Nippon kayaku fy2010_results

Summary of Consolidated Financial Results [Japanese GAAP] for the Fiscal Year Ended May 31, 2011

June 30, 2011

Listed company: Nippon Kayaku Co., Ltd. (URL http://www.nipponkayaku.co.jp/) Code No.: 4272 Listed stock exchange: Tokyo Stock Exchange, First Section Representative: (Position) President, (Name) Akira Mandai Person in charge of inquiries: (Position) Member of the Board, Head of Financial Group, (Name) Ryoichi Araki Scheduled date of ordinary general meeting of shareholders: August 30, 2011 Scheduled date for start of dividend payments: August 30, 2011 1. Consolidated Business Results for Fiscal Year Ended May 2011 (June 1, 2010–May 31, 2011)

(Figures shown are rounded down to the nearest million yen.) (1) Consolidated Operating Results

(Percentages indicate amount of change from the same period in the previous fiscal year.)

Net sales Operating income Ordinary income Net income Millions of yen % Millions of yen % Millions of yen % Millions of yen %

Fiscal year ended May 31, 2011 148,879 5.6 20,829 30.2 20,282 26.4 13,004 31.7

Fiscal year ended May 31, 2010 141,032 5.0 15,995 70.8 16,052 98.8 9,871 165.5

Note: Comprehensive income Fiscal year ended May 31, 2011 11,741 million yen (14.8%) Fiscal year ended May 31, 2010 – million yen (–%)

Net income per share

Diluted net incomeper share Return on equity

Ordinary income to

total assets ratio

Operating income to

net sales ratio Yen Yen % % %

Fiscal year ended May 31, 2011 71.70 – 10.5 9.9 14.0

Fiscal year ended May 31, 2010 54.39 54.39 8.4 7.9 11.3

Note: Equity consists of shareholders’ equity and valuation and translation adjustments. Reference: Equity in earnings of non-consolidated subsidiaries and affiliated companies

Fiscal year ended May 31, 2011: 298 million yen Fiscal year ended May 31, 2010: 97 million yen

(2) Consolidated Financial Position

Total assets Net assets Equity ratio Net assets per share Millions of yen Millions of yen % Yen

As of May 31, 2011 205,110 135,796 62.3 704.57

As of May 31, 2010 202,641 127,829 59.4 663.88Reference: Equity As of May 31, 2011: 127,752 million yen

As of May 31, 2010: 120,441 million yen

This document is an English translation of parts of the Japanese-language original. All financial information has been prepared in accordance with generally accepted accounting principles in Japan.

(3) Status of Consolidated Cash Flows

Cash flows from operating activities

Cash flows from investing activities

Cash flows from financing activities

Cash and cash equivalents at

end of year Millions of yen Millions of yen Millions of yen Millions of yen

Fiscal year ended May 31, 2011 18,969 (7,132) (5,992) 41,304

Fiscal year ended May 31, 2010 20,284 (5,817) (13,590) 35,813 2. Status of Dividends

Dividend amount per share Total dividend payment

(year)

Dividend payout ratio

(consolidated)

Dividend payout to net assets ratio

(consolidated)

End of first

quarter

End of second quarter

End of third

quarter

End of year Year

Yen Millions of yen % %

Fiscal year ended May 31, 2010 – 10.00 – 10.00 20.00 3,629 36.8 3.1

Fiscal year ended May 31, 2011 – 10.00 – 10.00 20.00 3,627 27.9 2.9

Fiscal year ending May 31, 2012 (forecast)

– 10.00 – 10.00 20.00 27.9

3. Consolidated Business Results Forecast for Fiscal Year Ending May 2012 (June 1, 2010–May 31, 2011)

(Percentages indicate amount of change from the same period in the previous fiscal year.)

Net sales Operating income Ordinary income Net income Net income per share

Millions of

yen % Millions of yen % Millions of

yen % Millions of yen % Yen

First half 78,000 5.5 10.500 (0.6) 11,000 10.8 6.000 24.8 33.09

Full year 162,000 8.8 22,500 8.0 23,000 13.4 13,000 (0.0) 71.70



4. Other (1) Major changes in subsidiaries occurring during the fiscal period (changes in designated subsidiaries that involve

changes in scope of consolidation): None

(2) Changes to accounting principles, procedures, methods of notation, or other items related to creation of the consolidated financial statements (listed as changes to major items that form the basis for creation of the consolidated financial statements)

[1] [2]

Changes involving revision of accounting standards or similar items: Yes Changes other than [1]: None

(3) Number of shares issued (common stock) [1] Number of shares issued at end of year (including treasury stock) As of May 31, 2011: 182,503,570 shares

As of May 31, 2010: 182,503,570 shares [2] Number of treasury stock shares at end of year As of May 31, 2011: 1,182,975 shares

As of May 31, 2010: 1,083,291 shares [2] Average number of shares during the fiscal period Fiscal year ended May 31, 2011: 181,371,479 shares

Fiscal year ended May 31, 2010: 181,479,723 shares Reference: Overview of Non-consolidated Business Results 1. Non-consolidated Business Results for the Year Ended May 2011 (June 1, 2010–May 31, 2011) (1) Non-consolidated operating results

(Percentages indicate amount of change from the previous fiscal year.)

