Financial Resultsfor the Year Ended December 31, 2011—(J-GAAP) Consolidated                                               ...
(2) Financial Position                                                                                             Shareho...
4. Other Information(1) Changes affecting the status of significant subsidiaries (changes in specified subsidiaries    tha...
Reference: Overview of Non-Consolidated Financial Results1. Non-Consolidated Financial Results for the Year Ended December...
Contents of the “Attachments” Section1. Business Results ·································································...
1. Business Results(1) Analysis of Business ResultsThe global economy during 2011 was gradually recovering, led by emergin...
Fine CarbonDomestic sales slumped temporarily on the impact of the earthquake. Yet sales remained strong onthe sharp rebou...
2) LiabilitiesConsolidated liabilities totaled ¥54,340 million at December 31, 2011, an increase of ¥4,642 millionfrom the...
(4) Business and Other Risks This section describes the Group’s business and other risks that are thought to have material...
6) Research and development    Competing companies supplying products similar those of the Group exist in every sector in ...
2. The Corporate GroupTokai Carbon group (the ―Group‖) comprises Tokai Carbon Co., Ltd. (the ―Company‖), 25 subsidiaries,a...
Group structure         Carbon and Ceramics                                                                               ...
3. Management Policy(1) Basic Corporate Philosophy   The Group operates under the corporate philosophy, ―Ties of Reliabili...
(4) Issues to be Addressed by the CompanyThe Japanese economy is expected to see a continuation of its recovery trend, due...
4. Consolidated Financial Statements(1) Consolidated Balance Sheets                                                       ...
(millions of yen)                                              As of December 31, 2010   As of December 31, 2011          ...
(2) Consolidated Statements of Operations and Comprehensive Income(Consolidated Statement of Operation)                   ...
(Consolidated Statement of Comprehensive Income)                                                                          ...
(3) Consolidated Statements of Changes in Shareholders’ Capital                                                           ...
(millions of yen)                                                            Year ended          Year ended               ...
(4) Consolidated Statements of Cash Flows                                                                                 ...
(millions of yen)                                                             Year ended            Year ended            ...
(5) Notes on the Going Concern AssumptionNot applicable(6) Basis for Preparation of Consolidated Financial Statements     ...
FY2010                                        FY2011                   January 1, 2010 to December 31, 2010          Janua...
FY2010                                        FY2011 January 1, 2010 to December 31, 2010          January 1, 2011 to Dece...
FY2010                                     FY2011 January 1, 2010 to December 31, 2010        January 1, 2011 to December ...
FY2010                                     FY2011 January 1, 2010 to December 31, 2010        January 1, 2011 to December ...
FY2010                                        FY2011 January 1, 2010 to December 31, 2010          January 1, 2011 to Dece...
News20120309
News20120309
News20120309
News20120309
News20120309
News20120309
News20120309
News20120309
News20120309
News20120309
News20120309
News20120309
News20120309
News20120309
News20120309
News20120309
News20120309
News20120309
News20120309
Upcoming SlideShare
Loading in...5
×

News20120309

150

Published on

Published in: Business, Economy & Finance
0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total Views
150
On Slideshare
0
From Embeds
0
Number of Embeds
0
Actions
Shares
0
Downloads
1
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

News20120309

  1. 1. Financial Resultsfor the Year Ended December 31, 2011—(J-GAAP) Consolidated February 10, 2012Company name: Tokai Carbon Co., Ltd.Listings: Tokyo Stock Exchange, first sectionSecurity code: 5301URL: http://www.tokaicarbon.co.jp/Representative: Yoshinari Kudo, President and CEOContact: Kazuhiko Matsubara, General Manager, Accounting Department, Corporate Administration DivisionTel: +81-3-3746-5100Scheduled datesAnnual shareholders’ meeting: March 29, 2012Commencement of dividend payments: March 30, 2012Submission of financial statements: March 29, 2012Supplementary reference documents to support the Yesfinancial statements:Explanatory meeting to discuss the financial Yes (for institutional investors andstatements will be held: analysts only)1. Consolidated Financial Results for the Year Ended December 31, 2011 (January 1, 2011 to December 31, 2011) (Amounts rounded down to the nearest million yen)(1) Operating Results (Percentage figures represent year-on-year changes) Net sales Operating income Ordinary income Net income million yen % million yen % million yen % million yen % Year ended 104,924 (2.6) 10,467 (1.0) 10,104 2.5 6,119 8.7 December 31, 2011 Year ended 107,679 29.3 10,575 99.6 9,854 97.4 5,630 110.5 December 31, 2010 Note: Comprehensive Income: Year ended December 31, 2011: ¥2,634 million (-21.3%) Year ended December 31, 2010: ¥3,347 million ( —%) Net income per Net income Return on Ordinary income / Operating income / share—fully per share equity Total assets Net sales diluted yen yen % % % Year ended 28.66 — 5.9 6.4 10.0 December 31, 2011 Year ended 26.05 — 5.4 6.4 9.8 December 31, 2010 Note: Equity method investment gains or losses: Year ended December 31, 2011: ¥189 million Year ended December 31, 2010: ¥361 million 1
  2. 2. (2) Financial Position Shareholders’ Net assets per Total assets Net assets equity ratio share million yen million yen % yen As of December 31, 2011 161,563 107,223 64.5 488.30 As of December 31, 2010 155,304 105,605 66.6 484.53 Note: Shareholders’ equity: As of December 31, 2011: ¥104,282 million As of December 31, 2010: ¥103,482 million(3) Cash Flow Position Cash and Cash flows from Cash flows from Cash flows from cash equivalents operating activities investing activities financial activities at end of period million yen million yen million yen million yen Year ended 12,771 (10,666) 2,629 18,565 December 31, 2011 Year ended 18,586 (6,088) (6,795) 14,005 December 31, 20102. Dividends Dividend per share Total Dividends / dividends Payout ratio End of 1st End of 2nd End of 3rd Net assets Record date Year-end Full-year paid (consolidated) quarter quarter quarter (consolidated) (full year) yen yen yen yen yen million yen % % Year ended December 31, — 4.00 — 4.00 8.00 1,725 30.7 1.7 2010 Year ended December 31, — 4.00 — 4.00 8.00 1,708 27.9 1.6 2011 Year ending December 31, — 4.00 — 4.00 8.00 29.5 2012 (forecast)3. Forecast of Consolidated Earnings for the Ending December 31, 2012 (January 1, 2012 to December 31, 2012) (Percentages represent year-on-year changes for the full year and increase/decrease from the same period of the previous year for the first six months) Net Net sales Operating income Ordinary income Net income income per share million yen % million yen % million yen % million yen % yen First six months 53,000 0.2 4,200 (22.2) 4,200 (22.3) 2,500 35.3 11.71 Full year 114,000 8.6 10,000 (4.5) 10,100 0.0 5,800 (5.2) 27.16 2
  3. 3. 4. Other Information(1) Changes affecting the status of significant subsidiaries (changes in specified subsidiaries that involved changes in the scope of consolidation): None(2) Changes in accounting principles, procedures, and method of disclosure used to prepare the consolidated financial results (changes incorporated in the “significant changes in methods of disclosure used to prepare consolidated financial statements”) 1) Changes in accordance with amendments to accounting standards: Yes 2) Changes other than the above: None Note: Please refer to ―Changes in Basis of Preparation of Consolidated Financial Statements ‖ on page 31.(3) Number of shares issued (common stock) 1) Number of shares issued at end of the period (including treasury stock): As of December 31, 2011: 224,943,104 shares As of December 31, 2010: 224,943,104 shares 2) Number of shares held in treasury at end of the period: As of December 31, 2011: 11,380,765 shares As of December 31, 2010: 11,368,713 shares 3) Average Number of shares during the period Year ended December 31, 2011: 213,566,879 shares Year ended December 31, 2010: 216,163,687 shares Note: For the number of shares that is the basis for calculating net income per share (consolidated), refer to ―Per Share Information‖ on page 47. 3
