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Annual Report 2010for the year ended March 31, 2010
Forward-looking Statements
This annual report contains forward-looking statements about NICHIAS Corporation’s future plans, strategies, beliefs and performance that are not historical facts. They are based on current expectations, estimates, forecasts and projections about the industries in which NICHIAS Corporation operates, management’s beliefs and assumptions made by management. As the expectations, estimates, forecasts and projections are subject to a number of risks, uncertainties and assumptions, actual results may differ materially from those projected. NICHIAS Corporation, therefore, wishes to caution readers not to place undue reliance on forward-looking statements. Furthermore, the company undertakes no obligation to update any forward-looking statements as a result of new information, future events or other developments.
Risks, uncertainties and assumptions mentioned above include, but are not limited to, commodity prices; exchange rates and economic conditions; the outcome of pending and future litigation; and the continued availability of financing, financial instruments and financial resources.
* “TOMBO” is a registered trademark of NICHIAS Corporation.All brand names and product names are trademarks or registered trademarks of NICHIAS Corporation.
Contents
Financial Highlights 1
A Message From the Management 2
At a Glance 6
NICHIAS Line-up 8
■ Industrial Products 8
■ Advanced Products 10
■ Automotive Parts 12
■ Building Materials 14
■ Industrial Thermal Insulation Work 15
Research and Development 16
Corporate Governance 18
Helping to Sustain the Environment 22
Board of Directors, Corporate Auditors and
Executive Officers 24
Financial Section 25
Glossary 53
Organization 54
Group Network 55
History 56
Corporate Data/Investor Information 57
ProfileContributing to Society Through the Safety and Reliability of Thermal Insulation TechnologiesNICHIAS Corporation was founded in 1896 as a pioneer in thermal insulation
materials. For more than 110 years, NICHIAS has engaged in a broad
spectrum of activities encompassing basic industries such as electric power
and gas, as well as petroleum and petrochemicals, chemicals, shipbuilding,
steel, automobiles and construction. More recently, NICHIAS’ business
activities have also expanded to include growth industries such as electronics
and environmental protection.
Going forward, NICHIAS remains firmly committed to contributing to
society by providing the safety and reliability that insulation and anti- corrosion
technologies make possible.
Net Income (Loss) per Share (Basic) (Yen)
’06 ’07 ’08 ’09 ’10–150
–100
–50
0
50
100
’06 ’07 ’08 ’09 ’100
60,000
120,000
180,000
Net Sales(Millions of yen)
’06 ’07 ’08 ’09 ’100
5,000
10,000
15,000
Operating Income(Millions of yen)
’06 ’07 ’08 ’09 ’10
Net Income (Loss)(Millions of yen)
–16,000
–12,000
–8,000
–4,000
0
4,000
8,000
Financial Highlights NICHIAS Corporation and Consolidated SubsidiariesYears ended March 31
Millions of YenThousands ofU.S. Dollars
2008 2009 2010 2010
Net sales ¥ 169,650 ¥ 149,211 ¥ 128,071 $ 1,376,515 Material division 114,430 96,318 83,095 893,110 Engineering division 55,220 52,893 44,976 483,405 Operating income 14,795 6,794 6,574 70,658 Income (loss) before income taxes and minority interests (18,520) 3,805 13,377 143,777 Net income (loss) (11,857) 428 8,336 89,596 Depreciation 4,624 4,890 4,293 46,141 R&D costs 5,346 5,299 4,871 52,354
Total assets 149,533 137,709 127,216 1,367,326 Inventories 18,831 17,160 15,189 163,252 Property, plant and equipment 39,282 37,515 34,730 373,280 Total equity 37,466 34,755 44,800 481,513
Per Share Data (Yen and U.S. Dollars): Net income (loss) –Basic ¥ (99.62 ) ¥ 3.60 ¥ 70.10 $ 0.75 –Diluted – – – – Cash dividends – 4.00 6.00 0.06
Note: U.S. dollar amounts have been translated, for convenience only, at ¥93.04=U.S.$1, the rate of exchange prevailing on March 31, 2010.
NICHIAS Annual Report 2010 1
A Message From the Management
Overview of Fiscal 2010 Results
In fiscal 2010, ended March 31, 2010, the Japanese economy
showed signs of an impending recovery, encouraged by an
economic rebound overseas and the benefits of emergency
economic stimulus measures taken at home. Severe conditions,
however, continued to prevail overall, reflecting subdued capital
investment among Japanese corporations, weak consumer
spending due to a worsening employment and personal income
outlook, and other negative factors.
In the current environment, while demand related to semi-
conductor production equipment and automotive parts recovered
steadily after bottoming out in the fourth quarter of last year, sales
in the Industrial Products Division, Industrial Thermal Insulation
Work Division, and Building Materials Division were all lower for
the year. This downturn was primarily the result of reluctant capital
spending in Japan’s manufacturing sector linked to the recession,
coupled with lower construction demand. Consequently, the
NICHIAS Group recorded consolidated net sales of ¥128,071
million, representing a year-on-year decline of 14.2%.
In terms of earnings, consolidated operating income
decreased by 3.2% to ¥6,574 million. The decline in earnings
was minimized by income-side improvements in the Advanced
Products Department and Automotive Parts Division accompany-
ing increased production. Furthermore, as announced on March
8, 2010, steady progress made in repairs and other remedial
work in connection to the improper acquisition of fire-resistance
certification for some of our building materials has led to a
project-by-project reevaluation of costs required for this repair
work. Consequently, provisions made to an allowance based on
Kunihiko Yano President
2 NICHIAS Annual Report 2010
initial estimates for these repairs have been revised and reversed,
with new estimates some ¥7 billion lower than originally forecast.
The remainder of this allowance was subsequently posted as
other income. As a result, net income rose 1,846.1% year on
year to ¥8,336 million.
Outlook for Fiscal Year Ending March 31, 2011
Although a modest recovery led by external demand continues,
the outlook for the Japanese economy remains uncertain. Exac-
erbating this is a widespread sense of excess capacity in the
corporate sector with respect to employment and facilities due
to lackluster domestic demand.
In the fiscal year ending March 31, 2011, sales in the Building
Materials and Industrial Thermal Insulation Work Divisions are
expected to decline year on year, the result of weak construction
demand and decreased demand for thermal insulation work at
Japanese industrial plants. By contrast, sales in the Advanced
Products Division, Industrial Products Division, and the Automotive
Parts Division are projected to improve over the previous fiscal
year. Along with a stable recovery in demand related to semicon-
ductor manufacturing equipment, sales will likely grow atop
modest but broad recovery undertones in Japan, both in capital
investment and in demand for automotive parts.
Basic Policies of the NICHIAS Group
On April 1, 2008, the NICHIAS Group adopted a new corporate
philosophy: The New NICHIAS Spirit. The expression “The New
NICHIAS Spirit” encapsulates the NICHIAS Group’s aspiration
to be reborn as a company that provides new value to a wide
range of industrial sectors. We also strive to be a company that
once again benefits from public trust based on the fundamental
principle of providing safe and reliable products based on insula-
tion and anti-corrosion technologies the NICHIAS Group has
developed over many years, expanding a ring of trust, and
contributing to society.
To achieve these aims, we have set forth an executive stance
anchored by the following four aspects and are managing the
business in accordance with that stance.
• Fulfill our responsibilities, mindful of our role in society.
• Value communication with our customers in the pursuit of their
satisfaction.
• Create a feedback-based corporate culture by listening to
people on the front lines.
• Respect each employee’s individuality and support their per-
sonal growth.
The NICHIAS Group Corporate Vision—
A Company Trusted by Customers
Where People Can Work with Pride
Since its founding, the NICHIAS Group has spent many years
building up an extensive customer network, lines of high-
performance, high-quality products that function under extreme
temperatures made from a wide range of materials encompassing
everything from inorganic and organic substances to metals,
technologies developed over many years, and the intangible asset
of customer reliance. Over the years we have increased corporate
value through business activities built on this foundation.
NICHIAS Annual Report 2010 3
The NICHIAS Group is pursuing various measures to increase
corporate value by providing products and services that custom-
ers can rely on, promoting business expansion in growth industries,
and shaping the Company into one where employees can work
with peace of mind.
To implement these initiatives, we set forth a new manage-
ment vision to become “A company trusted by customers where
people can work with pride.” The NICHIAS Group will enact
measures based on the following basic policies to realize this
management vision.
• Rigorous enforcement of compliance
We will rigorously enforce compliance so that the NICHIAS Group
can achieve stable growth. Specifically, we will review our compli-
ance program and, through alliances spearheaded by the Compli-
ance Committee with subcommittees and labor unions at each
Group business site, take steps to assess the status of legal
compliance and focus on increasing compliance awareness
among employees.
Going forward, along with upgrading and bolstering our
compliance systems, we plan to pursue measures to create
an organization that is open and receptive to feedback from
its employees.
• Promotion of efficient business management
With regard to core businesses, we are ensuring efficient opera-
tions with clearly defined roles for each business to secure stable
profits, while simultaneously taking advantage of our far-reaching
network to seek out new growth areas for the future and expand
into new business domains. We are also continuing to effectively
invest management resources over the long term in businesses
related to current growth areas, including the automotive and
semiconductor fields. Furthermore, we are rebuilding our business
in the building materials industry and transforming it into a solid
pillar of the NICHIAS Group’s operations.
• Creation of products we can sell with confidence
To provide products and services that customers can use with
peace of mind, the NICHIAS Group will pay careful attention to
safety and the environment in its manufacturing activities, and
will further reinforce research and development, production
technologies, facilities technologies, and technical services.
• Development of personnel to lead the way into the future
To ensure future growth and development, the NICHIAS Group
will invest in personnel development, including development of
the next generation of executive managers, rebuild the personnel
evaluation and compensation system, and further enhance
systems to support the growth of our Group employees.
4 NICHIAS Annual Report 2010
With regard to key issues, we will continue the all-out effort
to further remedial work made necessary following the problems
caused to many customers by our improper acquisition of fire-
resistance certification.
The NICHIAS Group will continue working to further
strengthen its corporate structure and run operations more
efficiently. Specifically, we will strive to boost asset efficiency by
building a production framework that is more responsive to
demand trends, investing more efficiently, cutting expenses,
reducing inventories, and promoting extensive fund manage-
ment, among other actions.
The NICHIAS Group will undertake Group-wide reforms
in keeping with our new corporate philosophy—The New
NICHIAS Spirit.
Dividend Policy
In addition to strengthening the management base and enhanc-
ing earnings power, the basic policy of the NICHIAS Group
with respect to the distribution of profits is to strive for the
long-term and appropriate return of profits to shareholders by
expanding the level of such profits available as dividends and
increasing shareholder value, all while retaining sufficient
reserves for reinvestment.
Guided by this basic policy, the decision to pay dividends is
made after careful consideration of a range of factors, including
the availability of capital investment funds and investment in R&D
to support future business development. In finalizing this decision,
emphasis is given to profit levels for the fiscal year, financial
position, and the outlook for future business performance.
In terms of dividends for fiscal 2010, the payment of interim
dividends was withheld due to worsening business performance
caused by rapid changes in our economic environment through
the second quarter. However, based on the above policy, the
Company paid a year-end dividend of ¥6 per share.
While we tentatively plan to pay an annual dividend of ¥6
per share for the fiscal year ending March 31, 2011, this decision
will ultimately rest on a range of factors unknown at this time,
including the Group’s financial condition and operating results
for the term.
June 2010
Kunihiko Yano
President and Chief Executive Officer
NICHIAS Annual Report 2010 5
31.8%
6.5%
17.0%
18.8%
25.9%
Net sales (Billions of yen)
FY’10
FY’09
40.7
48.3
8.3
9.0
Net sales (Billions of yen)
FY’10
FY’09
21.8
22.8
Net sales (Billions of yen)
FY’10
FY’09
24.0
29.2
Net sales (Billions of yen)
FY’10
FY’09
33.2
39.8
Net sales (Billions of yen)
FY’10
FY’09
BUSINESS FIELDS
INDUSTRIAL PRODUCTS
ADVANCED PRODUCTS
AUTOMOTIVE PARTS
BUILDING MATERIALS
INDUSTRIAL THERMAL INSULATION WORK
SHARE OF NET SALESPROFILE
At a Glance
Net sales presented in the “At a Glance” and “NICHIAS Line-up” sections are based on figures for business departments.As such, they differ from the segment information contained in the Financial Section of this report.
Wielding reliable technologies honed over its long history, NICHIAS provides a wide range of products such as gaskets and packing, fluoropolymer products, thermal insulation, and filter materials to basic industries that include electric power, gas, petroleum and petrochemicals, chemicals, and construction. This business is the core operation of the NICHIAS Group.
In highly advanced industries such as semiconductors and LCDs, there is a driving demand for materials, used in manufacturing equipment and facilities, to realize both higher levels of performance and new functionality. NICHIAS offers cutting-edge products and technologies related to piping systems and machinery particularly for handling heat, liquid chemicals and gas, as well as those related to process environments.
While sealing materials such as cylinder head gaskets are the basic products offered in this business, NICHIAS is working to expand areas of business as vehicles evolve by, for example, providing parts with thermal insulation, soundproofing and vibra-tion control attributes, thereby meeting the needs of increasingly globalized customers.
NICHIAS’ mission in this business is to create safe, comfortable environments in office buildings, factories, research facilities, hospitals and residences through its dedication to supplying building materials and building materials installation work that deliver non-combustible, thermal insulating and fireproofing qualities.
From ultra-low to ultra-high temperatures, NICHIAS engineering and construction systems draw on distinctive technologies to insulate or retain heat. Using these systems, NICHIAS is contribut-ing to the conservation of energy and natural resources in basic industries such as electric power, LNG, petroleum and petro-chemicals, as well as environmental facilities such as waste incinerators.
6 NICHIAS Annual Report 2010
MAIN PRODUCTS AND SERVICES
Sheet gaskets
Anti-static PFA tubing for the transfer
of high-purity organic solvent
Gasket for automotive cylinder
head
Calcium silicate boards
Example of thermal insulation
for plant equipment pipes
Spiral-wound gaskets
Fluoroelastomer O-rings for semi-
conductor processing equipment
Thermal insulation cover for
exhaust manifold
Example of cryogenic insulation
work for LNG plant pipes
Ceramic fiber products
Insulation panels with built-in
heaters used in sintering furnaces
Example of fireproofing for
waste incinerators
Rockwool products
Chemical filter for low
concentrated ammonia
Example of soundproofing for
power plant exhaust ducts
Gask
ets a
nd
Packin
g
Gask
ets a
nd
Packin
g
Inorg
an
ic F
iber In
sula
tion
Mate
rials
for U
ltra-h
igh
Tem
pera
ture
s
Insu
latio
n M
ate
rials fo
r Pla
nts
an
d B
uild
ings
Corro
sion
-resista
nt Ta
nk
Lin
ing M
ate
rials
En
gin
eerin
g P
lastic
Pro
ducts
En
gin
eerin
g P
lastic
Pro
ducts
Inorg
an
ic F
iber In
sula
tion P
roducts
Filte
r Pro
ducts
En
gin
eerin
g P
lastic
Pro
ducts
Sealin
g M
ate
rials
Heat P
roofin
g P
arts
Catalytic converter support
mats
Support P
arts
Anti-squeal, vibration damping,
rubber coated metal
Soundpro
ofin
g P
arts
Fuel E
conom
y-enhancin
g P
roducts
Inte
rior M
ate
rials/S
ub
strate
s Non-combustible decorative
building wall panel
Inte
rior F
inish
ing M
ate
rials
Example of access floor
installation work
Access F
loor W
ork
Therm
al In
sula
tion W
ork
Cryo
gen
ic In
sula
tion
Work
Fire
pro
ofin
g W
ork
Sound
pro
ofin
g W
ork
Corrosion-resistant tank lining
materials
Processed fluoropolymer PTFE
products
Water jacket spacers
Fire
-resista
nt W
rap
pin
g W
ork Example of wrap-type
fireproofing installation
Nucle
ar P
ow
er-re
late
d W
ork Example of installation work for
metallic heat insulation used in piping systems at nuclear power plants
Hou
sing In
sula
tion
Rockwool insulation
NICHIAS Annual Report 2010 7
Net sales (Billions of yen)
FY’10
FY’09
40.7
48.3
0 20 40 60
Assorted gaskets Rockwool productsFluoropolymer fiber-scope tubing
NAFLON™ Multi-Lumen Tube
Growing in Step with Basic Industries
Basic industries such as electric power, gas, petroleum and
petrochemicals, chemicals, shipbuilding and steel are also fun-
damental sectors for the NICHIAS Group, and have been vital to
the expansion of the NICHIAS Group’s own business domains.
As a result, NICHIAS today is able to meet needs in a variety of
industries through a wide-ranging product line-up encompass-
ing sealing materials such as gaskets and packing, fluoropolymer
products with anti-corrosion properties, and thermal insulation
materials for insulating or retaining heat.
