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Annual Report 2010

for the year ended March 31, 2010

Profile
Contributing to Society Through the Safety and
Reliability of Thermal Insulation Technologies
NICHIAS 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.

Contents
Financial Highlights

Corporate Governance

18

A Message From the Management

Helping to Sustain the Environment

22

At a Glance

Board of Directors, Corporate Auditors and

NICHIAS Line-up

Industrial Products

Executive Officers

24

Financial Section

25

Advanced Products

10

Glossary

53

Automotive Parts

12

Organization

54

Building Materials

14

Group Network

55

Industrial Thermal Insulation Work

15

History

56

16

Corporate Data/Investor Information

57

Research and Development

Forward-looking Statements
This annual report contains forward-looking statements about NICHIAS Corporations 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, managements 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.

Financial Highlights

NICHIAS Corporation and Consolidated Subsidiaries


Years ended March 31

Thousands of
U.S. Dollars

Millions of Yen
2008

Net sales
Material division
Engineering division
Operating income
Income (loss) before income taxes and minority interests
Net income (loss)
Depreciation
R&D costs

2009

2010

2010

169,650 149,211 128,071


114,430
96,318
83,095
55,220
52,893
44,976
14,795
6,794
6,574
(18,520)
3,805
13,377
(11,857)
428
8,336
4,624
4,890
4,293
5,346
5,299
4,871

Total assets
Inventories
Property, plant and equipment
Total equity

149,533
18,831
39,282
37,466

Per Share Data (Yen and U.S. Dollars):


Net income (loss)
Basic
Diluted
Cash dividends

137,709
17,160
37,515
34,755

(99.62)

$ 1,376,515
893,110
483,405
70,658
143,777
89,596
46,141
52,354

127,216
15,189
34,730
44,800

3.60

4.00

70.10

6.00

1,367,326
163,252
373,280
481,513

0.75

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.

Net Sales

Operating Income
(Millions of yen)

180,000

Net Income (Loss)


(Millions of yen)

15,000

(Millions of yen)

100

8,000
4,000

120,000

10,000

Net Income (Loss) per Share


(Yen)
(Basic)

50

0
0
4,000
50

60,000

5,000

8,000
100

12,000
0

06 07 08 09 10

16,000

06 07 08 09 10

150

06 07 08 09 10

06 07 08 09 10

NICHIAS Annual Report 2010

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 semiconductor production equipment and automotive parts recovered
steadily after bottoming out in the fourth quarter of last year, sales
Kunihiko Yano President

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 Japans 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 accompanying 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

NICHIAS Annual Report 2010

initial estimates for these repairs have been revised and reversed,

range of industrial sectors. We also strive to be a company that

with new estimates some 7 billion lower than originally forecast.

once again benefits from public trust based on the fundamental

The remainder of this allowance was subsequently posted as

principle of providing safe and reliable products based on insula-

other income. As a result, net income rose 1,846.1% year on

tion and anti-corrosion technologies the NICHIAS Group has

year to 8,336 million.

developed over many years, expanding a ring of trust, and


contributing to society.

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. Exacerbating 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

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 employees individuality and support their personal growth.

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-

The NICHIAS Group Corporate Vision


A Company Trusted by Customers
Where People Can Work with Pride

ductor manufacturing equipment, sales will likely grow atop

Since its founding, the NICHIAS Group has spent many years

modest but broad recovery undertones in Japan, both in capital

building up an extensive customer network, lines of high-

investment and in demand for automotive parts.

performance, high-quality products that function under extreme


temperatures made from a wide range of materials encompassing

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 Groups aspiration

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.

to be reborn as a company that provides new value to a wide

NICHIAS Annual Report 2010

The NICHIAS Group is pursuing various measures to increase

Promotion of efficient business management

corporate value by providing products and services that custom-

With regard to core businesses, we are ensuring efficient opera-

ers can rely on, promoting business expansion in growth industries,

tions with clearly defined roles for each business to secure stable

and shaping the Company into one where employees can work

profits, while simultaneously taking advantage of our far-reaching

with peace of mind.

network to seek out new growth areas for the future and expand

To implement these initiatives, we set forth a new manage-

into new business domains. We are also continuing to effectively

ment vision to become A company trusted by customers where

invest management resources over the long term in businesses

people can work with pride. The NICHIAS Group will enact

related to current growth areas, including the automotive and

measures based on the following basic policies to realize this

semiconductor fields. Furthermore, we are rebuilding our business

management vision.

in the building materials industry and transforming it into a solid


pillar of the NICHIAS Groups operations.

Rigorous enforcement of compliance


We will rigorously enforce compliance so that the NICHIAS Group

Creation of products we can sell with confidence

can achieve stable growth. Specifically, we will review our compli-

To provide products and services that customers can use with

ance program and, through alliances spearheaded by the Compli-

peace of mind, the NICHIAS Group will pay careful attention to

ance Committee with subcommittees and labor unions at each

safety and the environment in its manufacturing activities, and

Group business site, take steps to assess the status of legal

will further reinforce research and development, production

compliance and focus on increasing compliance awareness

technologies, facilities technologies, and technical services.

among employees.
Going forward, along with upgrading and bolstering our

Development of personnel to lead the way into the future

compliance systems, we plan to pursue measures to create

To ensure future growth and development, the NICHIAS Group

an organization that is open and receptive to feedback from

will invest in personnel development, including development of

its employees.

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.

NICHIAS Annual Report 2010

With regard to key issues, we will continue the all-out effort

Guided by this basic policy, the decision to pay dividends is

to further remedial work made necessary following the problems

made after careful consideration of a range of factors, including

caused to many customers by our improper acquisition of fire-

the availability of capital investment funds and investment in R&D

resistance certification.

to support future business development. In finalizing this decision,

The NICHIAS Group will continue working to further


strengthen its corporate structure and run operations more

emphasis is given to profit levels for the fiscal year, financial


position, and the outlook for future business performance.

efficiently. Specifically, we will strive to boost asset efficiency by

In terms of dividends for fiscal 2010, the payment of interim

building a production framework that is more responsive to

dividends was withheld due to worsening business performance

demand trends, investing more efficiently, cutting expenses,

caused by rapid changes in our economic environment through

reducing inventories, and promoting extensive fund manage-

the second quarter. However, based on the above policy, the

ment, among other actions.

Company paid a year-end dividend of 6 per share.

The NICHIAS Group will undertake Group-wide reforms

While we tentatively plan to pay an annual dividend of 6

in keeping with our new corporate philosophyThe New

per share for the fiscal year ending March 31, 2011, this decision

NICHIAS Spirit.

will ultimately rest on a range of factors unknown at this time,


including the Groups financial condition and operating results

Dividend Policy

for the term.

In addition to strengthening the management base and enhancing earnings power, the basic policy of the NICHIAS Group
with respect to the distribution of profits is to strive for the

June 2010

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.
Kunihiko Yano
President and Chief Executive Officer

NICHIAS Annual Report 2010

At a Glance
PROFILE

SHARE OF NET SALES

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.

31.8%

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.

6.5%

BUSINESS FIELDS

INDUSTRIAL PRODUCTS
Net sales

(Billions of yen)

FY10

40.7

FY09

48.3

ADVANCED PRODUCTS
Net sales

(Billions of yen)

FY10

8.3

FY09

9.0

AUTOMOTIVE PARTS
Net sales
FY10

(Billions of yen)

21.8

FY09

22.8

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 vibration control attributes, thereby meeting the needs of increasingly
globalized customers.

17.0%

BUILDING MATERIALS
Net sales
FY10
FY09

(Billions of yen)

24.0
29.2

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.

18.8%

INDUSTRIAL THERMAL INSULATION WORK


Net sales
FY10
FY09

(Billions of yen)

33.2
39.8

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 contributing to the conservation of energy and natural resources in basic
industries such as electric power, LNG, petroleum and petrochemicals, as well as environmental facilities such as waste
incinerators.

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.

NICHIAS Annual Report 2010

25.9%

MAIN PRODUCTS AND SERVICES

Fire-resistant Wrapping Work

Example of access floor


installation work

Chemical filter for low


concentrated ammonia

Fuel Economy-enhancing Products

Access Floor Work

Water jacket spacers

Example of wrap-type
fireproofing installation

Soundproofing Work

Fireproofing Work

Cryogenic Insulation Work

Example of cryogenic insulation


work for LNG plant pipes

Corrosion-resistant tank lining


materials

Filter Products
Insulation panels with built-in
heaters used in sintering furnaces

Catalytic converter support


mats

Rockwool insulation

Corrosion-resistant Tank
Lining Materials

Rockwool products

Support Parts

Non-combustible decorative
building wall panel

Example of installation work for


metallic heat insulation used in piping
systems at nuclear power plants

Inorganic Fiber Insulation Products

Anti-squeal, vibration damping,


rubber coated metal

Housing Insulation

Nuclear Power-related Work

Thermal Insulation Work


Example of thermal insulation
for plant equipment pipes

Thermal insulation cover for


exhaust manifold

Interior Finishing Materials

Interior Materials/Substrates

Calcium silicate boards

Fluoroelastomer O-rings for semiconductor processing equipment

Soundproofing Parts

Heat Proofing Parts

Sealing Materials
Gasket for automotive cylinder
head

Ceramic fiber products

Insulation Materials for Plants


and Buildings

Processed fluoropolymer PTFE


products

Engineering Plastic Products

Engineering Plastic Products

Engineering Plastic Products

Anti-static PFA tubing for the transfer


of high-purity organic solvent

Spiral-wound gaskets

Inorganic Fiber Insulation Materials


for Ultra-high Temperatures

Gaskets and Packing

Gaskets and Packing


Sheet gaskets

Example of fireproofing for


waste incinerators

Example of soundproofing for


power plant exhaust ducts

NICHIAS Annual Report 2010

NICHIAS Line-up

INDUSTRIAL PRODUCTS
Industrial Products Division

Net sales

(Billions of yen)

40.7

FY10

48.3

FY09
0

20

40

60

Growing in Step with Basic Industries


Basic industries such as electric power, gas, petroleum and
petrochemicals, chemicals, shipbuilding and steel are also fundamental sectors for the NICHIAS Group, and have been vital to
the expansion of the NICHIAS Groups 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 encompassing 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 ultralow 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.

Assorted gaskets

NICHIAS Annual Report 2010

Rockwool products

Fluoropolymer fiber-scope tubing

NAFLON Multi-Lumen Tube

In materials to prevent leakage, NICHIAS develops and offers

In insulating materials, NICHIAS has supplied its cornerstone

functional parts such as gaskets and packing used in piping

thermal insulation products to a host of industries over the

systems and machinery for plants of every type in basic indus-

years, developing these products in step with the changing

tries such as petroleum and petrochemicals, electric power and

times. NICHIAS materials can withstand ultra-low through to

steel. Similarly, the NICHIAS Group develops, manufactures and

ultra-high temperatures. The many varieties of thermal insula-

sells gaskets and packingfunctional materials used in indus-

tion products brought to market by the NICHIAS Group include

trial equipment. Furthermore, the NICHIAS Group consistently

rigid polyurethane, calcium silicate, rockwool, and ceramic

answers newly emerging needs with innovative products thanks

fibers, as well as fire-resistant thermal insulation materials, and

to technologies for the optimal selection and usage of raw materi-

a range of ceramic products that offer superior heat-resistance

als, as well as the development and application of process tech-

and functionality.

nologies. These proprietary technologies enable NICHIAS to

NICHIAS has also developed honeycomb-structured filters

respond to customers increasingly sophisticated requirements

made from inorganic fiber paper, supplying these filter products

by offering optimal products.

to fields ranging from use in home appliances to industrial appli-

In anti-corrosion materials, NICHIAS supplies a host of

cations. Embodying the NICHIAS Groups adsorption and cata-

industries with fluoropolymer products, which have superior

lyst technologies, NICHIAS filters help to improve the living and

resistance to heat and corrosion, as well as outstanding insulat-

natural environments by controlling humidity, processing gas

ing and non-adhesive properties. The NICHIAS Group stole a

emissions from power stations, removing ozone emitted from a

march on its competition by becoming first to process PTFE and

variety of equipment and machinery, and adsorbing and concen-

developing PTFE-based sealing materials, back in 1951. Since

trating volatile organic compounds (VOCs).

then, NICHIAS has leveraged the properties of fluoropolymer

Going forward, NICHIAS remains committed to addressing

processing technologies to develop various products that it sup-

needs across the full spectrum of industries by combining the

plies to all basic industries. Today, the applications for fluoropo-

Groups distinctive technologies to develop new products,

lymer products are expanding beyond more traditional industries

thereby contributing to the entire sector.

to include their use as materials for medical equipment.