  4. 4. Reference: Overview of Non-Consolidated Financial Results1. Non-Consolidated Financial Results for the Year Ended December 31, 2011 (January 1, 2011 to December 31, 2011)(1) Operating Results (Percentage figures represent year-on-year changes) Net sales Operating income Ordinary income Net income million yen % million yen % million yen % million yen % Year ended 65,261 (5.0) 4,654 (4.8) 5,294 6.2 3,233 23.3 December 31, 2011 Year ended 68,662 32.2 4,891 107.6 4,986 53.9 2,621 845.6 December 31, 2010 Net income per Net income per share share—fully diluted yen yen Year ended 15.14 — December 31, 2011 Year ended 12.13 — December 31, 2010(2) Financial Position Shareholders’ Net assets per Total assets Net assets equity ratio share million yen million yen % yen As of December 31, 2011 132,618 87,384 65.9 409.18 As of December 31, 2010 130,953 88,061 67.2 412.32 Note: Shareholders’ equity: As of December 31, 2011: ¥87,384 million As of December 31, 2010: ¥88,061 million*Presentation of implementation status for audit procedureThe audit procedure based on the Financial Instruments and Exchange Act does not apply to these FinancialResults, and the audit procedure based on the Financial Instruments and Exchange Act had not been completedas of the release of these Financial Results.*Appropriate Use of Earnings Forecasts and Other Important InformationThese materials contain various forward-looking statements and other forecasts regarding performance and othermatters. Such statements are based on information available at the time of preparation as well as certainreasonable assumptions. Actual results may differ materially from those expressed or implied by forward-lookingstatements due to a range of factors. For the assumptions underlying the earnings forecasts presented and otherinformation regarding the use of such forecasts, refer to ―1. Business Results (1) Analysis of Business Results‖ onpage 6-7. 4
  5. 5. Contents of the “Attachments” Section1. Business Results ··································································································· 6 (1) Analysis of Business Results ··············································································· 6 (2) Analysis of Financial Position··············································································· 7 (3) Dividend Policy and 2011-12 Dividends ································································· 8 (4) Business and Other Risks ··················································································· 92. The Corporate Group ····························································································· 113. Management Policy ······························································································· 13 (1) Basic Corporate Philosophy ··············································································· 13 (2) Management Goals and Objectives ····································································· 13 (3) Medium-Term Management Strategies ································································· 13 (4) Issues to be Addressed by the Company ······························································ 14 (5) Other Important Management Issues ··································································· 144. Consolidated Financial Statements ··········································································· 15 (1) Consolidated Balance Sheets ············································································· 15 (2) Consolidated Statements of Operations and Comprehensive Income ·························· 17 (Consolidated Statement of Operation) ································································· 17 (Consolidated Statement of Comprehensive Income) ··············································· 18 (3) Consolidated Statements of Changes in Shareholders’ Capital ··································· 19 (4) Consolidated Statements of Cash Flows ······························································· 21 (5) Notes on the going concern assumption ······························································· 23 (6) Basis for Preparation of Consolidated Financial Statements ······································ 23 (7) Changes in Basis of Preparation of Consolidated Financial Statements ······················· 31 Changes in Method of Presentation ······································································ 31 Additional Information ······················································································· 32 (8) Notes to Consolidated Financial Statements ·························································· 33 (Consolidated Balance Sheets) ··········································································· 33 (Consolidated Statements of Operations) ······························································ 34 (Consolidated Statements of Comprehensive Income) ·············································· 37 (Consolidated Statements of Changes in Net Assets) ··············································· 38 (Consolidated Statements of Cash Flows) ····························································· 40 (Segment Information)······················································································· 41 (Per Share Information) ····················································································· 47 (Subsequent material events) ············································································· 47 (Disclosures Omitted)························································································ 47 5
  6. 6. 1. Business Results(1) Analysis of Business ResultsThe global economy during 2011 was gradually recovering, led by emerging economies. Fromsummer onward, however, the recovery inevitably slowed, owing primarily to the European debt crisisand the deceleration of growth in emerging economies. Although the Japanese economy recoveredsomewhat, reflecting the recovery in the global economy, but economic activities fell sharply onequipment damage and supply chain disruptions that were due to the Great East Japan Earthquake.Later, supported by a quick restoration of supply chains and by restoration and recovery from theearthquake, the economy returned to pre-earthquake levels in summer. However, due to thedeceleration in the overseas economy from immediately thereafter, the rapid appreciation in the yen,as well as the flooding in Thailand, the recovery of the Japanese economy slowed.Under such circumstances, the industries in which the Tokai Carbon Group’s customers operate (e.g.,rubber products, steel, IT hardware, and industrial machinery) also suffered a decrease in demanddue to the earthquake. However, with the recovery of their production activities, demand also headedfor recovery.Furthermore, as for operations at Tokai Carbon Ishinomaki Plant (Ishinomaki City, Miyagi Prefecture),which had been suspended because of the earthquake, recovery operations were carried out with aview to resuming operations, and some operations were resumed by the end of the fiscal year underreview, as planned.As a result, consolidated net sales for the fiscal year under review decreased 2.6% year on year, to¥104,924 million. As for profits and losses, operating income decreased 1.0% year on year, to¥10,467 million, and ordinary income rose 2.5% year on year, to ¥10,104 million. In addition, althoughthe Group recorded a loss on disaster of ¥2,682 million under extraordinary losses due to the GreatEast Japan Earthquake, partly because of its recording a ¥1,852 million gain on sales of investmentsecurities under extraordinary income, net income in the fiscal year under review increased 8.7% yearon year to ¥6,119 million.The performance of our principal business segments is as follows:Please note that the Group has changed its segmentations from the consolidated fiscal year underreview. For matters related to business segments as part of the segment information disclosure,please refer to 4. Consolidated Financial Statements (8) Notes to Consolidated Financial