Broad Array of Materials to Respond to
Diverse Needs
For a host of basic industries, the NICHIAS Group provides
products that use an array of materials, covering inorganic
materials, organic materials and metals, compatible with ultra-
low through to ultra-high temperature ranges. The proven
technologies honed over its long history form a base that
enables NICHIAS to respond to the diverse needs and the
sophisticated, wide-ranging demands of its customers.
NICHIAS Line-up
INDUSTRIAL PRODUCTSIndustrial Products Division
8 NICHIAS Annual Report 2010
Reusable, flexible thermal insulation product
ENETHERMO™
VOC concentrator
SOLVENTCLEAN™ Corrosion-resistant lining; pipe materials
In materials to prevent leakage, NICHIAS develops and offers
functional parts such as gaskets and packing used in piping
systems and machinery for plants of every type in basic indus-
tries such as petroleum and petrochemicals, electric power and
steel. Similarly, the NICHIAS Group develops, manufactures and
sells gaskets and packing—functional materials used in indus-
trial equipment. Furthermore, the NICHIAS Group consistently
answers newly emerging needs with innovative products thanks
to technologies for the optimal selection and usage of raw materi-
als, as well as the development and application of process tech-
nologies. These proprietary technologies enable NICHIAS to
respond to customers’ increasingly sophisticated requirements
by offering optimal products.
In anti-corrosion materials, NICHIAS supplies a host of
industries with fluoropolymer products, which have superior
resistance to heat and corrosion, as well as outstanding insulat-
ing and non-adhesive properties. The NICHIAS Group stole a
march on its competition by becoming first to process PTFE and
developing PTFE-based sealing materials, back in 1951. Since
then, NICHIAS has leveraged the properties of fluoropolymer
processing technologies to develop various products that it sup-
plies to all basic industries. Today, the applications for fluoropo-
lymer products are expanding beyond more traditional industries
to include their use as materials for medical equipment.
In insulating materials, NICHIAS has supplied its cornerstone
thermal insulation products to a host of industries over the
years, developing these products in step with the changing
times. NICHIAS’ materials can withstand ultra-low through to
ultra-high temperatures. The many varieties of thermal insula-
tion products brought to market by the NICHIAS Group include
rigid polyurethane, calcium silicate, rockwool, and ceramic
fibers, as well as fire-resistant thermal insulation materials, and
a range of ceramic products that offer superior heat- resistance
and functionality.
NICHIAS has also developed honeycomb-structured filters
made from inorganic fiber paper, supplying these filter products
to fields ranging from use in home appliances to industrial appli-
cations. Embodying the NICHIAS Group’s adsorption and cata-
lyst technologies, NICHIAS filters help to improve the living and
natural environments by controlling humidity, processing gas
emissions from power stations, removing ozone emitted from a
variety of equipment and machinery, and adsorbing and concen-
trating volatile organic compounds (VOCs).
Going forward, NICHIAS remains committed to addressing
needs across the full spectrum of industries by combining the
Group’s distinctive technologies to develop new products,
thereby contributing to the entire sector.
NICHIAS Annual Report 2010 9
8.3
9.0
0 5 10
Net sales (Billions of yen)
FY’10
FY’09
Anti-static PFA tubing for the transfer of high-purity organic solvent
NAFLON™ PFA-NE TubeFluoroelastomer O-rings for semiconductor processing equipment
Insulation panels with built-in heaters used in sintering furnaces
FINEFLEX™ Molded Panel Heater
Using Advanced Technology to Develop and
Supply New Products to Rapidly Changing
Electronics-related Industries
In electronics-related industries, there is a strong demand for
materials that exhibit a high degree of cleanliness and that are
capable of withstanding diverse usage environments. This is
particularly the case for materials used in clean rooms and manu-
facturing equipment in the semiconductor and flat-panel display
(FPD) industries.
In Advanced Products, NICHIAS offers an array of cutting-
edge products and technologies to meet customers’ constantly
evolving needs related to equipment, piping and machinery for
handling heat, liquid chemicals and gas, as well as related pro-
cess environments.
Leveraging Advanced Technology and
Comprehensive Capabilities to Act Globally
The NICHIAS Group has developed a variety of products that it
has supplied to the electronics industry and a wide range of
other sectors over the years. These include specialty polymer
processed products, specifically chemical-resistant and high
purity fluoropolymers, and insulation parts, particularly inorganic
fiber with outstanding heat resistance, insulating and anti-
corrosion properties, as well as filter products built from applied
honeycomb-structure technology.
NICHIAS Line-up
ADVANCED PRODUCTSAdvanced Products Division
10 NICHIAS Annual Report 2010
Detachable jacket heater for pipe heating and insulation
ENETHERMO™ PHProcessed fluoropolymer PTFE product
Cup for single wafer cleaning equipmentChemical filter for low concentrated ammonia
CHEMICALGUARD™-N
NICHIAS has been expanding the domains where it can
meet the needs of customers, particularly with parts for use in
semiconductor manufacturing equipment, by taking advantage
of its processing and forming technologies, materials develop-
ment capabilities, and measurement and analysis technologies.
In 2008, NICHIAS moved to specifically target advanced
industrial fields such as semiconductors, FPDs and new-energy-
related fields within the electronics sector by adding “clean” tech-
nologies as a new domain alongside the Group’s core “insulation
and anti-corrosion” technologies. This is part of NICHIAS’ creation
of a new business organization that is capable of responding in a
more agile way such as by proposing new technologies and
products while developing close relationships with customers.
The manufacture of semiconductors encompasses manu-
facturing equipment and facilities, all of which require different
functions based on the desired process.
Furthermore, the shift toward miniaturization and higher
densities for semiconductors, as well as growth in silicon wafer
diameters, show no signs of abating as customer and market
requirements continue to become more sophisticated. Addition-
ally, measures for enhancing the energy efficiency of the various
kinds of manufacturing equipment and production lines used in
semiconductor-related industries is emerging as an increasingly
important issue in addressing environmental concerns.
In this context, NICHIAS is responding to customers and
market requirements, and is contributing to the advancement of
device-processing technologies. The Group develops and pro-
vides clean and compact processed polymer products backed
by advanced processing, hot melt adhesion and structural analy-
sis technologies; high heat-resistant rubber O-rings and other
sealing materials, thermal insulation panels with built-in heaters
that offer superior temperature rise, heat insulating properties
and high heat-insulating, low-dust-generation jacket heaters;
and filter products to remove harmful gases that have adverse
effects on the manufacture of semiconductors and FPDs.
Going forward, there are growing expectations for the devel-
opment of environmentally friendly solar photovoltaic power
generation business in these industrial fields. The NICHIAS group
of companies will expand the field of its business operations not
only in electronics-related industries such as the manufacture of
semiconductor and LCD manufacturing equipment, but also in
cutting-edge industries such as new energy industries in and
outside of Japan, developing and providing new products utilizing
its advanced technologies and integrated corporate capabilities.
NICHIAS Annual Report 2010 11
21.8
22.8
0 10 20 30
Net sales (Billions of yen)
FY’10
FY’09
Gasket for automotive cylinder head
METAKOTE™ Cylinder Head GasketThermal insulation cover for exhaust manifold
INSULCOVER™
Anti-squeal, vibration damping, rubber coated metal
METAPLUS™ Multi-Layer Shim
NICHIAS Line-up
AUTOMOTIVE PARTSAutomotive Parts Division
Contributing Thermal Insulation Technologies for
Automotive Environmental Innovation
The race is on among automakers to create vehicles that offer
continually higher performance. Today’s society, however, also
demands close attention to making cars safer, more comfortable
and more environmentally friendly. Progress is unstoppable.
NICHIAS’ automotive parts business stemmed originally from
thermal insulation technologies. NICHIAS’ thermal insulation prod-
ucts are now used in a variety of automotive fields, ranging from
insulating against heat to materials for controlling the screeching
noise of brakes. In this way, the NICHIAS Group is contributing to
environmental innovation in the automotive sector.
Integrated System Encompassing Materials
Development, Design, Evaluation and Manufacture
and Quality Assurance
The NICHIAS Group’s presence in the automotive industry has
its roots in sealing materials. NICHIAS products have been
employed in a variety of automotive parts, the most notable
being engine cylinders, which are exposed to the harshest con-
ditions, exhaust manifolds and other engine-related parts. The
purpose of sealing materials is self-evident. But manufacturing
sealing materials requires the skill to select and develop the most
appropriate materials and processing technologies according to
the location and service condition of each part. That is where the
12 NICHIAS Annual Report 2010
Automotive Parts Technical CenterWater jacket spacersCatalytic converter support mats
ECOFLEX™
NICHIAS Group comes in, with technical know-how, R&D capa-
bilities and technological prowess nurtured over many years in
this business.
The automotive industry has evolved by rising to the chal-
lenges of achieving low emissions, while improving fuel efficiency,
safety, performance, comfort and affordability. For the NICHIAS
Group, these challenges present an ideal opportunity for using
the NICHIAS Group’s core and original technologies, which are
gaining traction in new fields. Combinations of these technolo-
gies, moreover, have led to NICHIAS’ line-up of support mats for
the catalytic converters that purify automotive exhaust, water
jacket spacers, which improve fuel economy, and ultra-lightweight
and flexible soundproofing covers.
Furthermore, to effectively meet increasingly diverse cus-
tomer requirements, NICHIAS in 2007 began channeling devel-
opment resources into the newly established Automotive Parts
Technical Center. The new center, consisting of an R&D wing
and a bench wing, has consolidated development resources
once dispersed across different sites. The R&D wing is outfitted
with an assortment of testing equipment. Utilizing acoustic test-
ing equipment and other facilities, the center conducts high-level
research into soundproofing materials and braking simulations,
among other areas. The center also uses the various testing
machinery and measuring devices at its disposal to design and
develop sealing materials, heatproofing materials and catalytic
converter support mats.
The center’s bench wing, meanwhile, contains a measuring
bench room and an exhaust system bench room, in addition to
a bench room for evaluating parts durability. With this dedicated
bench wing, the aim is to enhance development efficiency
through high-precision measurement and evaluation.
The NICHIAS Group has far-reaching sales and technology
networks targeting automakers and automotive parts manufac-
turers in Japan and overseas. Leveraging soundproofing, thermal
insulation and sealing technologies honed over many years, the
NICHIAS Group is striving to meet customer needs through an
integrated system encompassing materials development,
design, evaluation, production and quality assurance. At the
same time, the Group is expanding its operations globally to
provide safety and reliability, high quality, and customer satisfac-
tion in countries where major customers are active overseas.
NICHIAS Annual Report 2010 13
24.0
29.2
0 10 20 30
Net sales (Billions of yen)
FY’10
FY’09
Calcium silicate boards
ECOLUX™
Access floors
NICHIAS SIGMA FLOOR™
Installation of wrap-type fireproofing materials
MAKIBEI™
In the field of building materials, the NICHIAS Group mainly
manufactures and sells non-combustible interior materials and
decorative interior finishing materials made primarily of calcium
silicate, effectively reusing this waste material generated by
thermal power plants and similar facilities. As a leading manufac-
turer of non-combustible materials handling everything from raw
materials to highly functional building products, NICHIAS will
continue to focus on the development of environmentally
responsible products. In housing materials, NICHIAS is meeting
demands for measures to prevent global warming by supplying
rockwool products, which provide excellent thermal insulation
and deliver substantial energy savings.
In the field of building materials installation work, NICHIAS’
operations are founded on the trust and considerable track
record it has earned during its many years in the business.
Construction projects include the installation of access floors for
the creation of safe and comfortable office spaces in today’s
“intelligent buildings,” and eco-consciously developed wrap-type
fireproofing materials to protect the steel structure of buildings.
NICHIAS is also spurring advancement in high-performance,
value-added building materials. Here, development is proceed-
ing on new construction methods for isolating structures from
earthquakes and making them fireproof, including methods for
protecting building equipment vital to resisting earthquakes from
fire caused by the event.
Diverse Product Lines and Construction Systems
for Safer, More Comfortable Buildings
Safety and comfort are essential qualities of any building, whether
designed as an office building or residential dwelling. Building
materials and construction systems from the NICHIAS Group
incorporate technologies that form barriers against various
intrusive elements. Among the many properties offered are fire
resistance, fireproofing, and thermal insulation. All contribute to
safety and comfort. NICHIAS is also taking environmental pres-
ervation steps with its line-up of low environmental impact, non-
combustible interior materials and access floor products that
bear the Eco Mark of the Japan Environment Association.
Providing Non-combustible and Insulation
Materials, Access Floors and Fireproofing
Materials Backed by Years of Experience
For many years, the NICHIAS Group has been developing and
manufacturing a broad spectrum of non-combustible, fireproof,
and thermal insulation materials and installation methods that
make structures safer and more comfortable.
NICHIAS Line-up
BUILDING MATERIALSBuilding Materials Division
14 NICHIAS Annual Report 2010
33.2
39.8
0 10 20 30 40
Net sales (Billions of yen)
FY’10
FY’09
LNG thermal facilities using NICHIAS’ cryogenic insulation materials
NICHIAS’ thermal insulation materials in a petroleum plant
NICHIAS’ metallic heat insulation used at nuclear power plant facilities
Contributing to Comfortable Living and
Working Environments
Industrial thermal insulation work was originally designed to
conserve energy and raise heat efficiency. In recent years, how-
ever, the business has been playing an instrumental role in
conserving resources and helping protect the environment. In
addition to technologies used in thermal insulation work to insu-
late or retain heat, the NICHIAS Group is building soundproofing
systems to improve acoustic containment at factories, helping
create more comfortable living and working environments.
Providing Efficient and Comprehensive
Engineering Services
In addition to construction work around thermal insulation materi-
als, which has long been a major business for the NICHIAS
Group, operations today extend across the range of construction
work related to heat and acoustics. NICHIAS makes a contribu-
tion in many areas to conserve energy and preserve the environ-
ment. In doing so, the NICHIAS Group plays an instrumental role
in building more comfortable public environments. NICHIAS is
active primarily in nuclear power, LNG, petrochemicals and refuse
incinerator projects. The NICHIAS Group provides efficient, com-
prehensive engineering services spanning development, design,
construction and maintenance relating to fire resistance, thermal
NICHIAS Line-up
INDUSTRIAL THERMAL INSULATION WORKConstruction Division
insulation, soundproofing, fireproofing, and recycling. For this,
NICHIAS draws on superior heat insulation and environmentally
sound technologies to answer market needs.
In addition to developing highly functional materials that meet
the needs of today’s markets, NICHIAS is expanding these busi-
nesses by developing products and construction methods that
lead to reductions in costs, man-hours and environmental load.
For example, we developed CFC-free, cold insulation materials
with the same performance as the previous CFC type. These
environmentally friendly products are widely used at LNG stor-
age terminals and other thermal insulation projects. Using high-
performance thermal insulation materials with low thermal
conductivity and excellent water repelling and vapor permeability
properties, NICHIAS is developing groundbreaking methods for
recovering deteriorated functionality in previously installed ther-
mal insulation materials. These methods accomplish this without
the use of replacement construction that could generate indus-
trial waste, thus contributing substantially to resource conserva-
tion and reductions in carbon emissions.
NICHIAS is advancing a business strategy involving raising
the level of activity in the maintenance field. In addition to the
Group’s traditional business domains, NICHIAS is expanding
business in the area of non-destructive testing for plant equip-
ment, including preventive corrosion analysis that combines with
our existing thermal analysis and soundproofing solutions.
NICHIAS Annual Report 2010 15
Industrial gaskets and packing
Semiconductor manufacturing equipment components
Insulation for ultra low temperature and construction methods
Air purification filter products
Automotive parts Heat-resistant inorganic fiber materials
Soundproof technologies
Sealing technologies
Anti-corrosion technologies
Heat-resistant technologies
Clean technologies
Insulation and Anti-corrosion Technologies
Utilizing Distinctive Technological Capabilities Based on Insulation and Anti-corrosion Technologies to Promote Advanced R&D
R&D Domains
Promoting technology-based R&D into materials, products and services for all industries in insulation and anti-corrosion
Underpinned by a corporate philosophy committed to pro-
viding safe and reliable products, broadening the circle of
trust, and contributing to society, the NICHIAS Group pur-
sues innovations in core technologies related to its business
domains, which primarily involve insulation and anti- corrosion
technologies. The NICHIAS Group’s strong developmental
prowess and original technologies facilitate an accurate
response to market needs. NICHIAS believes that formulat-
ing a precise and timely understanding of market needs is of
vital importance. In line with this thinking, the NICHIAS
Group’s R&D activities are linked directly to marketing and
product development. This approach allows the Company
to deliver products and technologies that contribute to a
dynamic and constantly evolving industrial scene.
Research and Development
16 NICHIAS Annual Report 2010
Support
R&D activities at the NICHIAS Group are carried out by the
Hamamatsu and Tsurumi research laboratories and the techno-
logical development units under each operating division. Within
the research laboratories, the R&D Department, in collaboration
with the Planning & Development Department, which serves as
a head office, strives to ensure the basic technologies that sup-
port NICHIAS’ businesses and bolster its distinctive technolo-
gies, all while seeking out and addressing R&D themes from a
medium- to long-term perspective. The technical centers under
the operating divisions, meanwhile, conduct fast-paced devel-
opment that closely reflects customer requests.