Reusable, flexible thermal insulation product

VOC concentrator

ENETHERMO

SOLVENTCLEAN

Corrosion-resistant lining; pipe materials

NICHIAS Annual Report 2010

NICHIAS Line-up

ADVANCED PRODUCTS
Advanced Products Division

Net sales

(Billions of yen)

8.3

FY10

9.0

FY09
0

10

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 manufacturing equipment in the semiconductor and flat-panel display
(FPD) industries.
In Advanced Products, NICHIAS offers an array of cuttingedge 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 process 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 anticorrosion properties, as well as filter products built from applied
honeycomb-structure technology.

Anti-static PFA tubing for the transfer of high-purity organic solvent

NAFLON PFA-NE Tube

10

NICHIAS Annual Report 2010

Fluoroelastomer O-rings for semiconductor


processing equipment

Insulation panels with built-in heaters used in sintering furnaces

FINEFLEX Molded Panel Heater

NICHIAS has been expanding the domains where it can

In this context, NICHIAS is responding to customers and

meet the needs of customers, particularly with parts for use in

market requirements, and is contributing to the advancement of

semiconductor manufacturing equipment, by taking advantage

device-processing technologies. The Group develops and pro-

of its processing and forming technologies, materials develop-

vides clean and compact processed polymer products backed

ment capabilities, and measurement and analysis technologies.

by advanced processing, hot melt adhesion and structural analy-

In 2008, NICHIAS moved to specifically target advanced

sis technologies; high heat-resistant rubber O-rings and other

industrial fields such as semiconductors, FPDs and new-energy-

sealing materials, thermal insulation panels with built-in heaters

related fields within the electronics sector by adding clean tech-

that offer superior temperature rise, heat insulating properties

nologies as a new domain alongside the Groups core insulation

and high heat-insulating, low-dust-generation jacket heaters;

and anti-corrosion technologies. This is part of NICHIAS creation

and filter products to remove harmful gases that have adverse

of a new business organization that is capable of responding in a

effects on the manufacture of semiconductors and FPDs.

more agile way such as by proposing new technologies and


products while developing close relationships with customers.

Going forward, there are growing expectations for the development of environmentally friendly solar photovoltaic power

The manufacture of semiconductors encompasses manu-

generation business in these industrial fields. The NICHIAS group

facturing equipment and facilities, all of which require different

of companies will expand the field of its business operations not

functions based on the desired process.

only in electronics-related industries such as the manufacture of

Furthermore, the shift toward miniaturization and higher

semiconductor and LCD manufacturing equipment, but also in

densities for semiconductors, as well as growth in silicon wafer

cutting-edge industries such as new energy industries in and

diameters, show no signs of abating as customer and market

outside of Japan, developing and providing new products utilizing

requirements continue to become more sophisticated. Addition-

its advanced technologies and integrated corporate capabilities.

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.

Detachable jacket heater for pipe heating and insulation

Chemical filter for low concentrated ammonia

Processed fluoropolymer PTFE product

ENETHERMO PH

CHEMICALGUARD-N

Cup for single wafer cleaning equipment

NICHIAS Annual Report 2010

11

NICHIAS Line-up

AUTOMOTIVE PARTS

Net sales

(Billions of yen)

21.8

FY10

Automotive Parts Division

22.8

FY09
0

10

20

30

Contributing Thermal Insulation Technologies for


Automotive Environmental Innovation
The race is on among automakers to create vehicles that offer
continually higher performance. Todays 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 products 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 Groups 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 conditions, exhaust manifolds and other engine-related parts. The
purpose of sealing materials is self-evident. But manufacturing
sealing materials requires the skill to select and develop the most
appropriate materials and processing technologies according to
the location and service condition of each part. That is where the

12

Gasket for automotive cylinder head

Anti-squeal, vibration damping, rubber coated metal

Thermal insulation cover for exhaust manifold

METAKOTE Cylinder Head Gasket

METAPLUS Multi-Layer Shim

INSULCOVER

NICHIAS Annual Report 2010

NICHIAS Group comes in, with technical know-how, R&D capa-

The centers bench wing, meanwhile, contains a measuring

bilities and technological prowess nurtured over many years in

bench room and an exhaust system bench room, in addition to

this business.

a bench room for evaluating parts durability. With this dedicated

The automotive industry has evolved by rising to the challenges of achieving low emissions, while improving fuel efficiency,

bench wing, the aim is to enhance development efficiency


through high-precision measurement and evaluation.

safety, performance, comfort and affordability. For the NICHIAS

The NICHIAS Group has far-reaching sales and technology

Group, these challenges present an ideal opportunity for using

networks targeting automakers and automotive parts manufac-

the NICHIAS Groups core and original technologies, which are

turers in Japan and overseas. Leveraging soundproofing, thermal

gaining traction in new fields. Combinations of these technolo-

insulation and sealing technologies honed over many years, the

gies, moreover, have led to NICHIAS line-up of support mats for

NICHIAS Group is striving to meet customer needs through an

the catalytic converters that purify automotive exhaust, water

integrated system encompassing materials development,

jacket spacers, which improve fuel economy, and ultra-lightweight

design, evaluation, production and quality assurance. At the

and flexible soundproofing covers.

same time, the Group is expanding its operations globally to

Furthermore, to effectively meet increasingly diverse customer requirements, NICHIAS in 2007 began channeling devel-

provide safety and reliability, high quality, and customer satisfaction in countries where major customers are active overseas.

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 testing 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.

Catalytic converter support mats

ECOFLEX

Water jacket spacers

Automotive Parts Technical Center

NICHIAS Annual Report 2010

13

NICHIAS Line-up

BUILDING MATERIALS
Building Materials Division

Net sales

(Billions of yen)

24.0

FY10

29.2

FY09
0

Diverse Product Lines and Construction Systems

10

20

30

In the field of building materials, the NICHIAS Group mainly


manufactures and sells non-combustible interior materials and

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 preservation steps with its line-up of low environmental impact, noncombustible interior materials and access floor products that
bear the Eco Mark of the Japan Environment Association.

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 manufacturer 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

Providing Non-combustible and Insulation


Materials, Access Floors and Fireproofing
Materials Backed by Years of Experience

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 todays

For many years, the NICHIAS Group has been developing and

intelligent buildings, and eco-consciously developed wrap-type

manufacturing a broad spectrum of non-combustible, fireproof,

fireproofing materials to protect the steel structure of buildings.

and thermal insulation materials and installation methods that


make structures safer and more comfortable.

NICHIAS is also spurring advancement in high-performance,


value-added building materials. Here, development is proceeding 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.

14

Calcium silicate boards

Access floors

Installation of wrap-type fireproofing materials

ECOLUX

NICHIAS SIGMA FLOOR

MAKIBEI

NICHIAS Annual Report 2010

NICHIAS Line-up

INDUSTRIAL THERMAL
INSULATION WORK

Net sales

39.8

FY09
0

Construction Division

(Billions of yen)

33.2

FY10

10

20

30

40

Contributing to Comfortable Living and

insulation, soundproofing, fireproofing, and recycling. For this,

Working Environments

NICHIAS draws on superior heat insulation and environmentally

Industrial thermal insulation work was originally designed to


conserve energy and raise heat efficiency. In recent years, however, 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 insulate or retain heat, the NICHIAS Group is building soundproofing
systems to improve acoustic containment at factories, helping
create more comfortable living and working environments.

sound technologies to answer market needs.


In addition to developing highly functional materials that meet
the needs of todays markets, NICHIAS is expanding these businesses 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 storage terminals and other thermal insulation projects. Using highperformance thermal insulation materials with low thermal

Providing Efficient and Comprehensive

conductivity and excellent water repelling and vapor permeability

Engineering Services

properties, NICHIAS is developing groundbreaking methods for


In addition to construction work around thermal insulation materi-

recovering deteriorated functionality in previously installed ther-

als, which has long been a major business for the NICHIAS

mal insulation materials. These methods accomplish this without

Group, operations today extend across the range of construction

the use of replacement construction that could generate indus-

work related to heat and acoustics. NICHIAS makes a contribu-

trial waste, thus contributing substantially to resource conserva-

tion in many areas to conserve energy and preserve the environ-

tion and reductions in carbon emissions.

ment. In doing so, the NICHIAS Group plays an instrumental role

NICHIAS is advancing a business strategy involving raising

in building more comfortable public environments. NICHIAS is

the level of activity in the maintenance field. In addition to the

active primarily in nuclear power, LNG, petrochemicals and refuse

Groups traditional business domains, NICHIAS is expanding

incinerator projects. The NICHIAS Group provides efficient, com-

business in the area of non-destructive testing for plant equip-

prehensive engineering services spanning development, design,

ment, including preventive corrosion analysis that combines with

construction and maintenance relating to fire resistance, thermal

our existing thermal analysis and soundproofing solutions.

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

NICHIAS Annual Report 2010

15

Research and Development

Utilizing Distinctive Technological Capabilities Based on Insulation


and Anti-corrosion Technologies to Promote Advanced R&D
Underpinned by a corporate philosophy committed to providing safe and reliable products, broadening the circle of
trust, and contributing to society, the NICHIAS Group pursues innovations in core technologies related to its business
domains, which primarily involve insulation and anti-corrosion
technologies. The NICHIAS Groups strong developmental
prowess and original technologies facilitate an accurate
response to market needs. NICHIAS believes that formulating a precise and timely understanding of market needs is of
vital importance. In line with this thinking, the NICHIAS
Groups 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.

R&D Domains

Promoting technology-based R&D into materials,


products and services for all industries in insulation and anti-corrosion

Semiconductor manufacturing
equipment components

Air purification filter


products

Anti-corrosion
technologies
Industrial gaskets
and packing

Clean technologies

Insulation and Anti-corrosion Technologies


Sealing
technologies

Insulation for ultra low temperature


and construction methods

Heat-resistant
technologies
Soundproof
technologies

Automotive parts

16

NICHIAS Annual Report 2010

Heat-resistant inorganic fiber materials

Organization of Laboratories

Promoting an integrated R&D structure, from materials development to product evaluation

Research laboratory

Technical center

Basic and applied research

Product development and evaluation

Support

Support

Support

R&D Analysis Section

Planning & Development


Department

Intellectual Property Section

R&D activities at the NICHIAS Group are carried out by the

NICHIAS Group-wide R&D organization is built on ties

Hamamatsu and Tsurumi research laboratories and the techno-

between several supporting sections: the R&D Analysis Sec-

logical development units under each operating division. Within

tionsupporting R&D advancement and improved product

the research laboratories, the R&D Department, in collaboration

quality through the breakdown and analysis of raw materials,

with the Planning & Development Department, which serves as

products and usage environmentsand the Intellectual Property

a head office, strives to ensure the basic technologies that sup-

Section, responsible for patenting and safeguarding the NICHIAS

port NICHIAS businesses and bolster its distinctive technolo-

Groups proprietary technologies and devising ways to strategi-

gies, all while seeking out and addressing R&D themes from a

cally leverage intellectual rights.

medium- to long-term perspective. The technical centers under

In addition, NICHIAS is also aggressively pursuing alliances

the operating divisions, meanwhile, conduct fast-paced devel-

with universities, research institutes and other companies in a

opment that closely reflects customer requests.

bid to expand and strengthen its technological domains.


NICHIAS Annual Report 2010

17

Corporate Governance

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 support 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.

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
Companys 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 independent perspective. The other two auditors are standing corporate 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

Overview of Corporate Governance Structure

and efficiency of the Companys management.

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 Directors 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 (corporate management, the law, and accounting and taxation).

18

NICHIAS Annual Report 2010

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 members 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 directorships 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.