Statements(Segment Information). In addition, comparisons with the previous fiscal year are calculated byadjusting data for the previous fiscal year into the new business segment classifications.Carbon BlackAlthough there was a decline in automobile production because of the earthquake and the flooding inThailand, supported by steady production in the tire industry both within and outside Japan, demandremained generally strong. Nonetheless, due to the prolonged suspension of operations at theIshinomaki Plant that resulted from the earthquake, sales volumes inevitably declined from Marchonward. Furthermore, the Group revised its sales prices in response to the rise in raw oil prices.As a result of these factors, net sales in the Carbon Black segment increased 0.2% year on year, to¥40,077 million, and operating income rose 3.4% year on year, to ¥5,942 million.Carbon and CeramicsGraphite ElectrodesWith the world crude steel production remaining at high levels above 100 million tons per month, andwith electrode demand recovering, sales volume to North America increased but those to Asiadecreased. In addition, although the Group strived to focus on profitability, sales prices bothdomestically and overseas remained low, partly due to the effect of appreciation in the yen.Consequently, net sales of graphite electrodes fell 17.4% year on year to ¥30,954 million. 6
  7. 7. Fine CarbonDomestic sales slumped temporarily on the impact of the earthquake. Yet sales remained strong onthe sharp rebound in demand due to the production restoration among customers and strong demandin industries including solar cells and semiconductors, mainly in China, South Korea, and other Asiancountries. Nonetheless, in the fourth quarter, due to a sudden deterioration of market conditionsrelated to solar cells and the like in China and South Korea, and due to the effect of yen appreciation,net sales to overseas customers fell sharply. As a result, net sales of fine carbon products rose 21.7%from the previous fiscal year to ¥18,904 million.Due to these factors, net sales in the Carbon and Ceramics segment decreased 6.0% year on year, to¥49,858 million, and operating income fell 9.1% year on year, to ¥4,447 million.Industrial Furnaces and Related ProductsIn IT-related industries, which are the Group’s main demanders, sales did well in the first half of theyear amid a slow recovery. In the second half of the year, however, due to the credit uncertainty inEurope and the continuing strong yen, restraint in capital investment gradually increased, and sales ofindustrial furnaces, the Group’s key products, remained at a low level, similar to that of the previousfiscal year. Furthermore, since the effect of yen appreciation was large on the glass and electroniccomponent industries as well, sales of heating elements and related products decreased from theprevious fiscal year.As a result of these factors, net sales in the Industrial Furnaces and Related Products segmentdecreased 4.0% year on year to ¥5,401 million, and operating income increased 14.4% year on yearto ¥1,125 million.Other OperationsFriction MaterialsSales to construction machinery industries, the Group’s main demanders, slowed for some machineryuses in the second half of the year as a consequence of China’s financial tightening measures.Nonetheless, overall sales remained steady as sales of friction materials for mining constructionmachinery increased. In addition, demand for friction materials for two-wheeled vehicles,four-wheeled vehicles, and agricultural machinery showed a rising trend. As a result, net sales offriction materials rose 12.4% year on year to ¥8,644 million.OthersNet sales from property leasing and other businesses decreased 28.7% year on year to ¥941 million.Due to these factors, net sales in the Other Operations segment increased 6.4% year on year to¥9,586 million, with operating income increasing 52.2% year on year to ¥588 million.Outlook for the Year Ending December 31, 2012Assuming an exchange rate of ¥75 to the U.S. dollar, the Group forecasts 2012 consolidated net salesof ¥114,000 million, operating income of ¥10,000 million, ordinary income of ¥10,100 million, and netincome of ¥5,800 million.Furthermore, the Group forecasts that the balance of cash and cash equivalents at the end of thefiscal year will be approximately ¥10,000 million.(2) Analysis of Financial PositionAssets, Liabilities, and Net Assets1) AssetsAt December 31, 2011, consolidated assets totaled ¥161,563 million, an increase of ¥6,259 millionfrom December 31, 2010.Current assets in the fiscal year under review totaled ¥88,421 million, a ¥6,736 million increase fromthe previous fiscal year, reflecting an increase mainly in inventories. Fixed assets totaled ¥73,142million, a decrease of ¥476 million from the previous fiscal year, as a rise was recorded mainly intangible fixed assets but a decline was recorded mainly in investment securities. 7
  8. 8. 2) LiabilitiesConsolidated liabilities totaled ¥54,340 million at December 31, 2011, an increase of ¥4,642 millionfrom the previous fiscal year.Current liabilities accounted for ¥45,439 million, up ¥16,813 million from the previous fiscal year, as aresult of an increase mainly in the current portion of long-term debt. Fixed liabilities totaled ¥8,901million, a decrease of ¥12,170 million from the previous fiscal year, because of a decrease mainly inlong-term debt.3) Net assetsConsolidated net assets at the end of the fiscal year under review totaled ¥107,223 million, anincrease of ¥1,617 million from the previous fiscal year, due to an increase mainly in retainedearnings.As a result, at the end of the fiscal year under review, the Group’s shareholders equity ratio was64.5%, down 2.1 percentage points from December 31, 2010.Cash FlowsAt the end of the fiscal year under review, the Group’s cash and cash equivalents totaled ¥18,565million, up ¥4,560 million from the previous fiscal year. Cash flows and the major sources and uses ofcash in fiscal year 2011 are summarized as follows.1) Cash flow from operating activitiesOperating activities provided net cash of ¥12,771 million, a decrease of ¥5,814 million from fiscal year2010, due to mainly an increase in inventories.2) Cash flow from investing activitiesInvesting activities used net cash of ¥10,666 million, an increase of ¥4,577 million from fiscal year2010, due to mainly an increase in the purchase of tangible fixed assets.3) Cash flow from financing activitiesFinancing activities provided net cash of ¥2,629 million, an increase of ¥9,425 million from fiscal year2010, due primarily to an increase in borrowings.Cash Flow Metrics Year ended December 31, 2007 2008 2009 2010 2011 Shareholders equity ratio (%) 62.8 59.7 67.2 66.6 64.5 Shareholders equity ratio at market value (%) 126.5 46.8 64.7 69.4 55.3 Ratio of debt to cash flow 1.1 3.3 1.8 1.0 1.7 Interest coverage ratio (times) 18.6 9.0 21.7 28.8 24.0Notes:1. The above ratios were calculated as follows using consolidated financial statement data. Shareholders equity ratio: shareholders equity / total assets Shareholders equity ratio at market value: market capitalization / total assets Ratio of debt to cash flow: interest-bearing debt / operating cash flow Interest coverage ratio: operating cash flow / interest expense2. Market capitalization was calculated by multiplying the Company’s year-end closing share price by the number of shares outstanding (net of treasury stock) at year-end.3. Interest-bearing debt was calculated as the sum of all consolidated on-balance-sheet liabilities upon which interest is payable.4. Operating cash flow and interest expense are respectively "net cash provided by (used in) operating activities" and "interest paid" as reported on Consolidated Statements of Cash Flows.(3) Dividend Policy and 2011-12 DividendsIn the aim of increasing shareholder returns, enhancing corporate value, and strengthening theGroup’s operational foundation, the Company has adopted a policy of setting dividends based on itsearnings status viewed from a medium-term perspective, while also maintaining sufficient retainedearnings. The Company retains earnings to fund strategic investments in new businesses, includingM&A, invest in improving existing operations efficiency, solidify its financial condition, and maintainstable dividends. For the fiscal year ended December 31, 2011, the Company plans to pay year-enddividend of ¥4 per share, the same as that of the previous period. The year-end dividend will bringtotal 2011 dividends to ¥8 per share.For 2012, the Company plans to pay total annual dividends of ¥8 per share, consisting of an interimdividend of ¥4 per share and year-end dividend of ¥4 per share. 8
