mitsubishi chemical ar 2005
TRANSCRIPT
Phase 1Petrochemicals
Performance Products
Functional Products
Health Care
Services
Rebuilding Foundations
C O N T E N T S
2 0 0 6 — 2 0 0 8
Consolidation of Strengths
and Build ing Momentum
2 0 0 4 — 2 0 0 5
K A K U S H I N P l a nMi tsub ish i Chemica l Group ’s
Phase 2
1 ANNUAL REPORT 2005
Consolidated Financial Highlights Business HighlightsTo Our Shareholders and Stakeholders‘KAKUSHIN Plan: Phase 1’‘KAKUSHIN Plan: Phase 2’Review of OperationsSegment InformationTopics Battery Materials Business
Optoelectronics BusinessResearch & DevelopmentResponsible Care/Corporate Social ResponsibilityBoard of Directors, Executive Officers and Corporate AuditorsFinancial SectionCorporate DataInvestor’s Information
34579
13152527293133356165
2ANNUAL REPORT 2005
Health Care
Automotive
Information and Electronics
Environment and Energy
Daily Necessities
Leap for Sustainable Growth
2 0 0 9 — o n w a r d
0 500 1,000 1,500 2,000 2,500
-40 -20 0 20 40 60 0 500 1,000 1,500 2,000 2,500
Consol idated F inancia l H ighl ights
3 ANNUAL REPORT 2005
Disclaimer Regarding Forward-Looking StatementsThe current plans and forecasts, strategies, and matters related to business results that are not historical fact contained within this annual report are estimates based on assumptions and beliefs determined by the Company from presently available information. Such items are subject to risks and uncertainties including, but not limited to, the economic conditions surrounding the Company’s areas of operation, trends in market competition, currency exchange rates, and the tax code and other legal frameworks. Accordingly, please be aware that actual results may differ materially from the Company’s estimates due to a variety of factors.
Notes: 1. U.S. dollar amounts are converted, for convenience only, at the rate of ¥107=US$1.2. Net income per share is based on the average number of shares outstanding during each period.3. Cash dividends represent the amount that is approved by the shareholders of the Corporation after the fiscal year.
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¥2,189,462 148,624106,60455,372
1,970,528445,977
¥25.406.00
¥1,925,33198,16370,80434,547
2,001,601397,063
¥15.824.00
$20,462.31,389.0
996.3517.5
18,416.24,168.0
$0.240.06
Years ended March 31
Millions of U.S. dollarsMillions of yen20052005 2004
U.S. dollarsYen
2005: FY2004 (April 1, 2004 — March 31, 2005)
2001
2002
2003
2004
2005
2001
2002
2003
2004
2005
2001
2002
2003
2004
2005
2001
2002
2003
2004
2005
0 30 60 90 120 150
1,747.1
1,780.3
1,887.5
1,925.3
2,189.5
2,016.5
2,246.1
2,117.0
2,001.6
1,970.5
3.1
-45.2
21.4
34.5
55.4
66.4
34.8
91.9
98.1
148.6
Net Sales
Net Income (Loss)
Operating Income
Total Assets
(Billions of Yen)
(Billions of Yen)
(Billions of Yen)
(Billions of Yen)
4ANNUAL REPORT 2005
The Petrochemicals Segment achieved substantial growth and contributed to record earnings for the Group������������ ������ �������� ���� ������� ����� ��������� ������� ����
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The world’s first single-sided, double-layer DVD recording disc developed and launched %� ���� �������� �� ������ ������� &'& ���� ������� ������ �������� ����
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Production and sales launched for newly developed urea solution to be used in next-generation, extremely low-emission diesel trucks#�� ��� �������� ������ �������� / �01 ������ ��� ��(�)�������� ����� ������ � �
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Demand for PTA showed rapid growth in China2� �������� �� ����� ������ ����� ��� ��������� ���� � ���� �� ��������� ��� ���
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Sales of core products such as Radicut and ANPLAG grew#�� ��� ����� ����� �� �������+�� �� ������ ����� ��������� ������� ������
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Business Highl ights
To Our Shareholders and Stakeholders
5 ANNUAL REPORT 2005
Following this fiscal year’s robust performance by all segments, our focus for next fiscal year will be implementing ‘KAKUSHIN Plan: Phase 2’ to achieve sustained growth and progress
Management Pol icies
• To achieve customer satisfaction, shareholder satisfaction, and employee satisfaction