Net sales Operating income Ordinary income Millions of yen % Millions of yen % Millions of yen %

Fiscal year ended May 31, 2011 105,292 2.1 14,914 13.7 15,822 16.7

Fiscal year ended May 31, 2010 103,086 6.0 13,116 52.7 13,563 51.3

Net income Net income per share Diluted net income per share

Millions of yen % Yen Yen

Fiscal year ended May 31, 2011 9,386 2.3 51.75 —

Fiscal year ended May 31, 2010 9,177 50.1 50.57 — (2) Non-consolidated Financial Position

Total assets Net assets Equity ratio Net assets per share Millions of yen Millions of yen % Yen

As of May 31, 2011 164,662 110,937 67.4 611.81

As of May 31, 2010 163,219 105,587 64.7 581.99Reference: Equity As of May 31, 2011: 110,937 million yen

As of May 31, 2010: 105,587 million yen * Explanation related to appropriate use of the business results forecast and other notes

The forecast above is based on information that was obtainable and on assumptions pertaining to uncertain factors that can affect future business results, as of the date this report was announced. The actual business results may vary greatly due to a variety of future factors. For details on the business results forecasts, refer to “1. Operating Results” > “(1) Analysis Related to the Operating Results” > “(Forecast for the Next Fiscal Year)” on page 3 of the Supplemental Information.

Nippon Kayaku Co., Ltd.



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Supplemental Information Table of Contents 1. Operating Results (1) Analysis Related to the Operating Results 2 (2) Analysis Related to the Financial Position 3 (3) Basic Policy Concerning Profit Dividends and Dividends for Fiscal year ended May 31,

2011 and Fiscal Year ending May 31, 2012 5

2. Consolidated Financial Statements (1) Consolidated Balance Sheets 6 (2) Consolidated Profit and Loss Statement and Consolidated Comprehensive Income Statement 8 (3) Consolidated Statement of Changes in Shareholders’ Equity 10 (4) Consolidated Statement of Cash Flows 12 (5) Notes Concerning Going Concern Assumption 14 (6) Segment Information 14




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1. Operating Results (1) Analysis Related to the Operating Results The Japanese economy during the fiscal year ended May 31, 2011 began to emerge from its period of stagnation, supported by exports to China and other emerging nations. However the future remains uncertain as a result of factors including a reduction in corporate production activities due to concerns over the high value of the yen, and the effects of the Great East Japan Earthquake.

In industries such as semiconductors and electrical and electronic devices, steady growth—particularly in China and other emerging nations—aided our company’s growth and improved the business results for the Group.

In the pharmaceuticals industry, with the downward revision of drug prices in April 2010, trends toward restricting drug prices are growing in strength, and the global competition for research, development, and sales of new drugs is becoming increasingly fierce. In many ways, the struggle for survival between companies is becoming increasingly intense.

Domestic sales in the automobile industry were largely affected by the end of the eco-car subsidy and the disruption of the supply chain caused by the Great East Japan Earthquake. In contrast, the market for overseas sales is growing due to growth in China and other emerging nations, as well as other factors.

Under these conditions, the Nippon Kayaku Group launched Phase I of its three-year mid-term business plan, working for the optimal allocation of business resources to key business areas, strengthening our overseas operations, reinforcing the profit structure, further reducing costs, refining our product lineup, and optimizing our production sites.

The Great East Japan Earthquake did not result in injuries to personnel, serious damage to production equipment, or similar problems in the Nippon Kayaku Group. The effect on the business results during this fiscal year was limited.

As a result of the above, and due to growth in the functional chemicals business and strong performance by the pharmaceuticals business and safety systems business, consolidated sales for this fiscal year were 148.879 billion yen, an increase of 7.846 billion yen (5.6%) from the previous fiscal year.

Consolidated operating income increased by 4.834 billion yen (30.2%) to reach 20.829 billion yen due to greatly expanded sales in the functional chemicals business and to reductions in costs.

Consolidated ordinary income was 20.282 billion yen, an increase of 4.230 billion yen (26.4%) from the previous fiscal year.

Consolidated net income was 13.004 billion yen, an increase of 3.133 billion yen (31.7%) from the previous fiscal year.

Compared to our company’s business results, consolidated sales in the Nippon Kayaku Group for this fiscal year were 1.41 times that of the company on its own, while consolidated net income was 1.39 that of the company on its own. Performance by business segment is as described below. [1] Functional chemicals business In the functional chemicals business, although sales of epoxy resins for semiconductor encapsulation were affected by customer production adjustments, results overall were on approximately the same level as the previous fiscal year. Sales of UV-curing resins were down from the level of the previous fiscal year, and sales for the functional materials business as a whole were also down.

In the electronic materials business, sales of resins for optical disks, colors for inkjet printers, and films for plasma displays were higher than the previous fiscal year. At Polatechno, sales of polarizing films for LCD displays were strong and exceeded the level from the previous fiscal year. Sales for the electronic materials business as a whole also exceeded the level from the previous fiscal year.