  9. 9. (4) Business and Other Risks This section describes the Group’s business and other risks that are thought to have material influence on investors’ decisions. The following does not necessarily cover all the risks associated with the Group. It should be noted that the following contains forward looking statements based on judgments made as of the dissemination date hereof (February 10, 2012). 1) Changes in supply-demand conditions in domestic and overseas markets The Group operates business globally through active sales operations in both domestic and overseas markets with production bases in Asia, Europe, and the U.S. Therefore, sales of the Group’s products are always affected by changes in global and Japanese economic conditions. The Group promotes productivity improvements and cost reductions to maintain a business structure that is not easily affected by changes in business environment. Nevertheless, declines in demand from associated industries and economic slowdowns in regions where the Group’s products are sold may have significant negative impacts on the Group’s business results and financial standing. 2) Risks associated with overseas operations The Group is moving forward with expansions into overseas markets, and overseas sales accounted for 49.5% of the Group’s consolidated net sales last year. Risks associated with overseas expansion include the worsening of political and economic situations in overseas markets, regulations on imports, unexpected revisions of statutes, deterioration of public order, riots, terrorist attacks, and wars. Such occurrences may affect the Group’s business results and financial position. In particular, in recent years the Group has been expanding its carbon black and fine carbon businesses in China—it has established a carbon black manufacturing and sales base in the country in response to growing demand for tires there and a fine carbon processing and sales base to meet increasing demand for solar cell and semiconductor-related carbon materials. Therefore, changes in the political and economic climate in China in particular could have a significant impact on the Group’s business results. 3) Foreign exchange fluctuations The Group is engaged in foreign currency denominated transactions in selling its products to overseas customers and in purchasing raw materials from overseas suppliers. Its business is therefore affected by movements in foreign exchange rates. Although the Group hedges foreign exchange related risks through measures such as forward foreign exchange contracts, the effects of rapid fluctuations in exchange rates on business results and financial position cannot be fully eliminated. Given the Group’s current foreign exchange position, appreciation of the yen against major currencies such as the U.S. dollar and Euro tends to adversely affect its business results. Conversely, a weaker yen against these currencies tends to benefit its business results. 4) Price competition As a leading company in carbon products—the Group’s main business—the Group aims to provide high quality products at lower prices, thereby further bolstering its competitive advantage, and maintaining a highly profitable business structure. However, moves by competitors such as those to enhance product capabilities and lower selling prices, may expose the Group’s products to fierce price competition, which may lead to a lower market share and declines in net sales at the Group. Such occurrences may have a significant impact on the Group’s business results. 5) Rise in raw material prices The Group procures raw materials from a number of domestic and overseas suppliers in order to ensure a stable supply of raw materials and to maintain optimal prices. However, raw material prices may fluctuate significantly depending on the future course of the world economy. The Group is making efforts to minimize the impact of such events on its business results through measures that include strengthening cost competitiveness, passing price rises on to product prices, and cultivating new suppliers. However, in the event of extreme difficulty in procuring raw materials or further hikes in raw material prices, the Group’s business results may be adversely affected. 9
  10. 10. 6) Research and development Competing companies supplying products similar those of the Group exist in every sector in which the Group operates. To maintain its competitive edge, the Group first carefully selects target markets and then engages in research and development and the commercialization of new products. However, failure to properly respond to changes in technologies and customer requirements or prolonged development periods may hurt the Group’s growth potential and profitability and adversely affect the Group’s business results and financial standing.7) Intellectual property rights The Group holds a wide variety of patents and trademarks and has acquired ownership of and rights to intellectual property. The Group strives to strictly control its intellectual property and constantly monitors possible infringements by third parties. However, the Group may encounter difficulty in fully protecting its intellectual property rights from infringement by third parties, and this may adversely affect the Group’s business activities. Further, should the Group’s proprietary products inadvertently infringe on the intellectual property rights of other parties, the Group may be liable for damage compensation, and this may affect the Group’s business results.8) Environmental regulations The Group’s core businesses are resource- and energy-intensive and have high environmental impacts. Although the Group strives to reduce the environmental load of its businesses by establishing certain facilities, enhancing control structures, and improving productivity, the future application of stricter environment-related legislation and more pronounced demands from society regarding environmental responsibilities may adversely affect the Group’s business results and financial standing.9) Securities held by the Group The Group holds shares in financial institutions and certain of its customers and therefore may be affected by stock price movements. The Group does not use hedging instruments to protect itself against movements in stock prices.10) Regulatory environment The Group operates its business in compliance with laws and regulations, and its operations, both domestic and overseas, are subject to various statutory and regulatory restrictions. Going forward, there may be increased regulatory restrictions related to the environment, recycling, and international trade. The implementation of such regulations could further restrict the Group’s business operations and increase costs, which may affect the Group’s business results.11) Legal disputes Although the possibility of new legal disputes with the potential to materially affect the Group’s financial position and business results arising is slight, the occurrence of such disputes in the future may have a material impact on the Group’s business results.12) Natural disasters and large-scale accidents The Group places strong emphasis on ensuring safety and preventing accidents at its plants, and regards such efforts as a critical element in its manufacturing operations. However, natural and man-made disasters, such as earthquakes, typhoons, tsunamis, floods, and terrorist attacks may hamper the Group’s manufacturing operations, severely damage social infrastructure, and lead to other unanticipated situations. If such events occur, the Group’s business results may be significantly affected. 10