In addition to these measures, we amended the Companys

Status of Development of Risk Management System

Articles of Incorporation in June 2002 to shorten the two-year

Risk management at NICHIAS is structured in accordance with

term of office for directors to one year. This was done to bring

basic internal regulations governing risk management. Individual

consistently greater clarity to the managerial duties of directors

risks pertaining to areas such as safety, disasters, the environ-

each business term by securing the mandate of shareholders

ment, quality, information security, and export control are man-

every year. The retirement age for directors is based on two

aged by each business department responsible for confronting

upper limits, one determined by age and the other by years of

said risk. For this task, the departments formulate regulations

service in each post, in accordance with internal regulations.

and operating guidelines, produce and distribute manuals, and

In April 2003, a Compliance Committee, chaired by the

conduct training in the effort to mitigate risk.

director overseeing compliance, was established. We also for-

Meanwhile, each division evaluates and analyzes the spe-

mulated a Compliance Code, which outlines our standards of

cific risks faced, followed by appropriate steps taken to manage

conduct, and established a contact point, known as the

such risk.

Compliance Counter, both inside the company and at an outside


attorneys office, to allow employees to report irregular practices

Status of Internal Audits and Audits by

and other matters. In February 2007, we added the office of the

Corporate Auditors

labor union as a third Compliance Counter point of access. We


have also established on the corporate website a point of contact 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 corporate 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 sections corporate auditing function.

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 companies to confirm that accounting treatment and business
operations at the companies are legally and properly conducted in conformance with relevant laws and internal regulations. 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 developing the internal control framework necessary to ensure
reliability of the Groups 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 strengthening the sections auditing functions, we continuously evaluate the internal control framework to ensure that it is
functioning correctly, and make any necessary revisions.

NICHIAS Annual Report 2010

19

Although at this time no dedicated employees have been


assigned to assist the corporate auditors, the corporate auditors 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; examination of important decision documents, including approval
documents and contracts; auditing of the head office, other
important business sites, and subsidiaries (including investigations 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; examination 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 Directors Business Execution Confirmation
Documents at the end of each fiscal year.

Outside Corporate Auditors


NICHIAS Has Three Outside Corporate Auditors
Outside corporate auditor and attorney Go Kajitani is the principal 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 concurrently 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 standpoint, 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 performed at the Companys main bases and consolidated subsidiaries. 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.

20

NICHIAS Annual Report 2010

Internal audits are carried out by the Audit Section. When

At present, NICHIAS has appointed no outside directors to

preparing to visit departments and subsidiaries to perform audits,

the Board of Directors. However, three of the five corporate

the section meets in advance with the corporate auditors. The

auditors within the Companys corporate auditor system are

results of audits conducted by the corporate auditors and the

outside corporate auditors. This configuration enables the

section, apart from being reported at meetings of specific gover-

corporate auditors to accurately discern the status of busi-

nance bodies, are also mutually reported between the corporate

ness execution by the directors and strengthens monitoring

auditors and the section in order to maintain close ties. The

and oversight at the Company. Based on the corporate scale

corporate auditors receive support for their day-to-day activities

and organization of NICHIAS, we believe that this corporate

from the Audit Section and the Corporate Strategic Planning

governance structure has ample monitoring functions for

Department to ensure that auditing activities are not hindered in

observing management from an external viewpoint.

any way.

Reference information: organization chart


General Meeting of Shareholders
Appointment, dismissal

Appointment, dismissal

Appointment, dismissal
Reporting

Reporting

Board of Directors
Submission of
proposals

Auditing

Appointment, Appointment,
dismissal
dismissal, supervision

Collaboration

Board of Corporate Auditors

Auditing
Reporting

Auditing

Independent Auditors

Reporting, improvement requests


Reporting

Executive Committee
(Deliberation on important matters, etc.)

Reporting

Instruction, supervision

(Execution of business)

Policies, plans, instructions, approval

Proposals, reports

Collaboration

Auditing

Executive Officers

Regulation Establishment and


Revision Committees
Capital Investment Committee
Business Investment Committee
Development Investment Committee
Resource Investment Committee

Audit Section

Reporting

Compliance Committee

Nominating Committee

Compensation Committee

President

Auditing

Operating Divisions, Group Companies

NICHIAS Annual Report 2010

21

Helping to Sustain the Environment

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
Groups 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.

Basic Stance on Environmental Activities


The NICHIAS Environmental Charter and NICHIAS Environmental 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 Companys factories, seven domestic subsidiaries and
eight overseas subsidiaries, with activities under way to obtain
certification for the entire NICHIAS Group.

22

NICHIAS Annual Report 2010

How NICHIAS Reduces Environmental Impact from Business Operations

Energy efficiency

Reduction in environmental impact


Resource conservation

Environmental protection

Health and safety

Usage stage of customers


Fluoropolymer products

NICHIAS product line-ups

Gaskets and packing

Insulation materials

Preventing leakage (sealing)

Automotive parts
Construction materials

Soundproofing materials

Insulation and Anti-corrosion

Maintaining heat (heat retention)

Preventing noise (soundproofing)


Preventing corrosion (anti-corrosion)

Retaining heat (insulation)

Anti-vibration materials (damping)

Environmental Performance

Environmentally Friendly Products

NICHIAS is enacting initiatives at its manufacturing sites aimed

With environmentally conscious manufacturing as a key slogan,

at reducing energy and resource consumption by manufactur-

the NICHIAS Group supplies environmentally friendly products

ing processes, as well as the volume of chemical substances

that demonstrate concern for conserving resources and energy,

and waste these processes generate. NICHIAS is also shifting

and generating few substances that impact the environment, at

away from the use of fuel oil at its sites in favor of city gas in an

every stage of the product lifecycle.

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.

Green Procurement
To develop products low in substances that impact the environment, NICHIAS established green procurement standards
in 2005 for new purchases of raw materials and auxiliary materials. The NICHIAS Group also promotes green procurement for
its existing products.

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.

NICHIAS Annual Report 2010

23

Board of Directors, Corporate Auditors and Executive Officers

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

Board of Directors

Corporate Auditors

Executive Officers

President and Chief Executive Officer

Standing Corporate Auditors

Executive Officers

Kunihiko Yano

Teruo Nishihara

Shigeaki Mitsukuri

Kiyoharu Takatani

Kohichi Kimura

Director and Senior Managing


Executive Officer

Corporate Auditors

Teruo Sato

Go Kajitani

Directors and Managing


Executive Officers
Yasuo Yonezawa

Yoshito Hirabayashi
Tatsumi Jonoo

Masayuki Tomita
Fuminori Sato
Satoru Koide
Shoichi Yonezawa
Takeshi Ohya
Toshiyuki Takei

Keizo Kamiya
Yasuo Yoda
Directors and Executive Officers
Nobuo Suwa
Hideo Yokowatari

24

NICHIAS Annual Report 2010

(As of June 29, 2010)

Financial Section
Contents
Consolidated Five-year Summary

25

Managements 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

NICHIAS Corporation and Consolidated Subsidiaries


Years ended March 31

Consolidated Five-year Summary

Thousands of
U.S. Dollars

Millions of Yen

Net sales
Material division
Engineering division
Operating income
Income (loss) before income taxes
and minority interests
Net income (loss)
Depreciation
R&D costs

2006

2007

2008

2009

2010

2010

139,545
97,261
42,284
10,138

164,704
110,644
54,060
14,473

169,650
114,430
55,220
14,795

149,211
96,318
52,893
6,794

128,071
83,095
44,976
6,574

$1,376,515
893,110
483,405
70,658

10,093
5,411
3,887
5,049

13,589
7,626
4,269
5,096

(18,520)
(11,857)
4,624
5,346

3,805
428
4,890
5,299

13,377
8,336
4,293
4,871

143,777
89,596
46,141
52,354

119,840
15,016
38,315
44,247

130,117
16,645
39,204
51,509

149,533
18,831
39,282
37,466

137,709
17,160
37,515
34,755

127,216
15,189
34,730
44,800

1,367,326
163,252
373,280
481,513

Total assets
Inventories
Property, plant and equipment
Total equity
Per Share Data (Yen and U.S. Dollars):
Net income (loss)
Basic
Diluted
Cash dividends

45.35
45.19
11.00

64.16
64.01
14.00

(99.62)

3.60

4.00

70.10

6.00

0.75

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.

NICHIAS Annual Report 2010

25

Managements Discussion and Analysis of Operations


NICHIAS Corporation (the Company) has 31 consolidated subsidiaries and 1 affiliate within its
Net Sales
(Millions of yen)

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.

180,000

120,000

Overview of Consolidated Results


Net Sales
Overall economic conditions in Japan remained adverse in fiscal 2010, the year ended March 31,

60,000

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

06 07 08 09 10

to stagnate.
In these circumstances, although demand for semiconductor production equipment and
automotive parts bottomed out in the fourth quarter of 2009, the Companys 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 activities 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.

26

NICHIAS Annual Report 2010

Other Income and Expenses


Other income was 6,803 million ($73,119 thousand), an increase of 9,792 million from the

Net Income (Loss)


(Millions of yen)

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

9,000

remedial work following the improper acquisition of fire-resistance certification, the Company was

6,000

able to reexamine the cost estimate for remedial work on an individual project basis. Since the
3,000

costs associated with remedial work are estimated to be 7,000 million lower than the original
0

estimate, the Company recorded the reversal of allowance.

3,000

Net Income
The above factors resulted in income before income taxes and minority interests of 13,377

6,000
9,000

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

12,000

06 07 08 09 10

fiscal year. As a result, net income per share was 70.10 ($0.75).

Segment Information

ROE
(%)

Sales by business segment are as follows.


20

Material Division
The Material Division posted overall sales of 83,095 million ($893,110 thousand), a year-on-year

10

decline of 13,223 million, or 13.7%.


0

Industrial Products Division

10

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.

20

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-

30

06 07 08 09 10

als, thermal insulation materials, and fluoropolymer products. The decline in demand resulted
from restricted capital investment in the manufacturing sector in response to deteriorating economic 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 production 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 automakers and parts manufacturers.

NICHIAS Annual Report 2010

27

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 maintenance 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 construction starts amid lower construction demand.

Total Assets, Total Equity and


(Millions of yen/%)
Equity Ratio

Financial Condition
Assets, Liabilities, and Net Assets
Total assets as of March 31, 2010 were 127,216 million ($1,367,326 thousand), down

150,000

10,493 million from a year earlier. This decline was due mainly to decreases in inventories, con-

39.5
36.9
34.3

struction in progress and deferred tax assets.


Total liabilities as of March 31, 2010 were 82,416 million ($885,813 thousand), down

100,000

20,538 million from a year earlier. Although liabilities increased as a result of the issuance of
25.1 25.2

bonds, short-term bank loans and long-term debt decreased, and the allowance for loss on
compensation for building materials decreased.

50,000

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
0

currency translation adjustments all increased.


06 07 08 09 10

Total Assets Total Equity Equity Ratio

28

NICHIAS Annual Report 2010

Research and Development Costs


R&D Costs

In accordance with the corporate philosophy of commitment to providing safe and reliable prod-

(Millions of yen)

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

6,000

medium- to long-term perspective to amass core technologies and reinforce distinctive technologies that support its businesses. At the same time, the Group engages in fast-paced development

4,000

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.

2,000

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.

06 07 08 09 10
Industrial Products Division
The Company develops sealing materials, thermal insulation materials, fluoropolymer products,
and other materials and equipment components used in the environment, energy, petroleum and
petrochemicals, semiconductor production equipment, automotive, and other industries.
Principal R&D results in the fiscal year under review included the development of corrosionresistant gaskets for piping systems, elements for industrial dehumidification systems, decontamination filters for semiconductor production equipment, and lightweight sound-absorbing
materials for automobiles. R&D expenditures related to this business were 3,652 million.

Building Materials Division


The Company engages in the research and development of noncombustible materials and systems 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 certification. R&D expenditures related to this business were 571 million.

Industrial Thermal Insulation Work Division


The Company engages in the research and development of thermal and high-temperature insulation 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 insulation materials. R&D expenditures related to this business were 648 million.

NICHIAS Annual Report 2010

29

Capital Expenditures
Capital Expenditures and
(Millions of yen)
Depreciation

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

8,000

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

6,000

as follows.

4,000

Industrial Products Division


The Group made a total of 252 million in investments in the industrial products business. Investment in manufacturing facilities at consolidated subsidiary NICHIAS CERATECH CORPORATION

2,000

has been discontinued.


