Contents€¦ · Lasem, S.A.U., which became a consolidated subsidiary in July 2011 following a...

Profile 1

Financial Highlights 2

Message from the Management 3

Business Segment Overview 9

　Oils and Meals Business 9　Processed Oils and Fats Business 12　Healthy Foods Business 13　Fine Chemicals Business 14　Soy Foods and Materials Business 15Financial Review 16

Consolidated Balance Sheet 20

Consolidated Statement of Income 21

Consolidated Statement of Comprehensive Income 23

Consolidated Statement of Changes in Equity 24

Consolidated Statement of Cash Flows 25

Notes to Consolidated Financial Statements 27

Independent Auditors’ Report 59

Stock Information 60

Contents

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STATUS OF SUBSIDIARIES AND AFFILIATES

The Nisshin OilliO Group comprises 29 subsidiaries, 18 of which are included in the scope of consolidation. The principal consolidated subsidiaries are Settsu Oil Mill Co., Ltd., Nisshin Shoji Co., Ltd., Nisshin Logistics Co., Ltd., Daito Cacao Co., Ltd., Industrial Química Lasem, S.A.U., and Intercontinental Specialty Fats Sdn. Bhd. The corporate group also includes 11 unconsolidated subsidiaries and 12 affiliates, five of which are equity-method affiliates. The principal equity-method affiliates are PIETRO Co., Ltd., Wakou Shokuhin Co., Ltd. and Saiwai Shoji Co., Ltd.

BUSINESS RESULTS FOR FISCAL 2011

Operating Environment

The business climate was a very difficult domestically and abroad in fiscal 2011 (ended March 31, 2012), reflecting natural catastrophes such as the Great East Japan Earthquake, heavy typhoons, and flooding in Thailand, as well as economic turmoil caused by the European debt crisis and record appreciation of the yen. Our Group was also forced to face a challenging business climate exemplified by the following factors. Grain costs were high throughout the term against a background of growing global demand for food. In Japan, demand dwindled owing to the effects of the Great East Japan Earthquake and a surge in consumer preference for lower-priced goods and services. Our business climate in China and Malaysia was also adverse. In China, the government implemented price controls on edible oils for the purpose of constraining inflation, and we faced a very volatile palm oil market in Malaysia. As a result, it was difficult for us to sell our products at prices that could secure adequate profit. In this environment, fiscal 2011 was also the first year of our medium-term business plan, the “Phase II of GROWTH 10” vision, our 10-year basic management vision through fiscal 2016. During the year, we solidified a base to reform its business structure. Through the transformation of our business structure, we are working to realize a stable earnings structure and secure growth. We proactively facilitated reallocations of management resources, centering on the keywords of “focusing on profitability,” “an emphasis on technology,” and “developing overseas market.”

As part of these initiatives, we reorganized our businesses into five segments comprised of the oils and meals business, processed oils and fats business, healthy foods business, fine chemicals business, and soy foods and materials business, from the previous three segments of oils and meal business, healthy foods and soy protein business, and fine chemicals business.

Net Sales

Net sales increased 2.4% year on year to ¥312,628 million.

Cost of Sales and Gross Profit

Cost of sales increased 3.1% from the previous fiscal year to ¥262,825 million. As a result, gross profit decreased 1.4% to ¥49,803 million, resulting in a decline in the gross profit margin of 0.6 percentage point year on year, to 15.9%.

Operating Income

Selling, general and administrative expenses increased 0.9% year on year to ¥43,903 million. Operating income declined 15.3% from earlier to ¥5,900 million, due primarily to the struggle in overseas operations.

Net Income

Net income jumped 80.5% to ¥3,833 million, owing primarily to reversal of tax expenses relating to loss on write-down of investments of a subsidiary. Net income per share increased ¥10.56, to ¥22.88. ROE rose to 3.5%, up 1.5 percentage points from a year earlier.

Financial Review

16

400,000

320,000

240,000

160,000

80,000

011 1210090807 11 1210090807 11 1210090807

8

6

4

2

45

30

15

0 0

60

Net Sales(Millions of yen)

Return on Equity (Net income base) (%)

Equity Ratio(%)

BUSINESS SEGMENT OVERVIEW

Oils and Meals Business

n DomesticWe endeavored to boost demand for edible oils for household use by proactively proposing a creation of sales spaces that stimulated consumer appetite at our retail shops. In addition, we deployed our full-line strategy to expand demand. Sales for the year were up from a year earlier on the strength of efforts to properly reflect raw materials costs in pricing. Sales volumes and selling prices of gift package sets were approximately the same as a year earlier. Sales volumes of edible oils for commercial use fell owing to the impact of the Great East Japan Earthquake. Sales rose, however, owing to concerted efforts to reflect raw materials costs in pricing. Sales volumes for oils and fats for food processing for fiscal 2011 fell slightly from the previous fiscal year due to the impact of the earthquake. Selling prices rose year on year, however, as a result of our efforts to reflect raw material costs in pricing, as it is for commercial use. Sales volumes and selling prices of oil meals decreased year on year due to decreased volumes of pressed soybean oil, the yen’s appreciation and declining meal value.

n OverseasThe performance of Dalian Nisshin Oil Mills, Ltd. for fiscal 2011 was influenced by the Chinese government’s price controls over edible oils, a measure taken to curb inflation. As a result, both sales volumes and sales declined. Profitability also deteriorated, resulting in a decrease in operating income from a year earlier. Reflecting these factors, segment net sales increased 1.5%, to ¥200,563 million, while operating income fell 19.2% to ¥3,649 million.

Processed Oils and Fats Business

For the processed oils and fats business, both sales volumes and sales increased year on year, because of solid sales of oils and fats for confectioners and bakeries. Selling prices exceeded levels of the previous fiscal year, as a result of our price revision and proactive sales of high-value-added offerings. At our consolidated subsidiary, Daito Cacao Co., Ltd., both sales volumes and sales dropped from a year earlier, due to the impact of the Great East Japan Earthquake.

At Intercontinental Specialty Fats Sdn. Bhd., despite a decline in sales volumes, sales rose owing to higher selling prices. Operating income, however, declined from a year earlier, impacted by significant volatility in the palm oil market. Segment net sales therefore grew 5.1%, to ¥86,023 million. Operating income climbed 16.8%, to ¥1,935 million, owing partly to lower goodwill amortization.

Healthy Foods Business

Both sales volumes and sales of dressings and mayonnaise increased compared to the previous fiscal year. Sales volumes and sales of foods for the elderly and those in nursing care both

declined from a year earlier. Sales volumes and sales of foods for patients decreased year on year, due to falling demand for kidney patient foods. Sales volumes and sales of tofu and tofu processed products rose, partly reflecting the success of a new product. As a result of these factors, segment net sales remained at almost the same level, at ¥7,096 million. The operating loss was ¥222 million, an improvement of ¥182 million from the previous fiscal year, owing partly to reduced goodwill amortization.

Fine Chemicals Business

Sales for raw materials for cosmetics and medium-chain triglycerides were strong, owing mainly to solid exports to China. Sales of chemical products were down from a year earlier, because of the impact of the Great East Japan Earthquake. Industrial Química Lasem, S.A.U., which became a consolidated subsidiary in July 2011 following a share acquisition, began contributing to performance from the fourth quarter of fiscal 2011. As a result of domestic and overseas performance described above, segment net sales rose 4.2%, from a year earlier, to ¥10,741 million, while operating income increased 1.0% to ¥639 million.

Soy Foods and Materials Business

In the soy foods and materials business, we secured basically the same levels of sales volumes and sales as in the previous year, owing to our efforts to cultivate new customers and build markets. Segment net sales fell slightly to ¥4,740 million. Operating income decreased by ¥68 million to ¥40 million, owing mainly to higher expenses.

Other Businesses

Segment net sales for other businesses, which included consolidated subsidiaries in the information systems business and engineering business, decreased 8.0% year on year to ¥3,465 million. Operating income declined 8.5% to ¥424 million.

The new business segmentation was applied from the year ended March 31, 2012.

16 17

Oils and meals

Processed oils and fats

Healthy foods

Fine chemicals

Soy foods and materials

Other

Sales to external customersSegment profitSales to external customersSegment profitSales to external customersSegment profit (loss)Sales to external customersSegment profitSales to external customersSegment profitSales to external customersSegment profit

Net Sales and Segment Profit (Loss) by Segment

1.5%(19.2)

5.116.80.0—4.21.0

(0.2)(63.0)(8.0)(8.5)

¥197,5584,516

81,8181,6567,095(404)

10,312632

4,748108

3,767463

¥200,5633,649

86,0231,9357,096 (222)

10,741639

4,74040

3,465424

Change (%)Segment FY3/12 FY3/11

(Millions of yen)

OVERSEAS SALES

Net sales to China, Malaysia and other parts of Asia decreased 10.0% year on year to ¥48,910 million, due to falling sales volumes caused by the Chinese government’s policy to stem inflation. Net sales to Europe, the United States and other regions rose 13.8% year on year to ¥28,263 million due primarily to higher selling prices. The ratio of overseas sales to consolidated net sales was 24.7%, down 1.2 percentage points from a year earlier.

