,750 14,130 4,109 5,148 9,257Other securities with gross unrealized holding losses:

Equity securities ............................................................. 270 (28) 242 267 (34) 233Debt securities ................................................................ — — — 11 (3) 8Other securities .............................................................. — — — 179 (2) 177

270 (28) 242 457 (39) 418¥4,650 ¥9,722 ¥14,372 ¥4,566 ¥5,109 ¥9,675

Thousands of U.S. dollars

Amortized Gross gains Aggregatecost basis or losses fair value

2006

Other securities with gross unrealized holding gains:Equity securities ............................................................. $35,530 $83,316 $118,846Debt securities ................................................................ — — —Other securities .............................................................. 1,906 17 1,923

37,436 83,333 120,769Other securities with gross unrealized holding losses:

Equity securities ............................................................. 2,308 (239) 2,069Debt securities ................................................................ — — —Other securities .............................................................. — — —

2,308 (239) 2,069$39,744 $83,094 $122,838

It is not practicable to estimate the fair value of investments in non-marketable securities because of the lack of amarket price and difficulty in estimating fair value without incurring excessive cost. The carrying amount of theseinvestments at March 31, 2006 and 2005 totaled ¥2,460 million ($21,026 thousand) and ¥2,367 million, respectively.

As of March 31, 2006 and 2005, a certain subsidiary held held-to-maturity securities, which consist of corporatebonds, amounting to ¥207 million ($1,769 thousand) and ¥190 million, respectively. Gross unrealized holding gains andlosses of these securities were not material.

Information about the contractual maturities of held-to-maturity securities and other securities with contractualmaturities as of March 31, 2006 is as follows:

Millions of yen Thousands of U.S. dollars

After one After oneWithin year through After Within year through After

one year five years five years one year five years five years

Debt securities:Corporate bonds ............................................................ ¥207 ¥ — ¥ — $1,769 $ — $ —


4. INVENTORIESInventories as of March 31, 2006 and 2005 are summarized as follows:

Thousands ofMillions of yen U.S. dollars

2006 2005 2006

Finished goods ............................................................................................................ ¥15,906 ¥14,374 $135,949Semi-finished goods ................................................................................................. 3,589 3,013 30,675Work in process .......................................................................................................... 13,694 12,966 117,043Raw materials ............................................................................................................. 11,130 10,674 95,128

¥44,319 ¥41,027 $378,795

5. INCOME TAXESThe income tax expenses (benefits) reflected in the consolidated statements of income for the years ended March 31,2006, 2005 and 2004 consist of the following:


2006 2005 2004 2006

Current tax expense ................................................................. ¥20,642 ¥18,740 ¥ 6,101 $176,427Deferred tax expense (benefit) ............................................. 445 (612) 8,394 3,804

¥21,087 ¥18,128 ¥14,495 $180,231

The Company and its domestic subsidiaries are subject to a number of taxes based on income, which in the aggregateresulted in a normal income tax rate of 41.7% for the year ended March 31, 2004.

On March 31, 2003, a reduction of the income tax rate for business tax was enacted in Japan, and became effectiveon April 1, 2004. With this adoption, the aggregated normal income tax rate for domestic companies was approximately40.4% for the years ended March 31, 2006 and 2005.

Reconciliations between the normal income tax rate and the effective income tax rate as a percentage of incomebefore income taxes and minority interests are as follows:

2006 2005 2004

Normal income tax rate ................................................................................................................. 40.4% 40.4% 41.7%Expenses not deductible for tax purposes........................................................................... 1.5 1.6 2.5Equity in earnings of affiliated companies ......................................................................... (0.2) (0.6) (1.4)Amortization of cost in excess of net assets acquired .................................................... 0.1 2.0 0.7Other................................................................................................................................................ (3.1) (3.8) 2.3

Effective income tax rate............................................................................................................... 38.7% 39.6% 45.8%

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilitiesas of March 31, 2006 and 2005 are presented below:


2006 2005 2006

Total gross deferred tax assets:Retirement and severance benefits .................................................................. ¥10,636 ¥10,075 $ 90,906Accrued bonus......................................................................................................... 4,610 4,565 39,402Accrued business tax ............................................................................................. 1,132 1,562 9,675Allowance for doubtful receivables.................................................................. 1,152 1,441 9,846Other........................................................................................................................... 10,294 10,494 87,983

27,824 28,137 237,812Total gross deferred tax liabilities:

Tax purpose reserves regulated by Japanese Tax Law ................................ (173) (251) (1,479)Net unrealized holding gain on securities...................................................... (3,924) (2,059) (33,538)Prepaid pension benefit cost .............................................................................. (2,247) (2,365) (19,205)Other........................................................................................................................... (2,021) (1,857) (17,274)

(8,365) (6,532) (71,496)Net deferred tax assets.............................................................................................. ¥19,459 ¥21,605 $166,316

Net deferred tax assets as of March 31, 2006 and 2005 are reflected in the consolidated balance sheets under thefollowing captions:


2006 2005 2006

Other current assets ................................................................................................... ¥11,666 ¥12,177 $ 99,709Other assets................................................................................................................... 8,172 9,669 69,846Other liabilities............................................................................................................. (379) (241) (3,239)Net deferred tax assets.............................................................................................. ¥19,459 ¥21,605 $166,316


6. PROPERTY, PLANT AND EQUIPMENTProperty, plant and equipment, at cost as of March 31, 2006 and 2005 consisted of the following:


2006 2005 2006

Land ................................................................................................................................. ¥ 22,843 ¥ 22,842 $ 195,239Buildings and structures ........................................................................................... 131,673 125,009 1,125,410Machinery and equipment ....................................................................................... 392,902 375,198 3,358,137Construction in progress........................................................................................... 4,906 3,799 41,932