• To rejuvenate conservative corporate culture, making it a more dynamic and entrepreneurial
• To observe corporate ethics
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6ANNUAL REPORT 2005
In the fiscal year ending March 31, 2005, the overall Japanese economy performed favorably, due primarily to strong export growth in the context of a robust global economy, particularly in the United States and China, as well as an increase in capital spending resulting from improved corporate profitability, despite excessive inventories in the IT and digital-related industry. This generally positive environment was also reflected in the performance of the Mitsubishi Chemical Group. Growing demand from China and other Asian markets, as well as strong demand from our customers’ industries in Japan and aboard provided a strong boost to product sales, particularly in petrochemicals.This fiscal year was the final year for ‘KAKUSHIN Plan: Phase 1’ (Phase 1), the initial phase of our management plan, and it was a resounding success. Not only did we meet the Plan’s goals for improving and enhancing our management infrastructure and achieving its numerical targets, we also strengthened our marketing efforts through expanded sales and development of new markets while recovering product prices. As a result of these efforts, we achieved substantial growth in both net sales and income, with net income surging over and above the previous record we achieved in the previous fiscal year, and operating income reaching ¥100 billion for the first time.Concretely, net sales for the fiscal year under review increased by 13.7% compared with the previous fiscal year to ¥2,189.5 billion, while operating income increased by 51.4% to ¥148.6 billion, due to the favorable market for petrochemical products and the streamlining of overall business operations. Ordinary income increased by 79.2% to ¥148.1 billion as a result of improvements in the balance of financial income/expenses and equity method income. Consolidated net income for the fiscal year under review rose by 60.3% to ¥55.4 billion, including the effect of the early adoption of accounting for impairment of fixed assets in the fiscal year under review.
Against this background, we began implementing ‘KAKUSHIN Plan: Phase 2’ (Phase 2) in April 2005, following the conclusion of Phase 1. Our overall objective for Phase 2 is to become a corporate group with sustained growth and progress, focusing on three business pillars: petrochemicals, performance and functional products, and health care. Concretely, in petrochemicals, we will actively expand operations in the rapidly growing Asian markets. In performance and functional products, we will accelerate our progress in increasing the ratio of new products and reinvigorate business as a Group. In health care, we will focus on the globalization of our pharmaceutical business and the development of new ventures in response to the rapidly changing medical care environment in Japan. We are committed to raising the profitability of the entire Group through these actions. In addition, Mitsubishi Chemical Corporation and Mitsubishi Pharma Corporation plan to establish a joint holding company in October 2005 in order to facilitate the positioning of Mitsubishi Pharma Corporation as a global pharmaceutical company as soon as possible. We will steadily implement programs to optimize and restructure our business management systems to increase the Group’s corporate value.We possess a broad range of technology platforms, spanning petrochemicals, coal chemistry, organic and inorganic chemistry, and life science. Since our establishment, we have constantly created a variety of products and technologies to support everyday life and encourage the development of industries utilizing these assets. This deep reservoir of experience and know-how represents a rich resource for creating solutions that address the multiple business challenges of our customers. We intend to aggressively promote a unique solution business that takes on new challenges and generates greater momentum for the success of our customers, always remaining grateful for the ongoing trust and encouragement of our stakeholders.