INFORMATION ABOUT GEOGRAPHICAL AREAS

FINANCIAL POSITION

Total assets at the end of the subject fiscal year (ended March 31, 2012) amounted to ¥237,133 million, an increase of ¥4,822 million compared to the end of the previous fiscal year (ended March 31, 2011), due primarily to new acquisition of shares in Industrial Química Lasem, S.A.U., a new consolidated subsidiary, and an acquisition of additional shares in a consolidated subsidiary, Intercontinental Specialty Fats Sdn. Bhd. Current assets decreased ¥247 million from the previous fiscal year-end to ¥135,110 million. This mainly reflected declines of ¥4,030 million in raw materials and ¥895 million in trade accounts, offset by increases of ¥10,986 million in cash and cash equivalents, ¥790 million in deferred tax assets, and ¥368 million in finished goods. Total investments and other assets increased ¥4,968 million from a year earlier to ¥28,061 million, primarily because of an increase of ¥4,293 million in goodwill, associated with additional share acquisition in the consolidated subsidiary, Intercontinental Specialty Fats Sdn. Bhd. Total current liabilities decreased ¥3,690 million to ¥73,359 million due mainly to declines of ¥3,668 million in short-term bank loans to ¥16,211 million and ¥1,098 million in trade accounts to ¥42,629 million, partly offset by an increase of ¥1,099 million in current portion of long-term debt to ¥7,729 million. Total long-term

liabilities rose ¥12,667 million compared to the end of the previous fiscal year, to ¥50,507 million, owing primarily to an increase of ¥13,986 million in long-term debt. Total equity decreased to ¥113,267 million, down ¥4,155 million from the end of the previous fiscal year. This was due mainly to declines of ¥2,273 million in treasury stock associated with a share buyback, ¥1,688 million in accumulated other comprehensive income reflecting marked to market fluctuations, and ¥2,335 million in minority interests caused by additional share acquisition in a consolidated subsidiary, partially offset by an increase of ¥2,141 million in retained earnings.

Cash Flows

As for cash flows for the year under review, net cash provided by operating activities and net cash used in investing activities amounted to ¥13,280 million and ¥9,798 million, respectively. Net cash provided by financing activities totaled ¥7,799 million. As a result, cash and cash equivalents increased ¥10,986 million to ¥26,979 million.

n Cash flow from operating activitiesNet cash provided by operating activities amounted to ¥13,280 million. This owed primarily to cash inflows attributable to ¥3,090 million in income before income taxes and minority interests; ¥6,260 million in depreciation and amortization; a decrease of ¥3,419 million in inventories and a loss of ¥1,578 million on sales of marketable securities, against cash outflows such as a decrease of ¥4,224 million in trade payables.

n Cash flow from investing activitiesNet cash used in investing activities amounted to ¥9,798 million. The main factors behind this result were cash outflows of ¥5,604 million in payment for purchase of consolidated subsidiaries, net of cash acquired; ¥1,830 million in payment for purchase of newly consolidated subsidiary; and ¥4,505 million for purchases of property, plant and equipment. These were partially offset by cash inflows caused by a decrease of ¥3,122 million in marketable securities—net.

n Cash flow from financing activitiesNet cash provided by financing activities totaled ¥7,799 million. Main factors behind cash inflows were ¥14,620 million in proceeds from long-term debt and ¥9,933 million in proceeds from bond issuance, while the major factors behind cash outflows were a decrease of ¥2,787 million in short-term bank loans—net, ¥4,482 million in repayments of long-term debt, ¥5,010 million in redemption of bonds, ¥1,693 million in dividends paid, and ¥2,273 million in purchases of treasury stock—net.

Financial Review

18 19

2,500

2,000

1,500

1,000

500

011 1210090807

8,000

6,000

4,000

2,000

12,000

9,000

6,000

3,000

011 1210090807

011 1210090807

Capital Expenditures (Millions of yen)

Depreciation and Amortization (Millions of yen)

R&D Expenses (Millions of yen)

FY 3/12FY 3/11

Net Sales

¥312,628305,298

¥28,26324,833

¥48,91054,361

TotalAsia

¥235,455226,104

Japan Other

FY 3/12FY 3/11

¥59,98062,036

Japan

¥12,46111,825

Asia

¥1,521—

Europe

——

Other

¥73,96273,861

Total

(Millions of yen)

Property, Plant and Equipment(Millions of yen)

OUTLOOK FOR FISCAL 2012 (ENDING MARCH 31, 2013)

For the year ending March 31, 2013, we anticipate that the business environment will remain difficult. Raw material prices are expected to stay high in the year ahead, taking into account growing demand all over the world for foods and the influx of speculative funds. In addition, deflationary trends are expected to continue in light of a surge of consumers’ preference toward low prices and an expansion of lower-price imported products. By viewing this trend as a structural issue faced by the oils industry, during the Phase II of GROWTH 10, our medium-term management plan, we will carry out business structure reforms to realize a stable earnings structure and secure growth. For fiscal 2012, we forecast net sales of ¥330,000 million, operating income of ¥6,500 million and net income of ¥3,000 million.

BUSINESS RISKS

The operating results, share price and financial position of the Nisshin OilliO Group may be impacted by the risks outlined below. Forward-looking statements in this section are based on management’s judgment as of March 31, 2012.

n Exchange RatesAs part of its oils and meals business, the Nisshin OilliO Group imports all of the soybeans, rapeseed and other raw materials it uses from overseas. The Group also conducts business overseas, including in China and other parts of East Asia. Consequently, the Nisshin OilliO Group is exposed to exchange rate risks associated with raw material costs and debt denominated in foreign currencies. As such, any fluctuation in exchange rates could impact the operating results and financial position of the Group. In response, the Nisshin OilliO Group uses risk hedge instruments such as forward exchange contracts as necessary to mitigate exchange rate risks.

n International Prices for Raw MaterialsIn addition to exchange rate risks, the purchase of soybeans, rapeseed and other raw materials is subject to the risk of fluctuation in international prices for raw materials. This includes fluctuations in transportation costs due to rising prices for crude oil and other raw materials. Because prices for raw materials constitute a significant portion of the Nisshin OilliO Group’s costs, any fluctuation in prices could have an impact on the Group’s operating results. The Nisshin OilliO Group seeks to hedge this risk by purchasing a portion of its raw materials on the futures market.

n Domestic and International Product MarketsThe sales climate for the oils and meals business and processed oils and fats business are affected by changes in domestic and international product markets. On the whole, domestic selling prices for oil meals and processed oils and fats for food manufacturers are linked to prices in the international market. In addition, trends in prices of overseas imports could have an impact on domestic selling prices. These and other changes in domestic and international product markets could affect the Nisshin OilliO Group’s operating results. In response, the Group is working to expand sales of high-value-added products, which are more resilient to changes in market conditions, and maintain appropriate prices for its products that reflect their inherent quality and costs.

n Business OperationsIn addition to Japan, the Nisshin OilliO Group conducts its operations in other countries and regions such as East Asia. Group companies are subject to the following risks, with overseas operations particularly exposed to these so-called country risks. ● Unforeseen enactment, revision to, or abolishment of laws and other regulations ● Unexpected political or economic factors ● Social instability arising from terrorist incidents, conflict, natural disasters, the spread of infectious disease or other factors ● Issues related to the digitization of information such as computer viruses and the leak of confidential dataTo minimize the impact of the above risks, the Group works to gather information, which it uses as the basis for responding accurately and rapidly to any situations in its crisis management system.

n Earthquakes, Typhoons and other Natural Disasters, and Outbreaks of Infectious DiseaseIf a large earthquake, typhoon or other natural disaster or an outbreak of a new infectious disease were to occur in the vicinity of the Nisshin OilliO Group’s manufacturing and logistics sites in Japan, it could lead to suspension of business operations, or damage to facilities or inventories may ensue. This could have an impact on the Group’s operating results and financial position. To prepare for such a situation, the Nisshin OilliO Group is implementing measures to mitigate risks by formulating the following emergency management systems: BCP (Business Continuity Plan) for large earthquakes in June 2009 and BCP for countering the new influenza epidemic in November 2009. In light of the Great East Japan Earthquake, which occurred on March 11, 2011, the Group, in May 2012, rebuilt its BCP by newly adding anticipated damages from a worst-case-scenario earthquake and tsunami and making every effort to eliminate the approach that contains an occurrence of an “unexpected” situation.

n Laws and Other RegulationsThe Nisshin OilliO Group is subject to a range of laws and regulations, including the Food Sanitation Act, the Japan Agricultural Standards (JAS) Law, Pharmaceutical Affairs Act, environmental and recycling regulations, and customs and import/export rules, as well as the Foreign Exchange Control Act and the Personal Information Protection Act. Should unforeseen new laws be established in the future, this could have an impact on the Group’s operating results.

n Food SafetyPublic interest in food quality and safety has risen in recent years. Food companies are being required to establish more stringent quality control structures. The Nisshin OilliO Group has established a rigorous quality assurance system, including the acquisition of international quality standards such as ISO. The Group will further enhance its quality assurance system going forward to ensure even higher levels of safety. However, the occurrence of any quality issues that exceed the scope of these initiatives could have an impact on the Group’s operating results.