¥552,324 ¥526,848 $4,720,718

7. SHORT-TERM AND LONG-TERM DEBTLong-term debt as of March 31, 2006 and 2005 is summarized as follows:


2006 2005 2006

Unsecured debentures:2nd series, due 2006, interest 3.5%.................................................................. ¥ 10,000 ¥10,000 $ 85,4704th series, due 2009, interest 2.3% .................................................................. 5,000 5,000 42,7356th series, due 2007, interest 2.01%................................................................ 3,000 3,000 25,6417th series, due 2008, interest 2.21%................................................................ 4,000 4,000 34,188

Loans, principally from banks and insurance companies:Secured by mortgages on property, plant

and equipment, maturing 2006–2008, interest 1.4–3.3%.................... 708 820 6,051Unsecured, maturing 2006–2009, interest 1.63–4.3% .............................. 1,350 3,034 11,539

24,058 25,854 205,624Less current portion (11,241) (2,477) (96,077)

¥ 12,817 ¥23,377 $109,547

The aggregate annual maturities of long-term debt after March 31, 2007 are as follows:Thousands of

Years ending March 31, Millions of yen U.S. dollars

2008............................................................................................................................................................... ¥ 3,770 $ 32,2222009............................................................................................................................................................... 4,047 34,5902010............................................................................................................................................................... 5,000 42,735

¥12,817 $109,547

The assets pledged as collateral for short-term and long-term debt at March 31, 2006 are as follows:Thousands of

Millions of yen U.S. dollars

Land................................................................................................................................................................ ¥ 479 $ 4,094Buildings....................................................................................................................................................... 1,328 11,350Machinery and equipment ..................................................................................................................... 3,124 26,701Other.............................................................................................................................................................. 790 6,752

¥5,721 $48,897

As is customary in Japan, both short-term and long-term bank loans are made under general agreements which provide thatsecurity and guarantees for present and future indebtedness will be given upon request of the bank, and that the bank shall havethe right, as the obligations become due or in the event of default, to offset cash deposits against such obligations due the bank.

Generally, certain secured and unsecured loan agreements provide, among other things, that the lenders or trustees shallhave the right to have any distribution of earnings, including the payment of dividends and the issuance of additional capitalstock, submitted to them for prior approval and also grant them the right to request additional security or mortgages on prop-erty, plant and equipment.

8. LIABILITY FOR RETIREMENT AND SEVERANCE BENEFITSDefined Benefit PlansThe Company and its domestic subsidiaries have a number of contributory and noncontributory pension plans to provideretirement and severance benefits to substantially all the employees.

Principal pension plans are unfunded defined benefit pension plans. Under the plans, employees are entitled to lump-sumpayments based on the current rate of pay and the length of service upon retirement or termination of employment for rea-sons other than dismissal for cause. The liability under these plans is partially funded by contributions to pension fund trusts.

In addition to the above plans, the Company and certain subsidiaries had contributory defined benefit pension plans(Employees’ Pension Fund (EPF) as is stipulated by the Japanese Welfare Pension Insurance Law) covering substantially allemployees. EPF is composed of the substitutional portion of Japanese Welfare Pension Insurance and the corporate portion


based on a contributory defined benefit pension arrangement established at the discretion of employers. On June 15, 2001,the Japanese government issued a new law concerning the defined benefit plan. Following the enactment of the new law,the Company and three subsidiaries obtained an approval from the Ministry of Health, Labour and Welfare for exemptionfrom the future benefit obligation with respect to the substitutional portion of EPF on March 14, 2003.

Subsequently, the Company and these subsidiaries made another application for separation of the remaining substitu-tional portion (the benefit obligation related to past service); the final approval of separation was granted on April 1, 2004and; on October 1, 2004, the obligation and the related government-specified portion of the plan assets of the EPF weretransferred to the Japanese government. As a result of the transfers to the Japanese government, in accordance with“Practical Guidelines of Accounting for Retirement Benefits (Interim Report)” (Accounting Committee Report No. 13, issuedby the Japanese Institute of Certified Public Accountants), income before income taxes and minority interests increased forthe year ended March 31, 2005 by ¥6,746 million.

Funding status of the Company’s and subsidiaries’ plans as of March 31, 2006 and 2005 is summarized as follows:Thousands of


2006 2005 2006

Projected benefit obligations.......................................................................... ¥(107,930) ¥(108,907) $(922,479)Plan assets at fair value .................................................................................... 94,642 84,429 808,906Funding status...................................................................................................... (13,288) (24,478) (113,573)Unrecognized actuarial loss............................................................................. 1,521 14,371 13,000Unrecognized prior service benefit ............................................................... (2,864) (3,267) (24,478)Net amount recognized in the consolidated balance sheet.................. ¥ (14,631) ¥ (13,374) $(125,051)

Amounts recognized in the consolidated balance sheets consist of:Prepaid pension benefit cost........................................................................... ¥ 5,656 ¥ 5,855 $ 48,342Retirement and severance benefits............................................................... (20,287) (19,229) (173,393)

¥ (14,631) ¥ (13,374) $(125,051)

Net periodic benefit costs for the funded benefit pension plans and the unfunded lump-sum payment plans for the yearsended March 31, 2006, 2005 and 2004 consisted of the following components:


2006 2005 2004 2006

Service cost, net of employees’ contributions................. ¥ 3,512 ¥ 3,566 ¥ 4,075 $ 30,017Interest cost ................................................................................ 2,670 2,749 4,128 22,820Expected return on plan assets for the period ................ (1,449) (1,555) (1,496) (12,385)Amortization of unrecognized actuarial loss................... 2,034 2,094 5,623 17,385Amortization of prior service benefit................................. (403) (393) (785) (3,444)Net periodic benefit cost........................................................ ¥ 6,364 ¥ 6,461 ¥11,545 $ 54,393

Note: Besides retirement and severance benefits under the defined benefit pension plans above, special termination benefits of ¥746 million($6,376 thousand), ¥818 million and ¥1,480 million were charged to earnings during the years ended March 31, 2006, 2005 and 2004,respectively.