NICHIAS’ Group-wide R&D organization is built on ties
between several supporting sections: the R&D Analysis Sec-
tion—supporting R&D advancement and improved product
quality through the breakdown and analysis of raw materials,
products and usage environments—and the Intellectual Property
Section, responsible for patenting and safeguarding the NICHIAS
Group’s proprietary technologies and devising ways to strategi-
cally leverage intellectual rights.
In addition, NICHIAS is also aggressively pursuing alliances
with universities, research institutes and other companies in a
bid to expand and strengthen its technological domains.
R&D Analysis Section
Basic and applied research Product development and evaluation
Planning & Development Department
Intellectual Property Section
Support Support
Research laboratory Technical center
Organization of Laboratories
Promoting an integrated R&D structure, from materials development to product evaluation
NICHIAS Annual Report 2010 17
• Reasons for Adoption of Current Governance Structure
To enable swift and efficient management decision-making, the
Board of Directors consists of directors well-versed in the
Company’s business operations. Similarly, the Board of Corporate
Auditors, in order to ensure the objectivity and neutrality of its
management monitoring functions, has three outside corporate
auditors capable of expressing their opinions from a fully inde-
pendent perspective. The other two auditors are standing corpo-
rate auditors, both of whom have a range of experience pertaining
to NICHIAS business operations. This configuration allows the
Board of Corporate Auditors to actively express its opinions with
respect to management from a highly objective point of view. The
adoption of these systems is raising the transparency, fairness
and efficiency of the Company’s management.
• Status of Development of Internal Control Systems
Guided by the aforementioned basic approach to corporate
governance, NICHIAS has phased in the following initiatives.
To accelerate management decision-making, in June 1999,
we significantly reduced the size of our Board of Directors, and
introduced a corporate executive officer system in which mem-
bers serve one-year terms.
NICHIAS currently has no plans to adopt the “Company with
Committees” governance framework. However, in April 2001,
we established a Nominating Committee and a Compensation
Committee under the conventional corporate auditor system.
Deliberations by directors on issues such as nominees for direc-
torships and executive officers, as well as remuneration, are
based entirely on the proposals of these committees. Decisions
on compensation also reflect an assessment of operating results
and other relevant factors.
Corporate Governance Structure
• Basic Approach to Corporate Governance
At NICHIAS, we view raising management transparency, fairness
and efficiency as the most critical management issue we face in
ensuring the capacity to consistently improve the corporate
value of the entire NICHIAS Group over the long term. The first
step to improving corporate value is to earn the trust and sup-
port of our shareholders, customers and other stakeholders by
fulfilling our social mission through open and equitable corporate
activities. Accordingly, we recognize the formation of a system
for entrenching well-developed corporate governance as the
most fundamental proposition for achieving this aim.
• Overview of Corporate Governance Structure
Corporate governance at NICHIAS is based on the corporate
auditor system. As of June 29, 2010, the Company had seven
directors (none of whom are outside directors) and five corporate
auditors, three of whom are outside corporate auditors.
The Board of Directors meets regularly once each month
and convenes special meetings as necessary. The board decides
important matters stipulated in the Board of Director’s Regulations
and supervises the state of business execution. In addition to the
Board of Directors, the Executive Committee, which consists of
directors, standing corporate auditors, executive officers serving
as general managers, and persons named by the president, as a
rule meets weekly to approve proposals and to deliberate and
report on company-wide business operations and important
individual matters.
The Board of Corporate Auditors as a rule meets once each
month and met a total of 13 times during the year under review.
The outside corporate auditors actively expressed opinions from
the perspective of their respective areas of specialization (corpo-
rate management, the law, and accounting and taxation).
Corporate Governance
18 NICHIAS Annual Report 2010
In addition to these measures, we amended the Company’s
Articles of Incorporation in June 2002 to shorten the two-year
term of office for directors to one year. This was done to bring
consistently greater clarity to the managerial duties of directors
each business term by securing the mandate of shareholders
every year. The retirement age for directors is based on two
upper limits, one determined by age and the other by years of
service in each post, in accordance with internal regulations.
In April 2003, a Compliance Committee, chaired by the
director overseeing compliance, was established. We also for-
mulated a Compliance Code, which outlines our standards of
conduct, and established a contact point, known as the
Compliance Counter, both inside the company and at an outside
attorney’s office, to allow employees to report irregular practices
and other matters. In February 2007, we added the office of the
labor union as a third Compliance Counter point of access. We
have also established on the corporate website a point of con-
tact to receive compliance-related reports from outside the
Group and instituted a framework for transmitting to the law
office all information received in this way.
With respect to corporate auditors, one additional outside
corporate auditor was elected at the ordinary general meeting of
shareholders held in June 2004. Currently, three of the five cor-
porate auditors are outside auditors.
The Audit Section, which handles internal auditing, became
independent from operating divisions in July 2006 and now
reports directly to the president. The authority of the Audit
Section was strengthened in accordance with its role. In July
2009, the Audit Section was merged with the Internal Control
Section to form the Audit Section. The merger has served to
enhance the section’s corporate auditing function.
• Status of Development of Risk Management System
Risk management at NICHIAS is structured in accordance with
basic internal regulations governing risk management. Individual
risks pertaining to areas such as safety, disasters, the environ-
ment, quality, information security, and export control are man-
aged by each business department responsible for confronting
said risk. For this task, the departments formulate regulations
and operating guidelines, produce and distribute manuals, and
conduct training in the effort to mitigate risk.
Meanwhile, each division evaluates and analyzes the spe-
cific risks faced, followed by appropriate steps taken to manage
such risk.
Status of Internal Audits and Audits by
Corporate Auditors
• For internal audits, the previously mentioned Audit Section
maintains ties with the corporate auditors and the independent
auditor, and performs audits of NICHIAS and its Group com-
panies to confirm that accounting treatment and business
operations at the companies are legally and properly con-
ducted in conformance with relevant laws and internal regula-
tions. The Audit Section currently has an eight-member staff.
• To develop internal control systems compliant with laws and
ordinances, in June 2006 we launched the Internal Control
Project Team, which was reorganized as the Internal Control
Section in April 2008, an organization responsible for devel-
oping the internal control framework necessary to ensure
reliability of the Group’s financial reports, and building a
system for evaluating this framework. With this internal control
framework having been put in place, the Internal Control
Section and the Audit Section were merged into a single body
called the Audit Section in July 2009. In addition to strength-
ening the section’s auditing functions, we continuously evalu-
ate the internal control framework to ensure that it is
functioning correctly, and make any necessary revisions.
NICHIAS Annual Report 2010 19
Outside Corporate Auditors
• NICHIAS Has Three Outside Corporate Auditors
Outside corporate auditor and attorney Go Kajitani is the princi-
pal of a law office with which the Company has a legal counsel
agreement. He also serves concurrently as the outside director
of Electric Power Development Co., Ltd., a company with no
special relationship to NICHIAS.
Outside corporate auditor Yoshito Hirabayashi serves con-
currently as Representative Director of Technofer, a company
with which NICHIAS has no special relationship.
Outside corporate auditor Tatsumi Jonoo is a tax accountant
at a tax accounting office that has no business relationship with
NICHIAS. Mr. Jonoo also serves concurrently as the outside
corporate auditor for TV TOKYO Broadband Entertainment, Inc.,
a company with no special relationship to NICHIAS.
• To preserve the ability of the outside corporate auditors to
monitor management from an objective and neutral stand-
point, NICHIAS selects candidates for this role who have
substantial experience and insight in areas such as corporate
management, corporate law, finance and accounting, who
are able to independently express their opinions openly and
with candor.
• The corporate auditors and the independent auditor create
opportunities to meet and exchange opinions. Meetings are
also held prior to and after all audit processes are performed
in order to maintain sufficient ties between both groups of
auditors. This includes the mutual presence of the corporate
auditors and the independent auditor during the development
of interim and year-end audit plans and during audits per-
formed at the Company’s main bases and consolidated sub-
sidiaries. Audits of key bases and consolidated subsidiaries
include audits of inventory management at production sites,
mechanisms for the purchase of goods, and the status of
internal control systems at sales bases.
• Although at this time no dedicated employees have been
assigned to assist the corporate auditors, the corporate audi-
tors receive ample support for their day-to-day activities from
the Audit Section and the Corporate Strategic Planning
Department. On this basis, the corporate auditors, with the
standing corporate auditors in a central role, engage in audit
activities with respect to the following matters in accordance
with the audit policy, audit plan, and division of duties decided
each fiscal year.
• Attendance at meetings of the Board of Directors and the
Executive Committee and other important meetings; exami-
nation of important decision documents, including approval
documents and contracts; auditing of the head office, other
important business sites, and subsidiaries (including investi-
gations of the state of sales, manufacturing, and management
and the state of financial assets); receipt of the audit plan and
the report on audit results from the independent auditor;
attendance of some audits performed by the independent
auditor; examination of monthly closing documents; exami-
nation of audit documents at the quarterly and year-end
closing of accounts; and other duties.
– Confirmation that there is no breach in the execution of
duties by directors by requesting the submission of signed
and sealed Director’s Business Execution Confirmation
Documents at the end of each fiscal year.
20 NICHIAS Annual Report 2010
Reference information: organization chart
General Meeting of Shareholders
Operating Divisions, Group Companies
Co
mp
ensation C
om
mittee
No
minating
Co
mm
ittee
Co
mp
liance Co
mm
ittee
Auditing
Collaboration
Aud
it Section
Executive Officers (Execution of business)
Executive Committee (Deliberation on important matters, etc.)
President
Board of DirectorsBoard of Corporate Auditors
Submission of proposals
Appointment, dismissal
Appointment, dismissal, supervision
Appointment, dismissal Appointment, dismissal Appointment, dismissal
AuditingProposals, reports
Reporting
Reporting
Reporting
Reporting
Collaboration
Auditing
Reporting, improvement requests
Auditing
Reporting
Auditing
Reporting
Instruction, supervision
Policies, plans, instructions, approval
Indep
endent A
udito
rs
・Regulation Establishment and Revision Committees・Capital Investment Committee
・Business Investment Committee
・Development Investment Committee
・Resource Investment Committee
Internal audits are carried out by the Audit Section. When
preparing to visit departments and subsidiaries to perform audits,
the section meets in advance with the corporate auditors. The
results of audits conducted by the corporate auditors and the
section, apart from being reported at meetings of specific gover-
nance bodies, are also mutually reported between the corporate
auditors and the section in order to maintain close ties. The
corporate auditors receive support for their day-to-day activities
from the Audit Section and the Corporate Strategic Planning
Department to ensure that auditing activities are not hindered in
any way.
• At present, NICHIAS has appointed no outside directors to
the Board of Directors. However, three of the five corporate
auditors within the Company’s corporate auditor system are
outside corporate auditors. This configuration enables the
corporate auditors to accurately discern the status of busi-
ness execution by the directors and strengthens monitoring
and oversight at the Company. Based on the corporate scale
and organization of NICHIAS, we believe that this corporate
governance structure has ample monitoring functions for
observing management from an external viewpoint.
NICHIAS Annual Report 2010 21
Using Distinctive Insulation and Anti-corrosion Technologies to Preserve the Natural Environment
By offering such attributes as heat resistance, prevention of
fluid leakage, soundproofing and anti-corrosion, the NICHIAS
Group’s products fulfill customers’ environmental needs with
respect to energy and resource conservation, safety and
hygiene, and environmental preservation, helping to reduce
their environmental impact at the stage where NICHIAS
products are used. NICHIAS has undertaken its business
activities over the years with the environment constantly in
mind. Thanks to its deep involvement in the environmental
field, NICHIAS has long shown itself to be an environmentally
conscious company.
Helping to Sustain the Environment
Basic Stance on Environmental Activities
The NICHIAS Environmental Charter and NICHIAS Environmen-
tal Action Guidelines express a dedication to the development of
environmentally friendly products that conserve resources and
energy, as well as NICHIAS’ commitment to pursuing respectful
management of the workings of nature and harmony with the
global environment in all of its business activities.
Environmental Management
NICHIAS has actively promoted environmental conservation
activities since the 1970s, establishing an Environmental
Improvement Committee when environmental issues such as
soot and wastewater first began to be widely discussed. To
better organize these activities, NICHIAS took steps to obtain
ISO 14001 and other environmental management certifications.
As of July 2010, certification was completed or renewed at five
of the Company’s factories, seven domestic subsidiaries and
eight overseas subsidiaries, with activities under way to obtain
certification for the entire NICHIAS Group.
22 NICHIAS Annual Report 2010
Retaining heat (insulation) Anti-vibration materials (damping)
Preventing leakage (sealing)
Maintaining heat (heat retention) Preventing corrosion (anti-corrosion)
Preventing noise (soundproofing)
Fluoropolymer products
Gaskets and packing
Insulation materials Soundproofing materials
Construction materials
Automotive parts
Usage stage of customers
Insulation and Anti-corrosion
Reduction in environmental impactEnergy efficiency Environmental protection
Resource conservation Health and safety
NICHIAS product line-ups
How NICHIAS Reduces Environmental Impact from Business Operations
Environmental Performance
NICHIAS is enacting initiatives at its manufacturing sites aimed
at reducing energy and resource consumption by manufactur-
ing processes, as well as the volume of chemical substances
and waste these processes generate. NICHIAS is also shifting
away from the use of fuel oil at its sites in favor of city gas in an
effort to help prevent global warming by reducing its carbon
dioxide emissions. Deodorizing equipment, meanwhile, has
been introduced to reduce the burden on the local environment
stemming from manufacturing operations. Through these and
other means, NICHIAS is striving to minimize the impact of its
operations to achieve greater harmony with both the global and
local environments.
Environmentally Conscious Activities
The urgent need to develop a recycling-oriented society today is
sparking renewed calls by society to practice the “3Rs”—
Reduce, Reuse and Recycle. In addition to reducing waste
generated by its business sites, NICHIAS has built systems for
recycling certain of the products that it sells, including calcium
silicate materials, waste rockwool materials and waste ceramic
fiber materials.
Environmentally Friendly Products
With “environmentally conscious manufacturing” as a key slogan,
the NICHIAS Group supplies environmentally friendly products
that demonstrate concern for conserving resources and energy,
and generating few substances that impact the environment, at
every stage of the product lifecycle.
Green Procurement
To develop products low in substances that impact the envi-
ronment, NICHIAS established green procurement standards
in 2005 for new purchases of raw materials and auxiliary mate-
rials. The NICHIAS Group also promotes green procurement for
its existing products.
NICHIAS Annual Report 2010 23
Board of Directors, Corporate Auditors and Executive Officers
Board of Directors
President and Chief Executive Officer
Kunihiko Yano
Director and Senior Managing
Executive Officer
Teruo Sato
Directors and Managing
Executive Officers
Yasuo Yonezawa
Keizo Kamiya
Yasuo Yoda
Directors and Executive Officers
Nobuo Suwa
Hideo Yokowatari
From left (Back):
Director, Hideo Yokowatari; Director, Nobuo Suwa; Standing Corporate Auditor, Teruo Nishihara; Standing Corporate Auditor, Kiyoharu Takatani; Corporate Auditor, Go Kajitani; Corporate Auditor, Yoshito Hirabayashi; Corporate Auditor, Tatsumi Jonoo;
From left (Front):
Director, Keizo Kamiya; Director, Teruo Sato; President and CEO, Kunihiko Yano; Director, Yasuo Yonezawa; Director, Yasuo Yoda
Corporate Auditors
Standing Corporate Auditors
Teruo Nishihara
Kiyoharu Takatani
Corporate Auditors
Go Kajitani
Yoshito Hirabayashi
Tatsumi Jonoo
Executive Officers
Executive Officers
Shigeaki Mitsukuri
Kohichi Kimura
Masayuki Tomita
Fuminori Sato
Satoru Koide
Shoichi Yonezawa
Takeshi Ohya
Toshiyuki Takei
(As of June 29, 2010)
24 NICHIAS Annual Report 2010
NICHIAS Annual Report 2010 25
Financial Section
Millions of YenThousands of U.S. Dollars
2006 2007 2008 2009 2010 2010
Net sales ¥139,545 ¥164,704 ¥169,650 ¥149,211 ¥128,071 $1,376,515 Material division 97,261 110,644 114,430 96,318 83,095 893,110 Engineering division 42,284 54,060 55,220 52,893 44,976 483,405Operating income 10,138 14,473 14,795 6,794 6,574 70,658Income (loss) before income taxes and minority interests 10,093 13,589 (18,520) 3,805 13,377 143,777Net income (loss) 5,411 7,626 (11,857) 428 8,336 89,596Depreciation 3,887 4,269 4,624 4,890 4,293 46,141R&D costs 5,049 5,096 5,346 5,299 4,871 52,354
Total assets 119,840 130,117 149,533 137,709 127,216 1,367,326 Inventories 15,016 16,645 18,831 17,160 15,189 163,252 Property, plant and equipment 38,315 39,204 39,282 37,515 34,730 373,280Total equity 44,247 51,509 37,466 34,755 44,800 481,513
Per Share Data (Yen and U.S. Dollars): Net income (loss) –Basic ¥ 45.35 ¥ 64.16 ¥ (99.62) ¥ 3.60 ¥ 70.10 $ 0.75 –Diluted 45.19 64.01 – – – – Cash dividends 11.00 14.00 – 4.00 6.00 0.06
Notes: 1. U.S. dollar amounts have been translated, for convenience only, at ¥93.04=U.S.$1, the rate of exchange prevailing on March 31, 2010. 2. Total equity for fiscal years up to and including the fiscal year ended March 31, 2006 shows shareholders’ equity.