18 19

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The Nisshin OilliO Group, Ltd. and Consolidated Subsidiaries Consolidated Balance Sheet March 31, 2012

Millions of Yen

Thousands of U.S. Dollars (Note 1.a)

ASSETS 2012 2011 2012 CURRENT ASSETS: Cash and cash equivalents (Note 11) ¥ 26,979 ¥ 15,993 $ 329,012 Time deposits 243 132 2,964 Marketable securities (Notes 2 and 11) 251 3,725 3,061 Receivables (Note 11): Trade notes 1,214 1,258 14,805 Trade accounts (Notes 8 and 10) 54,788 55,683 668,146 Allowance for doubtful receivables (29 ) (14) (354) Inventories: Finished goods 24,371 24,003 297,207 Raw materials 19,694 23,724 240,171 Deferred tax assets (Note 7) 3,023 2,233 36,866 Prepaid expenses and other (Note 8) 4,576 8,620 55,805 Total current assets 135,110 135,357 1,647,683 PROPERTY, PLANT AND EQUIPMENT: Land 28,206 27,872 343,976 Buildings and structures 72,407 71,449 883,012 Machinery and equipment 95,988 93,799 1,170,585 Lease assets (Note 9) 1,604 1,322 19,561 Construction in progress 2,957 1,559 36,061 Total 201,162 196,001 2,453,195 Accumulated depreciation (127,200 ) (122,140) (1,551,219) Net property, plant and equipment 73,962 73,861 901,976 INVESTMENTS AND OTHER ASSETS: Investment securities (Notes 2 and 11) 11,974 11,786 146,024 Investments in and advances to unconsolidated subsidiaries and associated companies 4,141 4,169 50,500 Goodwill 4,560 267 55,610 Software 1,686 1,649 20,561 Other (Notes 4 and 7) 5,700 5,222 69,512 Total investments and other assets 28,061 23,093 342,207 TOTAL ¥ 237,133 ¥ 232,311 $ 2,891,866 See notes to consolidated financial statements.

Millions of Yen


LIABILITIES AND EQUITY 2012 2011 2012 CURRENT LIABILITIES: Short-term bank loans (Notes 3, 10 and 11) ¥ 16,211 ¥ 19,879 $ 197,695 Current portion of long-term debt (Notes 3 and 11) 7,729 6,630 94,256 Payables (Note 11): Trade notes 473 275 5,768 Trade accounts (Notes 2 and 8) 42,629 43,727 519,866 Income taxes payable 399 289 4,866 Accrued expenses 4,041 4,457 49,280 Deferred tax liabilities (Note 7) 11 426 134 Other (Note 8) 1,866 1,366 22,757 Total current liabilities 73,359 77,049 894,622 LONG-TERM LIABILITIES: Long-term debt (Notes 3 and 11) 43,102 29,116 525,634 Liability for retirement benefits (Note 4) 2,387 2,280 29,110 Deferred tax liabilities (Note 7) 3,967 5,226 48,378 Negative goodwill 14 23 171 Other 1,037 1,195 12,646 Total long-term liabilities 50,507 37,840 615,939 COMMITMENTS AND CONTINGENT LIABILITIES (Note 10) EQUITY (Notes 6 and 17): Common stock—authorized, 388,350,000 shares; issued, 173,339,287 shares in 2012 and 2011 16,332 16,332 199,171 Capital surplus 26,072 26,072 317,951 Retained earnings 68,285 66,144 832,744 Treasury stock—at cost, 7,157,670 shares in 2012 and 1,135,118 shares in 2011 (2,782) (509) (33,927) Accumulated other comprehensive income: Net unrealized gain (loss) on available-for-sale securities 1,084 (82) 13,220 Deferred gain on derivatives under hedge accounting (Note 12) 100 2,457 1,220 Foreign currency translation adjustments (1,998) (1,501) (24,367) Total 107,093 108,913 1,306,012 Minority interests 6,174 8,509 75,293 Total equity 113,267 117,422 1,381,305 TOTAL ¥ 237,133 ¥ 232,311 $ 2,891,866

- 21 - (Continued)

The Nisshin OilliO Group, Ltd. and Consolidated Subsidiaries Consolidated Statement of Income Year Ended March 31, 2012

Millions of Yen


2012 2011 2012 NET SALES (Note 8) ¥ 312,628 ¥ 305,298 $ 3,812,537 COST OF SALES (Notes 8 and 9) 262,825 254,807 3,205,183 Gross profit 49,803 50,491 607,354 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (Notes 5 and 9) 43,903 43,525 535,403 Operating income 5,900 6,966 71,951 OTHER INCOME (EXPENSES): Interest and dividend income 373 362 4,549 Interest expense (1,287) (1,150 ) (15,695) Gain on exchanges of securities of a subsidiary 372 Gain on sales of investment securities 127 1,549 Loss on sales of securities of a subsidiary (17 ) Loss on write-down of investment securities (192) (1,666 ) (2,341) Loss on write-down of security of an unconsolidated subsidiary (79) (963) Foreign exchange gain 491 5,988 Loss on sales of marketable securities (1,578) (19,244) Loss on disposition of property, plant and equipment (211) (151 ) (2,573) Amortization of negative goodwill 10 9 122

) Loss from a natural disaster (Note 13) (210) (1,301 ) (2,561 Provision for doubtful receivable (146) (1,781) Loss on reorganization of business (339 ) Other—net (Note 8) (108) 2 (1,318) Other expenses—net (2,810) (3,879 ) (34,268) INCOME BEFORE INCOME TAXES AND MINORITY INTERESTS 3,090 3,087 37,683 INCOME TAXES (Note 7): Current 772 965 9,415 Deferred (1,771) (808 ) (21,598) Total income taxes (999) 157 (12,183)

NET INCOME BEFORE MINORITY INTERESTS 4,089 2,930 49,866

MINORITY INTERESTS IN NET INCOME 256 807 3,122

NET INCOME ¥ 3,833 ¥ 2,123 $ 46,744

- 22 - (Concluded)

The Nisshin OilliO Group, Ltd. and Consolidated Subsidiaries Consolidated Statement of Income Year Ended March 31, 2012 Yen U.S. Dollars 2012 2011 2012 PER SHARE OF COMMON STOCK (Note 1.w): Net income ¥ 22.88 ¥ 12.32 $ 0.28 Cash dividends applicable to the year 10.00 10.00 0.12 See notes to consolidated financial statements.

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The Nisshin OilliO Group, Ltd. and Consolidated Subsidiaries Consolidated Statement of Comprehensive Income Year Ended March 31, 2012

Millions of Yen


2012 2011 2012 NET INCOME BEFORE MINORITY INTERESTS ¥ 4,089 ¥ 2,930 $ 49,866 OTHER COMPREHENSIVE INCOME (Note 14): Unrealized gain (loss) on available-for-sale securities 1,177 (358 ) 14,354 Deferred (loss) gain on derivatives under hedge accounting (2,936) 2,675 (35,805) Foreign currency translation adjustments (637) (551 ) (7,768) Share of other comprehensive income in associates (14) (94 ) (171) Total other comprehensive (loss) income (2,410) 1,672 (29,390) COMPREHENSIVE INCOME ¥ 1,679 ¥ 4,602 $ 20,476 TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO: Owners of the parent ¥ 2,145 ¥ 3,406 $ 26,159 Minority interests (466) 1,196 (5,683) See notes to consolidated financial statements.

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The Nisshin OilliO Group, Ltd. and Consolidated Subsidiaries Consolidated Statement of Changes in Equity Year Ended March 31, 2012 Thousands Millions of Yen Accumulated Other Comprehensive Income

Number of Shares of Common

Stock Outstanding

Common Stock

Capital Surplus

Retained Earnings

Treasury Stock

Net Unrealized Gain (Loss) on Available-for-Sale Securities

Deferred Gain (Loss) on

Derivatives under Hedge Accounting

Foreign Currency

Translation Adjustments Total

Minority Interests

Total Equity

BALANCE, APRIL 1, 2010 172,263 ¥ 16,332 ¥ 26,072 ¥ 65,830 ¥ (487) ¥ 305 ¥ 385 ¥ (1,100 ) ¥ 107,337 ¥ 7,479 ¥ 114,816 Net income 2,123 2,123 2,123 Cash dividends, ¥10.0 per share (1,724) (1,724) (1,724) Changes in scope of consolidation (85) (85) (85) Decrease in treasury stock by change of equity method of affiliates (21 ) (6) (6) (6) Purchase of treasury stock (40 ) (17) (17) (17) Disposal of treasury stock 2 1 1 1 Net change in the year (387) 2,072 (401 ) 1,284 1,030 2,314 BALANCE, MARCH 31, 2011 172,204 16,332 26,072 66,144 (509) (82) 2,457 (1,501 ) 108,913 8,509 117,422 Net income 3,833 3,833 3,833 Cash dividends, ¥10.0 per share (1,692) (1,692) (1,692) Purchase of treasury stock (6,023 ) (2,273) (2,273) (2,273) Disposal of treasury stock 0 0 0 0 Net change in the year 1,166 (2,357) (497 ) (1,688) (2,335) (4,023) BALANCE, MARCH 31, 2012 166,181 ¥ 16,332 ¥ 26,072 ¥ 68,285 ¥ (2,782) ¥ 1,084 ¥ 100 ¥ (1,998 ) ¥ 107,093 ¥ 6,174 ¥ 113,267 Thousands of U.S. Dollars (Note 1.a) Accumulated Other Comprehensive Income

Common

Stock Capital Surplus

Retained Earnings

Treasury Stock

Net Unrealized Gain (Loss) on Available-for-Sale Securities

Deferred Gain (Loss) on

Derivatives under Hedge Accounting

Foreign Currency

Translation Adjustments Total

Minority Interests

Total Equity

BALANCE, MARCH 31, 2011 $ 199,171 $ 317,951 $ 806,634 $ (6,207) $ (1,000) $ 29,963 $ (18,305 ) $ 1,328,207 $ 103,769 $ 1,431,976 Net income 46,744 46,744 46,744 Cash dividends, $0.1 per share (20,634) (20,634) (20,634) Purchase of treasury stock (27,720) (27,720) (27,720) Disposal of treasury stock 0 0 0 Net change in the year 14,220 (28,743) (6,062 ) (20,585) (28,476) (49,061) BALANCE, MARCH 31, 2012 $ 199,171 $ 317,951 $ 832,744 $ (33,927) $ 13,220 $ 1,220 $ (24,367 ) $ 1,306,012 $ 75,293 $ 1,381,305 See notes to consolidated financial statements.