Actuarial assumptions used in the accounting for the Company’s and subsidiaries’ plans are principally as follows:

2006 2005

Discount rate ...................................................................................................................................................... 2.5% 2.5%Expected return rate on plan assets ........................................................................................................... 2.0% 2.0%

Defined Contribution PlansDuring the year ended March 31, 2005, the Company and certain domestic consolidated subsidiaries implemented definedcontribution plans allowing employees to transfer a portion of their unfunded defined benefit pension plans to the newdefined contribution plans. As a result of the implementation of these defined contribution plans, in accordance with“Accounting Treatment for the Transfer among the Retirement and Severance Benefit Plan” (Accounting Standard BoardGuidance No. 1) issued by the Accounting Standards Board of Japan, income before income taxes and minority interestsdecreased for the year ended March 31, 2005 by ¥1,011 million.

The amount of cost recognized for the Company’s and those subsidiaries’ contribution to the plans for the years endedMarch 31, 2006 and 2005 was ¥663 million ($5,667 thousand) and ¥639 million, respectively.


9. COMMON STOCKIssued shares, changes in shares and the amount of common stock for the years ended March 31, 2006, 2005 and 2004 aresummarized as follows:


Issued shares Amount Amount

Balances as of March 31, 2003....................................................................... 207,251,708 ¥ 15,284Issued upon exercise of stock options..................................................... 5,000 4

Balances as of March 31, 2004....................................................................... 207,256,708 15,288lssued upon exercise of stock options ..................................................... 54,000 40

Balances as of March 31, 2005....................................................................... 207,310,708 15,328 $131,009Issued upon exercise of stock options..................................................... 47,900 39 333

Balances as of March 31, 2006....................................................................... 207,358,608 ¥15,367 $131,342

10. STOCK-BASED COMPENSATIONAs of March 31, 2006, the Company has five stock option plans. Under the Company's stock option plans, non-employeedirectors and executive officers have been granted stock options to purchase the Company's common stock. Under thesestock option plans, options were granted at prices not less than market value at the date of grant and are exercisable fromone year after the date of grant and expire five years after the date of grant.

A summary of the Company's stock option plans activity for the years ended March 31, 2006, 2005 and 2004 is as follows:2006 2005 2004 2006

Weighted- Weighted- Weighted- Weighted-Stock options average Stock options average Stock options average average

(shares) exercise price (shares) exercise price (shares) exercise price exercise price

Outstanding at beginning of year... 295,000 ¥1,799 311,000 ¥1,768 241,000 ¥1,894 $15.38Granted.............................................. 96,000 2,123 90,000 1,883 99,000 1,503 18.15Exercised............................................ (47,900) 1,614 (54,000) 1,497 (5,000) 1,494 13.79Forfeited ............................................ (10,000) 2,250 (52,000) 2,071 (24,000) 1,998 19.23Expired ............................................... (26,000) 2,657 — — — — 22.71Outstanding at end of year......... 307,100 ¥1,842 295,000 ¥1,799 311,000 ¥1,768 $15.74

Weighted-averageremaining contractual life ......... 2.9 years 2.8 years 3.1 years

Options exercisable at end of year ... 211,100 shares 205,000 shares 212,000 shares

The exercise prices of the stock options outstanding as of March 31, 2006 are ¥1,843 ($15.75), ¥1,494 ($12.77), ¥1,503 ($12.85),¥1,883 ($16.09) and ¥2,123 ($18.15).

11. LEGAL RESERVE AND CASH DIVIDENDSThe Japanese Corporate Law provides that earnings in an amount equal to at least 10% of appropriations of retainedearnings to be paid in cash be appropriated as legal reserve until legal reserve equals 25% of stated common stock. Inaddition to reduction of a deficit and transfer to stated common stock, legal reserve may be available for dividends byresolution of the shareholders’ meeting.

Cash dividends and bonuses to directors during the years ended March 31, 2006, 2005 and 2004 represent dividendsand bonuses resolved during those years. The accompanying consolidated financial statements do not include any provi-sion for the semiannual dividend of ¥13.0 ($0.11) per share totaling ¥2,695 million ($23,034 thousand) and directors’bonuses of subsidiaries of ¥84 million ($718 thousand), subsequently proposed by the Board of Directors in respect ofthe year ended March 31, 2006.

12. TREASURY STOCKThe Japanese Corporate Law (JCL) allows a company to acquire treasury stocks upon shareholders’ approval to the extentthat sufficient distributable funds are available. Effective September 25, 2003, the Japanese Commercial Code (JCC), theformer Japanese corporate law, was amended to no longer require shareholders’ approval but Board of Directors’approval to the extent that the Board of Directors’ authority was stated in the articles of incorporation. In this connec-tion, the related amendment of the articles of incorporation was approved at the ordinary general shareholders’ meetingin June 2004.

Pursuant to the provisions of the JCL, shareholders may request the Company to acquire their shares below a mini-mum trading lot (100 shares) as shares below a minimum trading lot cannot be publicly traded and do not carry a votingright. The JCL also provides for that a shareholder holding shares less than a minimum trading lot is entitled to request-ing the company to sell its treasury stock, if any, to the shareholder up to a minimum trading lot, provided that sale oftreasury stock is allowed under the articles of incorporation. In this connection, the related amendment of the articles ofincorporation was approved at the ordinary general shareholders’ meeting in June 2003.


The changes in treasury stock for the years ended March 31, 2006, 2005 and 2004 are summarized as follows:Thousands of


Shares Amount Amount

Balances as of March 31, 2003....................................................................... 24,755 ¥ 28Acquisition for treasury ............................................................................... 7,083 10Sales of treasury stock.................................................................................. (321) (0)

Balances as of March 31, 2004....................................................................... 31,517 38Acquisition for treasury ............................................................................... 8,597 15Sales of treasury stock.................................................................................. (397) (0)

Balances as of March 31, 2005....................................................................... 39,717 53 $453Acquisition for treasury ............................................................................... 11,522 29 248Sales of treasury stock.................................................................................. (167) (0) (0)

Balances as of March 31, 2006....................................................................... 51,072 ¥82 $701

At the ordinary general shareholders’ meeting in June 2003, the Company was authorized to acquire for treasury up to20,000,000 shares of its common stock for an aggregate acquisition amount not exceeding ¥30,000 million during theperiod from the close of the ordinary general shareholders’ meeting to the close of the next ordinary general sharehold-ers’ meeting, pursuant to the provisions of the JCC. As a result, due to the absence of circumstances that require theCompany to acquire for treasury its shares of its common stock, no acquisition of treasury stock had taken place.