Contents
Consolidated Five-year Summary 25
Management’s Discussion and Analysis of Operations 26
Consolidated Balance Sheets 32
Consolidated Statements of Income 34
Consolidated Statements of Changes in Equity 35
Consolidated Statements of Cash Flows 36
Notes to Consolidated Financial Statements 37
Independent Auditors’ Report 52
Consolidated Five-year Summary NICHIAS Corporation and Consolidated SubsidiariesYears ended March 31
26 NICHIAS Annual Report 2010
Management’s Discussion and Analysis of Operations
Overview of Consolidated Results
Net Sales
Overall economic conditions in Japan remained adverse in fiscal 2010, the year ended March 31,
2010. Although the economy saw a favorable turn as a result of business recovery overseas and
the impact of emergency economic stimulus measures, Japanese companies curbed capital
investment, and a worsening employment and income environment caused consumer spending
to stagnate.
In these circumstances, although demand for semiconductor production equipment and
automotive parts bottomed out in the fourth quarter of 2009, the Company’s net sales fell sharply
as a result of subdued capital investment by manufacturers in Japan in response to worsening
economic conditions, a decline in construction demand, and other factors. The sales slowdown
was especially pronounced for the Industrial Products Division, Industrial Thermal Insulation Work
Division, and Building Materials Division. As a result, the NICHIAS Group recorded consolidated
net sales of ¥128,071 million ($1,376,515 thousand), a decrease of ¥21,140 million, or 14.2%,
from the previous fiscal year.
Cost of Sales and SG&A Expenses
Although cost of sales decreased ¥18,504 million, or 15.3%, year on year to ¥102,230 million
($1,098,774 thousand) on lower sales, the cost of sales ratio improved by 1.1 percentage points
from the previous year to 79.8%. This outcome was principally the result of profit and loss
improvement accompanying increased production in the Advanced Products and Automotive
Parts Divisions, as well as declines in manufacturing-related expenses due to lower raw materials
prices. Selling, general and administrative (SG&A) expenses decreased ¥2,416 million, or 11.1%,
to ¥19,267 million ($207,083 thousand) because of decreases in personnel expenses and activi-
ties expenses.
Operating Income
Notwithstanding the sharp decline in net sales, due to the above factors operating income
declined only slightly to ¥6,574 million ($70,658 thousand), a decrease of ¥220 million, or 3.2%,
from the previous fiscal year.
NICHIAS Corporation (the “Company”) has 31 consolidated subsidiaries and 1 affiliate within its
scope of consolidation. The Company and its consolidated subsidiaries are primarily engaged
in the manufacture and sale of industrial products, building materials, and other materials, and
the installation of thermal insulation materials and building materials.
Net Sales (Millions of yen)
0
60,000
120,000
180,000
’06 ’07 ’08 ’09 ’10
NICHIAS Annual Report 2010 27
Other Income and Expenses
Other income was ¥6,803 million ($73,119 thousand), an increase of ¥9,792 million from the
previous fiscal year. The turnaround is mainly attributable to a reversal of allowance for loss on
compensation for building materials and a decrease in impairment loss. During the course of
remedial work following the improper acquisition of fire-resistance certification, the Company was
able to reexamine the cost estimate for remedial work on an individual project basis. Since the
costs associated with remedial work are estimated to be ¥7,000 million lower than the original
estimate, the Company recorded the reversal of allowance.
Net Income
The above factors resulted in income before income taxes and minority interests of ¥13,377
million ($143,777 thousand) for the fiscal year under review. Net income was ¥8,336 million
($89,596 thousand), a substantial increase of ¥7,908 million, or 1,846.1%, from the previous
fiscal year. As a result, net income per share was ¥70.10 ($0.75).
Segment Information
Sales by business segment are as follows.
Material Division
The Material Division posted overall sales of ¥83,095 million ($893,110 thousand), a year-on-year
decline of ¥13,223 million, or 13.7%.
Industrial Products Division
The Industrial Products Division posted sales of ¥70,817 million, down 11.7% from the previous
fiscal year. The division accounted for approximately 55% of overall Group sales.
Sales of industrial products fell 15.8% from the previous fiscal year to ¥40,673 million
because of lower domestic demand for sealing materials for use in facilities maintenance in the
petroleum refining, petrochemicals and chemicals industries, general industrial sealing materi-
als, thermal insulation materials, and fluoropolymer products. The decline in demand resulted
from restricted capital investment in the manufacturing sector in response to deteriorating eco-
nomic conditions.
Sales of advanced products declined 7.9% year on year to ¥8,332 million. Although sales of
fluoropolymer products and thermal insulation products to manufacturers of semiconductor pro-
duction equipment and related equipment and semiconductor manufacturers have increased due
to rapid recovery in demand, full-year sales fell below the prior-year level.
Automotive parts sales decreased 4.4% year on year to ¥21,812 million, notwithstanding a
second half increase sparked by a dramatic recovery in demand from domestic and foreign auto-
makers and parts manufacturers.
’06 ’07 ’08 ’09 ’10
Net Income (Loss) (Millions of yen)
–12,000
–9,000
–6,000
–3,000
0
6,000
3,000
9,000
ROE (%)
’06 ’07 ’08 ’09 ’10–30
–20
–10
0
10
20
28 NICHIAS Annual Report 2010
Building Materials Division
Sales of non-residential building materials and residential building materials alike decreased
because of a sharp decline in the floor area of construction starts against a backdrop of lower
construction demand. As a result, sales fell 23.9% year on year to ¥12,278 million.
Engineering Division
Sales in the Engineering Division were ¥44,976 million, a decrease of ¥7,917 million, or 15.0%,
year on year.
Industrial Thermal Insulation Work Division
Overall sales from industrial thermal insulation work declined 16.6% year on year to ¥33,218 million.
Sales from maintenance work and construction work declined as companies cut back on mainte-
nance of existing facilities at plants in Japan and new plant investment in response to deteriorating
business conditions.
Building Materials Installation Work Division
Sales from building materials installation declined 10.1% year on year to ¥11,758 million, mainly
as a result of lower sales from floor work caused by a sharp decrease in the floor area of construc-
tion starts amid lower construction demand.
Financial Condition
Assets, Liabilities, and Net Assets
Total assets as of March 31, 2010 were ¥127,216 million ($1,367,326 thousand), down
¥10,493 million from a year earlier. This decline was due mainly to decreases in inventories, con-
struction in progress and deferred tax assets.
Total liabilities as of March 31, 2010 were ¥82,416 million ($885,813 thousand), down
¥20,538 million from a year earlier. Although liabilities increased as a result of the issuance of
bonds, short-term bank loans and long-term debt decreased, and the allowance for loss on
compensation for building materials decreased.
Total equity as of March 31, 2010 was ¥44,800 million ($481,513 thousand), up ¥10,045 million
from a year earlier. Retained earnings, unrealized gain on available-for-sale securities, and foreign
currency translation adjustments all increased.
■ Total Assets ■ Total Equity ● Equity Ratio’06 ’07 ’08 ’09 ’10
0
50,000
100,000
150,000
34.336.9
39.5
25.1 25.2
Total Assets, Total Equity and Equity Ratio (Millions of yen/%)
NICHIAS Annual Report 2010 29
Research and Development Costs
In accordance with the corporate philosophy of commitment to providing safe and reliable prod-
ucts, broadening the circle of trust, and contributing to society in business domains that primarily
involve insulation and anti-corrosion technologies, the NICHIAS Group focuses on R&D from a
medium- to long-term perspective to amass core technologies and reinforce distinctive technolo-
gies that support its businesses. At the same time, the Group engages in fast-paced development
closely aligned with customer needs. The Group has a research and development staff of 424
employees who engage in R&D activities at the Hamamatsu Research Laboratory, the Tsurumi
Research Laboratory, and the technological development units of each business division.
In the fiscal year ended March 31, 2010, R&D expenditures totaled ¥4,871 million
($52,354 thousand), representing 3.8% of net sales. The R&D activities and expenditures for
each business division for the year under review were as follows.
Industrial Products Division
The Company develops sealing materials, thermal insulation materials, fluoropolymer products,
and other materials and equipment components used in the environment, energy, petroleum and
petrochemicals, semiconductor production equipment, automotive, and other industries.
Principal R&D results in the fiscal year under review included the development of corrosion-
resistant gaskets for piping systems, elements for industrial dehumidification systems, decon-
tamination filters for semiconductor production equipment, and lightweight sound-absorbing
materials for automobiles. R&D expenditures related to this business were ¥3,652 million.
Building Materials Division
The Company engages in the research and development of noncombustible materials and sys-
tems required by the building construction and housing industries.
Principal R&D results in this division included the development of noncombustible decorative
boards made from calcium silicate, for which the Company has also acquired Eco Mark certifica-
tion. R&D expenditures related to this business were ¥571 million.
Industrial Thermal Insulation Work Division
The Company engages in the research and development of thermal and high-temperature insula-
tion structures and of sound absorption and soundproofing structures required by the energy,
environment, and other industries, as well as installation systems related to these products.
Principal R&D results for the year included the development of installation methods to restore
the function of existing thermal insulation materials using water-repelling, high-performance insu-
lation materials. R&D expenditures related to this business were ¥648 million.
R&D Costs (Millions of yen)
0
2,000
4,000
6,000
’06 ’07 ’08 ’09 ’10
30 NICHIAS Annual Report 2010
Capital Expenditures
The NICHIAS Group had overall capital expenditures of ¥1,798 million ($19,325 thousand) in the
fiscal year under review. Expenditures were focused on business sectors from which future growth
is expected and included outlays for the expansion and upgrading of overseas business sites.
Principal capital expenditures for each business division for the year under review were
as follows.
Industrial Products Division
The Group made a total of ¥252 million in investments in the industrial products business. Invest-
ment in manufacturing facilities at consolidated subsidiary NICHIAS CERATECH CORPORATION
has been discontinued.
The Group made ¥398 million in investments in the advanced products business, includ-
ing investments for advanced products manufacturing facilities at the Ohji Factory and the
Fukuroi Factory.
The Group made ¥658 million in investments in the automotive parts business, including
investments in automotive parts manufacturing facilities at the Yuki Factory and at consolidated
subsidiary METAKOTE INDUSTRY CO., LTD.
Building Materials Division
The Group made a total of ¥70 million in investments in the building materials business.
Industrial Thermal Insulation Work Division
The Group made a total of ¥45 million in investments in the industrial thermal insulation
work business.
Building Materials Installation Work Division
The Group made a total of ¥12 million in investments in the building materials installation
work business.
Corporate Assets
The Group made a total of ¥363 million in investments in land, buildings, and equipment in con-
nection with the relocation of the Kyushu Branch.
Investments were financed from own funds and borrowings.
■ Capital Expenditures ■ Depreciation
Capital Expenditures and Depreciation (Millions of yen)
’06 ’07 ’08 ’09 ’100
2,000
4,000
6,000
8,000
NICHIAS Annual Report 2010 31
Cash Flows
Cash and cash equivalents at the end of the fiscal year (hereinafter “cash”) increased by ¥224 million
from the previous fiscal year to ¥14,267 million ($153,343 thousand). Cash flows and factors
affecting cash flows are as follows.
Cash Flows from Operating Activities
Net cash provided by operating activities was ¥12,884 million ($138,478 thousand). Although
cash decreased due to a decline of ¥8,502 million in the allowance for loss on compensation for
building materials and a decrease of ¥1,763 million in other payables, this was outweighed by
cash inflows from income before income taxes and minority interests of ¥13,377 million, depre-
ciation and amortization of ¥4,293 million, and a decrease in inventories of ¥2,139 million.
Cash Flows from Investing Activities
Net cash used in investing activities was ¥1,967 million ($21,141 thousand). The principal item
was ¥1,956 million for purchases of property, plant and equipment.
Cash Flows from Financing Activities
Net cash used in financing activities was ¥10,816 million ($116,251 thousand). Proceeds of
¥2,946 million from the issuance of bonds were offset by net decreases of ¥10,895 million in
short-term bank loans and ¥2,738 million in long-term debt.
Financial Policy
The net assets of the NICHIAS Group decreased substantially for reasons including the posting
as an extraordinary loss in the fiscal year ended March 31, 2008 of expenses required for the
replacement and modification of building materials in connection with the improper acquisition of
fire-resistance certification. To recover from this setback, the Company is reinforcing the corpo-
rate structure and engaging in efficient business operations in accordance with its basic manage-
ment policy. In this way, the Company will undertake to increase shareholders’ equity and the
equity ratio by continuously posting stable profits in the coming years.
With regard to the use of operating cash flows, the Company will pay dividends to sharehold-
ers, invest to develop new products and new businesses, and invest in facilities, mainly in busi-
ness fields where future growth is anticipated, while at the same time reinforcing its financial
position and reducing financial expenses by means of rigorous cash management.
Dependency on Interest-bearing Liabilities (%)
’06 ’07 ’08 ’09 ’100
15
30
45
32 NICHIAS Annual Report 2010
Millions of Yen
Thousands ofU.S. Dollars
(Note 1)
ASSETS 2010 2009 2010
CURRENT ASSETS:
Cash and cash equivalents (Note 15) ¥ 14,267 ¥ 14,043 $ 153,343
Time deposits other than cash equivalents (Note 15) 94 19 1,010
Receivables (Note 15):
Trade notes 5,508 5,950 59,200
Trade accounts 34,277 34,140 368,411
Allowance for doubtful accounts (574) (251) (6,169)
Inventories (Note 3) 15,189 17,160 163,252
Deferred tax assets (Note 11) 2,117 1,289 22,754 Prepaid expenses and other current assets 2,092 3,434 22,486 Total current assets 72,970 75,784 784,287
PROPERTY, PLANT AND EQUIPMENT (Notes 6, 13 and 14):
Land 10,966 11,020 117,863
Buildings and structures 37,590 37,307 404,020
Machinery and equipment 55,939 52,378 601,235
Tools, furniture and fixtures 6,617 6,609 71,120
Lease assets 271 348 2,913 Construction in progress 144 3,160 1,548
Total 111,527 110,822 1,198,699 Accumulated depreciation (76,797) (73,307) (825,419) Net property, plant and equipment 34,730 37,515 373,280
INVESTMENTS AND OTHER ASSETS:
Investment securities (Notes 4, 6 and 15) 5,539 4,268 59,534
Investments in and advances to unconsolidated subsidiaries and associated companies 2,723 2,862 29,267
Goodwill (Note 5) 132 286 1,419
Guarantee deposit 515 1,733 5,535
Deferred tax assets (Note 11) 6,976 11,678 74,979
Other assets 4,324 4,503 46,473 Allowance for doubtful accounts (693) (920) (7,448) Total investments and other assets 19,516 24,410 209,759TOTAL ¥127,216 ¥137,709 $1,367,326
See notes to consolidated financial statements.
