DIC Corporation Koji Oe, Representative Director

Transcription

1 To Our Shareholders: Security Identification Code 4631 June 4, 2008 (Registered Office Address) 35-58, Sakashita 3-chome, Itabashi-ku, Tokyo, Japan (Headquarters Address) 7-20, Nihonbashi 3-chome, Chuo-ku, Tokyo, Japan DIC Corporation Koji Oe, Representative Director Notice of the 110 th Annual Meeting of Shareholders The 110th Annual Meeting of Shareholders of DIC Corporation will be held as described below and you are cordially invited to attend. If you cannot attend the Meeting in person, you may exercise your voting rights in writing. Please review the reference materials provided, indicate your vote of approval or disapproval on the enclosed Exercise of Voting Rights Form, and then return the Form to us by mail so that we receive it by 5:00 p.m., Tuesday, June 24, Note 1. Date and Time: Wednesday, June 25, :00 a.m. 2. Place: Headquarters, 17 th Floor Conference Room 7-20, Nihonbashi 3-chome, Chuo-ku, Tokyo, Japan 3. Purpose of the Meeting: Matters to be reported: 1. Business Report and Consolidated Financial Statements for the 110th Fiscal Year (from April 1, 2007 to March 31, 2008), as well as Audit Reports of the Accounting Auditor and the Board of Corporate Auditors for the Consolidated Financial Statements 2. Financial Statements for the 110th Fiscal Year (from April 1, 2007 to March 31, 2008) Matters to be resolved: Proposal 1. Appropriation of Surplus Proposal 2. Partial Amendments to the Articles of Incorporation Proposal 3. Election of 10 Directors Proposal 4. Election of 2 Corporate Auditors Attendees are requested to deliver their Exercise of Voting Rights Forms to the reception desk on the day of the Meeting. In the event that revisions are made to the Reference Documents for the Shareholders Meeting, the Business Reports, the Financial Statements, and the Consolidated Financial Statements, the revised items will be posted on the company website ( 1

2 BUSINESS REPORT FOR THE 110TH FISCAL YEAR (April 1, 2007 March 31, 2008) 1. Results for the Fiscal Year Ended March 31, 2008 On February 15, 2008, DIC Corporation celebrated its centennial anniversary. In celebration of this milestone, effective April 1, 2008, DIC changed its official company name from Dainippon Ink and Chemicals, Incorporated to DIC Corporation and adopted the new brand design. Going forward, DIC will continue to maximize its 100 years of experience, while at the same time it seeks to establish a new corporate image and to fulfill its obligations as a corporate organization in the 21st century. (1) Summary In the United States, financial market confusion and falling consumer spending, a consequence of the subprime loans crisis, precipitated an economic downturn in the second half of the fiscal year ended March 31, In Europe, domestic demand supported firm economic growth as an improved employment situation in key countries bolstered consumer spending. In Asia, the People s Republic of China (PRC) and India continued to report strong economic growth, while in Southeast Asian countries growth remained favorable. Japan s economy continued to exhibit leisurely growth throughout 2007, but the pace of growth began to slow in the New Year as a consequence of sluggish U.S. economic conditions and the sharp appreciation of the yen, which had a particularly noticeable impact on exports and consumer spending. In the chemicals industry, rising prices for crude oil and naphtha continued to drive up raw materials prices, a trend that significantly affected corporate profits. In this environment, DIC (DIC Corporation and its group companies) strove to bolster operating results by, among others, focusing on adjusting sales prices and doing their utmost to rationalize operations and expand sales. Owing to these and other factors, favorable results were reported in the Graphic Arts Materials segment in Europe, Central and South America, Asia and Oceania despite a struggle in Japan and North America and in the Industrial Materials and Electronics and Information Materials segments, supporting a 6.1% increase in consolidated net sales, to 1,077.9 billion. Efforts to adjust product prices in response to rising raw materials prices progressed in the Industrial Materials segment, but were only partially successful in the 2

3 Graphic Arts Materials segment. In the Americas and Europe, a changeover of systems undertaken to rationalize operations resulted in onetime additional costs. As a consequence, operating income declined 5.9%, to 48.4 billion. Ordinary income totaled 41.0 billion, as rising interest rates boosted interest expense. Net income amounted to 31.0 billion, partly owing to a decrease of tax expense. Fiscal year ended March 31, 2008 Fiscal year ended March 31, 2007 Change (%) (Billions of yen) Change (%) excluding the impact of foreign currency fluctuations Net sales 1, , % +2.1% Operating income % 11.9% Ordinary income % Net income % Note: The actual average exchange rates used to translate the results of overseas DIC Group companies for the fiscal years ended March 31, 2008 and 2007, respectively, are as follows: Average exchange rate for the fiscal year ended March 31, 2008: /US$1.00 Average exchange rate for the fiscal year ended March 31, 2007: /US$1.00 Net Sales and Operating Income by Segment Graphic Arts Materials Industrial Materials High Performance and Applied Products Electronics and Information Materials Others Corporate and Eliminations Total Fiscal year ended March 31, 2008 Fiscal year ended March 31, 2007 Net Sales Change (%) Change (%) excluding the impact of foreign currency fluctuations Fiscal year ended March 31, 2008 Operating Income Fiscal year Change ended (%) March 31, 2007 (Billions of yen) Change (%) excluding the impact of foreign currency fluctuations % 1.2% % 14.9% % 3.2% % +13.3% % 0.1% % 4.2% % +14.6% % +25.7% % 0.2% (0.8) 0.1 Into the red Into the red (17.0) (18.9) (6.2) (4.1) 1, , % +2.1% % 11.9% (Owing to changes in segmentation effective from the current fiscal year, certain figures for the fiscal year ended March 31, 2007, have been restated.) 3