  11. 11. 2. The Corporate GroupTokai Carbon group (the ―Group‖) comprises Tokai Carbon Co., Ltd. (the ―Company‖), 25 subsidiaries,and 6 affiliates. The principal business fields of the Group, and the respective positions of theCompany and its related companies within each of the business fields, as well as information on thelinkages of the Company and its related companies with segments, are as follows.Carbon BlackThe Company, Thai Tokai Carbon Product Co., Ltd., and Tokai Carbon (Tianjin) Company Ltd.engage in production and sales of carbon black for use in rubber products, black pigments, andconductive materials.Tokai Transportation Co., Ltd., operates a general cargo trucking business and a cargo handlingbusiness. The Company outsources transportation and packaging of its products to TokaiTransportation.Carbon and CeramicsThe Company engages in production and sales of artificial graphite electrodes for use in electric arcfurnaces for steel production, fine carbon (specialty carbon products), carbon brushes, andimpervious graphite, as well as in production and sales of other products.The Company outsources processing of fine carbon and other materials to Tokai Fine CarbonMachining Co., Ltd., and to Oriental Sangyo Co., Ltd.Tokai Fine Carbon Machining Co., Ltd., also engages in sales of fine carbon and other materials,while Oriental Sangyo Co., Ltd., also engages in production and sales of pencil lead-cores and inother businesses.Tokai Carbon (Shanghai) Co., Ltd., engages in sales of fine carbon. Tokai Carbon Electrode Sales,Inc., and Tokai Carbon Electrode Sales LLC. engage mainly in sales of artificial graphite electrodes.Tokai Carbon U.S.A., Inc., and MWI, Inc., engage in production and sales of fine carbon. TokaiErftCarbon GmbH engages in production and sales of artificial graphite electrodes, while TokaiCarbon Europe GmbH, Tokai Carbon Europe, Ltd., Tokai Carbon Italia S.R.L, Svensk SpecialgrafitAB, Tokai Carbon Deutschland GmbH, and Carbon-Mechanik GmbH engage in businesses related tofine carbon.Furthermore, as a joint venture, Tokai Carbon Korea Co., Ltd., engages in production and sales of finecarbon, while SGL Tokai Carbon, Ltd., Shanghai engages in processing and sales of artificial graphiteelectrodes, and Dalian Tokai-Jinqi-Fuji Carbon Co., Ltd., engages in processing and sales of finecarbon. SGL Tokai Process Technology Pte. Ltd. engages in businesses related to imperviousgraphite.Industrial Furnaces and Related ProductsTokai Konetsu Kogyo Co., Ltd., engages in production and sales of industrial furnaces, gas furnaces,silicon carbide, alumina refractory materials, insulating firebrick, silicon carbide heating elements, andceramic resistors. Tokai Konetsu Engineering Co., Ltd., Shanghai Tokai Konetsu Co., Ltd., and HeiseiCeramics Co., Ltd., also engage in the business field of industrial furnaces and related products.Other OperationsThe Company engages in production and sales of friction materials as well as in property leasingbusiness. Tokai Material Co., Ltd., Mitomo Brake Co., Ltd., Daiya Tsusho Co., Ltd., and Tokai NoshiroSeiko Co., Ltd., engage in businesses related to friction materials.Lancom Toyo Co., Ltd., engages mainly in development and sales of computer software.Nagoya Green Club Co., Ltd., engages in management of golf driving ranges.An overview diagram of the aforementioned matters is as follows. 11
  12. 12. Group structure Carbon and Ceramics Carbon Black Sell half-finished products Sell products※ Tokai ErftCarbon GmbH ※ Thai Tokai Carbon Product Co., Ltd. Buy raw materials※ Tokai Carbon Electrode Sales Inc. ※ Tokai Carbon (Tianjin) Company Ltd. Sell products※ Tokai Carbon Electrode Sales LLC. Commission delivery ※ Tokai Unyu Co., Ltd. Sell products○ SGL Tokai Carbon Ltd. Shanghai Supply raw materials※ Tokai Fine Carbon Machining Co., Ltd. Industrial Furnaces and Related Buy products Products※ Oriental Sangyo Co., Ltd. ※ Tokai Konetsu Kogyo Co., Ltd. Sell products Sell and buy products※ Tokai Carbon U.S.A., Inc. Tokai Konetsu Engineering Co., Tokai Carbon Co., Ltd. ※ Ltd.○ MWI, Inc. ※ Shanghai Tokai Konetsu Co., Ltd.※ Tokai Carbon Europe GmbH ○ Heisei Ceramics Co., Ltd. Sell products※ Tokai Carbon Europe Ltd.※ Tokai Carbon Italia S.R.L.※ Svensk Specialgrafit AB Other Operations※ Tokai Carbon Deutschland GmbH Rent facilities ※ Tokai Material Co., Ltd.※ Carbon-Mechanik GmbH ※ Mitomo Brake Co., Ltd. Sell products※ Tokai Carbon (Shanghai) Co., Ltd. ※ Daiya Tsusho Co., Ltd. Supply raw materials Sell products○ Tokai Carbon Korea Co., Ltd. ※ Tokai Noshiro Seiko Co., Ltd. Buy products SGL Tokai Process Technology Pte.○ Ltd. Purchase software ◎ Lancom Toyo Co., Ltd. Dalian Tokai-Jinqi-Fuji Carbon Co.,○ Ltd. Rent facilities ◎ Nagoya Green Club Co., Ltd. Notes: 1. ※: Consolidated subsidiaries ◎: Non-consolidated subsidiaries not accounted for under the equity method ○: Affiliated companies accounted for under the equity method 2. Erema Sangyo Co., Ltd., has changed its corporate name to Tokai Konetsu Engineering Co., Ltd. 3. Tokai Carbon UK Ltd., which had been a consolidated subsidiary, has completed liquidation. Therefore, it is excluded from the scope of consolidation. 12
  13. 13. 3. Management Policy(1) Basic Corporate Philosophy The Group operates under the corporate philosophy, ―Ties of Reliability,‖ and the basic policies governing its activities comprise the principles of ability to create value, fairness, ecology, and internationalism. The Group’s aim is to be the ―Global Leader of Carbon Materials” within and outside of Japan by supplying high-quality products with a focus on carbon materials. Through these corporate activities, the Group has been working to expand its operating base, optimize the utilization of management resources, bolster cost competitiveness, and strengthen technology development capabilities. By achieving sustained earnings growth, the Group seeks to fulfill the expectations of its shareholders, customers, and employees as well as those of local communities and all other stakeholders. The Group contributes to the development of society, acting as a responsible corporate citizen.(2) Management Goals and Objectives The Group considers net sales, operating margin, ordinary income ratio, net income ratio, ROA (ordinary income/total assets), and ROE (net income/equity) to be important performance indicators.(3) Medium-Term Management Strategies The Group has formulated a new three-year management plan, ―T-2012,‖ which begins in 2010. In this management plan, the Group has defined specific numerical targets for 2012, its final year, which are to achieve net sales of ¥120 billion, operating income margin of 13% (operating income of ¥15.6 billion), ordinary income ratio of 13% (ordinary income of ¥15.6 billion) and net income ratio of 7.5% (net income of ¥9 billion), ROA (ordinary income/total assets) of 9% and ROE (net income/equity) of 8%. The following management policies will be deployed by the Group to achieve these targets. 1) Aiming to be the global leader of carbon materials The Tokai Group follows the basic policies it has been implementing since the deployment of ―T-2006,‖ and aims to achieve superiority in terms of magnitudes of sales, earnings power, technical capabilities, and product development capabilities as it continues to work towards its goal of becoming the global leader in the manufacture of carbon materials. In addition, the Group places priority on activating human resources through frequent personnel changes among group companies, including overseas affiliates, and on developing and enhancing the abilities of personnel to facilitate success in global expansion efforts. 2) Developing a cost structure that is resistant to demand fluctuations and improving capital efficiency The Tokai Group strives to develop a cost structure that allows it to generate profits stably even under a low capacity utilization rate in response to demand fluctuations. In addition, the Group focuses its efforts on increasing asset turnover ratio and improving cash flows. 3) Accelerating commercialization of development items The Group is working to accelerate the commercialization of highly functional and reliable development items by promoting joint development with other companies and educational and public institutions, as well as by strengthening inter-group and inter-divisional cooperation, and commercializing such items to make a business with the potential to drive its sustainable growth for the future. 4) Emphasizing CSR activities including environmental protection Building on its efforts to date, and being aware of the energy-intensive nature of the industries in which it operates, the Group will further increase its commitment to activities in this area, particularly those aimed at preventing global warming (reduction of CO2 emission units). 13