13. COMMITMENTS AND CONTINGENCIESAt March 31, 2006, outstanding commitments for the purchase of property, plant and equipment were ¥3,412 million($29,162 thousand) and contingent liabilities for loan guarantees amounted to ¥709 million ($6,060 thousand).

It is common practice in Japan for companies, in the ordinary course of business, to receive promissory notes in thesettlement of trade accounts receivable and to transfer them by endorsement to suppliers in the settlement of accountspayable. The Company and its subsidiaries are contingently liable for trade notes endorsed, which amounted to ¥1,455million ($12,436 thousand) and ¥3,095 million at March 31, 2006 and 2005, respectively.

14. RESEARCH AND DEVELOPMENT EXPENSESResearch and development expenses included in general and administrative expenses and gross production cost for theyears ended March 31, 2006, 2005 and 2004 amounted to ¥26,934 million ($230,205 thousand), ¥25,059 million and¥24,908 million, respectively.

15. IMPAIRMENT LOSSES FOR FIXED ASSETSFor the year ended March 31, 2005, the Company and certain domestic consolidated subsidiaries recognized impairmentlosses for fixed assets in the aggregate amount of ¥640 million on their lands located in Chikusei city, Ito city, etc., sincethe lands were unused and those carrying amounts exceeded those recoverable amounts due to those significantlydecreased market values. The recoverable amounts were measured by those net selling prices, principally based onappraisal values.

16. NET INCOME PER SHARE INFORMATIONThe reconciliation of the number of shares and the amounts used in the basic and diluted net income per share compu-tations is as follows:

Thousands of shares

2006 2005 2004

Weighted average number of shares on which basic net income per share is calculated.................................................. 207,277 207,246 207,224

Effect of dilutive securities:Stock option, issued under the former Japanese corporate law ................... 91 22 7

Number of shares on which diluted net income per share is calculated ........ 207,368 207,268 207,231



2006 2005 2004 2006

Net income.................................................................................. ¥31,593 ¥25,714 ¥15,784 $270,026Net income not applicable to common stock holders:

Appropriations for directors’ bonuses (Note).............. (84) (128) (144) (718)Net income on which basic

net income per share is calculated................................. 31,509 25,586 15,640 269,308Effect of dilutive securities:

Convertible debentures ...................................................... — — (6) —Net income on which diluted

net income per share is calculated................................. ¥31,509 ¥25,586 ¥15,634 $269,308

Yen U.S. dollars

2006 2005 2004 2006

Net income per share:Basic ......................................................................................... ¥152.01 ¥123.46 ¥75.47 $1.30Diluted ..................................................................................... 151.95 123.44 75.44 1.30

Note: The Company and certain subsidiaries adopted the Company with Committees System under the Japanese Commercial Code, the former Japanese corporate law, in June 2003, and as a result, the directors’ bonuses of the Company and some subsidiaries are charged directly to earnings. The directors’ bonuses of other subsidiaries are continuously appropriated from the retained earnings.

17. SUPPLEMENTARY CASH FLOW INFORMATION


2006 2005 2004 2006

Cash paid during the year for:Interest .................................................................................... ¥ 1,099 ¥ 987 ¥ 1,105 $ 9,393Income taxes.......................................................................... 25,133 7,111 14,724 214,812

18. FINANCIAL INSTRUMENTS AND DERIVATIVE FINANCIAL INSTRUMENTSThe Company and certain subsidiaries operate globally and are exposed to market risks arising from fluctuations in foreigncurrency exchange rates and interest rates. In order to manage those risks, the Company and certain subsidiaries enter intovarious agreements on derivative financial instruments, including forward exchange contracts, currency option contractsand interest rate swap agreements. Forward exchange contracts are utilized to manage risks arising from foreign currencyreceivables from export of finished goods; foreign currency payables from the import of raw materials; and forecasted for-eign currency sales and purchase transactions. Currency option contracts and interest rate swap agreements are utilized tomanage foreign currency risk and interest rate risk for debts. The Company and its subsidiaries have no derivative financialinstruments for trading purposes. In addition, the Company and its subsidiaries are exposed to potential credit-relatedlosses in the event of non-performance by counterparties to financial instruments and derivative financial instruments, butit is not expected that any counterparties will fail to meet their obligations, because most of the counterparties areauthentic financial institutions.

The Company and its subsidiaries have also developed hedging policies to control various aspects of derivative financialtransactions including authorization levels and transaction volumes. Based on these policies, the Company and its sub-sidiaries hedge, within certain scopes, risks arising from changes in foreign currency exchange rates and interest rates. TheCompany and its subsidiaries review periodically the effectiveness of all the hedge policies to take account of the cumula-tive cash flows and any changes in the market.

The estimated fair values of the derivative financial instruments, excluding certain interest rate swap agreements, whichare accounted for using deferral hedge accounting, by major instrument types as of March 31, 2006 and 2005 are as follows:

Millions of yen

Notional Estimated Unrealized Notional Estimated Unrealizedamounts fair values gains (losses) amounts fair values gains (losses)

2006 2005

Currency option transactions:To sell foreign currencies ............................................ ¥4,994 ¥ (34) ¥ (2) ¥2,043 ¥ (51) ¥(27)To buy foreign currencies ........................................... 2,968 25 (6) 1,415 8 (16)

7,962 (9) (8) 3,458 (43) (43)Forward exchange contracts:

To sell foreign currencies ............................................ 3,133 3,146 (13) 2,250 2,300 (50)¥(21) ¥(93)



Notional Estimated Unrealizedamounts fair values gains (losses)

2006

Currency option transactions:To sell foreign currencies ............................................ $42,684 $ (291) $ (17)To buy foreign currencies ........................................... 25,367 214 (51)

68,051 (77) (68)Forward exchange contracts:

To sell foreign currencies ............................................ 26,778 26,889 (111)$(179)

The fair values of derivative financial instruments were estimated on the basis of information obtained from third partyfinancial institutions. The fair values of currency-related transactions are estimated using forward exchange rates.