Consolidated Balance Sheets NICHIAS Corporation and Consolidated SubsidiariesMarch 31, 2010 and 2009
NICHIAS Annual Report 2010 33
Millions of Yen
Thousands ofU.S. Dollars
(Note 1)
LIABILITIES AND EQUITY 2010 2009 2010
CURRENT LIABILITIES:
Short-term bank loans (Notes 6 and 15) ¥ 22,625 ¥ 33,469 $ 243,175
Current portion of long-term debt (Notes 6 and 15) 1,480 13,938 15,907
Payables (Note 15):
Trade notes 7,987 8,777 85,845
Trade accounts 14,291 13,912 153,601
Income taxes payable 835 478 8,975
Advances received on construction work in progress (Note 15) 1,493 816 16,047
Accrued expenses 2,409 2,336 25,892 Other current liabilities 4,691 6,645 50,419 Total current liabilities 55,811 80,371 599,861
LONG-TERM LIABILITIES:
Long-term debt (Notes 6 and 15) 16,901 4,181 181,653
Liability for retirement benefits (Note 7):
Employees 2,080 2,124 22,356
Directors and corporate auditors 113 161 1,215
Deferred tax liabilities (Note 11) 127 134 1,365
Allowance for loss on compensation for building materials (Note 2.k) 3,732 12,234 40,112 Other liabilities 3,652 3,749 39,251 Total long-term liabilities 26,605 22,583 285,952
COMMITMENTS AND CONTINGENT LIABILITIES (Notes 14, 16 and 17)
EQUITY (Notes 8 and 9):
Common stock—authorized, 240,000,000 shares; issued, 125,057,344 shares in 2010 and 2009 9,284 9,284 99,785
Capital surplus 9,842 9,842 105,782
Stock acquisition rights 122 64 1,311
Retained earnings 26,448 17,826 284,265
Unrealized gain on available-for-sale securities 1,156 230 12,425
Foreign currency translation adjustments (1,178) (1,481) (12,661) Treasury stock—at cost, 6,146,986 shares in 2010 and
6,133,405 shares in 2009 (1,955) (1,951) (21,012)
Total 43,719 33,814 469,895 Minority interests 1,081 941 11,618 Total equity 44,800 34,755 481,513TOTAL ¥127,216 ¥137,709 $1,367,326
34 NICHIAS Annual Report 2010
Millions of Yen
Thousands ofU.S. Dollars
(Note 1)
2010 2009 2010
NET SALES ¥128,071 ¥149,211 $1,376,515COST OF SALES 102,230 120,734 1,098,774
Gross profit 25,841 28,477 277,741
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (Notes 7, 12 and 14) 19,267 21,683 207,083 Operating income 6,574 6,794 70,658
OTHER INCOME (EXPENSES):
Interest and dividend income 217 228 2,332
Interest expense (593) (617) (6,374)
Gain (loss) on sales or disposals of property, plant and equipment—net 197 (57) 2,117
Loss on impairment of investment securities (6) (704) (64)
Loss on impairment of shares in unconsolidated subsidiaries (65)
Loss on impairment of insurance reserve funds (54)
Loss on impairment of long-lived assets (Note 13) (297) (1,458) (3,192)
Gain on reversal of stock acquisition rights 26 64 279
Reversal of allowance for doubtful accounts 112 1,204
Reversal of allowance for loss on compensation for building materials 7,000 75,236 Other—net 147 (326) 1,581 Other income (expenses)—net 6,803 (2,989) 73,119
INCOME BEFORE INCOME TAXES AND MINORITY INTERESTS 13,377 3,805 143,777
INCOME TAXES (Note 11):
Current 1,302 1,107 13,994 Deferred 3,592 2,115 38,607 Total income taxes 4,894 3,222 52,601
MINORITY INTERESTS IN NET INCOME 147 155 1,580
NET INCOME ¥ 8,336 ¥ 428 $ 89,596
Yen U.S. Dollars
2010 2009 2010
PER SHARE OF COMMON STOCK (Notes 2.s and 18):
Basic net income ¥ 70.10 ¥ 3.60 $ 0.75
Cash dividends applicable to the year 6.00 4.00 0.06
See notes to consolidated financial statements.
Consolidated Statements of Income NICHIAS Corporation and Consolidated SubsidiariesYears Ended March 31, 2010 and 2009
NICHIAS Annual Report 2010 35
Consolidated Statements of Changes in Equity NICHIAS Corporation and Consolidated SubsidiariesYears Ended March 31, 2010 and 2009
Thousands Millions of Yen
Outstanding Number of Shares of Common
StockCommon
StockCapital Surplus
Stock Acquisition
RightsRetained Earnings
Unrealized Gain on
Available-for-Sale
Securities
Foreign Currency
Translation Adjustments
Treasury Stock Total
Minority Interests
Total Equity
BALANCE, APRIL 1, 2008 118,996 ¥9,284 ¥9,843 ¥127 ¥17,882 ¥ 1,466 ¥ (158) ¥(1,935) ¥36,509 ¥ 957 ¥37,466
Adjustment of retained earnings due to an adoption of PITF No. 18 (Note 2.b) (5) (5) (5)
Decrease in retained earnings under Chinese accounting standards (3) (3) (3)
Net income 428 428 428
Cash dividends, ¥4 per share (476) (476) (476)
Purchase of treasury stock (95) (23) (23) (23)
Disposal of treasury stock 23 (1) 7 6 6 Net change in the year (63) (1,236) (1,323) (2,622) (16) (2,638)
BALANCE, MARCH 31, 2009 118,924 9,284 9,842 64 17,826 230 (1,481) (1,951) 33,814 941 34,755
Adjustment of retained earnings for newly consolidated subsidiaries 204 204 204
Take-over of retained earnings for merger of an unconsolidated subsidiary 82 82 82
Net income 8,336 8,336 8,336
Purchase of treasury stock (17) (5) (5) (5)
Disposal of treasury stock 3 1 1 1 Net change in the year 58 926 303 1,287 140 1,427BALANCE, MARCH 31, 2010 118,910 ¥9,284 ¥9,842 ¥122 ¥26,448 ¥ 1,156 ¥(1,178) ¥(1,955) ¥43,719 ¥1,081 ¥44,800
Thousands of U.S. Dollars (Note 1)
Common Stock
Capital Surplus
Stock Acquisition
RightsRetained Earnings
Unrealized Gain on
Available-for-Sale
Securities
Foreign Currency
Translation Adjustments
Treasury Stock Total
Minority Interests
Total Equity
BALANCE, MARCH 31, 2009 $99,785 $105,782 $ 688 $191,595 $ 2,472 $(15,918) $(20,969) $363,435 $10,114 $373,549
Adjustment of retained earnings for newly consolidated subsidiaries 2,193 2,193 2,193
Take-over of retained earnings for merger of an unconsolidated subsidiary 881 881 881
Net income 89,596 89,596 89,596
Purchase of treasury stock (54) (54) (54)
Disposal of treasury stock 11 11 11 Net change in the year 623 9,953 3,257 13,833 1,504 15,337BALANCE, MARCH 31, 2010 $99,785 $105,782 $1,311 $284,265 $12,425 $(12,661) $(21,012) $469,895 $11,618 $481,513
See notes to consolidated financial statements.
36 NICHIAS Annual Report 2010
Millions of Yen
Thousands ofU.S. Dollars
(Note 1)
2010 2009 2010
OPERATING ACTIVITIES: Income before income taxes and minority interests ¥ 13,377 ¥ 3,805 $ 143,777 Adjustments for: Income taxes refund (paid)—net 272 (3,834) 2,923 Depreciation and amortization 4,293 4,890 46,141 Provision of allowance for doubtful accounts 89 431 957 (Gain) loss on sales or disposals of property, plant and equipment—net (226) 44 (2,429) Loss on impairment of long-lived assets 297 1,458 3,192 Loss on impairment of investment securities 6 704 64 Decrease in allowance for loss on compensation for building materials (8,502) (16,589) (91,380) Changes in assets and liabilities (net of effects): Decrease in trade receivables 745 6,161 8,007 Decrease in inventories 2,139 1,006 22,990 Decrease in trade payables (539) (6,851) (5,793) Decrease in other receivables 399 54 4,288 (Decrease) increase in other payables (1,763) 4,570 (18,949) Decrease in guarantee deposit 1,245 800 13,381 Increase (decrease) advances received on construction works in progress 676 (365) 7,266 Other—net 376 387 4,043 Total adjustments (493) (7,134) (5,299) Net cash provided by (used in) operating activities 12,884 (3,329) 138,478INVESTING ACTIVITIES: Purchases of investment securities (70) (9) (752) Purchases of property, plant and equipment (1,956) (5,930) (21,023) Proceeds from sales of property, plant and equipment 357 65 3,837 Other—net (298) (166) (3,203) Net cash used in investing activities (1,967) (6,040) (21,141)FINANCING ACTIVITIES: (Decrease) increase in short-term bank loans—net (10,895) 11,146 (117,100) Proceeds from long-term debt 11,200 3,500 120,378 Repayment of long-term debt (13,938) (1,675) (149,807) Proceeds from issuance of bonds 2,946 31,664 Dividends paid (8) (478) (86) Proceeds from acquisition of treasury stock—net (4) (17) (43) Other—net (117) (119) (1,257) Net cash (used in) provided by financing activities (10,816) 12,357 (116,251)FOREIGN CURRENCY TRANSLATION ADJUSTMENTS ON CASH AND CASH EQUIVALENTS 57 (342) 613NET INCREASE IN CASH AND CASH EQUIVALENTS 158 2,646 1,699CASH AND CASH EQUIVALENTS OF NEWLY CONSOLIDATED SUBSIDIARIES, BEGINNING OF YEAR 35 376CASH AND CASH EQUIVALENTS INCREASED BY MERGER OF AN UNCONSOLIDATED SUBSIDIARY 31 333CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 14,043 11,397 150,935CASH AND CASH EQUIVALENTS, END OF YEAR ¥ 14,267 ¥ 14,043 $ 153,343
See notes to consolidated financial statements.
Consolidated Statements of Cash Flows NICHIAS Corporation and Consolidated SubsidiariesYears Ended March 31, 2010 and 2009
NICHIAS Annual Report 2010 37
1. BASIS OF PRESENTING 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 application and disclosure requirements of Interna-
tional Financial Reporting Standards.
In preparing these consolidated financial statements, certain
reclassifications and rearrangements have been made to the con-
solidated 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 2009 finan-
cial statements to conform to the classifications used in 2010.
The consolidated financial statements are stated in Japanese yen,
the currency of the country in which NICHIAS Corporation (the
“Company”) is incorporated and operates. The translations of Japa-
nese 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 ¥93.04 to $1, the approximate rate of exchange at March
31, 2010. Such translations should not be construed as representa-
tions that the Japanese yen amounts could be converted into U.S.
dollars at that or any other rate.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Consolidation—The consolidated financial statements as of
March 31, 2010, include the accounts of the Company and its 31
significant (29 in 2009) subsidiaries (together, 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.
The investment in one associated company is accounted for by
the equity method as of March 31, 2010 and 2009. Investments in
the remaining 16 (18 in 2009) unconsolidated subsidiaries and asso-
ciated companies are stated at cost. If the equity method of account-
ing had been applied to the investments in these companies, the
effect on the accompanying consolidated financial statements would
not be material.
The excess of the cost of an acquisition over the fair value of the
net assets of the acquired subsidiary at the date of acquisition is
Notes to Consolidated Financial Statements NICHIAS Corporation and Consolidated SubsidiariesYears Ended March 31, 2010 and 2009
being amortized on a straight - line basis over a period of five years.
All significant intercompany balances and transactions have been
eliminated in consolidation. All material unrealized profit included in
assets resulting from transactions within the Group is eliminated.
b. Unification of Accounting Policies Applied to Foreign Sub-
sidiaries 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 com-
pany and its subsidiaries for similar transactions and events under
similar circumstances should in principle be unified for the prepara-
tion of the consolidated financial statements, (2) financial statements
prepared by foreign subsidiaries in accordance with either Interna-
tional Financial Reporting Standards or the generally accepted
accounting principles in the United States of America tentatively may
be used for the consolidation process, (3) however, the following
items should be adjusted in the consolidation process so that net
income is accounted for in accordance with Japanese GAAP unless
they are not material: (a) amortization of goodwill; (b) scheduled
amortization of actuarial gain or loss of pensions that has been
directly recorded in the equity; (c) expensing capitalized develop-
ment costs of R&D; (d) cancellation of the fair value model account-
ing for property, plant and equipment and investment properties and
incorporation of the cost model accounting; (e) recording the prior
years’ effects of changes in accounting policies in the statements of
income where retrospective adjustments to financial statements
have been incorporated; and (f) exclusion of minority interests from
net income, if contained. PITF No. 18 was effective for fiscal years
beginning on or after April 1, 2008 with early adoption permitted. The
Group applied this accounting standard effective April 1, 2008. In
addition, the Group adjusted the beginning balance of retained earn-
ings at April 1, 2008 as if this accounting standard had been retro-
spectively applied.
c. Business Combination—In October 2003, the Business Account-
ing Council issued a Statement of Opinion, “Accounting for Business
Combinations,” and on December 27, 2005, the ASBJ issued ASBJ
Statement No. 7, “Accounting Standard for Business Divestitures”
and ASBJ Guidance No. 10, “Guidance for Accounting Standard for
Business Combinations and Business Divestitures.”
The accounting standard for business combinations allows compa-
nies to apply the pooling of interests method of accounting only when
certain specific criteria are met such that the business combination is
38 NICHIAS Annual Report 2010
essentially regarded as a uniting - of - interests.
For business combinations that do not meet the uniting - of - interests
criteria, the business combination is considered to be an acquisition
and the purchase method of accounting is required. This standard
also prescribes the accounting for combinations of entities under
common control and for joint ventures.
d. Cash Equivalents—Cash equivalents are short - term investments
that are readily convertible into cash and that are exposed to insig-
nificant risk of changes in value.
Cash equivalents include time deposits, certificates of deposit,
money management funds and others, all of which mature or
become due within three months of the date of acquisition.
e. Inventories—Inventories are stated at the lower of cost, deter-
mined by the moving - average method for finished products, work
in process and raw materials, or net selling value. Construction
work in progress is stated at cost determined by the specific iden-
tification method.
f. Property, Plant and Equipment—Property, plant and equipment
are stated at cost. Depreciation of property, plant and equipment of
the Company and its consolidated domestic subsidiaries is com-
puted substantially by the declining - balance method based on the
estimated useful lives of the assets, while the straight - line method is
applied to buildings acquired after April 1, 1998 for the Company
and its consolidated domestic subsidiaries, and all property, plant
and equipment of consolidated foreign subsidiaries. The range of
useful lives is principally from 3 to 50 years for buildings and struc-
tures, and from 4 to 10 years for machinery and equipment.
g. 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 recover-
able. 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 disposi-
tion of the asset or the net selling price at disposition.
h. Leases—In March 2007, the ASBJ issued ASBJ Statement No. 13,
“Accounting Standard for Lease Transactions,” which revised the pre-
vious accounting standard for lease transactions issued in June 1993.
The revised accounting standard for lease transactions is effective for
fiscal years beginning on or after April 1, 2008 with early adoption
permitted for fiscal years beginning on or after April 1, 2007.
Under the previous accounting standard, finance leases that deem
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 capital-
ized” information is disclosed in the note to the lessee’s financial
statements. The revised accounting standard requires that all finance
lease transactions should be capitalized to recognize lease assets
and lease obligations in the balance sheet. In addition, the revised
accounting standard permits leases which existed at the transition
date and do not transfer ownership of the leased property to the
lessee to be measured at the obligations under finance leases at the
transition date and recorded as acquisition cost of lease assets.
Depreciation of the leased assets is recognized over the lease term
on a straight - line basis. Rental expense on operating leases is recog-
nized over the lease term on a straight - line basis.
The Group applied the revised accounting standard effective April
1, 2008. In addition, the Group accounted for leases which existed
at the transition date and do not transfer ownership of the leased
property to the lessee as acquisition cost of lease assets measured
at the obligations under finance leases at the transition date. There is
no effect by this change.
i. Investment Securities—Under the accounting standard for
financial instruments, including marketable and investment securi-
ties, all securities held by the Group are classified as available - for - sale
securities, depending on management’s intent. They 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
principally determined by the moving - average method.
For other than temporary declines in fair value, investment securi-
ties are reduced to net realizable value by a charge to income.
j. Retirement and Pension Plans—The Company and certain
consolidated subsidiaries have funded plans, unfunded plans and a
defined contribution plan as retirement benefit plans for employees.
The plans cover approximately 70%, 15% and 15%, respectively, of
employee benefits. In respect of the funded plans, a part of the
annual provision is funded as contributory and/or non - contributory
pension plans with an outside trustee.
The Company and consolidated domestic subsidiaries account
for the liability for retirement benefits based on the projected benefit
obligations and plan assets at the balance sheet date in conformity
with the accounting standard for employees’ retirement benefits.
Actuarial gains and losses are amortized in the years following the
NICHIAS Annual Report 2010 39
year in which the gain or loss occurs by the straight - line method over
a period of 12 years which is shorter than the average remaining
years of service of the employees.
Retirement benefits to directors and corporate auditors are pro-
vided at the amount which would be required if all directors and
corporate auditors retired at the balance sheet date.
Upon the resolution of the shareholders meeting held on June 28,
2007, the Company decided to terminate the retirement benefits
plan for directors and corporate auditors. Due to the termination of
the plan, further provision is no longer needed, and the allowance
outstanding as of March 31, 2010 represents only a portion of ben-
efit payments reserved before the plan’s termination.
k. Allowance for Loss on Compensation for Building Materials—
On October 30, 2007, the Company announced that it had used
improperly prepared eave assemblies and partition walls to establish
their fire - resistant of fireproof testing. The Company is now respon-
sible to repair and/or replace such eave assemblies and partition
walls which were sold to its customers.
Allowance for loss on compensation for building materials is
provided based on the estimated future payments to repair and/or
replace these eave assemblies and partition walls.
l. Construction Contracts—In December 2007, the ASBJ issued
ASBJ Statement No. 15 “Accounting Standard for Construction
Contracts” and ASBJ Guidance No. 18 “Guidance on Accounting
Standard for Construction Contracts.” Under the previous Japanese
GAAP, either the completed - contract method or the per-
centage - of - completion method was permitted to account for con-
struction contracts. Under this new accounting standard, the
construction revenue and construction costs should be recognized
by the percentage - of - completion method, if the outcome of a con-
struction 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 reve-
nue, an estimated loss on the contract should be immediately recog-
nized by providing for a loss on construction contracts. This standard
is applicable to construction contracts and software development
contracts and effective for fiscal years beginning on or after April 1,
2009. The Group applied the new accounting standard effective
April 1, 2009. The effect of this change was to increase sales by
¥237 million ($2,547 thousand), operating income by ¥4 million
($43 thousand) and income before income taxes and minority inter-
ests by ¥4 million ($43 thousand), respectively, for the year ended
March 31, 2010.
m. Stock Options—In December 2005, the ASBJ issued ASBJ
Statement No. 8, “Accounting Standard for Stock Options” and
related guidance. The new standard and guidance are applicable to
stock options newly granted on and after May 1, 2006.
