NICHIAS Corporation Annual Report 2010

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.


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.


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


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


FY’10

FY’09

21.8

22.8


FY’10

FY’09

24.0

29.2


FY’10

FY’09

33.2

39.8


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.


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



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


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.


8.3

9.0

0 5 10


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


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.


21.8

22.8

0 10 20 30


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


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.


24.0

29.2

0 10 20 30


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


33.2

39.8

0 10 20 30 40


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.


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


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


• 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


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.


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.


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.


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.


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.


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)



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


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


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


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/%)


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.


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.


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.


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


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.


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.


The Group made a total of ¥70 million in investments in the building materials business.


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


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


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


Millions of Yen


(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


Millions of Yen


(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


Consolidated Statements of Income NICHIAS Corporation and Consolidated SubsidiariesYears Ended March 31, 2010 and 2009


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



Millions of Yen


(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


Consolidated Statements of Cash Flows NICHIAS Corporation and Consolidated SubsidiariesYears Ended March 31, 2010 and 2009


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


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


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.


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.


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:


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:


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


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:


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:


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:


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.


The outstanding balance of the commitment as of March 31, 2010

was as follows:


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:


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:


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


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)


2009 Stock Options 8 directors, 348 employees and 76 directors and employees of subsidiaries

715,000 shares 2009.12.1 ¥340($4)


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.


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


Vested:

March 31, 2008—Outstanding 205,000 100,000 780,000

Vested

Exercised

Canceled 21,000 400,000


Year Ended March 31, 2010

Non-vested:


Granted 715,000

Canceled

Vested 715,000


Vested:


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.


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:


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


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:


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:


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:


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


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


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


March 31, 2010Carrying Amount

Fair Value

Unrealized Gain/Loss

Cash and cash equivalents $153,343 $153,343



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


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


March 31, 2010Due in One Year or Less

Cash and cash equivalents ¥14,361 $154,353


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.


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



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.


a. Sales and Operating IncomeMillions of Yen

2009

Material Division A

Material 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




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




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




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.


Independent Auditors’ Report


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.


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


Advanced Products Division

Automotive Parts Division

Construction Division


(As of July 1, 2010)


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


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: [email protected]

URLhttp://www.nichias.co.jp/


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

NICHIAS Corporation Annual Report 2010

Documents

Transcript of NICHIAS Corporation Annual Report 2010