The Group made 398 million in investments in the advanced products business, includ-

06 07 08 09 10
Capital Expenditures Depreciation

ing investments for advanced products manufacturing facilities at the Ohji Factory and the
Fukuroi Factory.
The Group made 658 million in investments in the automotive parts business, including
investments in automotive parts manufacturing facilities at the Yuki Factory and at consolidated
subsidiary METAKOTE INDUSTRY CO., LTD.

Building Materials Division


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

Industrial Thermal Insulation Work Division


The Group made a total of 45 million in investments in the industrial thermal insulation
work business.

Building Materials Installation Work Division


The Group made a total of 12 million in investments in the building materials installation
work business.

Corporate Assets
The Group made a total of 363 million in investments in land, buildings, and equipment in connection with the relocation of the Kyushu Branch.
Investments were financed from own funds and borrowings.

30

NICHIAS Annual Report 2010

Cash Flows
Cash and cash equivalents at the end of the fiscal year (hereinafter cash) increased by 224 million

Dependency on
Interest-bearing Liabilities

(%)

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

45

30

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

15

cash inflows from income before income taxes and minority interests of 13,377 million, depreciation and amortization of 4,293 million, and a decrease in inventories of 2,139 million.
0

Cash Flows from Investing Activities

06 07 08 09 10

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 corporate structure and engaging in efficient business operations in accordance with its basic management 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 shareholders, invest to develop new products and new businesses, and invest in facilities, mainly in business 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.

NICHIAS Annual Report 2010

31

Consolidated Balance Sheets

NICHIAS Corporation and Consolidated Subsidiaries


March 31, 2010 and 2009

Thousands of
U.S. Dollars
(Note 1)

Millions of Yen
ASSETS

2010

2009

2010

14,267

14,043

$ 153,343

94

19

1,010

CURRENT ASSETS:
Cash and cash equivalents (Note 15)
Time deposits other than cash equivalents (Note 15)
Receivables (Note 15):
Trade notes
Trade accounts
Allowance for doubtful accounts

5,508

5,950

59,200

34,277

34,140

368,411

(574)

(251)

(6,169)

Inventories (Note 3)

15,189

17,160

163,252

Deferred tax assets (Note 11)


Prepaid expenses and other current assets
Total current assets

2,117
2,092
72,970

1,289
3,434
75,784

22,754
22,486
784,287

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

271
144

348
3,160

2,913
1,548

111,527
(76,797)
34,730

110,822
(73,307)
37,515

1,198,699
(825,419)
373,280

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

132

286

1,419

PROPERTY, PLANT AND EQUIPMENT (Notes 6, 13 and 14):

Lease assets
Construction in progress
Total
Accumulated depreciation
Net property, plant and equipment

INVESTMENTS AND OTHER ASSETS:

Goodwill (Note 5)
Guarantee deposit
Deferred tax assets (Note 11)
Other assets
Allowance for doubtful accounts
Total investments and other assets
TOTAL
See notes to consolidated financial statements.

32

NICHIAS Annual Report 2010

515

1,733

5,535

6,976

11,678

74,979

4,324
(693)
19,516
127,216

4,503
(920)
24,410
137,709

46,473
(7,448)
209,759
$1,367,326

Thousands of
U.S. Dollars
(Note 1)

Millions of Yen
LIABILITIES AND EQUITY

2010

2009

2010

22,625

33,469

$ 243,175

1,480

13,938

15,907

CURRENT LIABILITIES:
Short-term bank loans (Notes 6 and 15)
Current portion of long-term debt (Notes 6 and 15)
Payables (Note 15):
Trade notes
Trade accounts
Income taxes payable

7,987

8,777

85,845

14,291

13,912

153,601

835

478

8,975

1,493

816

16,047

2,409
4,691
55,811

2,336
6,645
80,371

25,892
50,419
599,861

16,901

4,181

181,653

2,080

2,124

22,356

113

161

1,215

127

134

1,365

3,732
3,652
26,605

12,234
3,749
22,583

40,112
39,251
285,952

Common stockauthorized, 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

122

64

1,311

Advances received on construction work in progress (Note 15)


Accrued expenses
Other current liabilities
Total current liabilities
LONG-TERM LIABILITIES:
Long-term debt (Notes 6 and 15)
Liability for retirement benefits (Note 7):
Employees
Directors and corporate auditors
Deferred tax liabilities (Note 11)
Allowance for loss on compensation for building materials (Note 2.k)
Other liabilities
Total long-term liabilities
COMMITMENTS AND CONTINGENT LIABILITIES (Notes 14, 16 and 17)
EQUITY (Notes 8 and 9):

Stock acquisition rights


Retained earnings

26,448

17,826

284,265

Unrealized gain on available-for-sale securities

1,156

230

12,425

Foreign currency translation adjustments


Treasury stockat cost, 6,146,986 shares in 2010 and
6,133,405 shares in 2009

(1,178)

(1,481)

(12,661)

(1,955)

(1,951)

(21,012)

43,719
1,081
44,800
127,216

33,814
941
34,755
137,709

469,895
11,618
481,513
$1,367,326

Total
Minority interests
Total equity
TOTAL

NICHIAS Annual Report 2010

33

Consolidated Statements of Income

NICHIAS Corporation and Consolidated Subsidiaries


Years Ended March 31, 2010 and 2009

Thousands of
U.S. Dollars
(Note 1)

Millions of Yen
2010

2009

2010

NET SALES
COST OF SALES

128,071
102,230

149,211
120,734

$1,376,515
1,098,774

Gross profit

25,841

28,477

277,741

19,267
6,574

21,683
6,794

207,083
70,658

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (Notes 7, 12 and 14)


Operating income
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 equipmentnet

197

(57)

2,117

(6)

(704)

(64)

Loss on impairment of investment securities


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)

26

64

Gain on reversal of stock acquisition rights


Reversal of allowance for doubtful accounts

(3,192)
279

112

Reversal of allowance for loss on compensation for building materials


Othernet
Other income (expenses)net
INCOME BEFORE INCOME TAXES AND MINORITY INTERESTS

1,204

7,000
147
6,803

(326)
(2,989)

75,236
1,581
73,119

13,377

3,805

143,777

1,302
3,592
4,894

1,107
2,115
3,222

13,994
38,607
52,601

147

155

1,580

INCOME TAXES (Note 11):


Current
Deferred
Total income taxes
MINORITY INTERESTS IN NET INCOME
NET INCOME

8,336

428

Yen

89,596
U.S. Dollars

2010

2009

2010

PER SHARE OF COMMON STOCK (Notes 2.s and 18):


Basic net income
Cash dividends applicable to the year
See notes to consolidated financial statements.

34

NICHIAS Annual Report 2010

70.10
6.00

3.60
4.00

0.75
0.06

Consolidated Statements of Changes in Equity


Thousands

BALANCE, APRIL 1, 2008

Millions of Yen

Outstanding
Number of
Shares of
Common
Stock

Common
Stock

Capital
Surplus

118,996

9,284

9,843

Stock
Acquisition
Rights

127

Adjustment of retained
earnings due to an adoption
of PITF No. 18 (Note 2.b)

Retained
Earnings

Unrealized
Gain on
Availablefor-Sale
Securities

Foreign
Currency
Translation
Adjustments

Treasury
Stock

Total

17,882

1,466

(158)

(1,935)

36,509

(5)

Decrease in retained
earnings under Chinese
accounting standards
Net income
Cash dividends, 4 per share
(95)

Disposal of treasury stock


Net change in the year

23
9,284

9,842

64

Net income
Purchase of treasury stock

(5)

(3)

(3)

428

428

(476)

(476)

(23)

(23)

(23)

17,826

(1,236)

(1,323)

6
(2,622)

(16)

6
(2,638)

230

(1,481)

33,814

941

34,755

(1,951)

204

Take-over of retained
earnings for merger of an
unconsolidated subsidiary

37,466

(3)

(63)
118,924

957

Total
Equity

428

(1)

Adjustment of retained
earnings for newly
consolidated subsidiaries

Minority
Interests

(5)

(476)

Purchase of treasury stock

BALANCE, MARCH 31, 2009

NICHIAS Corporation and Consolidated Subsidiaries


Years Ended March 31, 2010 and 2009

204

204

82

82

82

8,336

8,336

8,336
(5)

(17)

(5)

(5)

Disposal of treasury stock


3
Net change in the year
BALANCE, MARCH 31, 2010 118,910

1
1,287
43,719

140
1,081

Total

Minority
Interests

Total
Equity

$10,114

$373,549

9,284

9,842

58
122

26,448

926
1,156

303
(1,178) (1,955)

1
1,427
44,800

Thousands of U.S. Dollars (Note 1)

Common
Stock

BALANCE, MARCH 31, 2009

Capital
Surplus

$99,785 $105,782

Adjustment of retained earnings for


newly consolidated subsidiaries

Stock
Acquisition
Rights

Retained
Earnings

Unrealized
Gain on
Availablefor-Sale
Securities

Foreign
Currency
Translation
Adjustments

Treasury
Stock

$ 688 $191,595 $ 2,472 $(15,918) $(20,969) $363,435


2,193

Take-over of retained earnings for


merger of an unconsolidated subsidiary
Net income

2,193

881

881

881

89,596

89,596

89,596

(54)

(54)

Purchase of treasury stock

(54)

Disposal of treasury stock


Net change in the year
BALANCE, MARCH 31, 2010

11

$99,785 $105,782

2,193

11
623
9,953
3,257
13,833
$1,311 $284,265 $12,425 $(12,661) $(21,012) $469,895

1,504
$11,618

11
15,337
$481,513

See notes to consolidated financial statements.

NICHIAS Annual Report 2010

35

Consolidated Statements of Cash Flows

NICHIAS Corporation and Consolidated Subsidiaries


Years Ended March 31, 2010 and 2009

Thousands of
U.S. Dollars
(Note 1)

Millions of Yen

OPERATING ACTIVITIES:
Income before income taxes and minority interests
Adjustments for:
Income taxes refund (paid)net
Depreciation and amortization
Provision of allowance for doubtful accounts
(Gain) loss on sales or disposals of property, plant and equipmentnet
Loss on impairment of long-lived assets
Loss on impairment of investment securities
Decrease in allowance for loss on compensation for building materials
Changes in assets and liabilities (net of effects):
Decrease in trade receivables
Decrease in inventories
Decrease in trade payables
Decrease in other receivables
(Decrease) increase in other payables
Decrease in guarantee deposit
Increase (decrease) advances received on construction works in progress
Othernet
Total adjustments
Net cash provided by (used in) operating activities
INVESTING ACTIVITIES:
Purchases of investment securities
Purchases of property, plant and equipment
Proceeds from sales of property, plant and equipment
Othernet
Net cash used in investing activities
FINANCING ACTIVITIES:
(Decrease) increase in short-term bank loansnet
Proceeds from long-term debt
Repayment of long-term debt
Proceeds from issuance of bonds
Dividends paid
Proceeds from acquisition of treasury stocknet
Othernet
Net cash (used in) provided by financing activities
FOREIGN CURRENCY TRANSLATION ADJUSTMENTS
ON CASH AND CASH EQUIVALENTS
NET INCREASE IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS OF NEWLY CONSOLIDATED
SUBSIDIARIES, BEGINNING OF YEAR
CASH AND CASH EQUIVALENTS INCREASED BY MERGER
OF AN UNCONSOLIDATED SUBSIDIARY
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
CASH AND CASH EQUIVALENTS, END OF YEAR
See notes to consolidated financial statements.

36

NICHIAS Annual Report 2010

2010

2009

13,377

3,805

$ 143,777

272
4,293
89
(226)
297
6
(8,502)

(3,834)
4,890
431
44
1,458
704
(16,589)

2,923
46,141
957
(2,429)
3,192
64
(91,380)

745
2,139
(539)
399
(1,763)
1,245
676
376
(493)
12,884

6,161
1,006
(6,851)
54
4,570
800
(365)
387
(7,134)
(3,329)

8,007
22,990
(5,793)
4,288
(18,949)
13,381
7,266
4,043
(5,299)
138,478

(70)
(1,956)
357
(298)
(1,967)

(9)
(5,930)
65
(166)
(6,040)

(752)
(21,023)
3,837
(3,203)
(21,141)

(10,895)
11,200
(13,938)
2,946
(8)
(4)
(117)
(10,816)

11,146
3,500
(1,675)
(478)
(17)
(119)
12,357

(117,100)
120,378
(149,807)
31,664
(86)
(43)
(1,257)
(116,251)

57
158

(342)
2,646

613
1,699

35
31
14,043
14,267

2010

376

11,397
14,043

333
150,935
$ 153,343

Notes to Consolidated Financial Statements

NICHIAS Corporation and Consolidated Subsidiaries


Years Ended March 31, 2010 and 2009

1. BASIS OF PRESENTING CONSOLIDATED


FINANCIAL STATEMENTS

being amortized on a straight-line basis over a period of five years.

