Annual Report 2009*This report is printed on FSC-certified paper (mixed sources) using soy ink to...

2009-TIR500 Printed in Japan

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

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

Annual Report 2009Year ended March 31, 2009

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

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

Contents

1 Consolidated Financial Highlights

2 To Our Shareholders

4 Overview by Segment

4 Glass Fiber Products Division

5 Building Materials Division

6 Textiles Division

7 Other Operations

8 Corporate Governance and Compliance

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

11 Consolidated Six-Year Summary

12 Consolidated Financial Review

16 Consolidated Financial Data

16 Consolidated Balance Sheets

18 Consolidated Statements of Operations

19 Consolidated Statements of Changes in Equity

20 Consolidated Statements of Cash Flows

21 Notes to Consolidated Financial Statements

34 Independent Auditors’ Report

35 Corporate Data ⁄ Investor Information

Profile

35Nittobo Annual Report 2009

Main Offices, Factories, and Research Center

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

(Nissei Fushimicho Building New Building)

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

(Meiko Building)

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

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

Fukushima 963-8061, Japan

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

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

Toyama 939-0744, Japan

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

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

· Fukushima Research Center (located in Fukushima Factory)

· Chiba Research Center (located in Chiba Factory)

· Itami Research Center (located in Itami Production Center)

· Biochemical Research Center (located in Fukuyama Enterprise Center)

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

Shareholder Type

Individuals and others

Financial institutions

Other domestic corporations

Foreign shareholders

Securities companies

20.38%

42.53%

Treasury stock13.79%

9.81%

11.44%

2.05%

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

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

Japan

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

Tokyo 102-8489, Japan

Tel: +81-3-3514-3810

Fax: +81-3-3238-4588

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

Date of Establishment April 22, 1918

April 1, 1923

Fukushima Seiren Seishi K.K.

Company name changed

to Nitto Boseki Co., Ltd.

Paid-in Capital ¥19.6 billion

Employees 1,574 (Nonconsolidated)

3,607 (Consolidated)

Consolidated Subsidiaries

· Nittobo Materials Co., Ltd.

· Paramount Glass Manufacturing Co., Ltd.

· Soyo Co., Ltd.

· Nitto Glass Fiber Manufacturing Co., Ltd.

· Nittobo Acoustic Engineering Co., Ltd.

· Nittobo Togan Co., Ltd.

· Fuji Fiber Glass Co., Ltd.

· Nittobo Medical Co., Ltd.

· NTB TECHNOLOGY CO., LTD.

· Nittobo (China) Co., Ltd.

· Nitto Beverage Co., Ltd.

· Nittobo INTERLINING Co., Ltd.

· Nitto Glasstex Co., Ltd.

· Nittobo Macau Glass Weaving Co., Ltd.

　and 12 other companies

Major Shareholders

Name

Number of Shares Held (Thousands of shares)

Percentage of

Shares Held* (%)

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

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

Mizuho Corporate Bank, Ltd. 10,593 4.96

Nippon Life Insurance Company 8,970 4.20

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

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

Sumitomo Life Insurance Company 5,412 2.53

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

Aioi Insurance Co., Ltd. 4,000 1.87

Onward Holdings Co., Ltd. 3,416 1.60

Share Information

Total Number of Shares Issued

Number of Shareholders

247,677,560

22,870

* The percentage of shares held excludes treasury stock.


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

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

0

30.0

60.0

90.0

0

(2.0)

2.0

(4.0)

(6.0)

(8.0)

(10.0)

4.0

(12.0)

6.0

0

12.0150.0

120.0 10.0

8.0

6.0

4.0

2.0

0

50.0

100.0

150.0

200.0

Total Equity

130.4

6.9 7.5

3.2 3.54.6

11.4130.3 10.3

2.6

5.9

(9.1)

62.1

162.9

67.2

159.3

72.0

164.9

75.9

156.1

56.4

147.4

138.8 136.5

114.8

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

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

Total Assets

Consolidated Financial HighlightsYears ended March 31

Thousands of Millions of yen U.S. dollars

2009 2008 2009

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

Operating income 2,562 10,271 26,086

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

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

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

Total equity 56,442 75,929 574,594

Per share data:

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

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

Shareholders’ equity ratio (%) 37.2 47.3

Return on equity (%) (14.2) 8.2

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

2 Nittobo Annual Report 2009

To Our Shareholders

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

Fiscal 2009 Consolidated Business Results

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

Initiatives to Immediately Respond to Sudden Changes in Operating Conditions

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

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

Outline of the Initiatives

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

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

Katsumi Minamizono　Chief Executive Officer


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

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

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

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

Initiatives for Fiscal 2010

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

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

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

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

Katsumi MinamizonoChief Executive Officer

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

Customers

Shareholders

Suppliers

Local communities Governments

Creditors

Investors

Executives and Employees

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

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

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

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

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


Operating Results

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

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

Overview by Segment

Glass Fiber Products Division

Segment Profile and Strategy

0

60

50

40

30

20

10

0

60

50

40

30

20

10

(Billions of yen)

8.0

6.0

4.0

2.0

0

Operating Income (Billions of yen)Net Sales

Net Sales※ (Billions of yen)

0

2.0

1.5

1.0

0.5

1.61.6

13.712.8

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

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

7.5

1.7

56.7

45.1

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

10.0%

Major Products and Services

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

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


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

Building Materials Division


0

60

50

40

30

20

10

Net Sales (Billions of yen)

(1.0)

0

3.0

2.0

1.0

Operating Income (Loss) (Billions of yen)

1.4

(0.4)

54.0

46.3

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


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

Operating Results

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

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


Textiles Division


0

60

50

40

30

20

10


(0.6)

0.6

0.3

(0.3)

0

Operating Income (Loss) (Billions of yen)

0.6

0.4

12.1 9.9

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


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

Operating Results

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

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

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


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


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

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

Other Operations


0

60

50

40

30

20

10


0

2.0

1.5

1.0

0.5

1.6 1.6

13.7 13.5

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

Operating Income (Billions of yen) Operating Results

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

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


Corporate Governance and Compliance

Corporate Governance

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

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

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

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

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

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

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

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

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

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


General Meeting of Shareholders

Executive Officers

Glass Fiber Products Division

Building Materials Division

Textiles Division

Medical Operations, Beverage Operations,

Specialty Chemicals Operations and

New Business Operation & Promotion Office

AdministrationDivision

Accounting AuditorBoard of Directors, Directors

Audit Office

Board of Corporate Auditors, Corporate Auditors

Corporate Conduct Committee

COO

CEO

Accounting Auditor

Corporate Conduct Committee

Board of Directors, Directors

CEO

COO

Board of Corporate Auditors, Corporate Auditors

Audit Office

Executive Officers

Compliance

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

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

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

Nittobo’s Corporate Governance and Compliance Structure


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

Managing Executive Officers Nobuo Kawabata Akihiko Watanabe Toyoshi Nishizaka

Executive Officers Tadashi Akai Hideo Kato Eiji Fujisawa Hisao Sato

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

CEO, COO, Directors, Executive Officers and Corporate Auditors

Katsumi MinamizonoChief Executive Officer

Yoshitada ShiratoriChief Operating Officer

Chief Executive Officer Katsumi Minamizono

Chief Operating Officer Yoshitada Shiratori

Managing Directors Mitsuo Iwashita Hideaki Shimizu

(As of June 26, 2009)

* External Director** External Corporate Auditor

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