In the catalysts business, there was a recovery in demand for catalysts used in the production of acrylic acid, and sales were higher than the previous fiscal year.

In the color chemicals business, sales exceeded the level from the previous fiscal year due to strong sales of textile dyes.

As a result of the above, sales in the functional chemicals business were 71.759 billion yen (up 11.6% from the previous fiscal year), and segment income was 12.116 billion yen (up 45.1% from the previous fiscal year). [2] Pharmaceuticals business In the area of anti-cancer drugs for the Japanese domestic market, sales of “BICALUTAMIDE Tab. NK,” “PACLITAXEL Inj. NK,” and “CARBOPLATIN Intravenous Inj. NK” were strong and exceeded the levels of the previous fiscal year. On the other hand, the effects of competitor products and other factors resulted in lower sales of “arterial-injection IA CALL” and “RANDA Inj.” compared with the previous fiscal year. Sales of pharmaceutical products for the Japanese domestic market as a whole were higher than the previous fiscal year.

In the area of exports, sales of “BLEO” (anti-cancer drug) were lower than the previous fiscal year, and exports as a whole were lower.




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In the area of active pharmaceutical ingredients for the Japanese domestic market, sales of raw materials for drugs were strong, and sales of active pharmaceutical ingredients for the Japanese domestic market as a whole also exceeded the level of the previous fiscal year.

As a result of the above, sales were 50.339 billion yen (up 1.3% from the previous fiscal year) and segment income was 10.544 billion yen (up 4.5% from the previous fiscal year). [3] Safety systems business Due to the effects of the Great East Japan Earthquake, there was a sharp decline in domestic sales and exports from Japan during the fourth quarter. However as a result of increased sales of airbag inflators in China, sales for the fiscal year were higher than in the previous fiscal year. Sales of micro gas generators for seatbelt pretensioners were down from the previous fiscal year.

As a result of the above, sales were 17.918 billion yen (up 1.4% from the previous fiscal year) and segment income was 1.063 billion yen (up 174.2% from the previous fiscal year). [4] Others In the agrochemicals business, both domestic sales and exports were down from the previous fiscal year.

Sales in real estate and other businesses were also down from the previous fiscal year. As a result of the above, sales in other businesses were 8.862 billion yen (down 5.5% from the previous fiscal

year) and segment income was 2.273 billion yen (down 0.6% from the previous fiscal year). (Forecast for the Next Fiscal Year) It is expected that uncertain conditions will continue for the Japanese economy due to factors including uncertainty in the future of the global economy, changes in the exchange rate, and the adverse economic effects of the Great East Japan Earthquake. Under these conditions, the Nippon Kayaku Group will construct a solid financial structure that can adapt to changes in the business environment, accelerate our entry into new growth markets, and work to increase profits. The strategy for each business segment is described below. • In the functional chemicals business, we will further refine the strengths of our existing business and take steps to

reinforce the profit structure while conducting R&D related to next-generation materials for environmental and energy-saving purposes.

• In the pharmaceuticals business, we will work to expand sales of generic pharmaceuticals and proceed with development of anti-cancer biosimilar drugs and polymer micelle DDS anti-cancer drugs.

• In the safety systems business, we will conduct global business expansion focused on the China market where growth is expected.

Sales for the fiscal year ending May 31, 2012 are expected to be 162.0 billion yen (up 8.8% year-on-year). Operating income is expected to be 22.5 billion yen (up 8.0% year-on-year). Ordinary income is expected to be 23.0 billion yen (up 13.4% year-on-year), and net income is expected to be 13.0 billion yen (down 0.0% year-on-year).

The exchange rate is forecast to be 82 yen/USD. (2) Analysis Related to the Financial Position [1] Status of Assets, Liabilities, and Net Assets Assets increased by 2.468 billion yen from the previous fiscal year to reach 205.110 billion yen. The primary increases were 4.485 billion yen in securities and 5.157 billion yen in advance payments. The primary decreases were 3.386 billion yen in deferred tax assets and 1.084 billion yen in tangible fixed assets.

Liabilities decreased by 5.499 billion yen from the previous fiscal year to become 69.313 billion yen. The primary decreases were 1.758 billion yen in loans payable, 1.162 billion yen in the allowance for employee retirement benefits, and 864 million yen in long-term deposits payable. The primary increase was 400 million yen in accrued expenses.

Net assets increased by 7.967 billion yen from the previous fiscal year to reach 135.796 billion yen. The primary increases were 13.004 billion yen in net income and 656 million yen in minority interests. The primary decreases were 3.628 billion yen for payment of dividends, 1.653 billion yen for translation adjustments, and 328 million yen for net unrealized holding gains on other securities.