- 25 - (Continued)

The Nisshin OilliO Group, Ltd. and Consolidated Subsidiaries Consolidated Statement of Cash Flows Year Ended March 31, 2012

Millions of Yen


2012 2011 2012 OPERATING ACTIVITIES: Income before income taxes and minority interests ¥ 3,090 ¥ 3,087 $ 37,683 Adjustments for: Income taxes—paid (340) (2,805 ) (4,146) Depreciation and amortization 6,260 6,268 76,341 Equity in earnings of associated companies (127) (134 ) (1,549) Amortization of goodwill—net 124 922 1,512 Loss on sales of marketable securities 1,578 19,244 (Gain) loss on sales of investment securities (127) 30 (1,549) Gain on exchanges of securities of a subsidiary (372) Loss on sales of securities of a subsidiary 17 Loss on sales and disposition of property, plant and equipment 223 151 2,720 Loss on write-down of investment securities 192 1,666 2,341 Loss from a natural disaster 210 1,301 2,561 Loss on reorganization of business 339 Loss on write-down of security of an unconsolidated subsidiary 79 963 Provision for doubtful receivable 146 1,780 Decrease (increase) in trade receivables 955 (9,269 ) 11,646 Decrease (increase) in inventories 3,419 (5,489 ) 41,695 (Decrease) increase in trade payables (4,224) 7,076 (51,512) Increase (decrease) in liability for retirement benefits 51 (61 ) 622 Other—net 1,771 (4,020 ) 21,599 Total adjustments 10,190 (4,380 ) 124,268 Net cash provided by (used in) operating activities 13,280 (1,293 ) 161,951 INVESTING ACTIVITIES: Proceeds from sale of investment securities 181 37 2,207 Purchases of investment securities (259) (201 ) (3,159) Proceeds from sale of property, plant and equipment 24 73 293 Purchases of property, plant and equipment (4,505) (4,849 ) (54,939) Decrease (increase) in marketable securities—net 3,122 (1 ) 38,073 Proceeds from sales of securities of a subsidiary 14 Payment for purchase of consolidated subsidiaries, net of cash acquired (5,604) (226) (68,341) Proceeds from redemption of bonds 400 200 4,878 Payment for purchase of newly consolidated subsidiary (1,830) (22,317) Other—net (1,327) (133 ) (16,183) Net cash used in investing activities (9,798) (5,086 ) (119,488) FORWARD ¥ 3,482 ¥ (6,379 ) $ 42,463

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The Nisshin OilliO Group, Ltd. and Consolidated Subsidiaries Consolidated Statement of Cash Flows Year Ended March 31, 2012

Millions of Yen


2012 2011 2012 FORWARD ¥ 3,482 ¥ (6,379 ) $ 42,463 FINANCING ACTIVITIES: (Decrease) increase in short-term bank loans—net (2,787) 10,068 (33,988) Repayments of long-term debt (4,482) (2,074 ) (54,659) Proceeds from long-term debt 14,620 178,293 Proceeds from bond issuance 9,933 121,134 Redemption of bonds (5,010) (5,220 ) (61,098) Dividends paid (1,693) (1,723 ) (20,646) Dividends paid for minority interests (213) (169 ) (2,598) Purchases of treasury stock—net (2,273) (15 ) (27,720) Repayments of lease obligations (296) (358 ) (3,610) Net cash provided by financing activities 7,799 509 95,108 FOREIGN CURRENCY TRANSLATION ADJUSTMENTS ON CASH AND CASH EQUIVALENTS (295) (305 ) (3,596) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 10,986 (6,175 ) 133,975 EFFECT OF EXCLUSION OF CONSOLIDATED SUBSIDIARIES (497 ) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 15,993 22,665 195,037 CASH AND CASH EQUIVALENTS, END OF YEAR ¥ 26,979 ¥ 15,993 $ 329,012 See notes to consolidated financial statements.

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The Nisshin OilliO Group, Ltd. and Consolidated Subsidiaries Notes to Consolidated Financial Statements Year Ended March 31, 2012 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The following is a summary of the significant accounting and reporting policies adopted by The Nisshin OilliO Group, Ltd. (the "Company") and consolidated subsidiaries in the preparation of the consolidated financial statements.

a. Basis of Presentation of Consolidated Financial Statements—The accompanying consolidated financial

statements have been prepared in accordance with the provisions set forth in the Japanese Financial Instruments and Exchange Act and its related accounting regulations, and in conformity with accounting principles generally accepted in Japan ("Japanese GAAP"), which are different in certain respects as to the application and disclosure requirements from International Financial Reporting Standards. In preparing these consolidated financial statements, certain reclassifications and rearrangements have been made to the consolidated financial statements issued domestically in order to present them in a form which is more familiar to readers outside Japan. In addition, certain reclassifications have been made in the 2011 consolidated financial statements to conform to the classifications used in 2012. The consolidated financial statements are stated in Japanese yen, the currency of the country in which the Company is incorporated and operates. The translations of Japanese yen amounts into U.S. dollar amounts are included solely for the convenience of readers outside Japan and have been made at the rate of ¥82 to $1, the approximate rate of exchange at March 31, 2012. Such translations should not be construed as representations that the Japanese yen amounts could be converted into U.S. dollars at that or any other rate.

b. Principles of Consolidation—The consolidated financial statements as of March 31, 2012 include the

accounts of the Company and its 18 (17 in 2011) significant subsidiaries (collectively, the "Group"). Under the control or influence concept, those companies in which the Company, directly or indirectly, is able to exercise control over operations are fully consolidated, and those companies over which the Group has the ability to exercise significant influence are accounted for by the equity method. Investments in 5 (5 in 2011) associated companies are accounted for by the equity method. Investments in the remaining 11 unconsolidated subsidiaries and 7 associated companies (9 unconsolidated subsidiaries and 6 associated companies in 2011) are stated at cost. If the equity method of accounting had been applied to the investments in these companies, the effect on the accompanying consolidated financial statements would not be material. Goodwill represents the excess of the cost of an acquisition over the fair value of the Group's share of the net assets of the acquired subsidiary/associated company at the date of acquisition. Goodwill is reported in the consolidated balance sheet as investments and other assets and/or long-term liabilities and is amortized using the straight-line method over five years.

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All significant intercompany balances and transactions have been eliminated in consolidation. All material unrealized profit included in assets resulting from transactions within the Group is eliminated.

c. Unification of Accounting Policies Applied to Foreign Subsidiaries for the Consolidated Financial

Statements—In May 2006, the Accounting Standards Board of Japan (the "ASBJ") issued ASBJ Practical Issues Task Force ("PITF") No. 18, "Practical Solution on Unification of Accounting Policies Applied to Foreign Subsidiaries for the Consolidated Financial Statements." PITF No. 18 prescribes (1) the accounting policies and procedures applied to a parent company and its subsidiaries for similar transactions and events under similar circumstances should, in principle, be unified for the preparation of the consolidated financial statements, (2) financial statements prepared by foreign subsidiaries in accordance with either International Financial Reporting Standards or accounting principles generally accepted in the United States of America tentatively may be used for the consolidation process, (3) however, the following items should be adjusted in the consolidation process so that net income is accounted for in accordance with Japanese GAAP unless they are not material: (a) amortization of goodwill; (b) scheduled amortization of actuarial gain or loss of pensions that has been directly recorded in equity; (c) expensing capitalized development costs of R&D; (d) cancellation of the fair value model of accounting for property, plant and equipment and investment properties and incorporation of the cost model of accounting; and (e) exclusion of minority interests from net income, if contained in net income.

d. Unification of Accounting Policies Applied to Foreign Associated Companies for the Equity Method—In

March 2008, the ASBJ issued ASBJ Statement No. 16, "Accounting Standard for Equity Method of Accounting for Investments." The new standard requires adjustments to be made to conform the associate's accounting policies for similar transactions and events under similar circumstances to those of the parent company when the associate's financial statements are used in applying the equity method unless it is impracticable to determine adjustments. In addition, financial statements prepared by foreign associated companies in accordance with either International Financial Reporting Standards or the accounting principles generally accepted in the United States of America tentatively may be used in applying the equity method if the following items are adjusted so that net income is accounted for in accordance with Japanese GAAP unless they are not material: (1) amortization of goodwill; (2) scheduled amortization of actuarial gain or loss of pensions that has been directly recorded in equity; (3) expensing capitalized development costs of R&D; (4) cancellation of the fair value model accounting for property, plant and equipment and investment properties and incorporation of the cost model accounting; and (5) exclusion of minority interests from net income, if contained in net income.

e. Business Combinations—In December 2008, the ASBJ issued a revised accounting standard for business

combinations, ASBJ Statement No. 21, "Accounting Standard for Business Combinations." Major accounting changes under the revised accounting standard are as follows:

(1) The revised standard requires accounting for business combinations only by the purchase method, and the

pooling of interests method of accounting is no longer allowed. (2) The previous accounting standard required research and development costs to be charged to income as

incurred. Under the revised standard, in-process research and development (IPR&D) costs acquired in a business combination are capitalized as an intangible asset.