This standard requires companies to recognize compensation
expense for employee stock options based on the fair value at the
date of grant and over the vesting period as consideration for receiv-
ing goods or services. The standard also requires companies to
account for stock options granted to non - employees based on the
fair value of either the stock option or the goods or services received.
In the balance sheet, the stock option is presented as a stock
acquisition right as a separate component of equity until exercised.
The standard covers equity - settled, share - based payment transac-
tions, but does not cover cash - settled, share - based payment trans-
actions. In addition, the standard allows unlisted companies to
measure options at their intrinsic value if they cannot reliably esti-
mate fair value.
The Group has applied this accounting standard for stock options
to those granted on and after May 1, 2006.
n. Research and Development Costs—Research and develop-
ment costs are charged to income as incurred.
o. Income Taxes—The provision for income taxes is computed
based on the pretax income included in the consolidated statements
of income.
The asset and liability approach is used to recognize deferred tax
assets and liabilities for the expected future tax 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.
p. Foreign Currency Transactions—All short - term and long - term
monetary receivables and payables denominated in foreign currencies
are translated into Japanese yen at the exchange rates at the balance
sheet date. The foreign exchange gains and losses from translation
are recognized in the consolidated statements of income to the extent
that they are not hedged by forward exchange contracts.
q. 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 were shown as “Foreign
currency translation adjustments” in a separate component of equity.
40 NICHIAS Annual Report 2010
Revenue and expense accounts of consolidated foreign subsidiar-
ies are translated into yen at the average exchange rate.
r. Derivatives and Hedging Activities—The Group uses derivative
financial instruments to manage its exposures to fluctuations in inter-
est rates. Interest rate swaps are utilized by the Group to reduce
interest rate risks. The Group does not enter into derivatives for trad-
ing or speculative purposes.
Derivative financial instruments are classified and accounted for as
follows: (a) all derivatives are recognized as either assets or liabilities
and measured at fair value, and gains or losses on derivative trans-
action that do not qualify for hedge accounting are recognized in the
consolidated statements of income and (b) gains or losses on deriva-
tives used for hedging purposes, if derivatives qualify for hedge
accounting because of high correlation and effectiveness between
the hedging instruments and the hedged items are deferred until
maturity of the hedged transactions.
The interest rate swaps which qualify for hedge accounting and
meet specific matching criteria are not remeasured at market value
but the differential paid or received under the swap agreements are
recognized and included in interest expense or income.
s. Per Share Information—Basic net income/loss per share is
computed by dividing net income/loss available to common share-
holders by the weighted - average number of common shares out-
standing for the period, retroactively adjusted for stock splits.
Diluted net income per share reflects the potential dilution that
could occur if warrants for stock option plan were exercised. Diluted
net income per share of common stock assumes full exercise of
outstanding warrants.
Cash dividends per share presented in the accompanying consoli-
dated statements of income are dividends applicable to the respec-
tive years including dividends to be paid after the end of the year.
t. New Accounting Pronouncements
Business Combinations—In December 2008, the ASBJ issued a
revised accounting standard for business combinations, ASBJ
Statement No. 21, “Accounting Standard for Business Combina-
tions.” Major accounting changes under the revised accounting
standard are as follows:
(1) The current accounting standard for business combinations allows
companies to apply the pooling of interests method of accounting
when certain specific criteria are met such that the business com-
bination is essentially regarded as a uniting - of - interests. The
revised standard requires to account for such business combina-
tion by the purchase method and the pooling of interests method
of accounting is no longer allowed.
(2) The current accounting standard accounts for the research and
development costs to be charged to income as incurred. Under
the revised standard, an in - process research and development
(IPR&D) acquired by the business combination is capitalized as an
intangible asset.
(3) The current accounting standard accounts for a bargain purchase
gain (negative goodwill) to be systematically amortized within 20
years. Under the revised standard, the acquirer recognizes a bar-
gain purchase gain in profit or loss on the acquisition date after
reassessing whether it has correctly identified all of the assets
acquired and all of the liabilities assumed with a review of such
procedures used.
This standard is applicable to business combinations undertaken
on or after April 1, 2010 with early adoption permitted for fiscal years
beginning on or after April 1, 2009.
Asset Retirement Obligations—In March 2008, the ASBJ pub-
lished a new accounting standard for asset retirement obligations,
ASBJ Statement No. 18 “Accounting Standard for Asset Retirement
Obligations” and ASBJ Guidance No. 21 “Guidance on Accounting
Standard for Asset Retirement Obligations.” Under this accounting
standard, an asset retirement obligation is defined as a legal obliga-
tion imposed either by law or contract that results from the acquisi-
tion, construction, development and the normal operation of a
tangible fixed asset and is associated with the retirement of such
tangible fixed asset.
The asset retirement obligation is recognized as the sum of the
discounted cash flows required for the future asset retirement and is
recorded in the period in which the obligation is incurred if a reason-
able estimate can be made. If a reasonable estimate of the asset
retirement obligation cannot be made in the period the asset retire-
ment obligation is incurred, the liability should be recognized when a
reasonable estimate of 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 undis-
counted cash flows are reflected as an increase or a decrease in the
carrying amount of the liability and the capitalized amount of the
related asset retirement cost. This standard is effective for fiscal
years beginning on or after April 1, 2010 with early adoption permit-
ted for fiscal years beginning on or before March 31, 2010.
NICHIAS Annual Report 2010 41
Accounting Changes and Error Corrections—In December 2009,
ASBJ issued ASBJ Statement No. 24 “Accounting Standard for
Accounting Changes and Error Corrections” and ASBJ Guidance
No. 24 “Guidance on Accounting Standard for Accounting Changes
and Error Corrections.” Accounting treatments under this standard
and guidance are as follows:
(1) Changes in accounting policies
When a new accounting policy is applied with revision of accounting
standards, a new policy is applied retrospectively unless the revised
accounting standards include specific transitional provisions. When
the revised accounting standards include specific transitional provi-
sions, an entity shall comply with the specific transitional provisions.
(2) Changes in presentations
When the presentation of financial statements is changed, prior
period financial statements are reclassified in accordance with the
new presentation.
(3) Changes in accounting estimates
A change in an accounting estimate is accounted for in the period of
the change if the change affects that period only, and is accounted
for prospectively if the change affects both the period of the change
and future periods.
(4) Corrections of prior period errors
When an error in prior period financial statements is discovered,
those statements are restated.
This accounting standard and the guidance are applicable to
accounting changes and corrections of prior period errors which are
made from the beginning of the fiscal year that begins on or after
April 1, 2011.
Segment Information Disclosures—In March 2008, the ASBJ
revised ASBJ Statement No. 17 “Accounting Standard for Segment
Information Disclosures” and issued ASBJ Guidance No. 20 “Guid-
ance on Accounting Standard for Segment Information Disclosures.”
Under the standard and guidance, an entity is required to report
financial and descriptive information about its reportable segments.
Reportable segments are operating segments or aggregations of
operating segments that meet specified criteria. Operating segments
are components of an entity about which separate financial informa-
tion is available and such information is evaluated regularly by the
chief operating decision maker in deciding how to allocate resources
and in assessing performance. Generally, segment information is
required to be reported on the same basis as is used internally for
evaluating operating segment performance and deciding how to
allocate resources to operating segments. This accounting standard
and the guidance are applicable to segment information disclosures
for the fiscal years beginning on or after April 1, 2010.
3. INVENTORIESInventories as of March 31, 2010 and 2009, consisted of the
following:
Millions of YenThousands ofU.S. Dollars
2010 2009 2010
Merchandise ¥ 2,437 ¥ 2,793 $ 26,193
Finished products 3,634 4,517 39,058
Construction work in progress 4,718 4,861 50,709
Raw materials 2,914 3,474 31,320
Other 1,486 1,515 15,972
Total ¥15,189 ¥17,160 $163,252
4. INVESTMENT SECURITIESInvestment securities as of March 31, 2010 and 2009, consisted of
the following:
Millions of YenThousands of U.S. Dollars
2010 2009 2010
Non-current:
Marketable equity securities ¥5,297 ¥4,021 $56,933
Non-marketable equity securities 242 247 2,601
Total ¥5,539 ¥4,268 $59,534
The carrying amounts and aggregate fair value of investment
securities at March 31, 2010 and 2009 were as follows:
Millions of Yen
March 31, 2010 CostUnrealized
GainsUnrealized
Losses Fair Value
Available-for-sale— Equity securities ¥3,725 ¥1,585 ¥ 13 ¥5,297
March 31, 2009
Available-for-sale— Equity securities ¥3,644 ¥ 653 ¥276 ¥4,021
Thousands of U.S. Dollars
March 31, 2010 CostUnrealized
GainsUnrealized
Losses Fair Value
Available-for-sale— Equity securities $40,037 $17,036 $140 $56,933
42 NICHIAS Annual Report 2010
The carrying values of available - for - sale equity securities whose
fair value was not readily determinable as of March 31, 2010 and
2009 were ¥242 million ($2,601 thousand) and ¥247 million, respec-
tively. The similar information for 2010 is disclosed in Note 15.
The proceeds from sales of investment securities and gross real-
ized gains and losses on these sales are not disclosed because they
were immaterial for the years ended March 31, 2010 and 2009.
5. GOODWILLGoodwill as of March 31, 2010 and 2009 consisted of the
following:
Millions of YenThousands ofU.S. Dollars
2010 2009 2010
Consolidation goodwill ¥109 ¥190 $1,172
Acquisition goodwill 23 96 247
Total ¥132 ¥286 $1,419
6. SHORT - TERM BANK LOANS AND LONG - TERM DEBT
Short - term bank loans as of March 31, 2010 and 2009, prin-
cipally consisted of notes to banks and bank overdrafts. The
annual interest rates applicable to the short - term bank loans
ranged from 0.73% to 2.80% and 0.90% to 4.55% as of
March 31, 2010 and 2009, respectively.
Long - term debt as of March 31, 2010 and 2009 consisted
of the following:
Millions of YenThousands of U.S. Dollars
2010 2009 2010
Unsecured the 6-month TIBOR + 0.675% yen straight bond, due fiscal 2015 ¥ 3,000 $ 32,244
Loans from banks, due serially to fiscal 2016 with interest rates ranging from 0.80% to 2.40% (2010) and from 0.80% to 2.40% (2009):
Collateralized 1,206 ¥ 1,296 12,962
Unsecured 14,175 16,823 152,354
Total 18,381 18,119 197,560
Less current portion (1,480) (13,938) (15,907)
Long-term debt, less current portion ¥16,901 ¥ 4,181 $181,653
Annual maturities of long - term debt as of March 31, 2010 were as
follows:
Year Ending March 31 Millions of YenThousands of U.S. Dollars
2011 ¥ 1,480 $ 15,907
2012 1,076 11,565
2013 7,350 78,998
2014 4,600 49,441
2015 3,500 37,618
2016 and thereafter 375 4,031
Total ¥18,381 $197,560
The carrying amounts of assets pledged as collateral for short - term
bank loans of ¥11,400 million ($122,528 thousand) and long - term
debt of ¥1,206 million ($12,962 thousand) at March 31, 2010, were
as follows:
Millions of YenThousands ofU.S. Dollars
Buildings and structures— net of accumulated depreciation ¥1,224 $13,156
Land 667 7,169
Investment securities 3,586 38,542
Total ¥5,477 $58,867
As is customary in Japan, the Company maintains substantial deposit
balances with banks with which it has borrowings. Such deposit bal-
ances are not legally or contractually restricted as to withdrawal.
General agreements with respective banks provide, as is custom-
ary in Japan, that additional collateral must be provided under certain
circumstances if requested by such banks and that certain banks
have the right to offset cash deposited with them against any
long - term or short - term debt or obligation that becomes due and, in
case of default and certain other specified events, against all other
debt payable to the banks. The Company has never been requested
to provide any additional collateral.
The Company has concluded syndicated loan agreements with its
banks to establish on efficient source of funds in order to repair and
replace fire - resistant eave assemblies and fireproof partition walls for
its customers.
NICHIAS Annual Report 2010 43
The outstanding balance of the commitment as of March 31, 2010
was as follows:
Millions of YenThousands ofU.S. Dollars
Total committed line of credit ¥20,000 $214,961
Executed amount 11,000 118,228
Unexecuted amount ¥ 9,000 $ 96,733
The above agreements are subject to the following financial
covenants:
• Ordinary income shall be over ¥2,500 million ($26,870 thousand)
for the fiscal year ended March 31, 2010, both on a consolidated
and non - consolidated basis.
• Ordinary income shall be not a loss for the first half of the fiscal
year ending March 31, 2011, both on a consolidated and
non - consolidated basis.
• Total liabilities with interest shall be under ¥65,000 million
($698,624 thousand) as of March 31, 2010, on a consolidated
basis.
• Total liabilities with interest shall be under ¥60,000 million
($644,844 thousand) as of March 31, 2010, on a non - consoli-
dated basis.
7. RETIREMENT AND PENSION PLANSThe Company and certain consolidated subsidiaries have severance
payment plans for employees, directors and corporate auditors.
Under most circumstances, employees terminating their employ-
ment are entitled to retirement benefits determined based on the
rate of pay at the time of termination, years of service and certain
other factors. Such retirement benefits are made in the form of a
lump - sum severance payment from the Company or from certain
consolidated subsidiaries and annuity payments from a trustee.
Employees are entitled to larger payments if the termination is invol-
untary, by retirement at the mandatory retirement age, by death, or
by voluntary retirement at certain specific ages prior to the manda-
tory retirement age.
The Company implemented a defined contribution pension plan by
which a part of the severance lump - sum payment plan was terminated.
The liability for employees’ retirement benefits as of March 31,
2010 and 2009 consisted of the following:
Millions of YenThousands ofU.S. Dollars
2010 2009 2010
Projected benefit obligation ¥17,238 ¥17,843 $185,275
Fair value of plan assets (10901) (9,260) (117,165)
Unrecognized actuarial loss (5,287) (7,620) (56,825)
Prepaid pension cost 1,030 1,161 11,071
Net liability ¥ 2,080 ¥ 2,124 $ 22,356
The components of net periodic retirement benefit costs for the
years ended March 31, 2010 and 2009 were as follows:
Millions of YenThousands ofU.S. Dollars
2010 2009 2010
Service cost ¥ 734 ¥ 914 $ 7,889
Interest cost 330 325 3,547
Expected return on plan assets (154) (264) (1,655)
Recognized actuarial loss 910 631 9,780
Net periodic retirement benefit costs 1,820 1,606 19,561
Payment for the defined contribution pension plan 77 79 828
Total ¥1,897 ¥1,685 $20,389
Assumptions used for the years ended March 31, 2010 and 2009,
are set forth as follows:
2010 2009
Discount rate 2.0% 2.0%
Expected rate of return on plan assets 2.0% 3.0%
Recognition period of actuarial gain/loss 12 years 12 years
8. EQUITYJapanese 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 divi-
dends at any time during the fiscal year in addition to the year - end
dividend upon resolution at the shareholders meeting. For compa-
nies that meet certain criteria such as; (1) having the Board of Direc-
tors, (2) having independent auditors, (3) having the 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
44 NICHIAS Annual Report 2010
articles of incorporation, the Board of Directors may declare divi-
dends (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. Semiannual interim dividends
may also be paid once a year upon resolution by the Board of Direc-
tors 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 aggre-
gate amount of legal reserve and additional paid - in capital equals
9. STOCK OPTIONSThe stock options outstanding as of March 31, 2010 were as follows:
Stock Options Persons Granted Number of Options Granted Date of Grant Exercise Price Exercise Period
2004 Stock Options 5 directors, 1 corporate officer and 9 employees
360,000 shares 2004.10.1 ¥427($5)
From April 1, 2005 to June 30, 2010
2005 Stock Options 2 corporate officers and 8 employees
120,000 shares 2005.10.3 ¥672($7)
From April 1, 2006 to August 31, 2011
2006 Stock Options 4 directors and 40 employees
800,000 shares 2006.10.2 ¥875($9)
From April 1, 2007 to August 31, 2012
2009 Stock Options 8 directors, 348 employees and 76 directors and employees of subsidiaries
715,000 shares 2009.12.1 ¥340($4)
From April 1, 2010 to August 31, 2013
25% of the 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 trea-
sury stock acquisition rights are presented as a separate component
of equity or deducted directly from stock acquisition rights.