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[2] Cash Flows Status (Unit: Million yen)

Fiscal year ended May 31, 2010


Comparative Change

Cash flows from operating activities 20,284 18,969 (1,314)

Cash flows from investing activities (5,817) (7,132) (1,315)

Cash flows from financing activities (13,590) (5,992) 7,598

Cash and cash equivalents at end of year 35,813 41,304 5,491 Net cash provided by operating activities amounted to 18.969 billion yen. (Net cash provided during the previous fiscal year was 20.284 billion yen.) Despite corporate tax payments of 4.214 billion yen, an increase in advance payments for raw materials of 5.153 billion yen, and a gain of 2.145 billion yen on reversal of foreign currency translation adjustments resulting from the completed liquidation of a US subsidiary, this positive cash flow was the result of net income before taxes and minority interests of 21.308 billion yen and depreciation and amortization of 9.029 billion yen.

Net cash expended in investing activities totaled 7.132 billion yen. (Net cash expended during the previous fiscal year was 5.817 billion yen.) Despite income of 800 million yen resulting from sales of stocks of subsidiaries and affiliates, this result was primarily due to payments of 8.110 billion yen for the purchase of tangible fixed assets.

Net cash expended in financing activities was 5.992 billion yen. (Net cash expended during the previous fiscal year was 13.590 billion yen.) Despite income of 5.0 billion yen from long-term loans, this was primarily due to payments of 5.794 billion yen for repayment of long-term loans, a 3.615 billion yen payment of dividends, and a 985 million yen repayment of the construction cooperation fund.

As a result of the above, the balance of cash and cash equivalents at the end of this fiscal year was 41.304 billion yen, an increase of 5.491 billion yen from the end of the previous fiscal year. Reference: Trends in Cash Flow Indicators

Fiscal year ended May

2007


2008


2009


2010


2011 Equity ratio (%) 56.7 57.2 56.0 59.4 62.3 Market-value-based equity ratio (%) 82.0 61.6 52.4 66.1 67.5

Ratio of cash flow to interest-bearing liabilities (years)

1.1 1.4 1.9 1.4 1.4

Interest coverage ratio 37.2 31.7 37.4 39.6 52.7 Equity ratio: Equity divided by total assets Market-value-based equity ratio: Total market value of shares divided by total assets Ratio of cash flow to interest-bearing liabilities: Interest-bearing debt divided by operating cash flow Interest coverage ratio: Operating cash flows divided by interest payments Note 1: Each indicator is calculated using consolidation-based financial figures.

2: The total market value of shares is calculated as follows: Stock closing price at end of year × No. of issued shares at end of year (after deduction of treasury stock).

3: Operating cash flows makes use of the cash flows from operating activities 4: Interest-bearing debt includes all liabilities declared in the Consolidated Balance Sheets on which

interest is paid.




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(3) Basic Policy Concerning Profit Dividends and Dividends for Fiscal year ended May 31, 2011 and Fiscal Year ending May 31, 2012

At Nippon Kayaku, we have long concentrated on returning profits to all our shareholders. In order to further clarify this policy, the payment of dividends has been linked to the consolidated performance results for each year. With consideration for stable and continuing profit returns and for the level of internal profit retention, we have established a mid-range target of 40% of consolidated net income as the dividend payout ratio. However, this figure will be adjusted as necessary if any special variable factors occur. Profits retained by the company will be allocated to capital investment, research and development, and other needs for growth fields, in order to raise the value of the company.

The year-end dividend for the fiscal year ended May 31, 2011 is expected to be 10 yen per share. Together with the second quarter dividend, this results in an annual dividend of 20 yen per share.

The expected dividends for the fiscal year ending May 31, 2012 are 10 yen per share for the second quarter dividend and 10 yen per share for the year-end dividend. The result is expected to be a continued annual dividend of 20 yen per share.




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2. Consolidated Financial Statements (1) Consolidated Balance Sheets

As of May 31, 2010 As of May 31, 2011 Millions of yen

Assets Current assets

Cash and savings 17,427 18,427Notes and accounts receivable 47,181 46,945Marketable securities 18,512 22,998Merchandise and products 16,342 15,515Work in process 1,927 2,088Raw materials and stores 6,886 7,043Deferred tax assets 6,068 2,682Other 3,371 7,468Allowance for doubtful receivables (145) (36)Total current assets 117,572 123,132

Fixed assets Tangible fixed assets

Buildings and structures, net 31,800 31,372Machinery and transport equipment, net 15,957 14,632Land 7,898 7,852Construction in progress 4,000 4,804Other, net 1,980 1,891Total tangible fixed assets 61,637 60,553

Intangible fixed assets Goodwill 1,835 1,423Other 2,442 2,248Total intangible fixed assets 4,277 3,671

Investments and other assets Investment securities 13,896 13,323Long-term loans receivable 2,283 1,856Long-term prepaid expenses 1,089 820Deferred tax assets 315 329Other 1,255 1,209Allowance for doubtful receivables (110) (88)Total investments and other assets 18,730 17,451

Total fixed assets 84,646 81,676Deferred assets

Start-up costs 422 301Total deferred assets 422 301

Total assets 202,641 205,110




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As of May 31, 2010 As of May 31, 2011 Millions of yen