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(3) The previous accounting standard provided for a bargain purchase gain (negative goodwill) to be systematically amortized within 20 years. Under the revised standard, the acquirer recognizes a bargain purchase gain in profit or loss on the acquisition date after reassessing whether it has correctly identified all of the assets acquired and all of the liabilities assumed with a review of such procedures used.

The revised standard was applicable to business combinations undertaken on or after April 1, 2010. f. Translation of Foreign Currency Accounts—Foreign currency transactions are translated into Japanese yen

using the exchange rate in effect at the date of each transaction or at the applicable exchange rates under forward exchange contracts. Gains or losses from foreign currency transactions are included in net income or loss. Both short-term and long-term receivables and payables denominated in foreign currencies are translated into Japanese yen at exchange rates in effect at the balance sheet date. However, short-term and long-term receivables and payables covered by forward exchange contracts are translated at the contract rates. Any differences between the foreign exchange contract rates and historical rates resulting from the translation of receivables and payables are recognized as income or expense over the lives of the related contracts.

g. Foreign Currency Financial Statements—The balance sheet accounts of the consolidated foreign subsidiaries

are translated into Japanese yen at the current exchange rate as of the balance sheet date except for equity, which is translated at the historical rate. Differences arising from such translation are shown as "Foreign currency translation adjustments" as a separate component of equity. Revenue and expense accounts of consolidated foreign subsidiaries are translated into yen at the average exchange rate.

h. Cash Equivalents—Cash equivalents are short-term investments that are readily convertible into cash and that

are exposed to insignificant risk of changes in value. Cash equivalents include time deposits, certificates of deposit, commercial paper, assets purchased under agreement to resell and bond funds, all of which mature or become due within three months of the date of acquisition.

i. Marketable Securities and Investment Securities—All securities are classified as available-for-sale securities

and are reported at fair value, with unrealized gains and losses, net of applicable taxes, reported in a separate component of equity. The cost of securities sold is determined based on the moving-average method. Non-marketable available-for-sale securities are stated at cost determined by the moving-average method. For other-than-temporary declines in fair value, non-marketable available-for-sale securities are reduced to net realizable value by a charge to income.

j. Allowance for Doubtful Receivables—The allowance for doubtful receivables is stated in amounts considered

to be appropriate based on the Company's past credit loss experience and an evaluation of potential losses in the receivables outstanding.

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k. Inventories—Inventories are stated at the lower of cost, determined by the average method for finished products, and by the first-in, first-out method for raw materials, or net selling value.

l. Property, Plant and Equipment—Property, plant and equipment are stated at cost less accumulated

depreciation. Depreciation of property, plant and equipment, except for building and lease assets, of the Company and its consolidated domestic subsidiaries is computed by the declining-balance method over the estimated useful lives of the assets, while the straight-line method is applied to buildings and lease assets of those companies and to the property, plant and equipment of consolidated foreign subsidiaries. The range of useful lives is from 5 to 50 years for buildings and structures and from 4 to 16 years for machinery and equipment. The useful lives for lease assets are the terms of the respective leases. Ordinary maintenance and repairs are charged to income as incurred. Major replacements and improvements are capitalized.

m. Long-Lived Assets—The Group reviews its long-lived assets for impairment whenever events or changes in

circumstance indicate the carrying amount of an asset or asset group may not be recoverable. An impairment loss would be recognized if the carrying amount of an asset or asset group exceeds the sum of the undiscounted future cash flows expected to result from the continued use and eventual disposition of the asset or asset group. The impairment loss would be measured as the amount by which the carrying amount of the asset exceeds its recoverable amount, which is the higher of the discounted cash flows from the continued use and eventual disposition of the asset or the net selling price at disposition.

n. Bond Issue Costs—Bond issue costs are amortized by the straight-line method over the bond term (five years),

and charged to income. o. Asset Retirement Obligations—In March 2008, the ASBJ published ASBJ Statement No. 18, "Accounting

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

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p. Leases—In March 2007, the ASBJ issued ASBJ Statement No. 13, "Accounting Standard for Lease Transactions," which revised the previous accounting standard for lease transactions issued in June 1993. Under the previous accounting standard, finance leases that were deemed to transfer ownership of the leased property to the lessee were to be capitalized. However, other finance leases were permitted to be accounted for as operating lease transactions if certain "as if capitalized" information was disclosed in the notes to the lessee's financial statements. The revised accounting standard requires that all finance lease transactions be capitalized by recognizing lease assets and lease obligations in the balance sheet. In addition, the revised accounting standard permits leases which existed at the transition date and do not transfer ownership of the leased property to the lessee to be measured at the obligations under finance leases less interest expense at the transition date and recorded as acquisition cost of lease assets. The Company applied the revised accounting standard effective April 1, 2008. In addition, the Company accounted for leases which existed at the transition date and which do not transfer ownership of the leased property to the lessee as acquisition cost of lease assets measured at the obligations under finance leases less interest expense at the transition date. All other leases are accounted for as operating leases.

q. Bonuses to Directors and Corporate Auditors—Bonuses to directors and corporate auditors are accrued at the

year-end to which such bonuses are attributable. r. Construction Contracts—Construction revenue and construction costs should be recognized by the

percentage-of-completion method, if the outcome of a construction contract can be estimated reliably. When total construction revenue, total construction costs, and the stage of completion of the contract at the balance sheet date can be reliably measured, the outcome of a construction contract can be estimated reliably. If the outcome of a construction contract cannot be reliably estimated, the completed-contract method should be applied. When it is probable that the total construction costs will exceed total construction revenue, an estimated loss on the contract should be immediately recognized by providing for a loss on construction contracts.

s. Income Taxes—The provision for income taxes is computed based on the pretax income included in the

consolidated statement of income. The asset and liability approach is used to recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. Deferred taxes are measured by applying currently-enacted tax laws to the temporary differences.

t. Retirement and Pension Plans—The Company and its domestic consolidated subsidiaries have an unfunded

retirement benefit plan for all eligible employees. The amounts of the retirement benefits are, in general, determined on the basis of length of service and conditions under which the termination occurs. In addition to the unfunded plan, the Company has non-contributory and contributory funded pension plan. The liability for retirement benefits is based on the projected benefit obligations and plan assets at the balance sheet date. The net periodic benefit costs, based on an actuarial computation of current and future employee benefits, are charged to income.

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Retirement allowances for directors and corporate auditors are recorded to state the liability for retirement benefits at the amount that would be required if all directors and corporate auditors retired at each balance sheet date.

u. Research and Development—Costs relating to research and development activities are charged to income as

incurred. v. Derivatives and Hedging Activities—The Group uses a variety of derivative financial instruments, including

foreign currency forward contracts, commodity futures and interest rate swaps as a means of hedging exposure to foreign currency, price and interest rate risks. The Group does not enter into derivatives for trading or speculative purposes. All derivatives are recognized as either assets or liabilities and measured at fair value, with gains or losses recognized in the consolidated statement of income. If derivatives qualify for hedge accounting because of high correlation and effectiveness between the hedging instruments and the hedged items, gains or losses on the derivatives are deferred until maturity of the hedged transactions. Foreign currency forward contracts are utilized to hedge foreign currency exposures in the importation of raw materials from overseas suppliers. Trade payables denominated in foreign currencies are translated at the contracted rates if the forward contracts qualify for hedge accounting. Commodity futures are utilized to hedge transactions in inventories and trading commitments. These futures which qualify for hedge accounting are measured at market value at the balance sheet date and the unrealized gains or losses are deferred until maturity as equity. Interest rate swaps are utilized to hedge interest rate exposures of long-term debt. These swaps, which qualify for hedge accounting, are measured at market value at the balance sheet date and the unrealized gains or losses are deferred until maturity as equity.

w. Per Share Data—Basic net income per share is computed by dividing net income available to common

shareholders by the weighted-average number of common shares outstanding for the period, retroactively adjusted for stock splits. Diluted net income per share is not disclosed because the Company does not issue dilutive securities. Cash dividends per share shown in the consolidated statement of income have been presented on an accrual basis and include dividends approved or to be approved after March 31, but applicable to each fiscal year ended March 31.

x. Appropriations of Retained Earnings—Appropriations of retained earnings are reflected in the consolidated

financial statements for the following year on shareholders' approval. y. Application of Accounting Changes and Error Corrections—In terms of accounting changes and correction

of errors contained in past reports after the beginning of the year ended March 31, 2012, "Accounting Standard for Accounting Changes and Error Corrections" (ASBJ Statement No. 24, December 4, 2009) and "Guidance on Accounting Changes and Error Corrections" (ASBJ Guidance No. 24, December 4, 2009) have been applied.