The accompanying consolidated financial statements have been

eliminated in consolidation. All material unrealized profit included in

prepared in accordance with the provisions set forth in the Japanese

assets resulting from transactions within the Group is eliminated.

Financial Instruments and Exchange Act and its related accounting

b. Unification of Accounting Policies Applied to Foreign Sub-

regulations, and in conformity with accounting principles generally

sidiaries for the Consolidated Financial StatementsIn May

accepted in Japan (Japanese GAAP), which are different in certain

2006, the Accounting Standards Board of Japan (the ASBJ) issued

respects as to application and disclosure requirements of Interna-

ASBJ Practical Issues Task Force (PITF) No. 18, Practical Solution

tional Financial Reporting Standards.

on Unification of Accounting Policies Applied to Foreign Subsidiaries

All significant intercompany balances and transactions have been

In preparing these consolidated financial statements, certain

for the Consolidated Financial Statements. PITF No. 18 prescribes

reclassifications and rearrangements have been made to the con-

(1) the accounting policies and procedures applied to a parent com-

solidated financial statements issued domestically in order to present

pany and its subsidiaries for similar transactions and events under

them in a form which is more familiar to readers outside Japan. In

similar circumstances should in principle be unified for the prepara-

addition, certain reclassifications have been made in the 2009 finan-

tion of the consolidated financial statements, (2) financial statements

cial statements to conform to the classifications used in 2010.

prepared by foreign subsidiaries in accordance with either Interna-

The consolidated financial statements are stated in Japanese yen,

tional Financial Reporting Standards or the generally accepted

the currency of the country in which NICHIAS Corporation (the

accounting principles in the United States of America tentatively may

Company) is incorporated and operates. The translations of Japa-

be used for the consolidation process, (3) however, the following

nese yen amounts into U.S. dollar amounts are included solely for

items should be adjusted in the consolidation process so that net

the convenience of readers outside Japan and have been made at

income is accounted for in accordance with Japanese GAAP unless

the rate of 93.04 to $1, the approximate rate of exchange at March

they are not material: (a) amortization of goodwill; (b) scheduled

31, 2010. Such translations should not be construed as representa-

amortization of actuarial gain or loss of pensions that has been

tions that the Japanese yen amounts could be converted into U.S.

directly recorded in the equity; (c) expensing capitalized develop-

dollars at that or any other rate.

ment costs of R&D; (d) cancellation of the fair value model accounting for property, plant and equipment and investment properties and

2. SUMMARY OF SIGNIFICANT ACCOUNTING


POLICIES

incorporation of the cost model accounting; (e) recording the prior

a. ConsolidationThe consolidated financial statements as of

income where retrospective adjustments to financial statements

March 31, 2010, include the accounts of the Company and its 31

have been incorporated; and (f) exclusion of minority interests from

significant (29 in 2009) subsidiaries (together, the Group).

net income, if contained. PITF No. 18 was effective for fiscal years

years effects of changes in accounting policies in the statements of

Under the control or influence concept, those companies in which

beginning on or after April 1, 2008 with early adoption permitted. The

the Company, directly or indirectly, is able to exercise control over

Group applied this accounting standard effective April 1, 2008. In

operations are fully consolidated, and those companies over which

addition, the Group adjusted the beginning balance of retained earn-

the Group has the ability to exercise significant influence are

ings at April 1, 2008 as if this accounting standard had been retro-

accounted for by the equity method.

spectively applied.

The investment in one associated company is accounted for by

c. Business CombinationIn October 2003, the Business Account-

the equity method as of March 31, 2010 and 2009. Investments in

ing Council issued a Statement of Opinion, Accounting for Business

the remaining 16 (18 in 2009) unconsolidated subsidiaries and asso-

Combinations, and on December 27, 2005, the ASBJ issued ASBJ

ciated companies are stated at cost. If the equity method of account-

Statement No. 7, Accounting Standard for Business Divestitures

ing had been applied to the investments in these companies, the

and ASBJ Guidance No. 10, Guidance for Accounting Standard for

effect on the accompanying consolidated financial statements would

Business Combinations and Business Divestitures.

not be material.

The accounting standard for business combinations allows compa-

The excess of the cost of an acquisition over the fair value of the

nies to apply the pooling of interests method of accounting only when

net assets of the acquired subsidiary at the date of acquisition is

certain specific criteria are met such that the business combination is

NICHIAS Annual Report 2010

37

essentially regarded as a uniting-of-interests.

Under the previous accounting standard, finance leases that deem

For business combinations that do not meet the uniting-of-interests

to transfer ownership of the leased property to the lessee were to be

criteria, the business combination is considered to be an acquisition

capitalized. However, other finance leases were permitted to be

and the purchase method of accounting is required. This standard

accounted for as operating lease transactions if certain as if capital-

also prescribes the accounting for combinations of entities under

ized information is disclosed in the note to the lessees financial

common control and for joint ventures.

statements. The revised accounting standard requires that all finance

d. Cash EquivalentsCash equivalents are short-term investments

lease transactions should be capitalized to recognize lease assets

that are readily convertible into cash and that are exposed to insig-

and lease obligations in the balance sheet. In addition, the revised

nificant risk of changes in value.

accounting standard permits leases which existed at the transition

Cash equivalents include time deposits, certificates of deposit,

date and do not transfer ownership of the leased property to the

money management funds and others, all of which mature or

lessee to be measured at the obligations under finance leases at the

become due within three months of the date of acquisition.

transition date and recorded as acquisition cost of lease assets.

e. InventoriesInventories are stated at the lower of cost, deter-

Depreciation of the leased assets is recognized over the lease term

mined by the moving-average method for finished products, work

on a straight-line basis. Rental expense on operating leases is recog-

in process and raw materials, or net selling value. Construction

nized over the lease term on a straight-line basis.

work in progress is stated at cost determined by the specific iden-

The Group applied the revised accounting standard effective April

tification method.

1, 2008. In addition, the Group accounted for leases which existed

f. Property, Plant and EquipmentProperty, plant and equipment

at the transition date and do not transfer ownership of the leased

are stated at cost. Depreciation of property, plant and equipment of

property to the lessee as acquisition cost of lease assets measured

the Company and its consolidated domestic subsidiaries is com-

at the obligations under finance leases at the transition date. There is

puted substantially by the declining-balance method based on the

no effect by this change.

estimated useful lives of the assets, while the straight-line method is

i. Investment SecuritiesUnder the accounting standard for

applied to buildings acquired after April 1, 1998 for the Company

financial instruments, including marketable and investment securi-

and its consolidated domestic subsidiaries, and all property, plant

ties, all securities held by the Group are classified as available-for-sale

and equipment of consolidated foreign subsidiaries. The range of

securities, depending on managements intent. They are reported at

useful lives is principally from 3 to 50 years for buildings and struc-

fair value, with unrealized gains and losses, net of applicable taxes,

tures, and from 4 to 10 years for machinery and equipment.

reported in a separate component of equity. The cost of securities

g. Long-Lived AssetsThe Group reviews its long-lived assets for

sold is determined based on the moving-average method.

impairment whenever events or changes in circumstance indicate


the carrying amount of an asset or asset group may not be recoverable. An impairment loss would be recognized if the carrying amount

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-

of an asset or asset group exceeds the sum of the undiscounted

ties are reduced to net realizable value by a charge to income.

future cash flows expected to result from the continued use and

j. Retirement and Pension PlansThe Company and certain

eventual disposition of the asset or asset group. The impairment loss

consolidated subsidiaries have funded plans, unfunded plans and a

would be measured as the amount by which the carrying amount of

defined contribution plan as retirement benefit plans for employees.

the asset exceeds its recoverable amount, which is the higher of the

The plans cover approximately 70%, 15% and 15%, respectively, of

discounted cash flows from the continued use and eventual disposi-

employee benefits. In respect of the funded plans, a part of the

tion of the asset or the net selling price at disposition.

annual provision is funded as contributory and/or non-contributory

h. LeasesIn March 2007, the ASBJ issued ASBJ Statement No. 13,

pension plans with an outside trustee.

Accounting Standard for Lease Transactions, which revised the pre-

The Company and consolidated domestic subsidiaries account

vious accounting standard for lease transactions issued in June 1993.

for the liability for retirement benefits based on the projected benefit

The revised accounting standard for lease transactions is effective for

obligations and plan assets at the balance sheet date in conformity

fiscal years beginning on or after April 1, 2008 with early adoption

with the accounting standard for employees retirement benefits.

permitted for fiscal years beginning on or after April 1, 2007.

38

NICHIAS Annual Report 2010

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

($43 thousand) and income before income taxes and minority inter-

a period of 12 years which is shorter than the average remaining

ests by 4 million ($43 thousand), respectively, for the year ended

years of service of the employees.

March 31, 2010.

Retirement benefits to directors and corporate auditors are pro-

m. Stock OptionsIn December 2005, the ASBJ issued ASBJ

vided at the amount which would be required if all directors and

Statement No. 8, Accounting Standard for Stock Options and

corporate auditors retired at the balance sheet date.

related guidance. The new standard and guidance are applicable to

Upon the resolution of the shareholders meeting held on June 28,

stock options newly granted on and after May 1, 2006.

2007, the Company decided to terminate the retirement benefits

This standard requires companies to recognize compensation

plan for directors and corporate auditors. Due to the termination of

expense for employee stock options based on the fair value at the

the plan, further provision is no longer needed, and the allowance

date of grant and over the vesting period as consideration for receiv-

outstanding as of March 31, 2010 represents only a portion of ben-

ing goods or services. The standard also requires companies to

efit payments reserved before the plans termination.

account for stock options granted to non-employees based on the

k. Allowance for Loss on Compensation for Building Materials

fair value of either the stock option or the goods or services received.

On October 30, 2007, the Company announced that it had used

In the balance sheet, the stock option is presented as a stock

improperly prepared eave assemblies and partition walls to establish

acquisition right as a separate component of equity until exercised.

their fire-resistant of fireproof testing. The Company is now respon-

The standard covers equity-settled, share-based payment transac-

sible to repair and/or replace such eave assemblies and partition

tions, but does not cover cash-settled, share-based payment trans-

walls which were sold to its customers.

actions. In addition, the standard allows unlisted companies to

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.

measure options at their intrinsic value if they cannot reliably estimate fair value.
The Group has applied this accounting standard for stock options

l. Construction ContractsIn December 2007, the ASBJ issued

to those granted on and after May 1, 2006.

ASBJ Statement No. 15 Accounting Standard for Construction

n. Research and Development CostsResearch and develop-

Contracts and ASBJ Guidance No. 18 Guidance on Accounting

ment costs are charged to income as incurred.

Standard for Construction Contracts. Under the previous Japanese

o. Income TaxesThe provision for income taxes is computed

GAAP, either the completed-contract method or the per-

based on the pretax income included in the consolidated statements

centage-of-completion method was permitted to account for con-

of income.

struction contracts. Under this new accounting standard, the

The asset and liability approach is used to recognize deferred tax

construction revenue and construction costs should be recognized

assets and liabilities for the expected future tax consequences of

by the percentage-of-completion method, if the outcome of a con-

temporary differences between the carrying amounts and the tax

struction contract can be estimated reliably. When total construction

bases of assets and liabilities. Deferred taxes are measured by

revenue, total construction costs and the stage of completion of the

applying currently enacted tax laws to the temporary differences.

contract at the balance sheet date can be reliably measured, the

p. Foreign Currency TransactionsAll short-term and long-term

outcome of a construction contract can be estimated reliably. If the

monetary receivables and payables denominated in foreign currencies

outcome of a construction contract cannot be reliably estimated, the

are translated into Japanese yen at the exchange rates at the balance

completed-contract method should be applied. When it is probable

sheet date. The foreign exchange gains and losses from translation

that the total construction costs will exceed total construction reve-

are recognized in the consolidated statements of income to the extent

nue, an estimated loss on the contract should be immediately recog-

that they are not hedged by forward exchange contracts.

nized by providing for a loss on construction contracts. This standard

q. Foreign Currency Financial StatementsThe balance sheet

is applicable to construction contracts and software development

accounts of the consolidated foreign subsidiaries are translated into

contracts and effective for fiscal years beginning on or after April 1,

Japanese yen at the current exchange rate as of the balance sheet

2009. The Group applied the new accounting standard effective

date except for equity, which is translated at the historical rate.