Liabilities Current liabilities

Notes and accounts payable 14,531 14,262Short-term loans payable 12,147 10,917Accrued amount payable 6,782 6,917Accrued expenses 4,740 5,141Corporation tax payable 2,055 1,633Accrued income taxes 0 0Allowance for sales returns 44 26Allowance for rebates 379 393Allowance for directors’ bonuses 204 257Reserve for loss on liquidation of subsidiaries and affiliates 566 –

Notes payable-facilities 38 0Other 1,457 1,343Total current liabilities 42,947 40,893

Fixed liabilities Long-term loans payable 11,672 11,143Deferred tax liabilities 3,128 2,594Allowance for employee retirement benefits 4,584 3,421Allowance for directors’ retirement benefits 41 33Allowance for repairs 783 702Long-term deposits payable 10,363 9,499Negative goodwill 643 490Other 646 534Total fixed liabilities 31,864 28,419

Total liabilities 74,812 69,313Net assets

Shareholders’ equity Common stock 14,932 14,932Capital surplus 17,264 17,265Retained earnings 88,613 97,990Treasury stock (713) (797)Total shareholders’ equity 120,097 129,391

Accumulated other comprehensive income Net unrealized holding gains on other securities 460 131Translation adjustments (116) (1,769)Total accumulated other comprehensive income 343 (1,638)

Minority interests 7,387 8,044Total net assets 127,829 135,796

Total liabilities and net assets 202,641 205,110




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(2) Consolidated Profit and Loss Statement and Consolidated Comprehensive Income Statement Consolidated Profit and Loss Statement



Millions of yen Net sales 141,032 148,879Cost of sales 84,974 88,187Gross profit on sales 56,058 60,692Reversal of allowance for sales returns 41 44Provision of allowance for sales returns 44 26Net gross profit 56,055 60,709Selling, general, and administrative expenses

Selling expenses 19,683 20,165General and administrative expenses 20,376 19,714Total selling, general, and administrative expenses 40,060 39,880

Operating income 15,995 20,829Non-operating income

Interest income 148 94Dividend income 316 308Amortization of negative goodwill 119 152Equity in earnings of affiliates 97 298Insurance dividends received 67 161Other miscellaneous income 744 923Total non-operating income 1,495 1,939

Non-operating expenses Interest expense 484 358Exchange loss 437 1,452Other miscellaneous losses 516 675Total non-operating expenses 1,438 2,486

Ordinary income 16,052 20,282Extraordinary income

Income on sale of fixed assets 849 394Reversal of foreign currency translation adjustments – 2,145Total extraordinary income 849 2,540

Extraordinary loss Fixed asset disposal loss 671 979Loss on valuation of investment securities 2,148 169Loss on disaster – 298Loss on adjustment for changes of accounting standard for asset retirement obligations – 68

Impairment loss 2,366 –Provision of reserve for loss on liquidation of subsidiaries and affiliates 614 –

Total extraordinary loss 5,802 1,514Net income before income taxes and minority interest 11,099 21,308Corporation tax, inhabitant tax, and business tax 4,033 3,749Income taxes deferred (3,216) 3,630Total income taxes 816 7,379Income before minority interests – 13,928Minority interests in income/(loss) 412 924Net income 9,871 13,004




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Consolidated Comprehensive Income Statement



Millions of yen Income before minority interests – 13,928Other comprehensive income

Unrealized holding gains on other securities – (321)Translation adjustments – (1,858)Share of other comprehensive income of associates accounted for using equity method – (7)

Total other comprehensive income – (2,187)Comprehensive income – 11,741

Comprehensive income attributable to: Owners of the parent company – 11,022Minority interests – 718




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(3) Consolidated Statement of Changes in Shareholders’ Equity



Millions of yen Shareholders’ equity

Common stock Balance at end of the previous fiscal year 14,932 14,932Changes during the fiscal year

Total changes during the fiscal year – －

Balance at end of the fiscal year 14,932 14,932Capital surplus

Balance at end of the previous fiscal year 17,263 17,264Changes during the fiscal year

Disposal of treasury stock 1 0Total changes during the fiscal year 1 0

Balance at end of the fiscal year 17,264 17,265Retained earnings


Dividends paid (3,630) (3,628)Net income 9,871 13,004Total changes during the fiscal year 6,240 9,376

Balance at end of the fiscal year 88,613 97,990Treasury stock

Balance at end of the previous fiscal year (623) (713)Changes during the fiscal year

Acquisition of treasury stock (96) (85)Disposal of treasury stock 6 2Total changes during the fiscal year (90) (83)

Balance at end of the fiscal year (713) (797)Total shareholders’ equity


Dividends paid (3,630) (3,628)Net income 9,871 13,004Acquisition of treasury stock (96) (85)Disposal of treasury stock 7 2Total changes during the fiscal year 6,151 9,293

Balance at end of the fiscal year 120,097 129,391




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Millions of yen Accumulated other comprehensive income

Unrealized holding gains on other securities Balance at end of the previous fiscal year 45 460Changes during the fiscal year

Net change in items other than shareholders’ equity 414 (328)

Total changes during the fiscal year 414 (328)Balance at end of the fiscal year 460 131

Translation adjustments Balance at end of the previous fiscal year 214 (116)Changes during the fiscal year