4 Segment results in key markets are presented as follows. Year-on-year percentage changes in squared parentheses represent increases or decreases excluding the impact of foreign currency fluctuations. Interregional transactions within the Graphic Arts Materials are included. Accordingly, the aggregates of regional net sales and operating income figures below differ from the figures presented above. Graphic Arts Materials Japan Net sales billion Change -1.5% Operating income 3.8 billion Change -21.9% In gravure inks, while sales for flexible packaging applications were hampered by the reluctance by customers to purchase attributable to incidents involving the fraudulent labeling of food products, among others sales for beverage container-related applications increased. Offset inks and news inks continued to struggle as newspaper and magazine print runs shrank, reflecting the growing prevalence of the Internet, although the rising popularity of color printing sustained sales of color news inks. In organic pigments, both exports and domestic sales were robust, particularly for coatings and plastics. Operating income declined, owing to the slump in offset and news inks sales, and to the fact that sales price revisions implemented in response to rising raw materials prices were only partially successful for gravure inks and failed to advance sufficiently for offset inks, despite progressing for organic pigments. The Americas and Europe Net sales billion Change +7.7% [+1.4%] Operating income 25.2 billion Change -8.7% [-18.7%] In North America, the printing industry shrank overall. Shipments of news inks, in particular, flagged, as the growing prevalence of the Internet pushed down newspaper print runs. In Europe, in contrast, sales of inks for packaging and news inks were brisk. Sales of inks also rose in Central and South America, led by inks for packaging. In organic pigments, sales for printing inks and coatings increased. Operating income declined, despite the positive impact of higher sales and rationalization efforts in Europe and Central and South America. The decline was attributable to increasingly intense competition in North America and a delay in the implementation of sales price adjustments in response to rising raw materials prices, combined with onetime additional costs on a changeover of systems undertaken to rationalize operations. 4

5 Asia and Oceania Net sales 71.2 billion Change +19.3% [+7.9%] Operating income 5.3 billion Change +26.7% [+16.0%] In the PRC, shipments were favorable overall and sales of offset and news inks, in particular, increased. In India, sales of news inks and packaging adhesives rose strongly. In Southeast Asia, sales of gravure inks rose in Thailand and Indonesia. Sales of flexo inks and news inks were brisk in Australia and New Zealand. Operating income increased, owing to higher sales, as well as to sales price adjustments implemented in response to rising raw materials prices and rationalization efforts. Industrial Materials Net sales billion Change +5.7% [+3.2%] Operating income 10.0 billion Change +14.3% [+13.3%] In Japan, sales of synthetic resins for coatings were stagnant in construction-related markets. In high-value-added products, such as high-performance ultraviolet (UV)-curable resins, however, sales for electrical and electronics applications rose and progress was seen in efforts to cultivate new markets. In polyurethane resins, falling demand from the construction industry for use in heat insulating materials was countered by sales for use in sizing agents for automotive and related applications. Sales of epoxy resins, for electrical and electronics applications flagged, although sales for use in coatings for the interior of cast iron pipes and other civil engineering applications were favorable. Overseas, sales of synthetic resins for coatings, metal carboxylates and unsaturated polyester resins rose in the PRC, as did sales of epoxy resins in Malaysia. Operating income rose, bolstered by expanded sales of high-value-added synthetic resins for coatings, polyurethane resins and epoxy resins, as well as by progress in the implementation of sales price adjustments in response to rising raw materials prices. 5

6 High Performance and Applied Products Net sales billion Change +0.6% [-0.1%] Operating income 4.6 billion Change -4.1% [-4.2%] In industrial adhesive tapes, sales of products for mobile phones were robust, while sales of environment-friendly products for liquid crystal display (LCD) televisions and automotive applications increased. In high-performance compounds, sales of magnetic compounds for export to Europe and flame-retardant compounds for electrical and related applications were brisk. Among products for food packaging applications, DIC commenced commercial shipments of a new polystyrene that is lighter than other products currently on the market. Sales of high-performance optical materials, which rose substantially in the previous fiscal year, slowed as a consequence of production adjustments by key customers. Similarly, a decline in the number of new houses under construction led to sluggish sales of building materials and plastic colorants, such as those for polyvinyl chloride (PVC) and polyolefins. As a consequence, segment sales were essentially level with the previous fiscal year. Reflecting the abovementioned sales results, as well as inadequate progress in implementing sales price adjustments for plastic pallets in response to rising raw materials prices, operating income declined. Electronics and Information Materials Net sales 52.4 billion Change +15.7% [+14.6%] Operating income 6.4 billion Change +26.2% [+25.7%] Sales of thin film transistor liquid crystals (TFT LCs) rose sharply, particularly for use in televisions, monitors and mobile communications devices. Sales of pigmented jet inks were also robust, owing to an increase in the number of photo printers using DIC products. In the area of polyphenylene sulfide (PPS) compounds, sales for electrical and electronics applications were firm, while sales for automotive applications rose sharply as these products were newly adopted by several automakers for use in automotive electrical parts. As a consequence, production of PPS compounds continued at full capacity. In UV-curable coatings and bonding adhesives for optical discs, commercial shipments of products for use on Blu-ray Discs commenced. In hollow-fiber membranes, sales gains were reported for degassing modules, used to prevent rust on boilers, and equipment, which prevents static electricity during the semiconductor cleaning process. In addition, degassing modules for jet inks as a new application were robust. Brisk shipments of all products, including pigmented jet inks and TFT LCs, contributed to an increase in operating income. 6