April 1, 2009. The effect of this change was to increase sales by

Differences arising from such translation were shown as Foreign

237 million ($2,547 thousand), operating income by 4 million

currency translation adjustments in a separate component of equity.

NICHIAS Annual Report 2010

39

Revenue and expense accounts of consolidated foreign subsidiar-

(2) The current accounting standard accounts for the research and

ies are translated into yen at the average exchange rate.

development costs to be charged to income as incurred. Under

r. Derivatives and Hedging ActivitiesThe Group uses derivative

the revised standard, an in-process research and development

financial instruments to manage its exposures to fluctuations in inter-

(IPR&D) acquired by the business combination is capitalized as an

est rates. Interest rate swaps are utilized by the Group to reduce

intangible asset.

interest rate risks. The Group does not enter into derivatives for trading or speculative purposes.

(3) The current accounting standard accounts for a bargain purchase


gain (negative goodwill) to be systematically amortized within 20

Derivative financial instruments are classified and accounted for as

years. Under the revised standard, the acquirer recognizes a bar-

follows: (a) all derivatives are recognized as either assets or liabilities

gain purchase gain in profit or loss on the acquisition date after

and measured at fair value, and gains or losses on derivative trans-

reassessing whether it has correctly identified all of the assets

action that do not qualify for hedge accounting are recognized in the

acquired and all of the liabilities assumed with a review of such

consolidated statements of income and (b) gains or losses on deriva-

procedures used.

tives used for hedging purposes, if derivatives qualify for hedge

This standard is applicable to business combinations undertaken

accounting because of high correlation and effectiveness between

on or after April 1, 2010 with early adoption permitted for fiscal years

the hedging instruments and the hedged items are deferred until

beginning on or after April 1, 2009.

maturity of the hedged transactions.

Asset Retirement ObligationsIn March 2008, the ASBJ pub-

The interest rate swaps which qualify for hedge accounting and

lished a new accounting standard for asset retirement obligations,

meet specific matching criteria are not remeasured at market value

ASBJ Statement No. 18 Accounting Standard for Asset Retirement

but the differential paid or received under the swap agreements are

Obligations and ASBJ Guidance No. 21 Guidance on Accounting

recognized and included in interest expense or income.

Standard for Asset Retirement Obligations. Under this accounting

s. Per Share InformationBasic net income/loss per share is

standard, an asset retirement obligation is defined as a legal obliga-

computed by dividing net income/loss available to common share-

tion imposed either by law or contract that results from the acquisi-

holders by the weighted-average number of common shares out-

tion, construction, development and the normal operation of a

standing for the period, retroactively adjusted for stock splits.

tangible fixed asset and is associated with the retirement of such

Diluted net income per share reflects the potential dilution that

tangible fixed asset.

could occur if warrants for stock option plan were exercised. Diluted

The asset retirement obligation is recognized as the sum of the

net income per share of common stock assumes full exercise of

discounted cash flows required for the future asset retirement and is

outstanding warrants.

recorded in the period in which the obligation is incurred if a reason-

Cash dividends per share presented in the accompanying consoli-

able estimate can be made. If a reasonable estimate of the asset

dated statements of income are dividends applicable to the respec-

retirement obligation cannot be made in the period the asset retire-

tive years including dividends to be paid after the end of the year.

ment obligation is incurred, the liability should be recognized when a

t. New Accounting Pronouncements

reasonable estimate of asset retirement obligation can be made.

Business CombinationsIn December 2008, the ASBJ issued a

Upon initial recognition of a liability for an asset retirement obligation,

revised accounting standard for business combinations, ASBJ

an asset retirement cost is capitalized by increasing the carrying

Statement No. 21, Accounting Standard for Business Combina-

amount of the related fixed asset by the amount of the liability. The

tions. Major accounting changes under the revised accounting

asset retirement cost is subsequently allocated to expense through

standard are as follows:

depreciation over the remaining useful life of the asset. Over time, the

(1) The current accounting standard for business combinations allows

liability is accreted to its present value each period. Any subsequent

companies to apply the pooling of interests method of accounting

revisions to the timing or the amount of the original estimate of undis-

when certain specific criteria are met such that the business com-

counted cash flows are reflected as an increase or a decrease in the

bination is essentially regarded as a uniting-of-interests. The

carrying amount of the liability and the capitalized amount of the

revised standard requires to account for such business combina-

related asset retirement cost. This standard is effective for fiscal

tion by the purchase method and the pooling of interests method

years beginning on or after April 1, 2010 with early adoption permit-

of accounting is no longer allowed.

ted for fiscal years beginning on or before March 31, 2010.

40

NICHIAS Annual Report 2010

Accounting Changes and Error CorrectionsIn December 2009,

for the fiscal years beginning on or after April 1, 2010.

ASBJ issued ASBJ Statement No. 24 Accounting Standard for


Accounting Changes and Error Corrections and ASBJ Guidance

3. INVENTORIES

No. 24 Guidance on Accounting Standard for Accounting Changes

Inventories as of March 31, 2010 and 2009, consisted of the

and Error Corrections. Accounting treatments under this standard

following:

and guidance are as follows:


(1) Changes in accounting policies

2010

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 provisions, an entity shall comply with the specific transitional provisions.
(2) Changes in presentations

Thousands of
U.S. Dollars

Millions of Yen

Merchandise

2009

2,437

2010

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
Total

1,486

1,515

15,972

15,189

17,160

$163,252

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

4. INVESTMENT SECURITIES
Investment securities as of March 31, 2010 and 2009, consisted of
the following:

the change if the change affects that period only, and is accounted

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

Thousands of
U.S. Dollars

Millions of Yen

for prospectively if the change affects both the period of the change

2010

2009

2010

Non-current:
Marketable equity securities 5,297
Non-marketable
equity securities
Total

4,021

$56,933

242

247

2,601

5,539

4,268

$59,534

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.

The carrying amounts and aggregate fair value of investment


securities at March 31, 2010 and 2009 were as follows:

Segment Information DisclosuresIn March 2008, the ASBJ


revised ASBJ Statement No. 17 Accounting Standard for Segment

Millions of Yen

Information Disclosures and issued ASBJ Guidance No. 20 Guid-

Unrealized Unrealized
Gains
Losses

ance on Accounting Standard for Segment Information Disclosures.


Under the standard and guidance, an entity is required to report

March 31, 2010

Available-for-sale
Equity securities

Cost

Fair Value

3,725

1,585

13

5,297

3,644

653

276

4,021

financial and descriptive information about its reportable segments.


Reportable segments are operating segments or aggregations of

March 31, 2009

operating segments that meet specified criteria. Operating segments

Available-for-sale
Equity securities

are components of an entity about which separate financial information is available and such information is evaluated regularly by the

Thousands of U.S. Dollars

chief operating decision maker in deciding how to allocate resources


and in assessing performance. Generally, segment information is

March 31, 2010

required to be reported on the same basis as is used internally for

Available-for-sale
Equity securities

evaluating operating segment performance and deciding how to

Cost

Unrealized Unrealized
Gains
Losses

$40,037 $17,036

Fair Value

$140 $56,933

allocate resources to operating segments. This accounting standard


and the guidance are applicable to segment information disclosures

NICHIAS Annual Report 2010

41

The carrying values of available-for-sale equity securities whose


fair value was not readily determinable as of March 31, 2010 and

Annual maturities of long-term debt as of March 31, 2010 were as


follows:

2009 were 242 million ($2,601 thousand) and 247 million, respectively. The similar information for 2010 is disclosed in Note 15.

Year Ending March 31

Millions of Yen

Thousands of
U.S. Dollars

The proceeds from sales of investment securities and gross real-

2011

1,480

$ 15,907

ized gains and losses on these sales are not disclosed because they

2012

1,076

11,565

were immaterial for the years ended March 31, 2010 and 2009.

2013

7,350

78,998

2014

4,600

49,441

5. GOODWILL

2015

3,500

37,618

Goodwill as of March 31, 2010 and 2009 consisted of the

2016 and thereafter

375

4,031

following:

Total

18,381

$197,560

Thousands of
U.S. Dollars

Millions of Yen
2010

Consolidation goodwill

The carrying amounts of assets pledged as collateral for short-term

2010

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

109

190

$1,172

23

96

247

132

286

$1,419

Acquisition goodwill
Total

2009

as follows:

Millions of Yen

6. SHORT-TERM BANK LOANS AND


LONG-TERM DEBT

Buildings and structures


net of accumulated depreciation

Short - term bank loans as of March 31, 2010 and 2009, prin-

Land

cipally consisted of notes to banks and bank overdrafts. The

Investment securities

annual interest rates applicable to the short - term bank loans

Total

Thousands of
U.S. Dollars

1,224

$13,156

667

7,169

3,586

38,542

5,477

$58,867

ranged from 0.73% to 2.80% and 0.90% to 4.55% as of


March 31, 2010 and 2009, respectively.

As is customary in Japan, the Company maintains substantial deposit

Long - term debt as of March 31, 2010 and 2009 consisted


of the following:

balances with banks with which it has borrowings. Such deposit balances are not legally or contractually restricted as to withdrawal.
General agreements with respective banks provide, as is custom-

Millions of Yen
2010

Unsecured the 6-month


TIBOR + 0.675% yen
straight bond, due fiscal
2015

2009

Thousands of
U.S. Dollars

ary in Japan, that additional collateral must be provided under certain

2010

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

3,000

$ 32,244

debt payable to the banks. The Company has never been requested

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
Unsecured
Total

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
1,206

1,296

12,962

14,175

16,823

152,354

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

42

case of default and certain other specified events, against all other

NICHIAS Annual Report 2010

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:

Millions of Yen

Total committed line of credit


Executed amount
Unexecuted amount

The liability for employees retirement benefits as of March 31,


2010 and 2009 consisted of the following:

Thousands of
U.S. Dollars

20,000

$214,961

11,000

118,228

9,000

$ 96,733

The above agreements are subject to the following financial

Thousands of
U.S. Dollars

Millions of Yen
2010

2009

2010

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

2,080

2,124

$ 22,356

Projected benefit obligation

Net liability

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.

The components of net periodic retirement benefit costs for the


years ended March 31, 2010 and 2009 were as follows:

Ordinary income shall be not a loss for the first half of the fiscal

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-consolidated basis.

7. RETIREMENT AND PENSION PLANS

Thousands of
U.S. Dollars

Millions of Yen

year ending March 31, 2011, both on a consolidated and


Service cost

2010

2009

734

914

2010

$ 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
Total

77

79

828

1,897

1,685

$20,389

The Company and certain consolidated subsidiaries have severance


payment plans for employees, directors and corporate auditors.
Under most circumstances, employees terminating their employ-

Assumptions used for the years ended March 31, 2010 and 2009,
are set forth as follows:

ment are entitled to retirement benefits determined based on the


2010

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

2009

Discount rate

2.0%

Expected rate of return on plan assets

2.0%

2.0%
3.0%

Recognition period of actuarial gain/loss 12 years

12 years

consolidated subsidiaries and annuity payments from a trustee.


Employees are entitled to larger payments if the termination is involuntary, by retirement at the mandatory retirement age, by death, or
by voluntary retirement at certain specific ages prior to the mandatory retirement age.
The Company implemented a defined contribution pension plan by
which a part of the severance lump-sum payment plan was terminated.