  14. 14. (4) Issues to be Addressed by the CompanyThe Japanese economy is expected to see a continuation of its recovery trend, due to policy effectscentering on recovery demand and to moderate growth in the world economy. Yet there are stillcauses for concern such as the overseas economy’s slowdown resulting from the increasing severityof the European debt crisis and the slowdown in Japanese exports resulting from the continuing yenappreciation. Consequently, the outlook does not seem to allow optimism.Under such circumstances, the Group will continue to follow the path toward becoming the ―GlobalLeader of Carbon Materials.” Under the corporate philosophy of ―Ties of Reliability‖ and in accordancewith its four guidelines (ability to create value, fairness, ecology, and internationalism), the Group willstrive to enhance its corporate value. At the same time, it will make all-out efforts to achieve the―T-2012" three-year management plan, whose first fiscal year was 2010, as it continues its challengeof achieving sustainable growth.Furthermore, as for the next fiscal year, which is the last year of the ―T-2012" three-year managementplan, a severe business environment is forecast. Consequently, it will be extremely difficult to achievethe numerical targets for performance such as net sales and operating margin. Nevertheless, with allemployees united in their efforts, the Group will strive for improvement in its business performance.In addition, the Group intends to pay greater attention to the fundamentals of a manufacturingcompany, namely, security assurance, quality control, and environmental protection, and it willcontinue to make efforts to strengthen corporate governance and corporate social responsibility(CSR). Furthermore, the Group also intends to strengthen its business infrastructure by implementing,assessing, and improving its internal control reporting system for financial reporting in compliance withthe Financial Instruments and Exchange Act (J-SOX).(5) Other Important Management IssuesNot applicable 14
  15. 15. 4. Consolidated Financial Statements(1) Consolidated Balance Sheets (millions of yen) As of December 31, 2010 As of December 31, 2011 Amount Amount Assets Current assets Cash and cash equivalents 12,076 14,572 Notes and accounts receivable *6 31,494 *6 28,543 Securities ― 2,000 Merchandise and finished goods 9,171 10,138 Work in process 15,413 16,621 Raw materials and supplies 9,282 11,219 Deferred tax assets 688 884 Other 3,622 4,494 Allowance for doubtful accounts (65) (53) Total current assets 81,684 88,421 Fixed assets Tangible fixed assets Buildings and structures, net 15,155 15,051 Machinery, equipment and vehicles, 20,189 19,052 net Furnaces, net 2,542 2,232 Land 7,087 7,053 Construction in progress 5,053 10,951 Other, net 886 824 Total tangible fixed assets *1 50,916 *1 55,166 Intangible fixed assets Software 465 359 Other 24 23 Total intangible fixed assets 490 382 Investments and other assets Investment securities *2 20,451 *2 15,712 Deferred tax assets 244 344 Other *2 1,570 *2 1,593 Allowance for doubtful accounts (54) (57) Total investment and other assets 22,212 17,593 Total fixed assets 73,619 73,142 Total assets 155,304 161,563 15
  16. 16. (millions of yen) As of December 31, 2010 As of December 31, 2011 Amount AmountLiabilities Current liabilities Notes and accounts payable *6 15,051 *6 16,059 Short-term borrowings *3 5,992 *3 9,216 Current portion of long-term debt 280 10,255 Income taxes payable 1,350 1,249 Consumption tax payable 377 49 Accrued expenses 1,222 2,116 Reserve for bonuses 175 180 Deferred tax liabilities — 0 Other *6 4,175 *6 6,311 Total current liabilities 28,625 45,439 Fixed liabilities Long-term debt 12,162 1,747 Deferred tax liabilities 4,209 2,541 Provision for retirement benefits 2,411 2,341 Reserve for directors’ retirement 226 140 benefits Reserve for executive officers’ 58 50 retirement benefits Provision for environment and safety 924 871 measures Other 1,080 1,209 Total fixed liabilities 21,072 8,901 Total liabilities 49,698 54,340Net assets Shareholders capital Common stock 20,436 20,436 Additional paid-in capital 17,502 17,502 Retained earnings 71,387 75,798 Treasury stock (7,126) (7,130) Total Shareholders’ capital 102,200 106,606 Other accumulated comprehensive income Net unrealized gains/losses on other 5,823 3,539 securities Deferred hedge gain/loss 0 0 Foreign currency translation (4,541) (5,863) adjustments Total other accumulated 1,282 (2,323) comprehensive income Minority interests 2,123 2,940 Total net assets 105,605 107,223Total liabilities and net assets 155,304 161,563 16
  17. 17. (2) Consolidated Statements of Operations and Comprehensive Income(Consolidated Statement of Operation) (millions of yen) Year ended Year ended December 31, 2010 December 31, 2011 Amount Amount Net sales 107,679 104,924 Cost of sales *1,*4 83,330 *1,*4 80,965 Gross profit 24,348 23,958 Selling, general and administrative expenses Selling expenses *2 4,844 *2 4,408 General and administrative expenses *3,*4 8,928 *3,*4 9,082 Total selling, general and administrative 13,773 13,491 expenses Operating income 10,575 10,467 Non-operating income Interest income 29 101 Dividend income 347 384 Rental income 293 279 Equity in income of non-consolidated 361 189 subsidiaries and affiliates Subsidy income *5 203 — Other non-operating income 440 485 Total non-operating income 1,675 1,439 Non-operating expense Interest expense 649 531 Foreign exchange loss 934 535 Other non-operating expense 812 735 Total non-operating expense 2,396 1,802 Ordinary income 9,854 10,104 Extraordinary income Gain on sales of investment securities — 1,852 Compensation for removal — 161 Reversal of provision for environment and 50 — safety measures Gain on sales of fixed assets *6 37 — Total extraordinary income 87 2,013 Extraordinary losses Loss on disaster — *7 2,682 Loss on adjustment for changes of accounting — 55 standard for asset retirement obligations Impairment loss *8 440 *8 25 Loss on valuation of membership — 18 Provision for environment and safety 289 — measures Total extraordinary losses 729 2,782 Income before income taxes 9,211 9,336 Income taxes, inhabitants tax, and enterprise 2,789 3,041 taxes Income taxes adjustments 443 (104) Total income taxes 3,232 2,937 Income before minority interests — 6,399 Minority interests in income (loss) of 347 279 consolidated subsidiaries Net income 5,630 6,119 17
  18. 18. (Consolidated Statement of Comprehensive Income) (millions of yen) Year ended Year ended December 31, 2010 December 31, 2011 Amount Amount Income before minority interests — 6,399 Other comprehensive income Valuation difference on available-for-sale — (2,284) securities Deferred gains or losses on hedges — (0) Foreign currency translation adjustment — (1,377) Share of other comprehensive income of — (102) associates accounted for using equity method Total other comprehensive income — *2 (3,764) Comprehensive income — *1 2,634 (breakdown) Comprehensive income attributable to owners — 2,513 of the parent company Comprehensive income attributable to — 121 minority interests 18
  19. 19. (3) Consolidated Statements of Changes in Shareholders’ Capital (millions of yen) Year ended Year ended December 31, 2010 December 31, 2011 Amount Amount Shareholders’ capital Common stock Balance at the end of the previous period 20,436 20,436 Changes of items during the period Total changes of items during the period — — Balance at the end of the period 20,436 20,436 Additional paid-in capital Balance at the end of the previous period 17,502 17,502 Changes of items during the period Total changes of items during the period — — Balance at the end of the period 17,502 17,502 Retained earnings Balance at the end of the previous period 67,499 71,387 Changes of items during the period Dividends from surplus (1,742) (1,708) Net income 5,630 6,119 Disposal of treasury stock (1) (0) Total changes of items during the period 3,887 4,410 Balance at the end of the period 71,387 75,798 Treasury stock Balance at the end of the previous period (5,111) (7,126) Changes of items during the period Purchase of treasury stock (2,017) (5) Disposal of treasury stock 3 1 Total changes of items during the period (2,014) (4) Balance at the end of the period (7,126) (7,130) Total shareholders’ capital Balance at the end of the previous period 100,326 102,200 Changes of items during the period Dividends of surplus (1,742) (1,708) Net income 5,630 6,119 Purchase of treasury stock (2,017) (5) Disposal of treasury stock 2 0 Total changes of items during the period 1,873 4,406 Balance at the end of the period 102,200 106,606 19