7 (2) Financing Activities (i) Methods of Financing DIC continues to strive to reduce interest-bearing debt with the aim of creating a sound financial base capable of supporting ongoing growth. During the fiscal year ended March 31, 2008, DIC funded investment in facilities and met other investment needs through ordinary financing methods, while at the same time reducing interest bearing debt, as well as by selling idle and other fixed assets, which generated 8.7 billion. At the end of the period, total interest-bearing debt amounted to billion, a decrease of 20.4 billion from the previous fiscal year-end. (ii) Investment in Facilities In addition to placing a high priority on product development and research themes that promise long-term growth, DIC invests in increasing labor efficiency, rationalizing operations and promoting environmental preservation and safety. In the fiscal year ended March 31, 2008, DIC invested 38.9 billion in facilities. Principal investments to build new or expand existing facilities, by segment, were as follows: Graphic Arts Materials: U.S. Introduction of enterprise resource planning (ERP) system India Expansion of production facilities for gravure inks Industrial Materials: Japan Construction of new production facilities for synthetic resins Japan Expansion of production facilities for varnish High Performance and Applied Products: Japan Expansion of production facilities for industrial adhesive tapes Japan Expansion of production facilities for plastic pallets Electronics and Information Materials: Japan Construction of new production facilities for PPS polymer (3)Corporate Social Responsibility To date, DIC has addressed issues relating to the environment, safety and health, as well as to compliance and the reduction of its environmental impact, as part of its Responsible Care program. With the aim of expanding the scope of these efforts to include fulfilling its responsibility as a member of society through its business activities and contributing to the society, in the fiscal year ended March , DIC launched its corporate social responsibility (CSR) program. Constantly aware of the importance of maintaining harmony with the environment and solid 7

8 relations with society, DIC recognizes that it has an obligation, as a corporate entity, to contribute to the realization of sustainable development. By striving continuously to do so, DIC aims to earn the trust of society and remain an enterprise that is capable of growing and evolving. During the period, it was discovered that certain inks manufactured by DIC did not comply with the standards for use for the American Soybean Association s Soy Seal and the Japan Environment Association s Eco Mark. Shipments of these products were halted and labels amended appropriately and steps were taken to ensure users received a proper explanation and an apology. Going forward, DIC will devote its full energies to reinforcing compliance procedures in-house with the aim of preventing a recurrence, as well as to restoring user confidence in its products. (4) Operating Results and Financial Position Consolidated Operating Results and Financial Position 107th Fiscal Year (April 1, 2004 March 31, 2005) 108th Fiscal Year (April 1, 2005 March 31, 2006) 109th Fiscal Year (April 1, 2006 March 31, 2007) 110th Fiscal Year (April 1, 2007 March 31, 2008) Net sales (millions of yen) 1,002,883 1,004,840 1,015,664 1,077,897 Operating income (millions of yen) 48,153 49,487 51,390 48,373 Ordinary income (millions of yen) 45,239 48,488 46,446 40,977 Net income (millions of yen) 10,595 5,288 22,467 31,033 Earnings per share (yen) Net assets (millions of yen) 144, , , ,476 Total assets (millions of yen) 998, , , ,299 Note: In the 109th fiscal year, DIC adopted Corporate Accounting Standard No. 5, regarding statements of net assets in balance sheets, and its application guidelines No. 8, both issued on December 9, (5) Key Management Issues For much of society today, demand is shifting toward ensuring safety and peace of mind as well as greater convenience. In line with its corporate vision color and comfort by chemistry DIC is capitalizing on its fine chemicals technologies and global operating foundation to leverage its unparalleled expertise in color engineering and high-performance products, thereby increasing corporate value, while at the same time maintaining a healthy coexistence with local communities and contributing to society. Through these efforts, DIC is striving to earn the ongoing trust of its stakeholders. 8

9 With the aim of bolstering corporate value, DIC is implementing four basic business strategies in line with its medium-term management plan, Re-DIC 2008, to launch itself on a new growth trajectory. These strategies are as follows: Achieve significant cost reductions by revamping production processes. For general-use products, DIC will endeavor to secure a global advantage in terms of prices by developing revolutionary production processes. Expand businesses and enhance income by increasing sales of newly developed products that respond to market needs. DIC will offer solutions that assist its customers in leveraging their unique capabilities, as well as develop distinctive products. Capture markets in high-growth regions. Capitalizing on its existing global operations, DIC will capture rising demand in high-growth regions by offering the distinctive products that customers in these regions seek. Implement decisive, forward-looking measures to promptly realize the competitive potential of next-generation products and businesses. DIC will address independent research themes and maximize key management resources with the aim of growing new businesses to achieve the scale and profitability necessary to support growth for the Group going forward. (The following information is as of March 31, 2008, unless otherwise noted.) 9

10 (6) Principal Businesses Segment Category Principal Products Printing Inks Offset inks, Gravure inks, Flexo inks, Can coatings, News inks, Packaging adhesives Graphic Arts Materials Printing Supplies Presensitized (PS) plates, Printing supplies, Printing-related equipment Organic Pigments Organic pigments for printing inks, Organic pigments for coatings and plastics Synthetic resins for inks and coatings, molded products, adhesives and textiles (polyurethane, epoxy, Synthetic Resins Industrial Materials unsaturated polyester, acrylic, phenolic and alkyd resins), Papermaking chemicals Additives and Chemicals Plasticizers, Alkyl phenols, Metal carboxylates Special Compounds and Colorants Plastic colorants, High-performance optical materials, High-performance compounds Building Materials Decorative boards, Interior housing products High Performance and Petrochemical-Related Polystyrene, Coextruded multilayer films Applied Products Products Pressure-Sensitive Adhesive Materials Industrial adhesive tapes, Labels, Stickers, Label stock for printing Plastic Molded Products Plastic pallets, Containers Ultraviolet (UV)-curable coatings and bonding Imaging and Reprographic adhesives for optical discs, Specialty magnetic foils, Products Toners, Jet inks Electronics and Thin-film transistor (TFT) LCs, Supertwisted nematic Information Materials Liquid Crystal Materials (STN) LCs Engineering Plastics Polyphenylene sulfide (PPS) compounds Hollow-fiber Membranes Hollow-fiber membranes, Modules Bathtubs and bath units, Synthetic marble, Sheet Color & Comfort molding compounds, Wood finishes, Automotive Others products Health Foods Health foods Others Fitness club operation (7) Principal Facilities (i) Principal Offices, Plants and R&D Facilities (a) DIC, Corporation ( The Company ) Note: The Company changed its official company name from Dainippon Ink and Chemicals, Incorporated to DIC Corporation effective April 1, Corporate Headquarters 7-20, Nihonbashi 3-chome, Chuo-ku, Tokyo Offices Osaka Branch Nagoya Branch Sapporo Branch Shizuoka Branch Kyushu Branch Sendai Branch Kyoto Branch Shikoku Branch Chugoku Branch Name Location Osaka Aichi Hokkaido Shizuoka Fukuoka Miyagi Kyoto Kagawa Hiroshima 10