8. EQUITY
Japanese companies are subject to the Companies Act of Japan (the
Companies Act). The significant provisions in the Companies Act
that affect financial and accounting matters are summarized below:
a. DividendsUnder the Companies Act, companies can pay dividends at any time during the fiscal year in addition to the year-end
dividend upon resolution at the shareholders meeting. For companies that meet certain criteria such as; (1) having the Board of Directors, (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

NICHIAS Annual Report 2010

43

articles of incorporation, the Board of Directors may declare divi-

25% of the common stock. Under the Companies Act, the total

dends (except for dividends in kind) at any time during the fiscal year

amount of additional paid-in capital and legal reserve may be

if the company has prescribed so in its articles of incorporation. The

reversed without limitation. The Companies Act also provides that

Company meets all the above criteria. Semiannual interim dividends

common stock, legal reserve, additional paid-in capital, other capital

may also be paid once a year upon resolution by the Board of Direc-

surplus and retained earnings can be transferred among the accounts

tors if the articles of incorporation of the company so stipulate. The

under certain conditions upon resolution of the shareholders.

Companies Act provides certain limitations on the amounts available

c. Treasury Stock and Treasury Stock Acquisition RightsThe

for dividends or the purchase of treasury stock. The limitation is

Companies Act also provides for companies to purchase treasury

defined as the amount available for distribution to the shareholders,

stock and dispose of such treasury stock by resolution of the Board

but the amount of net assets after dividends must be maintained at

of Directors. The amount of treasury stock purchased cannot exceed

no less than 3 million.

the amount available for distribution to the shareholders which is

b. Increases/Decreases and Transfer of Common Stock,

determined by specific formula.

Reserve and SurplusThe Companies Act requires that an amount


equal to 10% of dividends must be appropriated as a legal reserve (a

Under the Companies Act, stock acquisition rights are presented


as a separate component of equity.

component of retained earnings) or as additional paid-in capital (a

The Companies Act also provides that companies can purchase

component of capital surplus) depending on the equity account

both treasury stock acquisition rights and treasury stock. Such trea-

charged upon the payment of such dividends until the total of aggre-

sury stock acquisition rights are presented as a separate component

gate amount of legal reserve and additional paid-in capital equals

of equity or deducted directly from stock acquisition rights.

9. STOCK OPTIONS
The stock options outstanding as of March 31, 2010 were as follows:
Stock Options

Persons Granted

Number of Options Granted

Date of Grant

Exercise Price

2004 Stock Options

5 directors,
1 corporate officer
and 9 employees

360,000 shares

2004.10.1

427
($5)

From April 1, 2005


to June 30, 2010

2005 Stock Options

2 corporate
officers and 8
employees

120,000 shares

2005.10.3

672
($7)

From April 1, 2006


to August 31, 2011

2006 Stock Options

4 directors and 40
employees

800,000 shares

2006.10.2

875
($9)

From April 1, 2007


to August 31, 2012

2009 Stock Options

8 directors, 348
employees and 76
directors and
employees of
subsidiaries

715,000 shares

2009.12.1

340
($4)

From April 1, 2010


to August 31, 2013

44

NICHIAS Annual Report 2010

Exercise Period

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

205,000

100,000

780,000

Non-vested:
March 31, 2008Outstanding
Granted
Canceled
Vested
March 31, 2009Outstanding
Vested:
March 31, 2008Outstanding
Vested
Exercised
Canceled
March 31, 2009Outstanding

21,000
184,000

400,000
100,000

380,000

Year Ended March 31, 2010

Non-vested:
March 31, 2009Outstanding
Granted

715,000

Canceled
Vested

715,000

March 31, 2010Outstanding


Vested:
March 31, 2009Outstanding

184,000

100,000

380,000

Vested

715,000

Exercised
Canceled
March 31, 2010Outstanding
Exercise price

155,000
184,000

100,000

225,000

715,000

427

672

875

340

($5)

($7)

($9)

($4)

118

Average stock price at exercise


Fair value price at grant date

($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.

NICHIAS Annual Report 2010

45

The Assumptions Used to Measure Fair Value of 2009 Stock Options

10. RELATED PARTY TRANSACTIONS

Estimate method:

Black-Scholes option
pricing model

Related party transactions are not disclosed because there were

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%

immaterial for the years ended March 31, 2010 and 2009.

11. INCOME TAXES


The 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

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.

years ended March 31, 2010 and 2009.


The tax effects of significant temporary differences and tax loss
carryforwards which resulted in deferred tax assets and liabilities as
of March 31, 2010 and 2009 were as follows:

Millions of Yen
2010
2009

Deferred tax assets:


Tax loss carryforwards
Liability for retirement benefitsemployees
Loss on impairment of long-lived assets
Allowance for loss on compensation for building materials
Accrued bonuses
Loss on impairment of investment securities
Allowance for doubtful accounts
Other payables
Depreciation
Liability for retirement benefitsdirectors and corporate auditors
Other
Subtotal
Less valuation allowance
Total
Deferred tax liabilities:
Gain on securities contributed to employees retirement benefit trusts
Unrealized gain on available-for-sale securities
Undistributed earnings of foreign subsidiaries
Deferred gain on sales of property, plant and equipment
Account receivable for enterprise tax refund
Other
Total
Net deferred tax assets

46

NICHIAS Annual Report 2010

Thousands of
U.S. Dollars
2010

5,688
2,235
1,652
1,557
655
369
293
271
94
46
977
13,837
(2,784)
11,053

6,166
2,177
1,838
5,201
590
610
417
295
121
59
1,064
18,538
(3,784)
14,754

$ 61,135
24,022
17,756
16,735
7,040
3,966
3,149
2,913
1,010
494
10,501
148,721
(29,923)
118,798

1,219
403
241
84

1,219
137
198
89
134
169
1,946
12,808

13,102
4,331
2,590
903

141
2,088
8,965

1,516
22,442
$ 96,356

A reconciliation between the normal effective statutory tax rate

14. LEASES

and the actual effective tax rate reflected in the accompanying con-

As Lessee

solidated statements of income for the years ended March 31, 2010

The Group leases certain machinery, tools, furniture and other

and 2009 is as follows:

assets.

Normal effective statutory tax rate

2010

2009

40.5%

40.5%

Depreciation expense and interest expense for the year ended


March 31, 2010, which are not reflected in the accompanying consolidated statements of income, are computed by the straight-line

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)

method and the interest method, respectively.


The minimum rental commitments under noncancelable operating
leases at March 31, 2010 and 2009 were as follows:

2010

Increase and decrease in valuation


allowance for deferred tax assets

(3.3)

44.7

Due within one year

Othernet

(0.3)

(0.4)

Due after one year

Actual effective tax rate

36.6%

84.7%

Thousands of
U.S. Dollars

Millions of Yen

Total

2009

75

2010

87

$807

21

77

90

$828

12. RESEARCH AND DEVELOPMENT COSTS

As Lessor

Research and development costs charged to income were

The Group subleases certain machinery and equipment. These sub-

4,871 million ($52,354 thousand) and 5,299 million for the years

leases are the finance leases that do not transfer ownership of leased

ended March 31, 2010 and 2009, respectively.

machinery and equipment to the lessee. Receivables under such


finance leases as of March 31, 2010 and 2009 were as follows:

13. IMPAIRMENT LOSS


The Group reviewed its long-lived assets for impairment as of March

2010

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 profitability of those groups. The carrying amount of the relevant fixed

Thousands of
U.S. Dollars

Millions of Yen

Due within one year


Due after one year
Total

11

2009

24

2010

$118

24

43

258

35

67

$376

assets was written down to the recoverable amount.


The Group recognized impairment losses on the following assets
for the years ended March 31, 2010 and 2009:
Millions of Yen
2010

2009

Thousands of
U.S. Dollars

On March 10, 2008, the ASBJ revised ASBJ Statement No. 10

2010

Accounting Standard for Financial Instruments and issued ASBJ


Guidance No. 19 Guidance on Accounting Standard for Financial

Fixed assets:
Land

240

Building and structure


Machinery and equipment
Others
Total

15. FINANCIAL INSTRUMENTS AND RELATED


DISCLOSURES

25

$2,580

585

Instruments and Related Disclosures. This accounting standard


and the guidance are applicable to financial instruments and related

55

836

591

disclosures at the end of the fiscal years ending on or after March

12

21

31, 2010 with early adoption permitted from the beginning of the

297

1,458

$3,192

fiscal years ending before March 31, 2010. The Group applied the
revised accounting standard and the new guidance effective March

The recoverable amount of that group was measured at its net

31, 2010.

selling value. The net selling value of land was based on the report of
independent appraisers, and other fixed assets were written off to

(1) Group Policy for Financial Instruments

memorandum price.

The Group uses financial instruments, mainly short-term and

NICHIAS Annual Report 2010

47

long-term debt including bank loans and straight bonds, based on its

officer and the management meeting on a semiannual basis.

capital financing plan. Cash surpluses, if any, are invested in low risk

Liquidity risk management

financial assets. Derivatives are used, not for speculative purposes,

Liquidity risk comprises the risk that the Group cannot meet its con-

but to manage exposure to financial risks as described in (2) below.

tractual obligations in full on maturity dates. The Group manages its

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

liquidity risk by holding adequate volumes of liquid assets at the level

Receivables such as trade notes and trade accounts are exposed

of 0.6 months sales volume, along with adequate financial planning

to customer credit risk. Receivables in foreign currencies are

by the financial department.

exposed to the market risk of fluctuation in foreign currency

(4) Fair Value of Financial Instruments

exchange rates. Investment securities, mainly equity instruments of

Fair values of financial instruments are based on quoted price in

customers and suppliers of the Group, are exposed to the risk of

active markets. If quoted price is not available, other rational valua-

market price fluctuations.

tion techniques are used instead. Also please see Note 16 for the

Payment terms of payables, such as trade notes and trade


accounts, are less than one year. Payables in foreign currencies are

detail of fair value for derivatives.


(a) Fair value of financial instruments

exposed to the market risk of fluctuation in foreign currency


Millions of Yen

exchange rates.
March 31, 2010

Carrying
Amount

after the balance sheet date. Although a part of such bank loans is

Cash and cash equivalents

14,267

14,267

exposed to market risks from changes in variable interest rates,

Receivables

39,784

39,784

those risks are mitigated by using interest-rate swaps derivatives.

Investment securities

5,296

5,296

Total

59,347

59,347

exposure to market risks from changes in interest rates of bank

Payables

22,278

22,278

loans. Please see Note 16 for more detail about derivatives.

Short-term bank loans


(including current portion
of long-term debt)

24,104

24,103

Maturities of bank loans and straight bond are less than six years

Derivatives include interest-rate swaps, which are used to manage

(3) Risk Management for Financial Instruments


Credit risk management

failure to repay or service debt according to the contractual terms.

Advances received on
construction work in
progress

The Group manages its credit risk from receivables on the basis of

Long-term debt

Credit risk is the risk of economic loss arising from a counterpartys

internal guidelines, which include monitoring of payment term and

Derivative transactions are limited to major international financial

1,493
16,852

49

Total

64,776

64,726

50

March 31, 2010

Carrying
Amount

Thousands of U.S. Dollars

Cash and cash equivalents $153,343


Receivables

about derivatives.

Investment securities

Market risk management (foreign exchange risk and interest rate risk)

Fair
Value

427,601

56,922

56,922

Total

$637,866

$637,866

Interest-rate swaps are used to manage exposure to market risks

Payables

$239,445

$239,445

from changes in interest rates of loan payables.

Short-term bank loans


(including current portion
of long-term debt)

259,071

259,061

16,047

16,047

management meeting on a semiannual basis based on the internal

Advances received on
construction work in
progress

guidelines which prescribe the authority and the limit for each trans-

Long-term debt

Basic principles of derivative transactions have been approved by

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

48

NICHIAS Annual Report 2010

Total

Unrealized
Gain/Loss

$153,343

427,601

Investment securities are managed by monitoring market values

1,493

institutions to relieve the credit risk. Please see Note 16 for the detail

and financial position of issuers on a regular basis.

Unrealized
Gain/Loss

16,901

balances of major customers by each business administration


department to identify the default risk of customers in early stage.

Fair
Value

$ 10

181,653

181,126

527

$696,216

$695,679

$537

Cash and Cash Equivalents, Receivables, Payables and Advances


Received on Construction Work in Progress

(c) Maturity analysis for financial assets and securities with contractual maturities

The carrying values of cash and cash equivalents, receivables, payMillions of


Yen

ables and advanced received on construction works in progress


approximate fair value because of their short maturities.