  20. 20. (millions of yen) Year ended Year ended December 31, 2010 December 31, 2011 Amount AmountOther accumulated comprehensive income Net unrealized gains/losses on other securities Balance at the end of the previous period 5,988 5,823 Changes of items during the period Net changes of items other than (164) (2,284) shareholders’ capital Total changes of items during the period (164) (2,284) Balance at the end of the period 5,823 3,539 Deferred hedge gain/loss Balance at the end of the previous period — 0 Changes of items during the period Net changes of items other than 0 (0) shareholders’ capital Total changes of items during the period 0 (0) Balance at the end of the period 0 0 Foreign currency translation adjustments Balance at the end of the previous period (2,166) (4,541) Changes of items during the period Net changes of items other than (2,375) (1,321) shareholders’ capital Total changes of items during the period (2,375) (1,321) Balance at the end of the period (4,541) (5,863) Total other accumulated comprehensive income Balance at the end of the previous period 3,821 1,282 Changes of items during the period Net changes of items other than (2,539) (3,606) shareholders’ capital Total changes of items during the period (2,539) (3,606) Balance at the end of the period 1,282 (2,323)Minority interests Balance at the end of the previous period 1,893 2,123 Changes of items during the period Net changes of items other than 229 817 shareholders’ capital Total changes of items during the period 229 817 Balance at the end of the period 2,123 2,940Total net assets Balance at the end of the previous period 106,042 105,605 Changes of items during the period Dividends of surplus (1,742) (1,708) Net income 5,630 6,119 Purchase of treasury stock (2,017) (5) Disposal of treasury stock 2 0 Net changes of items other than (2,310) (2,789) shareholders’ capital Total changes of items during the period (436) 1,617 Balance at the end of the period 105,605 107,223 20
  21. 21. (4) Consolidated Statements of Cash Flows (millions of yen) Year ended Year ended December 31, 2010 December 31, 2011 Amount Amount Cash flows from operating activities: Income before income taxes 9,211 9,336 Depreciation and amortization 8,853 8,286 Impairment loss 440 25 Increase (decrease) in allowance for doubtful (45) (8) accounts Increase (decrease) in reserve for bonuses 5 5 Increase (decrease) in provision for retirement 170 37 benefits (Increase) decrease in prepaid pension cost (227) (237) Increase (decrease) in reserve for directors’ (32) (85) retirement benefits Increase (decrease) in reserve for executive (15) (8) officers’ retirement benefits Increase (decrease) in provision for environment 196 (52) and safety measures Interest and dividends income (376) (485) Interest paid 649 531 Foreign exchange (gain) loss 213 68 Equity in (income) loss of non-consolidated (361) (189) subsidiaries and affiliates Subsidy income (203) — Loss (gain) on sales of investment securities — (1,852) (Gain) loss on sales of fixed assets (37) — Compensation for transfer — (161) Loss on disaster — 2,682 Loss on adjustment for changes of accounting — 55 standard for asset retirement obligations (Increase) decrease in trade receivables (4,045) 2,524 (Increase) decrease in inventories 1,816 (5,209) Increase (decrease) in trade payables 5,037 1,275 Increase (decrease) in accrued expenses (50) 256 Increase (decrease) in accounts payable-others — 543 (Increase) decrease in advance payment — (244) Increase (decrease) in accrued consumption 223 (328) taxes Other 218 (689) Subtotal 21,641 16,078 Interest and dividends received 434 523 Interest paid (645) (531) Income taxes paid (3,046) (3,008) Proceeds from subsidy 203 — Proceeds from compensation for removal — 161 Payment amount of loss on disaster — (450) Net cash provided by (used in) operating activities 18,586 12,771 21
  22. 22. (millions of yen) Year ended Year ended December 31, 2010 December 31, 2011 Amount AmountCash flows from investing activities: Proceeds from withdrawal of time deposits 238 68 Purchase of tangible fixed assets (6,374) (12,906) Sales of tangible fixed assets 159 — Purchase of intangible fixed assets (98) (143) Purchase of investment securities — (117) Proceeds from sales of investment securities — 2,939 Purchase of stocks of subsidiaries and affiliates — (506) Other (14) (0) Net cash provided by (used in) investing activities (6,088) (10,666)Cash flows from financing activities: Net increase (decrease) in short-term borrowings (4,386) 3,630 Proceeds from long-term debt 1,385 — Repayment of long-term debt (10) (273) Purchase of treasury stock (2,017) — Dividend paid (1,742) (1,708) Proceeds from minority shareholders — 1,023 Cash dividends paid to minority shareholders (26) (52) Other 2 9 Net cash provided by (used in) financing activities (6,795) 2,629Effect of exchange rate changes on cash and cash (674) (174)equivalentsIncrease (decrease) in cash and cash equivalents 5,027 4,560Cash and cash equivalents at beginning of the 8,977 14,005periodCash and cash equivalents at end of the period *1 14,005 *1 18,565 22
  23. 23. (5) Notes on the Going Concern AssumptionNot applicable(6) Basis for Preparation of Consolidated Financial Statements FY2010 FY2011 January 1, 2010 to December 31, 2010 January 1, 2011 to December 31, 20111. Scope of (1) Number of consolidated subsidiaries: (1) Number of consolidated subsidiaries:consolidation 24 companies 23 companies Names of the consolidated subsidiaries: Names of the consolidated subsidiaries: Tokai Konetsu Kogyo Co., Ltd., Tokai Tokai Konetsu Kogyo Co., Ltd., Tokai Material Co., Ltd., Tokai Fine Carbon Material Co., Ltd., Tokai Fine Carbon Machining Co., Ltd., Oriental Sangyo Machining Co., Ltd., Oriental Sangyo Co., Ltd., Tokai Noshiro Seiko Co., Ltd., Co., Ltd., Tokai Noshiro Seiko Co., Ltd., Tokai Transportation Co., Ltd., Thai Tokai Transportation Co., Ltd., Thai Tokai Carbon Product Co., Ltd., Tokai Tokai Carbon Product Co., Ltd., Tokai Carbon (Tianjin) Company Ltd., Tokai Carbon (Tianjin) Company Ltd., Tokai Carbon (Shanghai) Co., Ltd., Tokai Carbon (Shanghai) Co., Ltd., Tokai Carbon U.S.A., Inc., Tokai Carbon Carbon U.S.A., Inc., Tokai Carbon Electrode Sales Inc., Tokai Carbon Electrode Sales Inc., Tokai Carbon Electrode Sales L.L.C., Tokai Erftcarbon Electrode Sales L.L.C., Tokai Erftcarbon GmbH, Tokai Carbon Europe GmbH, GmbH, Tokai Carbon Europe GmbH, Tokai Carbon Europe Ltd., Tokai Carbon Tokai Carbon Europe Ltd., Tokai Carbon UK LTD., Tokai Carbon Italia S.R.L., Italia S.R.L., Svensk Specialgrafit AB, Svenskspecial Grafit AB, Tokai Carbon Tokai Carbon Deutschland GmbH, Deutschland GmbH, Carbon-Mechanik Carbon-Mechanik GmbH, Tokai Konetsu GmbH, Erema Sangyo Co., Ltd., Engineering Co., Ltd., Shanghai Tokai Shanghai Tokai Konetsu Co., Ltd., Konetsu Co., Ltd., Mitomo Brake Co., Mitomo Brake Co., Ltd., Daiya Tsusho Ltd., Daiya Tsusho Co., Ltd. Co., Ltd. Tokai Carbon UK Ltd. has been excluded from the scope of consolidation, as it has completed liquidation. (2) Names, etc., of principal (2) Names, etc., of principal non-consolidated subsidiaries non-consolidated subsidiaries 1) Principal non-consolidated 1) Principal non-consolidated subsidiaries subsidiaries Nagoya Green Club Co., Ltd. Nagoya Green Club Co., Ltd. Lancom Toyo Co., Ltd. Lancom Toyo Co., Ltd. 2) Reason for exclusion from scope of 2) Reason for exclusion from scope of consolidation consolidation Each of the non-consolidated Same as on the left. subsidiaries are small in corporate size, and their total combined assets, net sales, net income/loss (corresponding to the equity amount) and retained earnings (corresponding to the equity amount), etc., do not have significant impact on the consolidated financial statements. For these reasons, the non-consolidated subsidiaries are excluded from the scope of consolidation. 23