11 Plants and R&D Facilities Name Tokyo Plant Suita Plant Chiba Plant Hokuriku Plant Sakai Plant Kashima Plant Yokkaichi Plant Shiga Plant Komaki Plant Saitama Plant Gunma Plant Tatebayashi Plant Central Research Laboratories Location Tokyo Osaka Chiba Ishikawa Osaka Ibaraki Mie Shiga Aichi Saitama Gunma Gunma Chiba (b) Subsidiaries and Affiliates Name Location Name Location Graphic Arts Materials High Performance and Applied Products Nihon Packaging Material Co., Ltd. Saitama, Nagano, Nippon Plastic Pallet Co. Japan Japan Sun Chemical Corp. U.S. DIC Plastics, Inc. Tokyo, Japan Sun Chemical Ltd. U.K. Fuji Label Co., Ltd. Saitama, Japan DIC Asia Pacific Pte Ltd Singapore Dainichi Building Materials, Inc. Saitama, Japan DIC Australia Pty Ltd. Australia DIC FILTEC INCORPORATED Saitama, Japan DIC India Ltd. India DIC Compounds (Malaysia) Sdn. Bhd. Malaysia DIC (Malaysia) Sdn. Bhd. Malaysia and 14 other companies Nantong DIC Color Co., Ltd. PRC Electronics and Information Materials Dainippon Ink & Chemicals (Thailand) Co., Ltd. Thailand DIC EP, Inc. Chiba, Japan DIC International (Thailand) Co., Ltd. Thailand DIC Imaging Products USA LLC U.S. Shanghai DIC Ink Co., Ltd. PRC and 6 other companies and 105 other companies Others Industrial Materials Renaissance, Inc. Tokyo, Japan Seiko PMC Corp. Tokyo, Japan DIC Technology Corp. Tokyo, Japan KITANIHON DIC CO., LTD. Miyagi, Japan DIC Global Logistics Co., Ltd. Tokyo, Japan Siam Chemical Industry Co., Ltd. Thailand Shin DIC Kako, Inc. Shiga, Japan DIC Performance Resins GmbH Austria Nippon Decor, Inc. Saitama, Japan DIC Synthetic Resins (Zhongshan) Co., Ltd. PRC DIC (China) Co., Ltd. PRC DIC Zhangjiagang Chemicals Co., Ltd. PRC DIC Americas, Inc. U.S. Changzhou Huari New Material Co., Ltd. PRC and 27 other companies P.T. Pardic Jaya Chemicals Indonesia DIC Alkylphenol Singapore Pte., Ltd. Singapore and 24 other companies Note: Effective April 1, 2008, the following companies changed their names in Japanese and English: 11

12 Current Name Dainippon Ink & Chemicals (Thailand) Co., Ltd. KITANIHON DIC CO., LTD. Dainichi Building Materials, Inc. DIC Technology Corp. DIC Global Logistics Co., Ltd. Shin DIC Kako, Inc. New Name DIC Graphics (Thailand) Co., Ltd. DIC Kitanihon Polymer Co., Ltd. DIC Comfort Materials, Inc. DIC Engineering Corporation DIC Logitech Co., Ltd. DIC KAKO, INC. (ii) Workforce Statistics Section Number of Employees Graphic Arts Materials 15,766 Industrial Materials 3,058 High Performance and Applied Products 2,115 Electronics and Information Materials 629 Others 2,463 Corporate 1,133 Total 25,164 (8) Principal Subsidiaries and Affiliates Company Name Location Capital Percentage of Total Principal Business Sun Chemical Group B.V. Netherlands 515,023 thousand 100.0% Investment in and financing for Sun Chemical Group companies DIC Asia Pacific Pte Ltd Singapore S$244,817 thousand 100.0% Investment in and financing for DIC Group companies in the Asia and Oceania region, and manufacture and sale of printing inks Seiko PMC Corp. Tokyo, Japan 2,000 million 53.8% Manufacture and sale of papermaking chemicals and resins for printing inks and imaging and reprographic products Renaissance, Inc. Tokyo, Japan 2,210 million 51.1% Planning and management of fitness clubs DIC Investments Japan, Tokyo, 90 million 100.0% Investment in and financing Inc. Japan Vilene Co., Ltd. Japan Tokyo, Japan Note: Percentage of total figures includes indirect investments. for subsidiaries 9,816 million 22.8% Manufacture, processing and sale of nonwoven fabrics 12

13 (9) Principal Borrowings Lenders Balance of Borrowings (Millions of yen) The Bank of Tokyo-Mitsubishi UFJ, Ltd. 47,983 Mizuho Corporate Bank, Ltd. 39, Stock Information (1) Total number of shares authorized 1,500,000,000 (2) Total number of shares issued 792,872,048 (3) Number of shareholders 43,402 (4) Major shareholders Name of Shareholder Number of Shares Owned (Thousands) Percentage of Total (%) Nissei Real-Estate Co., Ltd. 52, The Master Trust Bank of Japan, Ltd. (Trust Account) 43, Dainichi Can Co., Ltd. 42, Japan Trustee Services Bank, Ltd. (Trust Account) 41, Dai-ichi Mutual Life Insurance Company 35, Nissin Trading Co., Ltd. 31, Japan Trustee Services Bank, Ltd. (Trust Account 4) 20, Aioi Insurance Co., Ltd. 18, Mizuho Corporate Bank, Ltd. 13, HSBC Fund Services Sparks Asset Management Co., Ltd. 12, Note: The above table lists the top 10 shareholders in order of holding. 13