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z. New Accounting Pronouncements Accounting Standard for Retirement Benefits—On May 17, 2012, the ASBJ issued ASBJ Statement No. 26, "Accounting Standard for Retirement Benefits" and ASBJ Guidance No. 25, "Guidance on Accounting Standard for Retirement Benefits," which replaced the Accounting Standard for Retirement Benefits that had been issued by the Business Accounting Council in 1998 with effective date of April 1, 2000 and the other related practical guidances, being followed by partial amendments from time to time through 2009. Major changes are as follows:

(a) Treatment in the balance sheet

Under the current requirements, actuarial gains and losses and past service costs that are yet to be recognized in profit or loss are not recognized in the balance sheet, and the difference between retirement benefit obligations and plan assets (hereinafter, "deficit or surplus"), adjusted by such unrecognized amounts, are recognized as a liability or asset. Under the revised accounting standard, actuarial gains and losses and past service costs that are yet to be recognized in profit or loss shall be recognized within equity (accumulated other comprehensive income), after adjusting for tax effects, and the deficit or surplus shall be recognized as a liability (liability for retirement benefits) or asset (asset for retirement benefits).

(b) Treatment in the statement of income and the statement of comprehensive income (or the statement of

income and comprehensive income) The revised accounting standard would not change how to recognize actuarial gains and losses and past service costs in profit or loss. Those amounts would be recognized in profit or loss over a certain period no longer than the expected average remaining working lives of the employees. However, actuarial gains and losses and past service costs that arose in the current period and yet to be recognized in profit or loss shall be included in other comprehensive income and actuarial gains and losses and past service costs that were recognized in other comprehensive income in prior periods and then recognized in profit or loss in the current period shall be treated as reclassification adjustments.

This accounting standard and the guidance are effective for the end of annual periods beginning on or after

April 1, 2013 with earlier application being permitted from the beginning of annual periods beginning on or after April 1, 2013. However, no retrospective application of this accounting standard to consolidated financial statements in prior periods is required. The Company expects to apply the revised accounting standard from the end of the annual period beginning on April 1, 2013 and is in the process of measuring the effects of applying the revised accounting standard for the year ending March 31, 2014.

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2. MARKETABLE AND INVESTMENT SECURITIES Marketable and investment securities as of March 31, 2012 and 2011 consisted of the following:

Millions of Yen Thousands of U.S. Dollars

2012 2011 2012

Current: Government and corporate bonds ¥ 201 ¥ 3,725 $ 2,451 Trust fund investments and other 50 610 Total ¥ 251 ¥ 3,725 $ 3,061 Non-current: Marketable equity securities ¥ 10,862 ¥ 10,524 $ 132,463 Government and corporate bonds 1,112 1,212 13,561 Trust fund investments and other 50 Total ¥ 11,974 ¥ 11,786 $ 146,024

The costs and aggregate fair values of marketable and investment securities at March 31, 2012 and 2011 were as

follows:

Millions of Yen 2012

Cost Unrealized

Gains Unrealized

Losses Fair

Value

Securities classified as available-for-sale: Equity securities ¥ 7,496 ¥ 3,056 ¥ 905 ¥ 9,647 Debt securities 1,312 37 82 1,267 Other 51 51

Millions of Yen 2011

Cost Unrealized

Gains Unrealized

Losses Fair

Value

Securities classified as available-for-sale: Equity securities ¥ 7,347 ¥ 3,013 ¥ 1,104 ¥ 9,256 Debt securities 6,544 9 1,616 4,937 Other 51 51

Thousands of U.S. Dollars 2012

Cost Unrealized

Gains Unrealized

Losses Fair

Value

Securities classified as available-for-sale: Equity securities $ 91,415 $ 37,268 $ 11,037 $ 117,646 Debt securities 16,000 451 1,000 15,451 Other 622 622

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Note: Unlisted equity securities were not included in the above table because there were no quoted market prices available and it is extremely difficult to determine the fair value. As of March 31, 2012 and 2011, the carrying values of these unlisted securities were ¥1,260 million ($15,366 thousand) and ¥1,267 million, respectively.

The information of available-for-sale securities which were sold during the years ended March 31, 2012 and 2011

was as follows:

Millions of Yen

March 31, 2012 Proceeds Realized

Gains Realized Losses

Available-for-sale: Marketable securities ¥ 3,131 ¥ 1,578 Equity securities 181 ¥ 127

March 31, 2011

Available-for-sale—Equity securities ¥36 ¥29

Thousands of U.S. Dollars

March 31, 2012 Proceeds Realized

Gains Realized Losses

Available-for-sale: Marketable securities $ 38,183 $ 19,244 Equity securities 2,207 $ 1,549

The impairment losses on available-for-sale equity securities for the years ended March 31, 2012 and 2011 were

¥192 million ($2,341 thousand) and ¥1,665 million, respectively. As of March 31, 2012, the following assets were pledged as collateral to secure trade accounts payables of ¥7 million ($85 thousand):


Equity securities ¥ 86 $ 1,049

3. SHORT-TERM BANK LOANS AND LONG-TERM DEBT

Short-term bank loans at March 31, 2012 and 2011 consisted of bank overdrafts, loans on deed and notes to banks. The average interest rates applicable to the short-term bank loans as of March 31, 2012 and 2011 were 2.9% and 2.8%, respectively.

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Long-term debt as of March 31, 2012 and 2011 consisted of the following:


2012 2011 2012

1.4% unsecured bonds due 2012 ¥ 5,000 ¥ 5,000 $ 60,976 1.8% unsecured bonds due 2014 10,000 10,000 121,951 1.3% unsecured bonds due 2011 5,000 1.5% unsecured bonds due 2013 5,000 5,000 60,976 0.6% unsecured bonds due 2016 10,000 121,951 1.5% unsecured bonds due 2011 10 Loans from banks, due through 2016 with interest rates ranging from 0.0% to 5.0% (2012) and from 0.5% to 4.6% (2011): Collateralized 1,285 Unsecured 19,938 8,736 243,146 Obligations under finance leases 893 715 10,890 Total 50,831 35,746 619,890 Less current portion (7,729) (6,630 ) (94,256) Long-term debt, less current portion ¥ 43,102 ¥ 29,116 $ 525,634

The aggregate annual maturities of long-term debt as of March 31, 2012 were as follows:

Year Ending March 31 Millions of Yen

Thousands ofU.S. Dollars

2013 ¥ 7,729 $ 94,256 2014 7,589 92,549 2015 14,385 175,427 2016 483 5,890 2017 and thereafter 20,645 251,768 Total ¥ 50,831 $ 619,890

4. RETIREMENT AND PENSION PLANS

The Company and its domestic consolidated subsidiaries have severance payment plans for employees, directors and corporate auditors. The contributory funded defined benefit plan, which is established under the Japanese Welfare Pension Insurance Law, covers a substitutional portion of the governmental pension program managed by the Company on behalf of the government and a corporate portion established at the discretion of the Company. According to the enactment of the Defined Benefit Pension Plan Law in April 2002, the Company applied for an exemption from obligation to pay benefits for future employee services related to the substitutional portion which would result in the transfer of pension obligations and related assets to the government by another subsequent application, and also applied for transfer of the substitutional portion of past pension obligations to the government and obtained approval by the Ministry of Health, Labour and Welfare.

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The liability (assets) for employees' retirement benefits at March 31, 2012 and 2011 consisted of the following:


2012 2011 2012

Projected benefit obligation ¥ 18,997 ¥ 18,931 $ 231,671 Fair value of plan assets (12,812) (12,168 ) (156,244) Unrecognized prior service cost 957 1,082 11,671 Unrecognized actuarial loss (7,127) (7,819 ) (86,915) Prepaid pension expense 1,166 1,104 14,219 Net liability ¥ 1,181 ¥ 1,130 $ 14,402

The components of net periodic benefit costs for the years ended March 31, 2012 and 2011 are as follows:


2012 2011 2012

Service cost ¥ 825 ¥ 820 $ 10,061 Interest cost 367 367 4,476 Expected return on plan assets (450) (695 ) (5,488) Amortization of prior service cost (124) (124 ) (1,512) Recognized actuarial loss 750 673 9,146 Net periodic benefit costs ¥ 1,368 ¥ 1,041 $ 16,683

Assumptions used for the years ended March 31, 2012 and 2011 are set forth as follows:

2012 2011

Discount rate 2.2% 2.2% Expected rate of return on plan assets 3.9% 5.7% Amortization period of prior service cost 14–17 years 14–17 years Recognition period of actuarial gain 14–17 years 14–17 years

Retirement allowances for directors and corporate auditors are paid subject to approval of the shareholders.