  24. 24. FY2010 FY2011 January 1, 2010 to December 31, 2010 January 1, 2011 to December 31, 20112. Application (1) Number of non-consolidated affiliates (1) Number of non-consolidated affiliatesof equity accounted for by the equity method: accounted for by the equity method:method 6 companies 6 companies Names of the affiliates: Names of the affiliates: Tokai Carbon Korea Co., Ltd., SGL Tokai Tokai Carbon Korea Co., Ltd., SGL Tokai Carbon Ltd., Shanghai, Heisei Ceramics Carbon Ltd., Shanghai, Heisei Ceramics Co., Ltd., MWI, Inc., Dalian Co., Ltd., MWI, INC., Dalian Tokai-Jinqi-Fuji Carbon Co., Ltd., SGL Tokai-Jinqi-Fuji Carbon Co., Ltd., SGL Tokai Process Technology PTE. Ltd. Tokai Process Technology PTE. Ltd. (2) Since the impact of each of the (2) Same as on the left. non-consolidated subsidiaries not accounted for by the equity method (Nagoya Green Club Co., Ltd., and Lancom Toyo Co., Ltd.) on consolidated net income/loss and consolidated retained earnings, etc., is minor, and since, on the whole, the impact of both companies is insignificant. Therefore, they are excluded from the scope of application of the equity method. (3) Of the companies accounted for by (3) Same as on the left. the equity method, for those that have a closing date that differs from the consolidated closing date, the financial statements for each such company’s financial year are used.3. Fiscal The closing date of the consolidated Same as on the left.years, etc., of subsidiaries coincides with theconsolidated consolidated closing date.subsidiaries4. Accounting (1) Valuation standard and valuation (1) Valuation standard and valuationstandards method for important assets method for important assets 1) Securities 1) Securities Other securities Other securities Securities with fair market value: Securities with fair market value: Stated at fair market value based on Same as on the left. the quoted market price at fiscal year-end (any valuation differences are included in net assets in full, and cost of securities sold is computed by the moving average method). Securities without fair market value: Securities without fair market value: Stated at cost determined by the Same as on the left. moving average method. 24
  25. 25. FY2010 FY2011 January 1, 2010 to December 31, 2010 January 1, 2011 to December 31, 20112) Inventories 2) InventoriesThe Company and its domestic Same as on the left.consolidated subsidiaries adopt the costmethod based on the monthly weightedaverage method (For figures shown onthe balance sheet, values are writtendown to their book values based on theirdecreased profitability). In addition,overseas consolidated subsidiariesmainly adopt the lower-of-cost-or-marketmethod based on the first-in first-outmethod.3) Derivatives 3) DerivativesDerivative instruments are valued by the Same as on the left.market value method.(2) Depreciation method of important (2) Depreciation method of importantdepreciable assets depreciable assets1) Tangible fixed assets (excluding lease 1) Tangible fixed assets (excluding leaseassets) assets)The Company and its domestic Same as on the left.consolidated subsidiaries mainly adoptthe declining-balance method. However,they adopt the straight-line method tobuildings (excluding facilities attached tothe buildings) acquired on or afterApril 1, 1998. Overseas subsidiariesmainly adopt the straight-line method.The main useful lives are as follows. Buildings and structures 2–60 yrs Machinery, equipment and 2–22 yrs vehicles Furnaces 8–10 yrs2) Intangible fixed assets (excluding 2) Intangible fixed assets (excludinglease assets) lease assets)The straight-line method is adopted. Same as on the left.For software for internal use, theCompany and its domestic consolidatedsubsidiaries adopt the straight-linemethod over the estimated useful life(five years). 25
  26. 26. FY2010 FY2011 January 1, 2010 to December 31, 2010 January 1, 2011 to December 31, 20113) Lease assets 3) Lease assetsLease assets are amortized by the Same as on the left.straight-line method, assuming the leaseperiod as the useful life and no residualvalue.Of non-ownership-transfer finance leasetransactions, accounting treatmentbased on ordinary lease transactionscontinues to be adopted to those forwhich the lease transaction start date ison or before December 31, 2008.(3) Recognition of important allowances (3) Recognition of important allowances1) Allowance for doubtful accounts 1) Allowance for doubtful accountsThe allowance for doubtful accounts is Same as on the left.provided at an amount determinedbased on a reasonable standard such asthe historical experience of bad debt forordinary accounts. For specific accountssuch as doubtful accounts receivable,the collectability is determinedindividually, and the estimateduncollectible amount is recorded.2) Provision for retirement benefits 2) Provision for retirement benefitsIn providing for payments of employees’ Same as on the left.retirement benefits, the Company and itsdomestic consolidated subsidiariesrecord an amount based on theestimated retirement benefit obligationsand estimated pension assets at the endof the fiscal year.Actuarial differences are to berecognized in expenses from thefollowing fiscal year as incurred usingthe straight-line method over theaverage of the estimated remainingservice years (10 years) of theemployees when incurred in each fiscalyear.(Change in accounting policy) ——————————Effective from the fiscal year underreview, the Company has adoptedPartial Amendments to AccountingStandard for Retirement Benefits (Part 3)(ASBJ Statement No. 19, issued on July31, 2008).This change has no effect on profits andlosses. 26
  27. 27. FY2010 FY2011 January 1, 2010 to December 31, 2010 January 1, 2011 to December 31, 2011(Additional information) ——————————In January 2010, the Company changedits retirement benefit system, shiftingfrom a qualified pension plan to adefined benefits pension plan.This shift has no effect on profits andlosses.3) Reserve for directors’ retirement 3) Reserve for directors’ retirementbenefits benefitsThe Company and its domestic Same as on the left.consolidated subsidiaries provide thereserve for directors’ retirement benefitsat an amount deemed necessary tocover the total amount to be paidpursuant to the internal regulationsthereof at the end of the fiscal yearunder review.(Additional information) (Additional information)At the 144th General Meeting of Same as on the left.Shareholders, which was held on March30, 2006, the Company resolved toabolish its system of retirement benefitsfor directors and auditors, and to payeach director and auditor, upon eachperson’s resignation, retirement benefitscommensurate with the period duringwhich the incumbent directors andauditors served at their positions on andbefore March 30, 2006.Accordingly, the balance thereofregarding the Company at the end of thefiscal year under review is the amountexpected to be paid to incumbentdirectors and auditors.4) Reserve for executive officers’ 4) Reserve for executive officers’retirement benefits retirement benefitsThe reserve for retirement benefits for Same as on the left.executive officers, commissioners,senior counselors, and junior counselorsis provided at an amount deemednecessary to cover the total amount tobe paid pursuant to the internalregulations at the end of the fiscal yearunder review. 27
  28. 28. FY2010 FY2011 January 1, 2010 to December 31, 2010 January 1, 2011 to December 31, 20115) Provision for environment and safety 5) Provision for environment and safetymeasures measuresThe provision for environment and safety Same as on the left.measures is provided at an amount thatcan be reasonably estimated at the endof the fiscal year under review to preparefor expenditures for PCB disposal costsunder the Special Measures Law for thePromotion of Proper Disposal ofPolychlorinated Biphenyl (―PCB‖) Waste.(4) Standard for translation of important (4) Standard for translation of importantforeign-currency-denominated assets or foreign-currency-denominated assets orliabilities into Japanese yen liabilities into Japanese yenMonetary assets and liabilities Same as on the left.denominated in foreign currencies aretranslated into Japanese yen at the spotexchange rate on the consolidatedclosing date, and translationadjustments are treated as profits orlosses. Furthermore, the assets andliabilities of overseas subsidiaries, etc.,are translated into Japanese yen at thespot exchange rate on the consolidatedclosing date; revenue and expenses aretranslated into Japanese yen at theaverage exchange rate for the fiscalyear. The translation adjustments areincluded in the foreign currencytranslation adjustments account and inminority interests in the net assetssection of the consolidated balancesheets.(5) Material hedge accounting method (5) Material hedge accounting method1) Hedge accounting method 1) Hedge accounting methodAs a general rule, deferral hedge Same as on the left.accounting is adopted.Furthermore, allocation treatment isadopted in forward exchange contractsthat meet the requirements for allocationtreatment, and special accountingtreatment is adopted for interest swapsthat meet the requirements for specialaccounting treatment. 28

×