19. LEASESLesseeFuture minimum lease payments under non-cancelable operating lease arrangements as of March 31, 2006 are ¥83 million($709 thousand) due within one year and ¥742 million ($6,342 thousand) due after one year.

Finance leases (without transfer of legal title) are accounted for as operating leases. For the years ended March 31, 2006,2005 and 2004, lease payments of ¥448 million ($3,829 thousand), ¥521 million and ¥639 million, respectively, under suchfinance leases were included in earnings. On a pro forma basis, leased property, lease obligation and the related expenses,with assumed capitalization of such finance leases are as follows:


2006 2005 2004 2006

Leased property:Equipment, at cost............................................................... ¥1,765 ¥ 1,973 ¥ 2,206 $15,085Less accumulated depreciation (Note a)....................... (681) (1,035) (1,354) (5,820)Net equipment ...................................................................... ¥1,084 ¥ 938 ¥ 852 $ 9,265

Depreciation expense (Note a).............................................. ¥ 433 ¥ 500 ¥ 606 $ 3,701Lease obligation:

Within one year .................................................................... ¥ 347 ¥ 381 ¥ 446 $ 2,966After one year ....................................................................... 747 567 422 6,384Total ......................................................................................... ¥1,094 ¥ 948 ¥ 868 $ 9,350

Interest expense (Note b) ....................................................... ¥ 14 ¥ 16 ¥ 21 $ 120

Notes: a. Leased property is depreciated over the lease term by the straight-line method with no residual value.b. Excess of total lease payments over the assumed acquisition costs is regarded as assumed interest payable and is allocated to

each period using the interest method.

LessorFuture minimum lease income under non-cancelable operating lease arrangements as of March 31, 2006 is ¥5 million ($43thousand) due within one year and ¥8 million ($68 thousand) due after one year.

Finance leases (without transfer of legal title) are accounted for as operating leases. Leased property, future lease income and,the related depreciation expense and lease income which were included in earnings under such finance leases are as follows:


2006 2005 2004 2006

Leased property:Machinery and other, at cost ........................................... ¥ 458 ¥ 474 ¥ 390 $ 3,915Less accumulated depreciation........................................ (288) (274) (220) (2,462)Net machinery and other .................................................. ¥ 170 ¥ 200 ¥ 170 $ 1,453

Depreciation expense............................................................... ¥ 109 ¥ 84 ¥ 73 $ 932Future lease income, exclusive of interest portion:

Within one year .................................................................... ¥ 81 ¥ 94 ¥ 64 $ 692After one year ....................................................................... 97 113 111 829Total ......................................................................................... ¥ 178 ¥ 207 ¥ 175 $ 1,521

Lease income, inclusive of interest portion...................... ¥ 113 ¥ 87 ¥ 77 $ 966Thereof interest portion (Note) ....................................... 4 3 3 34

Note: Interest portion is allocated to each period using the interest method.


20. SEGMENT INFORMATIONThe Company and its subsidiaries’ business segments are classified as “Electronics Related Products,” “AdvancedPerformance Products” and “Housing Equipment and Environmental Facilities.”

The main products of each business segment are provided on page 16 of this annual report.The reporting of information about business segments was redefined and those definitions have been continuously

adopted since fiscal 1999. However, recent changes in market conditions and customers have been followed by diversifi-cation of the uses and characteristics of the company's products.

Therefore, the Company changed its reportable business segments in a manner that can be evaluated more appropri-ately. In April 2005, the "Chemical-Related Products" segment was renamed the "Advanced Performance Products" seg-ment, and the Company transferred the product categories of Carbon Anode Material for Lithium Ion Batteries andElectromagnetic Interference Shielding Films for Plasma Display Panels from the "Chemical-Related Products" segmentto the "Electronics Related Products" segment.

As a result of these changes, the Company has reclassified business segment information of the prior period to con-form to the 2006 presentation.

Business segment information:Millions of yen

2006Housing

Electronics Advanced Equipment andRelated Performance EnvironmentalProducts Products Facilities Total Eliminations Consolidated

Sales to outside customers........................................... ¥272,739 ¥243,351 ¥86,613 ¥602,703 ¥ — ¥602,703Intersegment sales .......................................................... 1,403 368 207 1,978 (1,978) —

274,142 243,719 86,820 604,681 (1,978) 602,703Operating expenses ........................................................ 236,425 228,813 85,910 551,148 (2,278) 548,870Operating income ........................................................... ¥ 37,717 ¥ 14,906 ¥ 910 ¥ 53,533 ¥ 300 ¥ 53,833

Assets................................................................................... ¥209,489 ¥195,269 ¥40,725 ¥445,483 ¥(1,298) ¥444,185Depreciation and amortization of tangible and

intangible fixed assets .............................................. 11,752 12,761 2,687 27,200 — 27,200Additions to tangible and

intangible fixed assets .............................................. 17,125 19,074 2,488 38,687 — 38,687

Millions of yen

2005Housing


Sales to outside customers........................................... ¥246,445 ¥224,669 ¥84,454 ¥555,568 ¥ — ¥555,568Intersegment sales .......................................................... 1,210 1,186 333 2,729 (2,729) —