NICHIAS Annual Report 2010 45
The stock option activity is as follows:
Shares
Year Ended March 31, 2009
2004 Stock
Options
2005 Stock
Options
2006 Stock
Options
2009 Stock
Options
Non-vested:
March 31, 2008—Outstanding
Granted
Canceled
Vested
March 31, 2009—Outstanding
Vested:
March 31, 2008—Outstanding 205,000 100,000 780,000
Vested
Exercised
Canceled 21,000 400,000
March 31, 2009—Outstanding 184,000 100,000 380,000
Year Ended March 31, 2010
Non-vested:
March 31, 2009—Outstanding
Granted 715,000
Canceled
Vested 715,000
March 31, 2010—Outstanding
Vested:
March 31, 2009—Outstanding 184,000 100,000 380,000
Vested 715,000
Exercised
Canceled 155,000
March 31, 2010—Outstanding 184,000 100,000 225,000 715,000
Exercise price ¥427 ¥672 ¥875 ¥340
($5) ($7) ($9) ($4)
Average stock price at exercise
Fair value price at grant date * ¥118
($1)
* ¥154 ($2) for the income tax unqualified options which exercise period is settled from April 1, 2007 to August 31, 2012, and ¥168 ($2) for the income tax qualified options which exercise period is settled from July 1, 2008 to August 31, 2012.
46 NICHIAS Annual Report 2010
The Assumptions Used to Measure Fair Value of 2009 Stock Options
Estimate method: Black-Scholes option pricing model
Volatility of stock price: 62.15%
Estimated remaining outstanding period: 2.8 years
Estimated dividend yield: 1.23%
Interest rate with risk free: 0.324%
Some cancellations of stock acquisition rights were charged to
other income as gain on reversal of stock acquisition rights of
¥25 million ($269 thousand) in the year ended March 31, 2010.
10. RELATED PARTY TRANSACTIONSRelated party transactions are not disclosed because there were
immaterial for the years ended March 31, 2010 and 2009.
11. INCOME TAXESThe Company and its domestic subsidiaries are subject to Japanese
national and local income taxes which, in the aggregate, resulted in
normal effective statutory tax rate of approximately 40.5% for the
years ended March 31, 2010 and 2009.
The tax effects of significant temporary differences and tax loss
carryforwards which resulted in deferred tax assets and liabilities as
of March 31, 2010 and 2009 were as follows:
Millions of YenThousands of U.S. Dollars
2010 2009 2010
Deferred tax assets:
Tax loss carryforwards ¥ 5,688 ¥ 6,166 $ 61,135 Liability for retirement benefits—employees 2,235 2,177 24,022 Loss on impairment of long-lived assets 1,652 1,838 17,756 Allowance for loss on compensation for building materials 1,557 5,201 16,735 Accrued bonuses 655 590 7,040 Loss on impairment of investment securities 369 610 3,966 Allowance for doubtful accounts 293 417 3,149 Other payables 271 295 2,913 Depreciation 94 121 1,010 Liability for retirement benefits—directors and corporate auditors 46 59 494 Other 977 1,064 10,501 Subtotal 13,837 18,538 148,721 Less valuation allowance (2,784) (3,784) (29,923) Total 11,053 14,754 118,798Deferred tax liabilities:
Gain on securities contributed to employees’ retirement benefit trusts 1,219 1,219 13,102 Unrealized gain on available-for-sale securities 403 137 4,331 Undistributed earnings of foreign subsidiaries 241 198 2,590 Deferred gain on sales of property, plant and equipment 84 89 903 Account receivable for enterprise tax refund 134
Other 141 169 1,516 Total 2,088 1,946 22,442Net deferred tax assets ¥ 8,965 ¥12,808 $ 96,356
NICHIAS Annual Report 2010 47
A reconciliation between the normal effective statutory tax rate
and the actual effective tax rate reflected in the accompanying con-
solidated statements of income for the years ended March 31, 2010
and 2009 is as follows:
2010 2009
Normal effective statutory tax rate 40.5% 40.5%
Expenses not deductible for income tax purposes 0.6 3.2
Income not taxable for income tax purposes (0.2) (2.4)
Inhabitants taxes 0.7 2.0
Lower income tax rates applicable to income in certain foreign countries (1.4) (2.9)
Increase and decrease in valuation allowance for deferred tax assets (3.3) 44.7
Other—net (0.3) (0.4)
Actual effective tax rate 36.6% 84.7%
12. RESEARCH AND DEVELOPMENT COSTSResearch and development costs charged to income were
¥4,871 million ($52,354 thousand) and ¥5,299 million for the years
ended March 31, 2010 and 2009, respectively.
13. IMPAIRMENT LOSS The Group reviewed its long - lived assets for impairment as of March
31, 2010, as a result, recognized an impairment loss of ¥297 million
($3,192 thousand) as other expense for an idle land of the Company
in Kashiba City and other groups of plants due to a decline of profit-
ability of those groups. The carrying amount of the relevant fixed
assets was written down to the recoverable amount.
The Group recognized impairment losses on the following assets
for the years ended March 31, 2010 and 2009:
Millions of YenThousands ofU.S. Dollars
2010 2009 2010
Fixed assets:
Land ¥240 ¥ 25 $2,580
Building and structure 585
Machinery and equipment 55 836 591
Others 2 12 21
Total ¥297 ¥1,458 $3,192
The recoverable amount of that group was measured at its net
selling value. The net selling value of land was based on the report of
independent appraisers, and other fixed assets were written off to
memorandum price.
14. LEASESAs Lessee
The Group leases certain machinery, tools, furniture and other
assets.
Depreciation expense and interest expense for the year ended
March 31, 2010, which are not reflected in the accompanying con-
solidated statements of income, are computed by the straight - line
method and the interest method, respectively.
The minimum rental commitments under noncancelable operating
leases at March 31, 2010 and 2009 were as follows:
Millions of YenThousands ofU.S. Dollars
2010 2009 2010
Due within one year ¥75 ¥87 $807
Due after one year 2 3 21
Total ¥77 ¥90 $828
As Lessor
The Group subleases certain machinery and equipment. These sub-
leases are the finance leases that do not transfer ownership of leased
machinery and equipment to the lessee. Receivables under such
finance leases as of March 31, 2010 and 2009 were as follows:
Millions of YenThousands ofU.S. Dollars
2010 2009 2010
Due within one year ¥11 ¥24 $118
Due after one year 24 43 258
Total ¥35 ¥67 $376
15. FINANCIAL INSTRUMENTS AND RELATED DISCLOSURES
On March 10, 2008, the ASBJ revised ASBJ Statement No. 10
“Accounting Standard for Financial Instruments” and issued ASBJ
Guidance No. 19 “Guidance on Accounting Standard for Financial
Instruments and Related Disclosures.” This accounting standard
and the guidance are applicable to financial instruments and related
disclosures at the end of the fiscal years ending on or after March
31, 2010 with early adoption permitted from the beginning of the
fiscal years ending before March 31, 2010. The Group applied the
revised accounting standard and the new guidance effective March
31, 2010.
(1) Group Policy for Financial Instruments
The Group uses financial instruments, mainly short - term and
48 NICHIAS Annual Report 2010
long - term debt including bank loans and straight bonds, based on its
capital financing plan. Cash surpluses, if any, are invested in low risk
financial assets. Derivatives are used, not for speculative purposes,
but to manage exposure to financial risks as described in (2) below.
(2) Nature and Extent of Risks Arising from Financial Instruments
Receivables such as trade notes and trade accounts are exposed
to customer credit risk. Receivables in foreign currencies are
exposed to the market risk of fluctuation in foreign currency
exchange rates. 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 less than one year. Payables in foreign currencies are
exposed to the market risk of fluctuation in foreign currency
exchange rates.
Maturities of bank loans and straight bond are less than six years
after the balance sheet date. Although a part of such bank loans is
exposed to market risks from changes in variable interest rates,
those risks are mitigated by using interest - rate swaps derivatives.
Derivatives include interest - rate swaps, which are used to manage
exposure to market risks from changes in interest rates of bank
loans. Please see Note 16 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 term and
balances of major customers by each business administration
department to identify the default risk of customers in early stage.
Derivative transactions are limited to major international financial
institutions to relieve the credit risk. Please see Note 16 for the detail
about derivatives.
Market risk management (foreign exchange risk and interest rate risk)
Interest - rate swaps are used to manage exposure to market risks
from changes in interest rates of loan payables.
Investment securities are managed by monitoring market values
and financial position of issuers on a regular basis.
Basic principles of derivative transactions have been approved by
management meeting on a semiannual basis based on the internal
guidelines which prescribe the authority and the limit for each trans-
action by the financial department. Reconciliation of the transaction
and balances with customers is made by the accounting department,
and the transaction data has been reported to the chief accounting
officer and the management meeting on a semiannual basis.
Liquidity risk management
Liquidity risk comprises the risk that the Group cannot meet its con-
tractual obligations in full on maturity dates. The Group manages its
liquidity risk by holding adequate volumes of liquid assets at the level
of 0.6 months’ sales volume, along with adequate financial planning
by the financial department.
(4) Fair Value of Financial Instruments
Fair values of financial instruments are based on quoted price in
active markets. If quoted price is not available, other rational valua-
tion techniques are used instead. Also please see Note 16 for the
detail of fair value for derivatives.
(a) Fair value of financial instruments
Millions of Yen
March 31, 2010Carrying Amount
Fair Value
Unrealized Gain/Loss
Cash and cash equivalents ¥14,267 ¥14,267
Receivables 39,784 39,784
Investment securities 5,296 5,296
Total ¥59,347 ¥59,347
Payables ¥22,278 ¥22,278
Short-term bank loans (including current portion of long-term debt) 24,104 24,103 ¥ 1
Advances received on construction work in progress 1,493 1,493
Long-term debt 16,901 16,852 49
Total ¥64,776 ¥64,726 ¥50
Thousands of U.S. Dollars
March 31, 2010Carrying Amount
Fair Value
Unrealized Gain/Loss
Cash and cash equivalents $153,343 $153,343
Receivables 427,601 427,601
Investment securities 56,922 56,922
Total $637,866 $637,866
Payables $239,445 $239,445
Short-term bank loans (including current portion of long-term debt) 259,071 259,061 $ 10
Advances received on construction work in progress 16,047 16,047
Long-term debt 181,653 181,126 527
Total $696,216 $695,679 $537
NICHIAS Annual Report 2010 49
Cash and Cash Equivalents, Receivables, Payables and Advances
Received on Construction Work in Progress
The carrying values of cash and cash equivalents, receivables, pay-
ables and advanced received on construction works in progress
approximate fair value because of their short maturities.
Investment Securities
The fair values of investment securities are measured at the quoted
market price of the stock exchange for equity instruments. The infor-
mation of the fair value for the investment securities by classification
is included in Note 4.
Short - Term Bank Loans (including Current Portion of Long - Term
Debt)
The carrying values of short - term bank loans approximate fair value
because of their short maturities.
And current portion of long - term debt is included in above
short - term bank loans and it is determined by discounting the cash
flows related to the debt at the Group’s assumed corporate borrow-
ing rate.
Long - Term Debt (including Straight Bond and Long - Term
Borrowings)
The carrying values of straight bond approximate fair value because
it is at floating interest rate and also there is no quoted market price
due to a private placement.
The fair values of long - term borrowings are determined by dis-
counting the cash flows related to the debt at the Group’s assumed
corporate borrowing rate.
The fair values of the interest - rate swaps in Note 16 which qualify
for hedge accounting and meet specific matching criteria are added
to the fair values of long - term borrowings with fixed interest rate.
Derivatives
The information of the fair value for derivatives is included in
Note 16.
(b) Financial instruments whose fair value cannot be reliably
determined
Carrying Amount
March 31, 2010Millions of
YenThousands ofU.S. Dollars
Investments in equity instruments that do not have a quoted market price in an active market ¥2,840 $30,525
(c) Maturity analysis for financial assets and securities with contrac-
tual maturities
Millions of Yen
Thousands of U.S. Dollars
March 31, 2010Due in One Year or Less
Cash and cash equivalents ¥14,361 $154,353
Receivables 39,784 427,601
Total ¥54,145 $581,954
Please see Note 6 for annual maturities of long - term debt.
16. DERIVATIVESThe Group enters into interest rate swap contracts to manage its
interest rate exposures on certain liabilities.
It is the Group’s policy to use derivatives only for the purpose of
reducing market risks associated with assets and liabilities. The
Group does not hold or issue derivatives for trading purposes.
All derivative transactions are entered into to hedge interest expo-
sures incorporated within its business. Accordingly, market risk in
these derivatives is basically offset by opposite movements in the
value of hedged liabilities.
Because the counterparties to these derivatives are major interna-
tional financial institutions, the Group does not anticipate any losses
arising from credit risk.
Derivative transactions entered into by the Group have been made
in accordance with internal policies which regulate the authorization
and credit limit amount.
As noted in Note 15, the Group applied ASBJ Statement No. 10
“Accounting Standard for Financial Instruments” and ASBJ Guid-
ance No. 19 “Guidance on Accounting Standard for Financial Instru-
ments and Related Disclosures.” The accounting standard and the
guidance are applicable to financial instruments and related disclo-
sures at the end of the fiscal years ending on or after March 31,
2010; therefore, the required information is disclosed only for 2010.
50 NICHIAS Annual Report 2010
19. SEGMENT INFORMATIONThe Group operates in the following industries:
Material division A consists of industrial products, advanced products (inorganic thermal insulation materials and sealing materials), auto parts and others.
Material division B consists of building materials.
Engineering division A consists of industrial thermal installation work.
Engineering division B consists of building materials installation.
Information about industry segments, geographical segments and sales to foreign customers of the Group for the years ended March 31, 2010
and 2009, was as follows:
(1) Industry Segments
a. Sales and Operating IncomeMillions of Yen
2010
Material Division A
Material Division B
Engineering Division A
Engineering Division B
Eliminations/ Corporate Consolidated
Sales to customers ¥70,817 ¥12,278 ¥33,218 ¥11,758 ¥128,071
Intersegment sales 189 3,671 ¥(3,860)
Total sales 71,006 15,949 33,218 11,758 (3,860) 128,071
Operating expenses 65,180 15,411 30,293 10,586 27 121,497
Operating income ¥ 5,826 ¥ 538 ¥ 2,925 ¥ 1,172 ¥(3,887) ¥ 6,574
b. Total Assets, Depreciation, Impairment Loss and Capital ExpendituresMillions of Yen
2010
MaterialDivision A
MaterialDivision B
Engineering Division A
Engineering Division B
Eliminations/Corporate Consolidated
Total assets ¥58,684 ¥8,981 ¥13,842 ¥8,147 ¥37,562 ¥127,216
Depreciation 3,264 395 84 40 510 4,293
Impairment loss 48 22 227 297
Capital expenditures 1,308 70 45 12 363 1,798
Derivative Transactions to Which Hedge Accounting Is Applied
at March 31, 2010Millions of Yen
March 31, 2010 Hedged ItemContract Amount
Contract Amount Due after One Year Fair Value
Interest rate swaps— fixed rate payment, floating rate receipt
Long-term debt ¥13,275 ¥12,475 *
March 31, 2010 Thousands of U.S. Dollars
Interest rate swaps—fixed rate payment, floating rate receipt
Long-term debt $142,681 $134,082 *
* The above interest rate swaps which qualify for hedge accounting and meet specific matching criteria are not remeasured at market value but the differ-ential paid or received under the swap agreements are recognized and included in interest expense or income. In addition, the fair value of such interest rate swaps in Note 15 is included in that of hedged items (i.e. long - term debt).
17. CONTINGENT LIABILITIESAs of March 31, 2010, the Company and certain domestic subsidiar-
ies are contingently liable for:
Guarantees and items of a similar nature of bank loans and others
amounting to ¥1,260 million ($13,543 thousand).
Off - balanced notes receivable with repurchase obligation amount-
ing to ¥832 million ($8,942 thousand).
18. NET INCOME PER SHAREBasic net income per share (“EPS”) is computed based on the
weighted - average number of common stocks outstanding totaling
118,917 thousand shares for the year ended March 31, 2010.
Diluted EPS for the year is not disclosed because the Company
does not have any dilutive instruments outstanding.