14 3. Matters Concerning the Board of Directors (1) Directors and Corporate Auditors Position Name Responsibilities/Occupations President and Representative Koji Oe Director Executive Vice President and Representative Director Kazuo Sugie Assistant to President; Corporate Strategy Div., Color & Comfort Div., Representative Director of DIC Investments Japan, Inc., Director of Renaissance, Inc. Managing Director Shunji Ehara Technology & Production Management Div., General Manager of Corporate R&D Dept. Managing Director Yasumasa Karaki General Manager of Osaka District, Osaka Branch, Director of Renaissance, Inc. Managing Director Yoshikazu Aoyagi Finance and Accounting Div., Director of Japan Vilene Co., Ltd. Director Tatsuo Kobayashi President of Industrial Materials Business Operation, President and Representative Director of Japan Formalin Company, Inc., Chairman of Changzhou Huari New Material Co., Ltd. Director Masahiko Sagara President of Electronics & Information Materials Business Operation Director Masashi Nakajima Business Administration Div., Kawamura Memorial Museum of Art, Amagadai Golf Club Director Haruhiko Ito President of High Performance & Applied Products Business Operation Director Toshihiro Sugai President of Graphic Arts Materials Business Operation, Chairman of Shanghai DIC Ink Co., Ltd. Director Yasufumi Miyazaki President of Related Businesses, Purchasing & Logistics Admin. Director* Yoshihisa Kawamura General Manager, Corporate Strategic Planning Dept. Director* Toshio Nakamura CSR Div. Corporate Auditor (full-time) Yuuichi Koyama Corporate Auditor (full-time) Shizuhiko Abe Corporate Auditor Ken Kurosu Foreign-registered attorney; partner, Squire, Sanders & Dempsey L.L.P. Corporate Auditor Kenichi Nakano Attorney; partner, Anderson Mori & Tomotsune Notes: 1. Corporate auditors Ken Kurosu and Kenichi Nakano are external auditors. 2. Corporate auditor Shizuhiko Abe oversaw corporate accounts at the Company for many years and has extensive expertise in the areas of finance and accounting. 3. In addition to providing expertise in corporate law, corporate auditor Kenichi Nakano provides tax accounting services and has extensive expertise in the areas of finance and accounting. 4. Asterisks indicate directors who were newly elected and assumed office at the 109th Annual Meeting of Shareholders, held on June 27, At the conclusion of the 109th Annual Meeting of Shareholders, held on June 27, 2007, director Yoji Togo retired from his position. 14

15 In June 2004, the Company introduced a corporate officer system. With the aim of clarifying the roles of directors and corporate officers, effective April 1, 2008, the titles of president, executive vice president, senior managing director and managing director were abolished as titles for directors and reassigned as titles for executive officers. As a consequence, as of April 1, 2008, the responsibilities of certain directors were amended as shown below. Position Name Responsibilities/Occupations Representative Director, Koji Oe President and CEO Representative Director, Executive Vice President Kazuo Sugie Assistant to President; Corporate Staff Div., Color & Comfort Div., Representative Director of DIC Investments Japan, Inc., Director of Renaissance, Inc. Director, Senior Managing Shunji Ehara Technology & Production Management Div. Executive Officer Director, Managing Executive Officer Yoshikazu Aoyagi Assistant, Finance and Accounting Div., Director of Japan Vilene Co., Ltd. Director, Executive Officer Tatsuo Kobayashi Assistant to President of Industrial Materials Business Operation, President and Representative Director of Japan Formalin Company, Inc., Chairman of Changzhou Huari New Material Co., Ltd. Director, Managing Executive Officer Masahiko Sagara President of Electronics & Information Materials Business Operation Director, Executive Officer Masashi Nakajima Assistant, Business Administration Div., Kawamura Memorial Museum of Art, Amagadai Golf Club Director, Executive Officer Haruhiko Ito Assistant to President of High Performance & Applied Products Business Operation Director, Managing Executive Officer Toshihiro Sugai General Manager of Osaka District, Osaka Branch, Chairman of Shanghai DIC Ink Co., Ltd. Director, Managing Yasufumi Miyazaki Chairman of DIC (China) Co., Ltd. Executive Officer Director, Managing Executive Officer Yoshihisa Kawamura President of Graphic Arts Materials Business Operation Director, Executive Officer Toshio Nakamura CSR Div., Internal Auditing Dept. Director Yasumasa Karaki Representative Director, President and CEO of Renaissance, Inc. (2) Remuneration and Other Payments for Directors and Corporate Auditors Number of Directors and Amount to be Paid Category Corporate Auditors (Millions of yen) Directors Corporate auditors 4 88 External auditors (included in above) 2 26 Total