247,655 225,855 84,787 558,297 (2,729) 555,568Operating expenses ........................................................ 215,729 212,561 83,132 511,422 (2,764) 508,658Operating income ........................................................... ¥ 31,926 ¥ 13,294 ¥ 1,655 ¥ 46,875 ¥ 35 ¥ 46,910

Assets................................................................................... ¥185,441 ¥185,646 ¥41,862 ¥412,949 ¥(1,464) ¥411,485Depreciation and amortization of tangible and

intangible fixed assets .............................................. 11,583 11,455 2,866 25,904 — 25,904Additions to tangible and

intangible fixed assets .............................................. 15,166 15,547 2,446 33,159 — 33,159


2006Housing


Sales to outside customers .................................... $2,331,103 $2,079,923 $740,282 $5,151,308 $ — $5,151,308Intersegment sales.................................................... 11,991 3,146 1,769 16,906 (16,906) —

2,343,094 2,083,069 742,051 5,168,214 (16,906) 5,151,308Operating expenses.................................................. 2,020,727 1,955,667 734,273 4,710,667 (19,470) 4,691,197Operating income..................................................... $ 322,367 $ 127,402 $ 7,778 $ 457,547 $ 2,564 $ 460,111

Assets ......................................................................... $1,790,504 $1,668,966 $348,077 $3,807,547 $(11,094) $3,796,453Depreciation and amortization of tangible

and intangible fixed assets ............................... 100,445 109,068 22,966 232,479 — 232,479Additions to tangible and

intangible fixed assets........................................ 146,367 163,026 21,265 330,658 — 330,658


Geographic segment information:Millions of yen

2006Japan Asia Other areas Total Eliminations Consolidated

Sales to outside customers................................. ¥479,967 ¥ 98,651 ¥24,085 ¥602,703 ¥ — ¥602,703Intersegment sales ................................................ 56,982 9,820 2,486 69,288 (69,288) —

536,949 108,471 26,571 671,991 (69,288) 602,703Operating expenses............................................... 487,782 104,274 25,705 617,761 (68,891) 548,870Operating income.................................................. ¥ 49,167 ¥ 4,197 ¥ 866 ¥ 54,230 ¥ (397) ¥ 53,833

Assets......................................................................... ¥367,431 ¥ 78,609 ¥18,193 ¥464,233 ¥(20,048) ¥444,185

Millions of yen


Sales to outside customers................................. ¥463,900 ¥72,807 ¥18,861 ¥555,568 ¥ — ¥555,568Intersegment sales ................................................ 43,205 8,792 2,403 54,400 (54,400) —

507,105 81,599 21,264 609,968 (54,400) 555,568Operating expenses............................................... 464,729 77,579 20,514 562,822 (54,164) 508,658Operating income.................................................. ¥ 42,376 ¥ 4,020 ¥ 750 ¥ 47,146 ¥ (236) ¥ 46,910

Assets......................................................................... ¥355,719 ¥54,342 ¥15,156 ¥425,217 ¥(13,732) ¥411,485



Sales to outside customers................................. $4,102,282 $843,171 $205,855 $5,151,308 $ — $5,151,308Intersegment sales ................................................ 487,026 83,932 21,247 592,205 (592,205) —

4,589,308 927,103 227,102 5,743,513 (592,205) 5,151,308Operating expenses............................................... 4,169,077 891,231 219,701 5,280,009 (588,812) 4,691,197Operating income.................................................. $ 420,231 $ 35,872 $ 7,401 $ 463,504 $ (3,393) $ 460,111

Assets ...................................................................... $3,140,436 $671,872 $155,495 $3,967,803 $(171,350) $3,796,453

Overseas sales:Overseas sales, which include export sales of the Company and its domestic subsidiaries and sales (other than exports toJapan) of the foreign consolidated subsidiaries, are summarized as follows:


2006 2005 2004 2006Percentage of Percentage of Percentage ofconsolidated consolidated consolidated

Amount net sales Amount net sales Amount net sales Amount

Overseas sales:Asia .................................. ¥143,985 23.9% ¥110,432 19.9% ¥ 92,323 17.7% $1,230,641Other areas ..................... 40,327 6.7 34,544 6.2 34,277 6.6 344,675

¥184,312 30.6% ¥144,976 26.1% ¥126,600 24.3% $1,575,316

Consolidated net sales ..... ¥602,703 100.0% ¥555,568 100.0% ¥521,358 100.0% $5,151,308


The Board of DirectorsHitachi Chemical Co., Ltd.

We have audited the accompanying consolidated balance sheets of Hitachi Chemical Co., Ltd. and consolidated subsidiaries as

of March 31, 2006 and 2005, and the related consolidated statements of income, stockholders' equity, and cash flows for each

of the three years in the period ended March 31, 2006, all expressed in yen. These financial statements are the responsibility of

the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in Japan. Those standards require that we

plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material mis-

statement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial

statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as

well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our

opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial

position of Hitachi Chemical Co., Ltd. and consolidated subsidiaries at March 31, 2006 and 2005, and the consolidated results

of their operations and their cash flows for each of the three years in the period ended March 31, 2006, in conformity with

accounting principles generally accepted in Japan.

As discussed in Note 20 to the consolidated financial statements, Hitachi Chemical Co., Ltd. changed its segmentation of the

business.

The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the year ended March 31,

2006 are presented solely for convenience. Our audit also included the translation of yen amounts into U.S. dollar amounts

and, in our opinion, such translation has been made on the basis described in Note 2.