Net change in items other than shareholders’ equity (331) (1,653)

Total changes during the fiscal year (331) (1,653)Balance at end of the fiscal year (116) (1,769)

Total accumulated other comprehensive income Balance at end of the previous fiscal year 260 343Changes during the fiscal year

Net change in items other than shareholders’ equity 83 (1,981)

Total changes during the fiscal year 83 (1,981)Balance at end of the fiscal year 343 (1,638)

Minority interests Balance at end of the previous fiscal year 11,605 7,387Changes during the fiscal year

Net change in items other than shareholders’ equity (4,217) 656Total changes during the fiscal year (4,217) 656

Balance at end of the fiscal year 7,387 8,044Total net assets


Dividends paid (3,630) (3,628)Net income 9,871 13,004Acquisition of treasury stock (96) (85)Disposal of treasury stock 7 2Net change in items other than shareholders’ equity (4,134) (1,325)Total changes during the fiscal year 2,017 7,967

Balance at end of the fiscal year 127,829 135,796




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(4) Consolidated Statement of Cash Flows



Millions of yen Cash flows from operating activities

Net income before income taxes 11,099 21,308Depreciation and amortization 10,028 9,029Impairment loss 2,366 –Increase (decrease) in reserve allowance 216 (1,723)Interest and dividend income (465) (402)Interest expense 484 358Exchange loss (gain) 308 897Equity in (earnings) losses of affiliates (97) (298)Loss (gain) on sale of tangible fixed assets (849) (394)Loss (gain) on disposal of tangible fixed assets 671 979Loss (gain) on sale of investment securities (3) (2)Loss (gain) on valuation of investment securities 2,148 169Loss (gain) on sales of stocks of subsidiaries and affiliates (0) –

Loss (gain) on reversal of foreign currency translation adjustments – (2,145)

(Increase) decrease in notes and accounts receivable (3,220) (117)(Increase) decrease in inventory assets (1,722) 153(Increase) decrease in prepaid expenses (229) (41)(Increase) decrease in accrued revenue 292 (384)(Increase) decrease in advance payments – (5,153)Increase (decrease) in notes and accounts payable 2,364 (2)Increase (decrease) in accrued amount payable 134 (123)Increase (decrease) in accrued expenses 680 130Other 718 713Subtotal 24,928 22,948Interest and dividends received 578 588Interest paid (512) (360)Income tax paid (5,041) (4,214)Income tax refund 332 7Net cash provided by operating activities 20,284 18,969




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Millions of yen Cash flows from investing activities

Purchase of time deposits (121) (0)Proceeds from repayment of time deposits 97 1Purchase of tangible fixed assets (6,786) (8,110)Proceeds from sales of tangible fixed assets 976 414Purchase of intangible fixed assets (97) (330)Purchase of securities (1,499) (2,997)Proceeds from redemption of securities 1,499 2,997Purchase of investment securities (47) (15)Proceeds from sales of investment securities 55 24Proceeds from sales of stocks of subsidiaries and affiliates 800 800

Payments for long-term loans receivable (95) –Payments for long-term prepaid expenses (80) (54)Removal loss of fixed assets (214) (413)Purchase of investments in subsidiaries (256) –(Increase) decrease in short-term loans receivable (115) 243Other 67 306Net cash used in investing activities (5,817) (7,132)

Cash flows from financing activities Increase (decrease) in short-term loans payable, net (1,350) (345)Proceeds from long-term loans payable 1,500 5,000Repayment of long-term loans (5,325) (5,794)Repayment of construction cooperation fund (985) (985)Purchase of treasury stock of subsidiaries in consolidation (3,463) –

Dividends paid (3,616) (3,615)Dividends paid to minority shareholders (219) (114)Other (129) (136)Net cash provided by financing activities (13,590) (5,992)

Effect of exchange rate changes on cash and cash equivalents (124) (352)

Increase (decrease) in cash and cash equivalents 751 5,491Cash and cash equivalents at beginning of year 35,061 35,813Cash and cash equivalents at end of year 35,813 41,304




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(5) Notes Concerning Going Concern Assumption No items to report

(6) Segment Information a. Segment information by type of business Fiscal year ended May 31, 2010 (June 1, 2009–May 31, 2010)

Functional chemicals business

Pharma-ceuticals business

Safety systems business

Other businesses Total

Elimina-tions and corporate

Consoli-dated

Millions of yen I. Sales and operating

income (loss):

Sales Sales to third parties 64,299 49,692 17,665 9,375 141,032 – 141,032

Intersegment sales and transfers 54 18 – 27 100 (100) –

Total 64,354 49,710 17,665 9,402 141,133 (100) 141,032 Operating expenses 56,005 39,620 17,277 7,116 120,019 5,018 125,037 Operating income 8,348 10,090 387 2,286 21,113 (5,118) 15,995II.