The Group recorded a liability for its unfunded retirement allowance plan covering all of its directors and corporate auditors of ¥1,206 million ($14,708 thousand) and ¥1,150 million for the years ended March 31, 2012 and 2011, respectively.

5. RESEARCH AND DEVELOPMENT COSTS

Research and development costs charged to income were ¥2,016 million ($24,585 thousand) and ¥2,226 million for the years ended March 31, 2012 and 2011, respectively.

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6. EQUITY Japanese companies are subject to the Companies Act of Japan (the "Companies Act"). The significant provisions in the Companies Act that affect financial and accounting matters are summarized below:

a. Dividends

Under the Companies Act, companies can pay dividends at any time during the fiscal year in addition to the year-end dividend upon resolution at the shareholders meeting. For companies that meet certain criteria such as (1) having a Board of Directors, (2) having independent auditors, (3) having a Board of Corporate Auditors, and (4) the term of service of the directors is prescribed as one year rather than two years of normal term by its articles of incorporation, the Board of Directors may declare dividends (except for dividends-in-kind) at any time during the fiscal year if the company has prescribed so in its articles of incorporation. The Company meets all the above criteria. The Companies Act permits companies to distribute dividends-in-kind (non-cash assets) to shareholders subject to a certain limitation and additional requirements. Semiannual interim dividends may also be paid once a year upon resolution by the Board of Directors if the articles of incorporation of the company so stipulate. The Companies Act provides certain limitations on the amounts available for dividends or the purchase of treasury stock. The limitation is defined as the amount available for distribution to the shareholders, but the amount of net assets after dividends must be maintained at no less than ¥3 million.

b. Increases/Decreases and Transfer of Common Stock, Reserve and Surplus

The Companies Act requires that an amount equal to 10% of dividends must be appropriated as a legal reserve (a component of retained earnings) or as additional paid-in capital (a component of capital surplus) depending on the equity account charged upon the payment of such dividends until the total of aggregate amount of legal reserve and additional paid-in capital equals 25% of the amount of common stock. Under the Companies Act, the total amount of additional paid-in capital and legal reserve may be reversed without limitation. The Companies Act also provides that common stock, legal reserve, additional paid-in capital, other capital surplus and retained earnings can be transferred among the accounts under certain conditions upon resolution of the shareholders.

c. Treasury Stock and Treasury Stock Acquisition Rights

The Companies Act also provides for companies to purchase treasury stock and dispose of such treasury stock by resolution of the Board of Directors. The amount of treasury stock purchased cannot exceed the amount available for distribution to the shareholders which is determined by specific formula. Under the Companies Act, stock acquisition rights are presented as a separate component of equity. The Companies Act also provides that companies can purchase both treasury stock acquisition rights and treasury stock. Such treasury stock acquisition rights are presented as a separate component of equity or deducted directly from stock acquisition rights.

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7. INCOME TAXES The Company and its domestic consolidated subsidiaries are subject to Japanese national and local income taxes, which, in the aggregate, resulted in a normal effective statutory tax rate of approximately 40.6% for the years ended March 31, 2012 and 2011. The tax effects of significant temporary differences and tax loss carryforwards, which resulted in deferred tax assets and liabilities at March 31, 2012 and 2011 are as follows:


2012 2011 2012

Deferred tax assets: Liability for retirement benefits ¥ 2,183 ¥ 2,464 $ 26,622 Tax loss carryforwards 2,971 1,111 36,232 Accrued expenses 1,363 1,587 16,622 Inventories 40 288 488 Impairment loss on long-lived assets 313 408 3,817 Other 1,519 1,882 18,524 Less valuation allowance (1,358) (1,448 ) (16,561) Total 7,031 6,292 85,744 Deferred tax liabilities: Gain on securities transferred of the retirement benefit trust fund (1,404) (1,602 ) (17,122) Property, plant and equipment (3,185) (3,684 ) (38,841) Unrealized gain on available-for-sale securities (733) (109 ) (8,939) Other (1,917) (3,432 ) (23,378) Total (7,239) (8,827 ) (88,280) Net deferred tax liabilities ¥ (208) ¥ (2,535 ) $ (2,536)

Deferred tax assets (liabilities) at March 31, 2012 and 2011 were disclosed as follows:


2012 2011 2012

Current assets—Deferred tax assets ¥ 3,023 ¥ 2,233 $ 36,866 Investments and other assets—Deferred tax assets 747 884 9,110 Current liabilities—Deferred tax liabilities (11) (426) (134) Long-term liabilities—Deferred tax liabilities (3,967) (5,226 ) (48,378) Total ¥ (208) ¥ (2,535 ) $ (2,536)

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A reconciliation between the normal effective statutory tax rates and the actual effective tax rates reflected in the accompanying consolidated statement of income for the year ended March 31, 2012 with the corresponding figures for 2011 is as follows:

2012 2011

Normal effective statutory tax rate 40.6 % 40.6 % Expenses not permanently deductible for income tax purposes, such as entertainment expenses 9.2 10.4 Income not permanently taxable for income tax purposes, such as dividend income ( 16.2) (9.7) Per capita levy of corporate tax 1.9 2.0 Elimination of intercompany dividends 15.9 11.0 Amortization of goodwill 1.6 10.7 Difference from effective statutory tax rate of consolidated subsidiaries 1.6 ( 12.3) Equity in earnings of associated companies (1.6) (0.7) Reversal of valuation allowance ( 26.9) Unrecognized deferred taxes 0.9 5.6 Research and development expenses deductible for income taxes (3.4) Tax reduction from investment in facilities ( 12.8) Loss on write-down of investment of subsidiaries ( 80.1) Effect of tax rate reduction (8.1) Other—net 2.0 (9.4) Actual effective tax rate ( 32.3) % 5.1 %

On December 2, 2011, new tax reform laws were enacted in Japan, which changed the normal effective statutory

tax rate from approximately 40.6% to 38.0% effective for the fiscal years beginning on or after April 1, 2012 through March 31, 2015, and to 35.6% afterwards. The changes in effective statutory tax rates led to a ¥364 million ($4,439 thousand) decrease in deferred tax liabilities (after deducting deferred tax assets), as well as ¥103 million ($1,256 thousand) increase in net unrealized gain on available-for-sale securities and a ¥10 million ($122 thousand) increase in deferred gain on derivatives under hedge accounting. Income taxes—deferred decrease by ¥250 million ($3,049 thousand).

8. RELATED PARTY DISCLOSURES

Transactions of the Company with affiliated companies for the years ended March 31, 2012 and 2011 were as follows:


2012 2011 2012

Sales ¥ 59,356 ¥ 57,904 $ 723,854 Purchases 51,266 51,574 625,195 Rental expense 102 114 1,244 Rental income 17 17 207

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The balances due to or from these affiliated companies at March 31, 2012 and 2011 were as follows:


2012 2011 2012

Trade accounts receivables ¥ 13,206 ¥ 11,231 $ 161,049 Other current assets 9 9 110 Trade accounts payables 8,318 7,441 101,439 Other current liabilities 1 1 12

9. LEASES

The Group leases certain machinery, computer equipment and other assets. Total lease payments for the years ended March 31, 2012 and 2011 were ¥340 million ($4,146 thousand) and ¥416 million, respectively.

10. COMMITMENTS AND CONTINGENT LIABILITIES

The Group was contingently liable at March 31, 2012, for guarantees of employee's housing loans, totaling ¥365 million ($4,451 thousand). The Group had the committed borrowing facility with a domestic banking group totaling ¥40,086 million ($488,854 thousand), of which the used portion was ¥400 million ($4,878 thousand) and the unused portion was ¥39,686 million ($483,976 thousand), at March 31, 2012. At March 31, 2012, the Company transferred its trade accounts receivables of ¥2,168 million ($26,439 thousand) to factoring companies.

11. FINANCIAL INSTRUMENTS AND RELATED DISCLOSURES

(1) Group Policy for Financial Instruments The Group uses financial instruments, mainly long-term debt including bank loans and bonds, based on its capital financing plan. Short-term bank loans are used to fund ongoing operations. Derivatives are used, not for speculative purposes, but to manage exposure to financial risks as described in Note 12.

(2) Nature and Extent of Risks Arising from Financial Instruments

Receivables such as trade notes and trade accounts are exposed to customer credit risk. Marketable and investment securities, mainly equity instruments of customers and suppliers of the Group, are exposed to the risk of market price fluctuations. Payment terms of payables, such as trade notes and trade accounts, are generally less than one year. A portion of bank loans, bonds and lease obligations are exposed to market risks from changes in variable interest rates, and those risks are mitigated by using derivatives of interest rate swaps.

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Derivatives mainly include forward foreign currency contracts, commodities futures and interest rate swaps, which are used to manage exposure to market risks from changes in foreign currency exchange rates of receivables and payables, from changes in commodity price and from changes in interest rates of bank loans and bonds. Please see Note 12 for more detail about derivatives.