NICHIAS Annual Report 2010 51
a. Sales and Operating IncomeMillions of Yen
2009
Material Division A
Material Division B
Engineering Division A
Engineering Division B
Eliminations/ Corporate Consolidated
Sales to customers ¥80,193 ¥16,125 ¥39,821 ¥13,072 ¥149,211
Intersegment sales 445 3,695 ¥(4,140)
Total sales 80,638 19,820 39,821 13,072 (4,140) 149,211
Operating expenses 73,664 20,550 36,297 12,439 (533) 142,417
Operating income or operating loss ¥ 6,974 ¥ (730) ¥ 3,524 ¥ 633 ¥(3,607) ¥ 6,794
b. Total Assets, Depreciation, Impairment Loss and Capital ExpendituresMillions of Yen
2009
MaterialDivision A
MaterialDivision B
Engineering Division A
Engineering Division B
Eliminations/Corporate Consolidated
Total assets ¥57,421 ¥12,041 ¥16,851 ¥8,741 ¥42,655 ¥137,709
Depreciation 3,608 478 105 85 614 4,890
Impairment loss 1,437 21 1,458
Capital expenditures 4,757 209 144 29 236 5,375
a. Sales and Operating IncomeThousands of U.S. Dollars
2010
MaterialDivision A
MaterialDivision B
Engineering Division A
Engineering Division B
Eliminations/Corporate Consolidated
Sales to customers $761,145 $131,965 $357,029 $126,376 $1,376,515
Intersegment sales 2,032 39,456 $(41,488)
Total sales 763,177 171,421 357,029 126,376 (41,488) 1,376,515
Operating expenses 700,558 165,639 325,591 113,779 290 1,305,857
Operating income $ 62,619 $ 5,782 $ 31,438 $ 12,597 $(41,778) $ 70,658
b. Total Assets, Depreciation, Impairment Loss and Capital ExpendituresThousands of U.S. Dollars
2010
MaterialDivision A
MaterialDivision B
Engineering Division A
Engineering Division B
Eliminations/Corporate Consolidated
Total assets $630,739 $96,528 $148,775 $87,564 $403,720 $1,367,326
Depreciation 35,082 4,245 903 430 5,481 46,141
Impairment loss 516 236 2,440 3,192
Capital expenditures 14,058 752 484 129 3,902 19,325
Note: As discussed in Note 2.l, effective April 1, 2009, the Company applied ASBJ Statement No. 15 “Accounting Standard for Construction Contracts.” The effect of this change was to increase sales to customers of Engineering division A by ¥78 million ($838 thousand) and sales to customers of Engineering division B by ¥159 million ($1,709 thousand) for the year ended March 31, 2010. And, the effect of this change was to decrease operating income of Engineering division A by ¥10 million ($107 thousand) and to increase operating income of Engineering division B by ¥14 million ($150 thousand) for the year ended March 31, 2010.
(2) Geographical SegmentsThe Group operates mainly in Japan and total sales/assets in foreign countries were less than 10% of consolidated sales/assets.
(3) Sales to Foreign CustomersSales to foreign customers for the years ended March 31, 2010 and 2009 were less than 10% of consolidated sales of the respective years.
52 NICHIAS Annual Report 2010
Independent Auditors’ Report
NICHIAS Annual Report 2010 53
Glossary
Alumina Fiber
Alumina is an alternative name given to aluminum oxide. With a melting point of 2050°C, alumina is second only to the diamond in terms of hardness. Due to its heat-resistant and chemical-resistant properties, superior strength and low price, alumina is a major component of 90% of ceramics. High expecta-tions are held for alumina fiber, which is produced at high temperatures, as a fireproof material and a reinforced composite fiber.
Calcium Silicate
Calcium silicate is produced by mixing lime-based and siliceous materials with inorganic reinforced fiber through a high-temperature, high-pressure steam curing process. Calcium silicate’s firm and stable crystalline form provides it with non-combustible, fireproof and moisture-proof characteristics. As a result, it is widely employed in non-combustible decorative interior building materials, thermal insulation materials and other applications. NICHIAS commercialized calcium silicate in 1952.
Catalytic Converter Support Mats
Support mats are felt-like cushioning materials that provide support for extruded honeycomb-structured ceramic filters used in catalytic converters, devices that purify automotive exhaust. Mats are formed from inorganic fibers in order to realize stable catalytic converter support under high temperatures (600°C to 1000°C).
Chemical Filters
These honeycomb-structured filters used to remove a wide range of chemical contaminants, including ammonia gas and acidic and organic gases. Chemi-cal filters are mainly used to remove low-concentration gas in clean rooms, semiconductor manufacturing equipment, LCD production equipment and other applications.
Corrosion-resistant Materials
Materials that help prevent corrosion caused by gases and liquids. Fluoropoly-mers are one example.
Elastomer
Elastomer is a polymer that can be elongated to more than twice its length at room temperature, and quickly returns to approximately its original length when released. As such, elastomer exhibits similar elasticity to rubber at room temperature. Also known as natural rubber, synthetic rubber and thermoplas-tic elastomer.
Fluoropolymers
Resins that boast a number of outstanding properties, including heat and chemical resistance, electrical insulation and a low friction coefficient. They are mainly used in semiconductor manufacturing equipment and chemical plants, both of which handle high purity chemicals. PTFE and PFA are prime examples. NICHIAS fluoropolymers are marketed under the NAFLON brand.
Gaskets
Plants, factories and other industrial sites have complex pipeline systems that link any number of pipes. This poses the threat of fluid inside the pipes leaking from joints. Gaskets prevent leakage from joints. They are also known as static seals because they are used to tightly seal stationary parts.
Insulators
These soundproof and heat-insulating metallic products serve to block heat emitted from the exhaust manifold and other automotive exhaust system com-ponents. Insulators are also highly effective at mitigating sound and vibration.
Metal-free Attribute
In the semiconductor production process, it is essential to mitigate the adverse effects of metallic ions dissolving into the wafer cleaning solution. Manufactur-ers look to plastics such as fluoropolymers, which substantially lower the amount of metal dissolved, for use in areas where cleaning solution is applied. This “metal-free” attribute makes fluoropolymers a popular product among semiconductor manufacturers.
Metallic Heat Insulation
Metallic heat insulation is a material designed specifically for nuclear power plant facilities. Made from stainless steel and other materials, this material is used for thermal retention in nuclear reactor pressure vessels and other equipment and piping systems in the radiation controlled areas of nuclear power plants.
Metallic heat insulation eliminates concerns of corrosion and features superior mechanical strength as well as short installation times. Together, these qualities will help to reduce exposure to radioactive material during maintenance periods.
Packing Materials
Used to seal moving parts that, for example, rotate or reciprocate, such as a valve stem or a pump shaft. Also known as dynamic sealing materials.
PFA
Acronym for perfluoroalkoxy. Fluoropolymer PFA features similar superior attri-butes to PTFEs, but is also heat-moldable, unlike PTFE.
PTFE
Acronym for polytetrafluoroethylene, the first fluoropolymer ever discovered and developed. Heat-resistant, chemical-resistant and non-adhesive, PTFE is used in a wide range of applications from semiconductor processes to house-hold products. While nine types of fluoropolymers are on the market, PTFE holds a market share of around 70%.
Rockwool
A manmade fiber material produced by melting rock and slag at about 1500°C. Rockwool’s superlative fire-resistant, thermal insulation and soundproof char-acteristics make it a favorite in housing, buildings and factories. In 1938, NICHIAS became the first company in Japan to manufacture rockwool.
Sealing Materials
Sealing materials that prevent leakage of liquids, generally referred to as “gaskets” or “packing.” Materials used to prevent fluid leakages and infiltration of external substances. The selection of sealing materials is made in accordance with the type of fluid, the temperature, pressure and other factors. Static sealing materials are known as gaskets, and dynamic sealing materials are called packing materials.
Super-engineering Plastics
Super-engineering plastics offer superlative dynamics, insulation and heat resistance characteristics. They are mainly employed in electrical components, particularly machine components and other areas that require mechanical strength. Products manufactured in this area include PEEK.
VOC
Acronym for Volatile Organic Compound. VOCs, which are emitted from paints, printing and semiconductor lines, have been problematic air pollutants. While many highly concentrated VOCs have been treated in the past, the removal of VOCs with a low concentration had presented difficulties. NICHIAS has developed technology that absorbs and condenses low concentrated VOCs with effective processing.
54 NICHIAS Annual Report 2010
Organization
Personnel Department
General Affairs Department
Accounting Department
Data Systems Department
Operational Support Department
Legal Advisory Section
Environmental Control Section
Environmental Control Center
Rockwool Business Promotion Section
Safety & Health Control Section
Environmental Consulting Section
Quality Assurance Department
Corporate Administration Division
Quality Assurance Division
Technical DepartmentTechnical Division
Planning & Development Department
Intellectual Property Section
R&D Analysis Section
Tsurumi Research Laboratory
Hamamatsu Research Laboratory
Tokyo Branch
Osaka Branch
Nagoya Branch
Kyushu Branch
Tsurumi Factory
Ohji Factory
Hashima Factory
Fukuroi Factory
Yuki Factory
Research & Development Division
Board ofDirectors
President
ExecutiveCommittee
Audit Section
Board ofAuditors
Corporate StrategicPlanning Department
Industrial Products Division
Advanced Products Division
Automotive Parts Division
Construction Division
Building Materials Division
(As of July 1, 2010)
NICHIAS Annual Report 2010 55
Group Network
Major Subsidiaries and Associated Companies (or Affiliates)(As of April 1, 2010)
Company Major Products or Main Lines of Business
Domestic* FUKUSHIMA NICHIAS CORPORATION Manufacture of fluoropolymer products and insulation materials
* KUMAMOTO NICHIAS CORPORATION Manufacture of fluoropolymer products
* TOKYO MATERIALS CORPORATION Sale of fluoropolymer products
* NICHIAS CERATECH CORPORATION Manufacture and sale of insulation materials and building materials
* KOKUBU INDUSTRIAL CO., LTD. Manufacture of insulation materials and automotive parts
* TATSUTA KOGYO CO., LTD. Manufacture of insulation materials, automotive parts and building materials
* OHTA KASEI CORPORATION Manufacture of insulation materials
* SAKAI NICHIAS CORPORATION Manufacture of insulation materials
* NICHIAS MECHATECHNO CORPORATION Manufacture of sealing materials and fluoropolymer products
* NICHIAS KANTO SALES CORPORATION Sale of sealing materials, insulation materials and fluoropolymer products
* AKITSU INDUSTRIES CORPORATION Processing and sale of sealing materials and fluoropolymer products
NICHIAS SEALTECH CORPORATION Manufacture of sealing materials
** TOZETU CO., LTD. Manufacture of sealing materials
* METAKOTE INDUSTRY CO., LTD. Manufacture of automotive parts
* NIPPON ROCKWOOL CORPORATION Sale of building and insulation materials
* KIMITSU ROCKWOOL CORPORATION Manufacture of building materials
* NICHIAS CEMCRETE CO., LTD. Sale and construction of building materials
* NIPPON THERMAL ENGINEERING CORPORATION Engineering and construction of insulation materials
* NICHIAS ENGINEERING SERVICE CO., LTD. Engineering and construction of insulation materials
* NICHIAS KYOSHIN CORPORATION Insurance agency
Overseas (country)* P.T. NICHIAS ROCKWOOL INDONESIA (Indonesia) Manufacture of insulation materials and sealing materials
* P.T. NICHIAS METALWORKS INDONESIA (Indonesia) Manufacture of metal parts for building materials
* P.T. NICHIAS SUNIJAYA (Indonesia) Sale of industrial products and automotive parts
* NICHIAS FGS SDN. BHD. (Malaysia) Manufacture and sale of sealing materials, automotive parts and building materials
* NT RUBBER-SEALS SDN. BHD. (Malaysia) Manufacture of sealing materials
NICHIAS AUTOPARTS MALAYSIA SDN. BHD. (Malaysia) Manufacture of automotive parts
* NICHIAS SINGAPORE PTE. LTD. (Singapore) Sale of industrial products and industrial thermal insulation work
* NICHIAS (Thailand) CO., LTD. (Thailand) Manufacture and sale of automotive parts and industrial products
THAI-NICHIAS ENGINEERING CO., LTD. (Thailand) Engineering and construction of insulation materials
* NICHIAS HAIPHONG CO., LTD. (Vietnam) Manufacture of honeycomb filters, sealing materials and fluoropolymer products
* SUZHOU NICHIAS INDUSTRIAL PRODUCTS CO., LTD. (China) Manufacture of fluoropolymer products and automotive parts
SUZHOU NICHIAS SEAL MATERIALS CO., LTD. (China) Manufacture of sealing materials
NICHIAS (Shanghai) TRADING CO., LTD. (China) Sale of industrial products and building materials
SHANGHAI XINGSHENG GASKET CO., LTD. (China) Manufacture of automotive parts
SHANGHAI GOYU AUTOPARTS CO., LTD. (China) Manufacture of automotive parts
NICHIAS INDUSTRIAL PRODUCTS PVT. LTD. (India) Manufacture of automotive parts
NICHIAS CZECH s.r.o. (Czech Republic) Manufacture of automotive parts
* Consolidated subsidiaries** Affiliate accounted for by the equity method
56 NICHIAS Annual Report 2010
1896 Founded in Osaka
1909 Moved Head Office to Tokyo
1923 TOMBO brand registered
1931 Produced Japan’s first joint sheet gasket
1937 Moved Osaka Factory to the newly constructed Ohji Factory
1938 Became first company in Japan to manufacture rockwool
1939 Moved Tokyo Factory to the newly constructed Tsurumi Factory
1951 Developed prototype of fluoropolymer products
1952 Commenced manufacture of spiral wound gaskets
NICHIAS stock approved for trading on the OTC Market of the Tokyo Stock Exchange
1956 Established the Research Laboratory in Tsurumi in commemoration of 60th anniversary
1958 Commenced production of ceramic fiber
1961 Listed on Second Section of Tokyo Stock Exchange
1962 Listed on First Section of Tokyo Stock Exchange
1964 Established Fukuroi Factory
1967 Commenced manufacture of access floor
1968 Listed on First Section of Osaka Securities Exchange
1971 Moved Corporate Head Office to present location at Shibadaimon, Minato-ku, Tokyo
1974 Established Yuki Factory
1979 Established NICHIAS SINGAPORE PTE. LTD.
1983 Commenced manufacture and sales of alumina fiber and rigid polyurethane pipe supports
Established P.T. SUNIJAYA (Now P.T. NICHIAS SUNIJAYA) in Indonesia
1985 Developed ultra-high temperature ceramic thermal insulation tile
Commenced manufacture and sales of rubber coated metal gaskets
1987 Reorganized business divisions into independent profit centers
Developed fluoropolymer products for semiconductor production equipment
1988 Established P.T. KUNISEAL NUSANTARA (Now P.T. NICHIAS ROCKWOOL INDONESIA) in Indonesia
1990 Established P.T. PYN MANUFACTURING (Now P.T. NICHIAS METALWORKS INDONESIA) in Indonesia
Established NICHIAS FGS SDN. BHD. in Malaysia
1994 Established Hamamatsu Research Laboratory
Established SUZHOU NICHIAS SEAL MATERIALS CO., LTD. in China
1995 Established NT RUBBER-SEALS SDN. BHD. in Malaysia
Established P.T. NICHIAS ROCKWOOL INDONESIA
1996 Celebrated NICHIAS’ 100th anniversary
1997 Second stage construction of Hamamatsu Research Laboratory completed
1998 Began issuing stock options
1999 Introduced Executive Officer System
2001 Formulated the NICHIAS Environmental Charter
Established NICHIAS HAIPHONG CO., LTD. in Vietnam
2002 Established SUZHOU NICHIAS INDUSTRIAL PRODUCTS CO., LTD. in China
2003 New building completed at Tsurumi Research Laboratory
Established NICHIAS (Shanghai) TRADING CO., LTD. in China
Established NICHIAS AUTOPARTS MALAYSIA SDN. BHD.in Malaysia
2004 Established NICHIAS CZECH, S.R.O.
2005 Established Procurement Guidelines
Acquired shares in three subsidiaries of NIPPON STEEL CHEMICAL CO., LTD.
2006 Completed new factory building at Hashima Factory
2007 Opened Construction Technical Center
Completed Automotive Parts Technical Center
2008 Formulated “The New NICHIAS Spirit” as the new corporate philosophy
Formulated “A New Step towards the Next 100 Years” as new corporate slogan
Established NICHIAS INDUSTRIAL PRODUCTS PVT. LTD. in India
2009 Completed Yuki Factory and new automotive parts factory
NICHIAS was founded in 1896 as a pioneer in the field of thermal insulation materials. The Company quickly established itself as a leader in the sector by developing outstanding product technology and engineering capabilities. Over more than a century, NICHIAS has continually risen to the challenge of developing new products and innovations. The Company will remain firmly fixed on this path of progress in the 21st century.
History
Corporate Data Investor Information
(As of March 31, 2010) (As of March 31, 2010)
Head Offi ce1-26, Shibadaimon 1-chome,
Minato-ku, Tokyo 105-8555, Japan
Tel: +81-3-3433-7251
Branch Offi cesTokyo Branch
Osaka Branch
Nagoya Branch
Kyushu Branch
FactoriesTsurumi Factory
Ohji Factory
Hashima Factory
Fukuroi Factory
Yuki Factory
LaboratoriesHamamatsu Research Laboratory
Tsurumi Research Laboratory
FoundedApril 9, 1896
Employees1,599
Paid-in Capital¥9,283.57 million
Authorized Number of Shares240,000,000 shares
Number of Shares Issued125,057,344 shares
Number of Shareholders14,198
Securities TradedTokyo Stock Exchange—First Section
Transfer AgentThe Sumitomo Trust and Banking Company, Limited
4-4, Marunouchi 1-chome,
Chiyoda-ku, Tokyo 100-8233, Japan
Further InformationGeneral Affairs Dept.
Tel: +81-3-3433-7251
E-mail: info@nichias.co.jp
URLhttp://www.nichias.co.jp/
NICHIAS Annual Report 2010 57
E01-1009-01-GS-TS-RE-0909
NICHIAS Corporation
1-26, Shibadaimon 1-chome,Minato-ku, Tokyo 105-8555, JapanTel: +81-3-3433-7251http://www.nichias.co.jp/
Printed in Japan