16 Notes: 1. The maximum aggregate limit for remuneration and other payments for directors, which is determined by a resolution of the Annual Meeting of Shareholders, is 700 million annually, including bonuses. 2. The aggregate total of remuneration and other payments for directors includes 140 million in bonuses, which will be paid subsequent to the Annual Meeting of Shareholders for the 110th fiscal year. 3. The maximum aggregate limit for remuneration for corporate auditors, which is determined by a resolution of the Annual Meeting of Shareholders, is 100 million annually. (3) External Directors (i) Activities of External Directors External auditor Ken Kurosu attended 19 of the 21 meetings of the Board of Directors and all 15 meetings of the Board of Auditors, while external auditor Kenichi Nakano attended 20 of the 21 meetings of the Board of Directors and 14 of the 15 meetings of the Board of Auditors. At these meetings, both individuals expressed opinions from their perspectives as lawyers with specialized expertise. (ii) Outline of Liability Limitation Contracts The Company has entered into liability limitation contracts with each of its external auditors. Liability limitation is applied in cases where the Company incurs losses resulting from professional negligence where the external auditors have carried out their duties in good faith and errors have not been materially significant. In such cases, the limit of external auditors liability has been set at the minimum amount provided in Article 425, Paragraph 1, of Japan s Corporate Law. 4. Matters Concerning the Independent Auditors (1) Name of Audit Firm Deloitte Touche Tohmatsu (2) Remuneration and Other Payments for Independent Auditors Amount to be Paid (Millions of yen) Amount of remuneration paid by the Company 91 Total amount of money and other property benefits to be paid by the 170 Company and its subsidiaries Notes: 1. The audit agreement entered into by the Company and its independent auditors does not distinguish clearly between the amount derived from the audit under Japan s Corporate Law and the amount derived from the audit under Japan s Financial Instruments and Exchange Law and the two amounts cannot be substantially distinguished from each other. Consequently, both are included in the amount of compensation to be paid by the Company. 2. The accounts of principal overseas subsidiaries are audited by firms other than the firm named above (independent auditors or public accountants or other individuals or firms that hold a certification equivalent to that of independent auditors in Japan) in conformity with the requirements of laws in their respective countries of domicile that correspond to Japan s Corporate Law or Financial Instruments and Exchange Law. 16

17 (3) Services of Independent Auditors Other than Auditing The Company engages Deloitte Touche Tohmatsu to provide guidance and advice regarding the preparation of its system of internal controls and others. (4) Policy on Decisions Concerning Dismissal or Non-Reappointment of the Independent Auditors The Company s Board of Auditors shall dismiss the independent auditors, with Board of Auditors unanimous consent, if it determines that any act or circumstance of the independent auditors falls under any of the events set forward in Article 340, Paragraph 1, of Japan s Corporate Law. In such cases that impair the independent auditors competence or independence, thus making it difficult for the independent auditors to conduct an appropriate audit, a director shall, upon consent of the Board of Auditors, or at the request of the Board of Auditors, submit a proposal for dismissal or non-reappointment of the independent public auditors to the Annual Meeting of Shareholders. 5. Systems to Ensure the Execution of Duties by Directors Complies with Laws, Regulations and the Company s Articles of Incorporation and Outline of Resolutions Aimed at Ensuring the Propriety of Other Operations (1) Systems to Ensure the Execution of Duties by Directors and Employees Complies with Laws, Regulations and the Company s Articles of Incorporation (i) To raise directors, executive officers and employees awareness of compliance, the Company has established and shall disseminate and observe The DIC WAY Code of Business Conduct. (ii) The Company shall monitor the status of preparation and improvement of its system of internal controls and report its findings to the president. (iii) The Company shall establish an internal reporting system for compliance-related issues with a reporting channel that is independent of channels for communicating information on the execution of business. 17

18 (iv) The Company shall respond resolutely to extortion or other demands presented by antisocial elements in close collaboration with lawyers and the police and prepare a manual on the appropriate responses to such demands. (2) Systems to Preserve and Manage Information Pertaining to the Execution of Duties by Directors (i) The Company shall establish and observe regulations for document management to preserve and manage information pertaining to directors execution of their duties. Information on matters that require the approval of directors, in accordance with regulations governing matters for approval, shall be recorded and stored on electromagnetic media. (ii) In accordance with its Basic Policy on Information Security, the Company shall establish an information security management system. (3) Regulations and Other Systems Related to Risk Management (i) To facilitate risk management, the Corporate Social Responsibility (CSR) Committee shall identify and evaluate risks that may have a significant adverse impact on the Company s management. As well, each December the CSR Committee shall formulate Companywide risk management policies for the subsequent year, based upon which the president determines his management policies and issues instructions. (ii) The Company shall set forth a management system that includes contingency measures for ensuring the continuance of operations in the event of accident, natural disaster or other occurrence. (iii) The Internal Auditing Department and the CSR Department shall monitor the status of risk management. (4) Systems to Ensure the Efficient Execution of Duties by Directors (i) The Company formulates organization-, division of duties-, authority-, accounting- and approval-related regulations to ensure the appropriate and efficient execution of duties by directors. 18

19 (ii) The Company formulates medium-term management plans in line with its basic management polices and management strategies. Based on these medium-term management plans, the Company shall set fiscal year budgets for each business and clarify practical measures for implementation. Reports shall be made to the Board of Directors on the status of budgets and progress in achieving targets. (iii) To ensure an organization that facilitates swift decision making, the Board of Directors shall in principle meet twice monthly. (5) Systems to Ensure the Propriety of Operations Conducted by the Corporate Group Comprising the Company and its Subsidiaries (i) The Company and its subsidiaries shall establish a common code of business conduct. Directors, executive officers and employees of the Company and its subsidiaries shall work together to raise awareness of compliance. (ii) Subsidiaries shall report any matters set forth in their respective Articles of Incorporation or regulations to the Company as one of their principal stockholders. (iii) Directors, executive officers and employees of the Company and its subsidiaries shall use the internal reporting system to report compliance-related matters to the president, the director in charge of CSR, auditors and/or legal advisors. (6) Matters Related to Employees in Cases Where Corporate Auditors Request the Assignment of Employees to Assist with His/Her Duties The Company has established an office of corporate auditors. In addition to assisting corporate auditors with their duties, the office shall assign dedicated personnel to support the work of the audit committee. (7) Matters Related to the Independence of Employees from Directors in the Preceding Item The staff of the office of corporate auditors is obliged only to obey the orders of the corporate auditors. Personnel changes, evaluations and disciplinary actions shall require the prior consent of the Board of Auditors. 19