Due in One
Year or Less

March 31, 2010

Investment Securities
The fair values of investment securities are measured at the quoted
market price of the stock exchange for equity instruments. The information of the fair value for the investment securities by classification

Thousands of
U.S. Dollars

Cash and cash equivalents

14,361

Receivables
Total

$154,353

39,784

427,601

54,145

$581,954

Please see Note 6 for annual maturities of long-term debt.

is included in Note 4.
Short-Term Bank Loans (including Current Portion of Long-Term
Debt)

The Group enters into interest rate swap contracts to manage its

The carrying values of short-term bank loans approximate fair value


because of their short maturities.

interest rate exposures on certain liabilities.


It is the Groups policy to use derivatives only for the purpose of

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 Groups assumed corporate borrowing rate.
Long-Term

16. DERIVATIVES

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 exposures incorporated within its business. Accordingly, market risk in

Debt

(including

Straight

Bond

and

Long-Term

Borrowings)

these derivatives is basically offset by opposite movements in the


value of hedged liabilities.

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.

Because the counterparties to these derivatives are major international financial institutions, the Group does not anticipate any losses
arising from credit risk.

The fair values of long-term borrowings are determined by discounting the cash flows related to the debt at the Groups assumed
corporate borrowing rate.

Derivative transactions entered into by the Group have been made


in accordance with internal policies which regulate the authorization
and credit limit amount.

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

As noted in Note 15, the Group applied ASBJ Statement No. 10


Accounting Standard for Financial Instruments and ASBJ Guidance No. 19 Guidance on Accounting Standard for Financial Instruments and Related Disclosures. The accounting standard and the

The information of the fair value for derivatives is included in


Note 16.

guidance are applicable to financial instruments and related disclosures at the end of the fiscal years ending on or after March 31,
2010; therefore, the required information is disclosed only for 2010.

(b) Financial instruments whose fair value cannot be reliably


determined
Carrying Amount
March 31, 2010

Investments in equity instruments that


do not have a quoted market price in an
active market

Millions of
Yen

Thousands of
U.S. Dollars

2,840

$30,525

NICHIAS Annual Report 2010

49

Derivative Transactions to Which Hedge Accounting Is Applied

17. CONTINGENT LIABILITIES

at March 31, 2010

As of March 31, 2010, the Company and certain domestic subsidiarMillions of Yen

March 31, 2010

Contract
Amount

Hedged Item

Interest rate swaps


fixed rate payment, Long-term
floating rate receipt debt
March 31, 2010

Contract
Amount
Due after
One Year

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).

Fair Value

Off-balanced notes receivable with repurchase obligation amount13,275

12,475

ing to 832 million ($8,942 thousand).

18. NET INCOME PER SHARE

Thousands of U.S. Dollars

Interest rate swaps


fixed rate payment,
Long-term
floating rate receipt
debt

Basic net income per share (EPS) is computed based on the


weighted-average number of common stocks outstanding totaling
$142,681 $134,082

118,917 thousand shares for the year ended March 31, 2010.

* The above 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. 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).

Diluted EPS for the year is not disclosed because the Company
does not have any dilutive instruments outstanding.

19. SEGMENT INFORMATION


The 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 Income
Millions of Yen
2010
Material
Division A

Material
Division B

Engineering
Division A

Engineering
Division B

Sales to customers

70,817

12,278

33,218

11,758

Intersegment sales

189

3,671

71,006

15,949

Total sales
Operating expenses
Operating income

65,180
5,826

Eliminations/
Corporate

Consolidated

128,071
(3,860)

33,218

11,758

(3,860)

15,411

30,293

10,586

27

538

2,925

1,172

(3,887)

128,071
121,497

6,574

b. Total Assets, Depreciation, Impairment Loss and Capital Expenditures


Millions of Yen
2010

Total assets
Depreciation
Impairment loss
Capital expenditures

50

NICHIAS Annual Report 2010

Material
Division A

Material
Division B

Engineering
Division A

Engineering
Division B

58,684

8,981

13,842

8,147

37,562

127,216

3,264

395

84

40

510

4,293

227

297

363

1,798

48
1,308

22
70

45

12

Eliminations/
Corporate

Consolidated

a. Sales and Operating Income


Millions of Yen
2009
Material
Division A

Material
Division B

Engineering
Division A

Engineering
Division B

Sales to customers

80,193

16,125

39,821

13,072

Intersegment sales

445

3,695

80,638

19,820

39,821

13,072

(4,140)

73,664

20,550

36,297

12,439

(533)

(730)

3,524

633

(3,607)

Eliminations/
Corporate

Total sales
Operating expenses
Operating income or operating loss

6,974

Eliminations/
Corporate

Consolidated

149,211
(4,140)

149,211
142,417

6,794

b. Total Assets, Depreciation, Impairment Loss and Capital Expenditures


Millions of Yen
2009

Total assets

Material
Division A

Material
Division B

Engineering
Division A

Engineering
Division B

Consolidated

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

Capital expenditures

4,757

209

144

29

236

5,375

1,458

a. Sales and Operating Income


Thousands of U.S. Dollars
2010
Material
Division A

Material
Division B

Engineering
Division A

Engineering
Division B

Sales to customers

$761,145

$131,965

$357,029

$126,376

Intersegment sales

2,032

39,456

763,177

171,421

357,029

126,376

700,558

165,639

325,591

113,779

5,782

$ 31,438

$ 12,597

Total sales
Operating expenses
Operating income

$ 62,619

Eliminations/
Corporate

Consolidated

$1,376,515
$(41,488)
(41,488)
290
$(41,778)

1,376,515
1,305,857
$

70,658

b. Total Assets, Depreciation, Impairment Loss and Capital Expenditures


Thousands of U.S. Dollars
2010

Total assets
Depreciation
Impairment loss
Capital expenditures

Material
Division A

Material
Division B

Engineering
Division A

Engineering
Division B

Eliminations/
Corporate

Consolidated

$630,739

$96,528

$148,775

$87,564

$403,720

$1,367,326

35,082

4,245

903

430

5,481

46,141

2,440

3,192

752

484

129

3,902

19,325

516
14,058

236

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 Segments


The Group operates mainly in Japan and total sales/assets in foreign countries were less than 10% of consolidated sales/assets.

(3) Sales to Foreign Customers


Sales to foreign customers for the years ended March 31, 2010 and 2009 were less than 10% of consolidated sales of the respective years.

NICHIAS Annual Report 2010

51

Independent Auditors Report

52

NICHIAS Annual Report 2010

Glossary
Alumina Fiber

Metal-free Attribute

Alumina is an alternative name given to aluminum oxide. With a melting point


of 2050C, 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 expectations are held for alumina fiber, which is produced at high temperatures, as a
fireproof material and a reinforced composite fiber.

In the semiconductor production process, it is essential to mitigate the adverse


effects of metallic ions dissolving into the wafer cleaning solution. Manufacturers 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.

Calcium Silicate

Metallic Heat Insulation

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 silicates 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.

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.

Catalytic Converter Support Mats

Packing Materials

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 (600C to 1000C).

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.

Chemical Filters
These honeycomb-structured filters used to remove a wide range of chemical
contaminants, including ammonia gas and acidic and organic gases. Chemical 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. Fluoropolymers 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 thermoplastic 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 components. Insulators are also highly effective at mitigating sound and vibration.

PFA
Acronym for perfluoroalkoxy. Fluoropolymer PFA features similar superior attributes 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 household 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 1500C.
Rockwools superlative fire-resistant, thermal insulation and soundproof characteristics 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.

NICHIAS Annual Report 2010

53

Organization

Corporate Administration
Division

Personnel Department
General Affairs Department
Accounting Department
Data Systems Department
Operational Support Department
Legal Advisory Section
Environmental Consulting Section

Quality Assurance Division

Quality Assurance Department

Technical Division

Technical Department

Board of
Auditors

Safety & Health Control Section


Environmental Control Section
Environmental Control Center
Rockwool Business Promotion Section

Corporate Strategic
Planning Department
Board of
Directors

Research & Development


Division

Planning & Development Department


Intellectual Property Section
R&D Analysis Section

President

Tsurumi Research Laboratory


Industrial Products Division

Audit Section
Executive
Committee

Hamamatsu Research Laboratory

Advanced Products Division


Automotive Parts Division
Building Materials Division
Construction Division

Tokyo Branch
Osaka Branch
Nagoya Branch
Kyushu Branch
Tsurumi Factory
Ohji Factory
Hashima Factory
Fukuroi Factory
Yuki Factory
(As of July 1, 2010)

54

NICHIAS Annual Report 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

NICHIAS Annual Report 2010

55

History
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.

1896

Founded in Osaka

1909

Moved Head Office to Tokyo

1923

TOMBO brand registered

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

1931

Produced Japans 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

1996

Celebrated NICHIAS 100th anniversary

1952

Commenced manufacture of spiral wound gaskets

1997

NICHIAS stock approved for trading on the OTC Market of the Tokyo
Stock Exchange

Second stage construction of Hamamatsu Research Laboratory


completed

1998

Began issuing stock options

1999

Introduced Executive Officer System

2001

Formulated the NICHIAS Environmental Charter

1956

Established the Research Laboratory in Tsurumi in commemoration


of 60th anniversary

Established SUZHOU NICHIAS SEAL MATERIALS CO., LTD.


in China
1995

Established NT RUBBER-SEALS SDN. BHD. in Malaysia


Established P.T. NICHIAS ROCKWOOL INDONESIA

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

Established NICHIAS (Shanghai) TRADING CO., LTD. in China

1968

Listed on First Section of Osaka Securities Exchange

1971

Moved Corporate Head Office to present location at Shibadaimon,


Minato-ku, Tokyo

Established NICHIAS AUTOPARTS MALAYSIA SDN. BHD.


in Malaysia
2004

Established NICHIAS CZECH, S.R.O.

1974

Established Yuki Factory

2005

Established Procurement Guidelines

1979

Established NICHIAS SINGAPORE PTE. LTD.

1983

Commenced manufacture and sales of alumina fiber and rigid


polyurethane pipe supports

Established NICHIAS HAIPHONG CO., LTD. in Vietnam

Established P.T. SUNIJAYA (Now P.T. NICHIAS SUNIJAYA)


in Indonesia

2002

Established SUZHOU NICHIAS INDUSTRIAL PRODUCTS CO., LTD.


in China

2003

New building completed at Tsurumi Research Laboratory

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

1985

Developed ultra-high temperature ceramic thermal insulation tile


2008
Commenced manufacture and sales of rubber coated metal
gaskets

1987

Reorganized business divisions into independent profit centers

Formulated A New Step towards the Next 100 Years as new


corporate slogan

Developed fluoropolymer products for semiconductor production


equipment

Established NICHIAS INDUSTRIAL PRODUCTS PVT. LTD. in India


2009

1988

56

Formulated The New NICHIAS Spirit as the new corporate


philosophy

Established P.T. KUNISEAL NUSANTARA (Now P.T. NICHIAS


ROCKWOOL INDONESIA) in Indonesia

NICHIAS Annual Report 2010

Completed Yuki Factory and new automotive parts factory

Corporate Data

Investor Information

(As of March 31, 2010)

(As of March 31, 2010)

Head Ofce

Authorized Number of Shares

1-26, Shibadaimon 1-chome,


Minato-ku, Tokyo 105-8555, Japan
Tel: +81-3-3433-7251

240,000,000 shares

Number of Shares Issued


125,057,344 shares

Branch Ofces
Tokyo Branch
Osaka Branch
Nagoya Branch
Kyushu Branch

Number of Shareholders
14,198

Securities Traded
Tokyo Stock ExchangeFirst Section

Factories
Tsurumi Factory
Ohji Factory
Hashima Factory
Fukuroi Factory
Yuki Factory

Laboratories
Hamamatsu Research Laboratory
Tsurumi Research Laboratory

Founded
April 9, 1896

Transfer Agent
The Sumitomo Trust and Banking Company, Limited
4-4, Marunouchi 1-chome,
Chiyoda-ku, Tokyo 100-8233, Japan

Further Information
General Affairs Dept.
Tel: +81-3-3433-7251
E-mail: info@nichias.co.jp

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

Employees
1,599

Paid-in Capital
9,283.57 million

NICHIAS Annual Report 2010

57

NICHIAS Corporation
1-26, Shibadaimon 1-chome,
Minato-ku, Tokyo 105-8555, Japan
Tel: +81-3-3433-7251
http://www.nichias.co.jp/

Printed in Japan
E01-1009-01-GS-TS-RE-0909