Asset, depreciation, and capital expenditures:

Total assets 70,484 43,823 23,324 21,766 159,400 43,241 202,641

Depreciation and amortization 3,902 2,425 2,439 841 9,609 419 10,028

Impairment loss – – 2,366 – 2,366 – 2,366 Capital expenditures 2,693 2,333 1,510 326 6,863 169 7,033

Note 1: The business segments are based on the sales summary classification. Note 2: Primary products in each segment

Business segment Sales segment Primary products Functional chemicals business

Functional materials

Epoxy resins, Epoxy resin curers, Combustion retardants for synthetic resins, UV-curing type resins, Polyimide/polyamide resins, Advanced chemicals

Electronic materials

Components for LCD displays, LCD projector components, Components for X-ray analysis systems, Functional films, Resins for optical disks, Sealants for LCD displays, Resist for MEMS, Functional colors, Colors for inkjet printers, Thermal developers

Catalysts Catalysts for the production of acrylic acid and methacrylic acid, Plant licensing business

Color chemicals Disperse dyes, Cationic dyes, Acidic dyes, Reactive dyes, Direct dyes, Sulfur dyes, Fluorescent dyes, Functional chemicals for textiles and paper, Special dyes for non-textile applications

Pharmaceuticals business

Pharmaceuticals Anti-cancer agents, Neurological agents, Circulatory system agents, Digestive system agents, Vitamin compounds and other metabolic agents, Radiopharmaceuticals, Chemotherapeutics, Anti-inflammatory analgesic agents, In vitro diagnostic pharmaceuticals, Medical devices, Pharmaceutical API and intermediates, Food and food additives, Preservatives for food quality


Safety systems Airbag inflators, Micro gas generators for seatbelt pretensioners, Squibs

Other businesses Others Insecticides, Herbicides, Fungicides, Acaricide, Public hygiene insecticides, Soil disinfectant, Animal repellents, Biological pesticides, Real estate business




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Note 3: The amounts and primary contents included in “Eliminations and corporate” are as shown below.

Fiscal year ended May 31, 2010 (June 1, 2009

–May 31, 2010) Primary contents

Millions of yen Amount of unallocated operating expenses included in the “Eliminations and corporate” item

5,140 Expenses related to the administrative divisions of the parent company head office

Amount of corporate assets included in the “Eliminations and corporate” item 43,389

Surplus funds (cash and securities) and long-term investments (including investment securities) at the parent company

Note 4: Depreciation and amortization, and capital expenditures do not include the amounts for long-term prepaid expenses.

b. Information by geographic segment Fiscal year ended May 31, 2010

Japan Other regions Total

Eliminations and

corporate Consolidated

Millions of yen I. Sales and operating income Sales Sales to third parties 122,468 18,564 141,032 – 141,032 Intersegment sales and transfers 5,492 5,595 11,088 (11,088) – Total 127,961 24,160 152,121 (11,088) 141,032 Operating expenses 107,727 23,257 130,984 (5,947) 125,037 Operating income 20,233 903 21,136 (5,141) 15,995 II. Total assets 146,578 29,664 176,242 26,399 202,641

Note 1: The country and region segments are based on geographic proximity. Note 2: Primary countries and regions in segments other than “Japan”

Other regions: USA, China, Czech Republic Note 3: The amounts and primary contents included in “Eliminations and corporate” are the same as those

listed under “Note 3” in “Segment information by type of business.” c. Overseas sales Fiscal year ended May 31, 2010

Asia Other regions Total

I. Overseas sales (millions of yen) 28,306 17,483 45,790

II. Consolidated sales (millions of yen) — — 141,032

III. Percentage of consolidated sales occupied by overseas sales 20.1 12.4 32.5

Note 1: The country and region segments are based on geographic proximity. 2: Primary countries and regions in each segment

(1) Asia: China, Hong Kong, Taiwan (2) Other regions: USA, Germany

3: Overseas sales are the sales by Nippon Kayaku and its consolidated subsidiaries in countries and regions outside of Japan.




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[Segment information] [1] Summary of reportable segments The reportable segments of the Nippon Kayaku Group are structural units of the Group for which separate financial information can be acquired. These segments are subject to be examined periodically by the Board of Directors in order to evaluate business results and make decisions on the allocation of business resources.

Groups are established by product for the reportable segments within the Nippon Kayaku Group. Each group develops comprehensive domestic and overseas strategies for the products it handles, and introduces business activities accordingly.

Therefore, the Nippon Kayaku Group primarily consists of product- and service-specific segments that are based on business divisions. “Functional chemicals business,” “pharmaceuticals business,” and “safety systems business” are three reportable segments.

The types of primary products and services provided by the reportable segments are shown in the table below.