20 (8) Systems for Directors and Employees to Report to Corporate Auditors and Other Systems Related to Reporting to Corporate Auditors (i) Corporate auditors shall attend meetings of the Board of Directors. As well, an auditor appointed by the Board of Auditors shall attend other important meetings, including those of the Executive Committee and the CSR Committee. (ii) The Company s directors shall report to the Board of Auditors on the following matters: Facts that are likely to cause significant damage to the Company Matters that the Board of Auditors have discussed and determined warrant reporting (iii) Corporate auditors shall have access to the electronic approval system and be able to peruse information on matters submitted for approval at any time. (9) Other Systems to Ensure Effective Audits by Corporate Auditors The Company s representative directors and corporate auditors shall meet in principle once every three months to exchange information and opinions. 20

21 Accounts Consolidated Balance Sheets Current Fiscal Year As of March 31, 2008 (Millions of yen) Previous Fiscal Year As of March 31, 2007 (Reference) (Assets) Ⅰ Current assets Cash on hand and in banks 13,127 12,587 Trade notes and accounts receivable 241, ,460 Inventories 159, ,466 Deferred tax assets 10,825 10,451 Other 29,905 32,879 Allowance for doubtful receivables (14,031) (11,370) Total current assets 440, ,473 Ⅱ Fixed assets Property, plant and equipment Buildings and structures 120, ,939 Machinery and transportation 98, ,892 Tools, furniture and fixtures 16,529 17,849 Land 63,439 66,205 Construction in progress 16,195 8,127 Total 315, ,012 Intangible fixed assets Goodwill 67,654 68,221 Other 15,759 14,457 Total 83,413 82,678 Investments and other assets Investment securities 35,735 39,669 Long-term loans receivable 2,002 2,101 Deferred tax assets 32,004 37,122 Other 69,433 74,282 Allowance for doubtful receivables (571) (567) Total 138, ,607 Total fixed assets 537, ,297 Ⅲ Deferred assets Bond issue costs - 10 Total deferred assets - 10 Total assets 978, ,780 21

22 Accounts (Liabilities) Ⅰ Current liabilities Current Fiscal Year As of March 31, 2008 (Millions of yen) Previous Fiscal Year As of March 31, 2007 (Reference) Trade notes and accounts payable 169, ,193 Short-term borrowings 91,213 89,128 Current maturities of long-term debt 44,709 23,597 Commercial paper ,742 Income taxes payable 8,763 21,247 Deferred tax liabilities Accrued bonuses 3,067 3,059 Other 93,063 90,176 Total current liabilities 411, ,168 Ⅱ Non-current liabilities Bonds 71,000 66,000 Long-term debt, less current maturities 185, ,948 Deferred tax liabilities 2,409 3,694 Liabilities for employees' retirement benefits 25,560 32,200 Provision for product defect compensation Other 26,242 23,831 Total non-current liabilities 311, ,373 Total liabilities 722, ,541 (Net assets) Ⅰ Stockholders' equity Common stock 82,423 82,423 Additional paid-in-capital 80,027 80,022 Retained earnings 88,377 62,095 Treasury stock, at cost (608) (318) Total stockholders' equity 250, ,222 Ⅱ Adjustments of valuation, translation and others Consolidated Balance Sheets Net unrealized gain on available-for-sale securities 847 2,290 Net unrealized loss from hedging (97) (151) Pension liabilities adjustments (20,041) (24,796) Foreign currency translation adjustments 4,666 11,511 Total adjustments of valuation, translation and others (14,625) (11,146) Ⅲ Minority interests 19,882 19,163 Total net assets 255, ,239 Total liabilities and net assets 978, ,780 22

23 (Millions of yen) Ⅰ Net sales 1,077,897 1,015,664 Ⅱ Cost of sales 853, ,119 Gross profit 224, ,545 Ⅲ Selling, general and administrative expenses 175, ,155 Operating income 48,373 51,390 Ⅳ Other income Interest income 3,010 4,282 Dividend income Equity in earnings of affiliates 1,660 1,628 Other 3,126 4,670 Ⅴ Other expenses Total 8,156 10,947 Interest expense 7,927 7,319 Foreign exchange loss Other 6,993 7,750 Total 15,552 15,891 Ordinary income 40,977 46,446 Ⅵ Special gains Gain on sale of property, plant and equipment 6,260 2,402 Gain on sale of investment securities 1,273 - Gain on sale of partnership interests - 3,806 Ⅶ Special losses Consolidated Statements of Income Accounts Current Fiscal Year Ended March 31, 2008 Previous Fiscal Year Ended March 31, 2007 (Reference) Total 7,533 6,208 Loss on disposal of property, plant and equipment 7,958 4,227 Severance costs 2,437 2,847 Loss on impairment of investment securities Loss on impairment of fixed assets 268 1,517 Loss on business reorganization - 2,343 Provision for product defect compensation Loss on liquidation of partnership Total 11,105 12,461 Income before income taxes and minority interests 37,405 40,193 Income taxes-current 3,696 18,239 Income taxes-deferred 1,786 (1,507) Total 5,482 16,732 Minority interests in net income Net income 31,033 22,467 23