June 22, 2006


REPORT OF INDEPENDENT AUDITORS


MAJOR SUBSIDIARIES AND AFFILIATESAs of March 31, 2006

*Affiliate accounted for by the equity method

MANUFACTURINGShin-Kobe Electric Machinery Co., Ltd.Manufacturing and marketing of batteries andplastic products

Hitachi Powdered Metals Co., Ltd.Manufacturing and marketing of powderedmetal products

Hitachi AIC Inc.Manufacturing and marketing of printed wiringboards and capacitors

Hitachi Housetec Co., Ltd.Manufacturing and marketing of housingequipment and environmental facilities

Nikka Kaseihin Co., Ltd.Manufacturing and marketing of foamed styreneproducts

Japan Brake Industrial Co., Ltd.Manufacturing and marketing of friction materials

Hitachi Chemical Automotive Products Co., Ltd.Manufacturing and marketing of plastic automo-tive parts and molded synthetic resin products

Hitachi Kasei Polymer Co., Ltd.Manufacturing and marketing of adhesives and synthetic resin products

Namie Hitachi Chemical Co., Ltd.Manufacturing and marketing of carbon products

Hitachi Chemical Filtec Inc.Manufacturing and marketing of food-wrapping films

Hitachi Chemical Electronics Co., Ltd.Manufacturing of printed wiring boards

Hitachi Chemical Industrial Materials Co., Ltd.Manufacturing and marketing of traffic markingmaterials and molded synthetic resin products

Nippon Denkai, Ltd.*Manufacturing and marketing of metal foil

DH Material Inc.*Manufacturing and marketing of synthetic resinproducts

Hitachi Vehicle Energy, Ltd.*Developing and manufacturing of lithium ionbatteries for automobiles

INSTALLATION, TRADING, DESIGNAND SERVICE

Hitachi Kasei Shoji Co., Ltd.Marketing of Hitachi Chemical products

Nikka Equipment & Engineering Co., Ltd.Design and manufacturing of facilities andmachinery

Hitachi Kasei Business Service Co., Ltd.Outsourcing of training, education and other business servicesLeasing of office equipment

Nikka Techno Service Co., Ltd.Outsourcing of distribution, testing and otherbusiness services

MANUFACTURINGHitachi Chemical (Johor) Sdn. Bhd.Manufacturing and marketing of photosensitivedry films for printed wiring boards and electricalinsulating varnishes

Hitachi Chemical (Singapore) Pte. Ltd.Manufacturing and marketing of printed wiring boards

Hitachi Chemical (Dongguan) Co., Ltd.Manufacturing and marketing of photosensitivedry films for printed wiring boards and electricalinsulating varnishes

Hitachi Chemical (Suzhou) Co., Ltd.Manufacturing and marketing of epoxy moldingcompounds for semiconductor devices

Hitachi Chemical Co. (Taiwan) Ltd.Manufacturing and marketing of printed wiringboardsSlitting operation and marketing of photosensitivedry films for printed wiring boards

Hitachi Chemical Automotive Products(Thailand) Co., Ltd.Manufacturing and marketing of plasticautomotive parts

Hitachi Chemical (Malaysia) Sdn. Bhd.Manufacturing and marketing of epoxy molding compounds and die bonding materials forsemiconductor devices

Hitachi Chemical (Yantai) Co., Ltd.Slitting operation and marketing of photosensi-tive dry films for printed wiring boards

Bioclone Australia Pty Ltd.Manufacturing and marketing of diagnostic reagents

Hitachi Chemical Electronic Materials(Korea) Co., Ltd.Slitting operation and marketing of photosensitivedry films for printed wiring boards

Hitachi Powdered Metals (Dongguan) Co., Ltd.Manufacturing and marketing of powderedmetal products

Hitachi Battery (Dongguan) Co., Ltd.Manufacturing and marketing of batteries andelectric equipment

Foshan J.B. Automotive Products Co., Ltd.Manufacturing and marketing of friction materials

Hitachi Powdered Metals (Singapore) Pte. Ltd.Manufacturing and marketing of powderedmetal products

Xinyi Rihong Plastic Chemical Co., Ltd.Manufacturing and marketing of rosin derivatives

Hitachi Chemical (Shanghai) Co., Ltd.Slitting operation and marketing of photosensitivedry films for printed wiring boards, and anisotropic conductive films for displays

Japan Brake (Thailand) Co., Ltd.Manufacturing and marketing of friction materials

CSB Battery Co., Ltd.*Manufacturing and marketing of batteries andelectric equipment

Thai Sintered Products Co., Ltd.*Manufacturing and marketing of powderedmetal products

SALES AND SERVICEHitachi Chemical Co. (Hong Kong) Ltd.Marketing of Hitachi Chemical productsSlitting operation and marketing of photosensitivedry films for printed wiring boards

Hitachi Chemical Asia-Pacific Pte. Ltd.Marketing of Hitachi Chemical products

Hitachi Chemical International Co., (Taiwan) Ltd.Marketing of Hitachi Chemical products

MANUFACTURINGHitachi Chemical Diagnostics, Inc.Manufacturing and marketing of diagnostic reagents

Tri-Continent Scientific, Inc.Manufacturing and marketing of OEMliquid-handling products and instrumentcomponents

Sintering Technologies, Inc.Manufacturing and marketing of powderedmetal products

Hitachi Chemical DuPont MicroSystems L.L.C.*Manufacturing and marketing of polyimide materials for semiconductor devices

RESEARCHHitachi Chemical Research Center, Inc.R&D in biotechnology

SALES AND SERVICEHitachi Chemical Co. America, Ltd.Marketing of Hitachi Chemical products

SALES AND SERVICEHitachi Chemical Europe GmbHMarketing of Hitachi Chemical products

JAPAN ASIA & OCEANIA

U.S.A.

EUROPE

TECHNOLOGICAL AND BUSINESS FIELDS

The source of the technology platform of Hitachi Chemical, upon whichits new products and businesses are based, can be traced back to the fouroriginal products developed in the early years of Hitachi Chemical Co., Ltd.With this initial technology platform as its foundation, Hitachi Chemicalhas developed and commercialized a variety of advanced chemicalproducts, including semiconductor and display related materials, printedwiring boards (PWBs) and materials for PWBs, organic and inorganicchemical products, advanced functional films, automotive parts,diagnostics, and housing equipment and environmental facilities. Today,Hitachi Chemical uses the extensive technology platform it has built up,even introducing outside technologies as necessary, to develop newbusiness in fields that offer good potential for high growthand allow the Group to make the most of its technologicalstrengths, centered on the four key business fields of telecommunications & displays, energy, lifesciences and automobiles.