(3) Risk Management for Financial Instruments

Credit risk management Credit risk is the risk of economic loss arising from a counterparty's failure to repay or service debt according to the contractual terms. The Group manages its credit risk from receivables on the basis of internal guidelines, which include monitoring of payment terms and balances of major customers by each business administration department to identify the default risk of customers in the early stages. With respect to held-to-maturity financial investment, the Group manages its exposure to credit risk by limiting its funding to high credit rating bonds in accordance with in its internal guidelines. Please see Note 12 for the detail about derivatives. The maximum credit risk exposure of financial assets is limited to their carrying amounts as of March 31, 2012. Market risk management (foreign exchange risk and interest rate risk) Foreign currency trade receivables and payables are exposed to market risk resulting from fluctuations in foreign currency exchange rates. Such foreign exchange risk is hedged principally by forward foreign currency contracts. In addition, when foreign currency trade receivables and payables are expected from forecasted transactions, forward foreign currency contracts may be used under the limited contract term of two years. Interest rate swaps are used to manage exposure to market risks from changes in interest rates of loan payables and bond payables. Marketable and investment securities are managed by monitoring market values and financial position of issuers on a regular basis. Basic principles of derivative transactions are approved at management meeting based on internal guidelines which prescribe the authority and the limit for each transaction. Reconciliation of the transaction and balances with customers is made, and the transaction data has been monitored by the internal audit department.

(4) Fair Values of Financial Instruments

Fair values of financial instruments are based on quoted price in active markets. If quoted price is not available, other rational valuation techniques are used instead. Also please see Note 12 for the detail for fair value of derivatives.

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(a) Fair value of financial instruments

Millions of Yen

March 31, 2012 Carrying Amount

Fair Value

Unrealized Gain/Loss

Cash and cash equivalents ¥ 26,979 ¥ 26,979 Receivables 56,002 Allowance for doubtful receivables (29) Net 55,973 55,973 Investments in associated companies 1,557 1,255 ¥ (302) Marketable and investment securities 10,965 10,965 Total ¥ 95,474 ¥ 95,172 ¥ (302) Short-term bank loans ¥ 16,211 ¥ 16,211 Current portion of long-term debt 7,729 7,769 ¥ 40 Payables 43,102 43,102 Long-term debt 43,102 43,596 494 Total ¥ 110,144 ¥ 110,678 ¥ 534 Derivatives ¥ (503) ¥ (503 )

March 31, 2011

Cash and cash equivalents ¥ 15,993 ¥ 15,993 Receivables 56,941 Allowance for doubtful receivables (14) Net 56,927 56,927 Investments in associated companies 1,675 1,250 ¥ (425) Marketable and investment securities 14,243 14,243 Total ¥ 88,838 ¥ 88,413 ¥ (425) Short-term bank loans ¥ 19,879 ¥ 19,879 Current portion of long-term debt 6,630 6,630 Payables 44,001 44,001 Long-term debt 34,126 34,731 ¥ 605 Total ¥ 104,636 ¥ 105,241 ¥ 605 Derivatives ¥ 1,977 ¥ 1,977

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March 31, 2012 Carrying Amount

Fair Value

Unrealized Gain/Loss

Cash and cash equivalents $ 329,012 $ 329,012 Receivables 682,951 Allowance for doubtful receivables (353) Net 682,598 682,598 Investments in associated companies 18,987 15,304 $ (3,683) Marketable and investment securities 133,720 133,720 Total $ 1,164,317 $ 1,160,634 $ (3,683) Short-term bank loans $ 197,695 $ 197,695 Current portion of long-term debt 94,256 94,744 $ 488 Payables 525,634 525,634 Long-term debt 525,634 531,659 6,025 Total $ 1,343,219 $ 1,349,732 $ 6,513 Derivatives $ (6,134) $ (6,134 )

Cash and Cash Equivalents

The carrying values of cash and cash equivalents approximate fair value because of their short maturities. Marketable and Investment Securities The fair values of marketable and investment securities are measured at the quoted market price of the stock exchange for equity instruments, and at the quoted price obtained from the financial institution for certain debt instruments. The information on the fair value of marketable and investment securities by classification is included in Note 2. Receivables and Payables The carrying values of receivables and payables approximate fair value because of their short maturities. Short-Term Bank Loans and Long-Term Debt The fair values of short-term bank loans and long-term debt are determined by discounting the cash flows related to the debt at the Group's assumed corporate borrowing rate. The fair values of floating rate debt that apply interest rate swaps which qualify for hedge accounting and meet specific matching criteria as means for hedging, are determined by discounting the cash flows related to the debt including interest rate swaps as a unit at the Group's assumed corporate borrowing rate.

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Derivatives The information on the fair value of derivatives is included in Note 12.

(b) Financial instruments whose fair value cannot be reliably determined

Carrying Amount


2012 2011 2012

Investments in equity instruments that do not have a quoted market price in an active market ¥ 3,845 ¥ 3,762 $ 47,366

(5) Maturity Analysis for Financial Assets and Securities with Contractual Maturities

Millions of Yen

March 31, 2012

Due in 1 Year or Less

Due after 1 Year

through 5 Years

Due after 5 Years through 10 Years

Due after 10 Years

Receivables ¥ 56,002 Investment securities—Available-for-sale securities with contractual maturities 250 ¥ 407 ¥ 660 Total ¥ 56,252 ¥ 407 ¥ 660


March 31, 2012

Due in 1 Year or Less

Due after 1 Year

through 5 Years

Due after 5 Years through 10 Years

Due after 10 Years

Receivables $ 682,951 Investment securities—Available-for-sale securities with contractual maturities 3,049 $ 4,963 $ 8,049 Total $ 686,000 $ 4,963 $ 8,049

Please see Note 3 for annual maturities of long-term debt.

12. DERIVATIVES The Group enters into foreign exchange forward contracts to hedge foreign exchange risk associated with certain assets and liabilities denominated in foreign currencies. Forward exchange contracted amounts, which are assigned to associated assets and liabilities and are reflected on the consolidated balance sheet at year-end, are not subject to the disclosure of market value information.

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The Group enters into commodity futures in the normal course of business to determine the cost corresponding to the selling price, which is based on the forward delivery contract. The Group enters into interest rate swap agreements as a means of managing their interest rate exposure and profit or loss on redemption of bonds. The Group also enters into agreements for certain derivative financial instruments as a part of their above-mentioned trading activities. Derivatives are subject to market risk and credit risk. Market risk is the exposure created by potential volatility in market conditions, including interest and foreign exchange rates. Credit risk is the possibility that a loss may result from a counterparty's failure to perform according to the terms and conditions of the contract. Derivative transactions entered into by the Group have been made in accordance with internal policies, which regulate limits of positions, and establishment of the opposite position to reduce risk. Derivative transactions in a loss position that exceed certain predetermined thresholds are reversed. The execution of these transactions is reviewed by the internal audit department. Derivative Transactions to Which Hedge Accounting Is Not Applied at March 31, 2012 and 2011

Millions of Yen

March 31, 2012 Contract Amount

Contract Amount Due after One Year

Fair Value

Unrealized Loss

Foreign currency swap ¥ 11,367 ¥ 11,367 ¥ (450 ) ¥ (450)

March 31, 2011

Foreign currency swap ¥ 11,367 ¥ 11,367 ¥ (580 ) ¥ (580) Interest rate swap (fixed rate payment, floating rate receipt) 500 (4 ) (4)


March 31, 2012 Contract Amount


Fair Value

Unrealized Loss

Foreign currency swap $ 138,622 $ 138,622 $ (5,488 ) $ (5,488)

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Derivative Transactions to Which Hedge Accounting Is Applied at March 31, 2012 and 2011

Millions of Yen

March 31, 2012 Hedged Item Contract Amount


Fair Value

Foreign currency forward contracts: Selling: U.S.$ Receivables ¥ 15,106 ¥ 15,553 Euro Receivables 363 340 Singapore $ Receivables 34 33 Buying: U.S.$ Payables 14,423 ¥863 14,838 Euro Payables 1,525 1,662 Commodity futures contracts: Selling Receivables 2,439 2,444 Buying Payables 7,990 541 7,815

March 31, 2011

Foreign currency forward contracts: Selling: U.S.$ Receivables ¥ 13,970 ¥ 380 ¥ 13,650 Euro Receivables 1,599 1,527 Buying: U.S.$ Payables 30,039 16,039 30,625 Euro Payables 3,303 3,589 Commodity futures contracts: Selling Receivables 2,977 3,118 Buying Payables 8,902 10,342




Fair Value

Foreign currency forward contracts: Selling: U.S.$ Receivables $ 184,220 $ 189,670 Euro Receivables 4,427 4,146 Singapore $ Receivables 415 402 Buying: U.S.$ Payables 175,890 $ 10,524 180,951 Euro Payables 18,598 20,268 Commodity futures contracts: Selling Receivables 29,744 29,805 Buying Payables 97,439 6,598 95,305

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Millions of Yen



Fair Value

Interest rate swaps (fixed rate payment, floating rate receipt) Long-term debt ¥ 296 ¥ (2) Interest rate swaps (fixed rate payment, floating rate receipt) Long-term debt 10,000 ¥ 10,000 *1

March 31, 2011

Interest rate swaps (fixed rate payment, floating rate receipt) Long-term debt ¥1,240 ¥1,000 *1 Interest rate option trading Long-term debt 120 120 *1




Fair Value

Interest rate swaps (fixed rate payment, floating rate receipt) Long-term debt $ 3,610 $ (24)I

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