24 Consolidated Statements of Changes in Net Assets Stockholders' equity (Millions of yen) Common stock Additional paid-in capital Retained earnings Treasury stock, at cost Total Stockholders' equity Balance at March 31, ,423 80,022 62,095 (318) 224,222 Change in FY 2007 Cash dividends paid (4,751) (4,751) Net income 31,033 31,033 Increase in treasury stock (298) (298) Decrease in treasury stock Others - net Total change in FY ,282 (290) 25,997 Balance at March 31, ,423 80,027 88,377 (608) 250,219 Balance at March 31, ,290 (151) (24,796) 11,511 (11,146) 19, ,239 Change in FY 2007 Net unrealized gain on available-forsale securities Adjustments of valuation, translation and others Net unrealized loss from hedging Pension liabilities adjustments Foreign currency translation adjustments Total adjustments of valuation, translation and others Minority interests Total net assets Cash dividends paid (4,751) Net income 31,033 Increase in treasury stock (298) Decrease in treasury stock 13 Others - net (1,443) 54 4,755 (6,845) (3,479) 719 (2,760) Total change in FY 2007 (1,443) 54 4,755 (6,845) (3,479) ,237 Balance at March 31, (97) (20,041) 4,666 (14,625) 19, ,476 24

25 Ⅰ. Significant Accounting Policies 1. Scope of Consolidation Number of consolidated subsidiaries 177 (Sun Chemical Group B.V., DIC Asia Pacific Pte Ltd., Seiko PMC Corp., Renaissance, Inc., DIC Investments Japan, Inc., and others) Change in scope of consolidation Increase: 3 companies DIC Fine Chemicals Private Limited (newly established) and others. Decrease: 5 companies DIC Sheet, Incorporated (liquidated by merger) and others. 2. Scope of Equity Method Number of companies accounted for by the equity method 34 (Japan Vilene Co., Ltd. and others) Change in scope of equity method Increase: 2 companies Sinclair S.A. (newly established) and others. Decrease: 1 companies Shin Nihon Kasei, Inc. (bankruptcy filing). 3. Accounting Period of Consolidated Subsidiaries One domestic subsidiary and all foreign consolidated subsidiaries close their books at December 31. The necessary adjustments are made to the financial statements of these consolidated subsidiaries to reflect any significant transactions between January 1, 2008 to March 31, Accounting Policies (1) Methods and Standards for Valuation of Significant Assets (a) Securities Available-for-sale securities are carried at fair value as of the balance sheet date, with unrealized gain and loss, net of applicable taxes, reported in a separate component of net assets. The cost of securities sold is calculated by the moving average method. Available-for-sale securities whose fair value is not readily available are carried at cost calculated by the moving average method. (b) Derivatives Derivatives are carried at fair value. (c) Inventories The Company and its domestic consolidated subsidiaries: Inventories are principally stated at the lower of cost or market, cost being determined by the weighted-average method. 25

26 Foreign consolidated subsidiaries: Inventories are principally stated at the lower of cost or market, cost being determined by the first-in first-out method. (2) Method for Depreciation of Fixed Assets (a) Property, plant and equipment The Company and its domestic consolidated subsidiaries: Depreciation of buildings (other than fixtures) is calculated principally by the straight-line method and other property, plant and equipment is calculated by the declining-balance method. Foreign consolidated subsidiaries: Depreciation of property, plant and equipment is calculated principally by the straight-line method. The principal useful lives are as follows: Buildings and structures Machinery and transportation 8-50 years 3-17 years (Accounting Change) Effective April 1, 2007, in accordance with the revised Japan s Corporate Tax Law, the Company and its domestic subsidiaries changed the depreciation procedure of tangible assets acquired on and after April 1, Consequently, operating income, ordinary income and income before income taxes and minority interests each decreased for 508 million. (Additional Information) Effective April 1, 2007, in accordance with the revised Japan s Corporate Tax Law, the Company and its domestic subsidiaries depreciate the residual value of tangible fixed assets acquired on and before March 31, 2007, which was depreciated in accordance with former Japan s Corporate Tax Law, to memorandum value in five years using straight-line method. Consequently, operating income, ordinary income and income before income taxes and minority interests each decreased for 1,711 million. (b) Intangible fixed assets Intangible fixed assets are amortized by the straight-line method. (3) Standards for Accrual (a) Allowance for doubtful receivables The Company and its domestic consolidated subsidiaries: Allowance for doubtful receivables is provided based on historical experience for normal receivables and on an estimate of collectibility of receivables from companies in financial difficulty. 26

27 Foreign consolidated subsidiaries: Allowance for doubtful receivables is provided based on an estimate of collectibility of receivables. (b) Reserve for bonuses Reserve for bonuses is provided based on the estimated payments of bonuses to employees and corporate officers by the Company and its domestic consolidated subsidiaries. (c) Liabilities for employees retirement benefits The Company and its domestic consolidated subsidiaries: Liabilities for employees and corporate officers retirement benefits are provided based on the retirement benefit obligations and the fair value of pension plan assets as of the balance sheet date. Actuarial gain and loss is amortized in the succeeding year primarily by the straight-line method over stated years that do not exceed the average remaining service period of the eligible employees (8-16 years). Prior service cost is amortized by the straight-line method over stated years that do not exceed the average remaining service period of the eligible employees (1-8 years). Foreign consolidated subsidiaries: Liabilities for employees retirement benefits are accounted for in accordance with generally accepted accounting principles in their countries. (d) Provision for product defect compensation Provision for product defect compensation is provided to prepare for product compensation based on the estimated future compensation. (4) Foreign currency translation Receivables and payables denominated in foreign currencies are translated into Japanese yen at the exchange rates as of the balance sheet date and any difference arising from the translation is recognized in the consolidated statement of income. The balance sheet accounts of the foreign consolidated subsidiaries are translated into yen at the exchange rates as of the balance sheet date. Revenue and expense accounts are translated at the average rate of exchange in effect during the year. Foreign currency translation adjustments are presented as a separate component of net assets. (5) Method for lease transactions The Company and its domestic consolidated subsidiaries: Finance leases that do not transfer ownership of the leased property to the lessee are accounted for in accordance with the method for operating lease transactions. Foreign consolidated subsidiaries: Lease transactions are accounted for in accordance with generally accepted accounting principles in their respective countries. 27