INVESTOR INFORMATIONAs of March 31, 2006

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000(Yen)

2,135

1,472

1999.4~2000.3

2000.4~2001.3

2001.4~2002.3

945

2,700

1,650

3,200

789

2,400

1,938

1,701

987810

2002.4~2003.3

2003.4~2004.3

2004.4~2005.3

2005.4 5 6 7 8 9 10 11 12 2006.1 2 3

1,7951,914 1,920

1,996

1,719

1,9682,135 2,075 2,060

1,868

2,3802,520

2,0002,155

2,850

3,720

2,500

3,140

2,770

3,030

3,790

3,460

2,920 2,990

Hitachi Chemical Company, Ltd.

Head Office: Shinjuku-Mitsui Building 1-1, Nishi-Shinjuku 2-chome Shinjuku-ku, Tokyo 163-0449, JapanPhone: 81-3-3346-3111Fax: 81-3-3346-2977

Established: October 10, 1962

Paid-in Capital: ¥15,367 million

Number of Employees: 3,340

Common Stock: Authorized: 800,000,000 sharesIssued: 207,358,608 shares

Number of Shareholders: 13,437

Annual GeneralShareholders’ Meeting: June

Stock Exchange Listings: Tokyo, Osaka (Ticker Symbol Number: 4217)

Independent Auditor: Ernst & Young ShinNihon

Transfer Agent andRegistrar: Tokyo Securities Transfer Agent Co., Ltd.

Togin Building, Third Floor4-2, Marunouchi 1-chomeChiyoda-ku, Tokyo 100-0005, JapanPhone: 81-3-3212-4611

Investor Relations Contact: Corporate Planning OfficePublic and Investor Relations GroupHitachi Chemical Company, Ltd.Shinjuku-Mitsui Building1-1, Nishi-Shinjuku 2-chomeShinjuku-ku, Tokyo 163-0449, JapanPhone: 81-3-5381-2370Fax: 81-3-5381-3023

URL: www.hitachi-chem.co.jp

Stock Price Range (Tokyo Stock Exchange):


HITA

CH

IC

HEM

ICA

LC

O.,LTD

.A

NN

UA

LR

EPOR

T2006

Innovative,Focusedand Global

Hitachi Chemical Co., Ltd. (the “Company”) was established in 1962 and began operations in 1963

with the transfer of the business assets of the Chemical Products Division of Hitachi, Ltd. Since then,

based on the extensive technology platform it has accumulated over many years, the Company has

continuously worked to expand its field of operations, developing innovative technologies and new

markets as a chemical manufacturer engaged in a wide range of areas, including Electronics Related

Products, Advanced Performance Products, and Housing Equipment and Environmental Facilities.

As a “Technologically Innovative Corporation” that provides optimal solutions to its customers, Hitachi

Chemical and its consolidated subsidiaries (“Hitachi Chemical” or the “Group”) are combining and

harmonizing the superior technologies they have accumulated over the years in order to maximize the

values of the Group and contribute to a more prosperous society while maintaining a strong commitment

to protecting the environment.

PROFILE

FORWARD-LOOKING STATEMENTSThis Annual Report may contain certain statements that Hitachi Chemical believesare, or may be considered to be, “forward-looking statements.” These forward-looking statements generally include phrases such as “believe,” “expect,” “antici-pate,” “plan,” “foresee,” or other similar words or phrases. Similarly, statementsthat describe our objectives, plans, or goals are also forward-looking statements.All of these forward-looking statements are subject to certain risks and uncertain-ties that could cause our actual results to differ materially from those contem-plated by the relevant forward-looking statements. Please see “Business and OtherRisks” in the Management’s Discussion and Analysis of Operations and Finances.

Hitachi Chemical discloses information about itsactivities in various annual publications.

Disclosure of Management and BusinessStrategies and Related Financial DataPrimarily for shareholders and investors, the annualreport explains management, business and financialconditions of the previous fiscal year, as well as medium-term management and business policies.

ANNUAL REPORT

CONTENTS

Financial Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1To Our Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2Feature: Innovative, Focused and Global . . . . . . . . . . . . . 5Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12Board of Directors and Executive Officers . . . . . . . . . . . . 15Hitachi Chemical at a Glance . . . . . . . . . . . . . . . . . . . . . . . . 16Review of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18Financial Section

Six-Year Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24Management’s Discussion and Analysis of

Operations and Finances . . . . . . . . . . . . . . . . . . . . . . 25Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . 30Consolidated Statements of Income . . . . . . . . . . . . . 32Consolidated Statements of Stockholders’ Equity . . . 33Consolidated Statements of Cash Flows . . . . . . . . . . 34Notes to Consolidated Financial Statements . . . . . 35Report of Independent Auditors . . . . . . . . . . . . . . . . . . 47

Major Subsidiaries and Affiliates . . . . . . . . . . . . . . . . . . . . . 48Investor Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49

Disclosure of Information on Fulfilling CorporateSocial Responsibility (CSR)For all stakeholders, the sustainability report explainspolicies and details of the previous fiscal year’s activi-ties related to corporate social responsibilities, includ-ing environmental initiatives, social contribution,worker safety, corporate ethics and compliance.

SUSTAINABILITY REPORT

Disclosure of Information on R&D andIntellectual PropertyExplains policies on topics including HitachiChemical’s technology platform, R&D policies, andacquisition and maintenance of intellectual property,as well as R&D initiatives and trends in patent appli-cations and retention.

INTELLECTUAL PROPERTY REPORT

This annual report was printed on100% recycled paper. Printed in Japan

2006Year ended March 31, 2006

A n n u a l R e p o r t

Hitachi Chemical

2006Hitachi Chemical

Intellectual Property Report

profile - hitachi-chem.co.jp · 2.1 2.9 6.4 7.4 0.7 net sales by business segment (2006) 14.4%...

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