Reportable segment Sales segment Primary products Functional chemicals business

Functional materials

Epoxy resins, Epoxy resin curers, Combustion retardants for synthetic resins, UV-curing type resins, Polyimide/polyamide resins, Advanced chemicals

Electronic materials

Components for LCD displays, LCD projector components, Components for X-ray analysis systems, Functional films, Resins for optical disks, Sealants for LCD displays, Resist for MEMS, Functional colors, Colors for inkjet printers, Thermal developers

Catalysts Catalysts for the production of acrylic acid and methacrylic acid, Plant licensing business

Color chemicals Disperse dyes, Cationic dyes, Acidic dyes, Reactive dyes, Direct dyes, Sulfur dyes, Fluorescent dyes, Functional chemicals for textiles and paper, Special dyes for non-textile applications

Pharmaceuticals business

Pharmaceuticals Anti-cancer agents, Neurological agents, Circulatory system agents, Digestive system agents, Vitamin compounds and other metabolic agents, Radiopharmaceuticals, Chemotherapeutics, Anti-inflammatory analgesic agents, In vitro diagnostic pharmaceuticals, Medical devices, Pharmaceutical API and intermediates, Food and food additives, Preservatives for food quality


Safety systems Airbag inflators, Micro gas generators for seatbelt pretensioners, Squibs

[2] Methods of calculating the amounts for sales, income (loss), assets, and other items by reportable segment The income reported in each reportable segment is operating income. Intersegment internal sales and transfers are calculated based primarily on market prices and manufacturing costs.




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[3] Information concerning the amounts for sales, income (loss), assets, and other items by reportable segment Fiscal year ended May 31, 2010 (June 1, 2009–May 31, 2010)

Reportable segment Others

(Note 1) Total Adjust-ments

(Note 2)

Consoli-dated

(Note 3)




Total

Millions of yen Sales

Sales to third parties 64,299 49,692 17,665 131,657 9,375 141,032 – 141,032Intersegment sales and transfers 54 18 – 72 27 100 (100) –

Total 64,354 49,710 17,665 131,730 9,402 141,133 (100) 141,032Segment income 8,348 10,090 387 18,827 2,286 21,113 (5,118) 15,995Segment assets 70,484 43,823 23,324 137,633 21,766 159,400 43,241 202,641Other items

Depreciation and amortization 3,902 2,425 2,439 8,767 841 9,609 419 10,028

Amortization of goodwill 391 – – 391 – 391 – 391

Impairment loss – – 2,366 2,366 – 2,366 – 2,366Changes in the amount of tangible fixed assets and intangible fixed assets

2,693 2,333 1,510 6,537 326 6,863 169 7,033

Note 1: “Others” indicates business segments that are not included in the reportable segments, including the agrochemicals business and real estate business.

Note 2: The amounts of adjustments are as shown below. (1) The -5.118 billion yen adjustment to segment income includes a -5.140 billion yen corporate expense not allocated to the reportable segments and a 21 million yen elimination of intersegment transactions. The corporate expense is mainly a general and administrative expense that is not attributed to the reportable segments. (2) The 43.241 billion yen adjustment to segment assets includes 43.389 billion yen in corporate assets not allocated to reportable segments and a -148 million yen elimination of intersegment transactions. The corporate assets are mainly excess operating funds (cash and securities) and long-term investment funds (investment securities, etc.) of the parent company. (3) The 419 million yen adjustment to amortization and depreciation is related to corporate assets. (4) The 169 million yen increase adjustment to tangible and intangible fixed assets is related to the administrative divisions of the parent company head office.

Note 3: Adjustments to segment income are made along with operating income from the consolidated profit and loss statement.




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Fiscal year ended May 31, 2010 (June 1, 2009–May 31, 2010) Reportable segment

Others (Note 1) Total

Adjust-ments

(Note 2)

Consoli-dated

(Note 3)




Total

Millions of yen Sales

Sales to third parties 71,759 50,339 17,918 140,017 8,862 148,879 – 148,879Intersegment sales and transfers 43 29 － 73 28 101 (101) –

Total 71,803 50,368 17,918 140,091 8,890 148,981 (101) 148,879Segment income 12,116 10,544 1,063 23,724 2,273 25,998 (5,168) 20,829Segment assets 72,595 49,107 19,544 141,246 21,479 162,726 42,383 205,110Other items

Depreciation and amortization 3,502 2,357 1,932 7,792 852 8,644 384 9,029

Amortization of goodwill 409 – – 409 － 409 – 409

Changes in the amount of tangible fixed assets and intangible fixed assets

4,161 2,867 1,194 8,223 354 8,577 257 8,834

Note 1: “Others” indicates business segments that are not included in the reportable segments, including the agrochemicals business and real estate business.

Note 2: The amounts of adjustments are as shown below. (1) The -5.168 billion yen adjustment to segment income includes a -5.187 billion yen corporate expense not allocated to the reportable segments and a 19 million yen elimination of intersegment transactions. The corporate expense is mainly a general and administrative expense that is not attributed to the reportable segments. (2) The 42.383 billion yen adjustment to segment assets includes 42.600 billion yen in corporate assets not allocated to reportable segments and a -216 million yen elimination of intersegment transactions. The corporate assets are mainly excess operating funds (cash and securities) and long-term investment funds (investment securities, etc.) of the parent company. (3) The 384 million yen adjustment to amortization and depreciation is related to corporate assets. (4) The 257 million yen increase adjustment to tangible fixed assets and intangible fixed assets is related to the administrative divisions of the parent company head office.

Note 3: Adjustments to segment income are made along with operating income from the consolidated profit and loss statement.

Nippon kayaku fy2010_results

Business

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