Ryuichi Tomizawa
President and Chief Executive OfficerMitsubishi Chemical Corporation
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Phase 1
Net sales by business segment (consolidated)
Consolidated results of operations of the Mitsubishi Chemical Group
(Billions of Yen)
A Firm Foundation for Dynamic Growth and Progress
7 ANNUAL REPORT 2005
1,340.2
30.4
3.0
63.4
22.6
25.8
-12.0
40.4
5.6
32.1
-27.5
71.4
-24.1
66.4
3.2
34.8
-45.3
92.0
20.8
98.2
34.5
148.6
55.4
1,648.01,732.2 1,733.5
1,531.61,669.9
1,747.2 1,780.31,887.5 1,925.3
2,189.5
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741.4
933.4
470.0453.1
338.1 356.6
277.2 277.8
115.4151.7
-16.0
9.7 11.2
29.2
21.5
39.2
20.4
58.6
40.6
15.4
28.7
-12.0
Operating income (loss) by business segment (consolidated) (Billions of Yen)
(Billions of Yen) (Billions of Yen)
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KAKUSHIN Plan
Hisashi IshikawaMember of the Board,
Managing Executive OfficerSupervising - Consolidated Management;
Investor Relations; Finance and Accounting
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8ANNUAL REPORT 2005
89.2
711.1
869.7963.9
1,054.4
3.1 2.8
2.2
1.6
88.591.08.6
6.8
48.2
0.310.8
16.37.2
6.5
49.3
0.211.1
14.2
7.0
6.6
49.8
0.211.8
13.8
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Ryuichi Sato
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Definition of Portfolio Categorization
Businesses for Concentration
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General Manager, Carbon Products DivisionSupervising - Corporate Planning
Phase 2KAKUSHIN Plan
11 ANNUAL REPORT 2005
Phase 2—basic philosophy and key challenges, by business segment�� ��� ������� ����� �� ��� ���� �����
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* New products refers to products introduced within the last five years including those developed within the Group, innovative products, or products that were enhanced through improved processes. New product ratio is calculated based on product sales.
Ratio of new products* to all performance and functional products, excluding the carbon businessCurrently: 23% Target for fiscal 2007: 35%, or approximately 20% of all products Group-wide
Reform of Business Portfolio
New products, new processes,new business models
Development of new markets on a global level
Downsizing, restructuring and withdrawal from businesses that have reached the end of their role
Sustained growth in profits Company-wide
12ANNUAL REPORT 2005
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Mitsubishi Chemical Corporation Mitsubishi Pharma Corporation
Mitsubishi Chemical Corporation and Mitsubishi Pharma Corporation plan to jointly establish a holding company on October 3, 2005 to boost corporate growth and transform Mitsubishi Pharma Corporation into a global, research-driven, pharmaceutical company
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1. Portfolio managementEstablishment of Group strategies Financial resource allocation and budgetingManagement of Group’s top executivesSupervision of Group’s management execution
2. Function as a listed companyAppropriate disclosure of financial results, dividend payments and public and investor relations activities
3. Planning for the health care business
100% ownership 100% ownership
Employees: About 60 personnel including those employees on loan
As of October 2005
Net Sales by Segment
13 ANNUAL REPORT 2005
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Review of Operations
Performance Products
Petrochemicals
Major BusinessDisplay materials, optical recording media, printing supplies, API and other intermediates, electronic chemicals, food ingredients, battery materials, carbon materials and products, inorganic materials, performance polymers
Major BusinessPurified terephthalic acid, C4 chemicals, polypropylene resins, phenol chain 0 200 400 600 800 1,000 1,200
-10 0 10 20 30 40 50 60
0 100 200 300 400
0 10 20 30 40
2002
2003
2004
2005
2002
2003
2004
2005
Net Sales / Operating Income (Loss)
Net Sales / Operating Income
643.520.6
-8.0
20.4
8.2
40.6
30.4
39.2
58.6
679.1
741.4
933.4
458.3
451.8
453.1
470.0
Total
2,189.5Billions of Yen
Services
6.9%
Health Care
12.7%
Functional Products
16.3%
Perfomance Products
21.5%
Petrochemicals
42.6%
(Billions of Yen)
Net Sales Operating Income
(Billions of Yen)
Business Segments of the Mitsubishi Chemical Group
14ANNUAL REPORT 2005
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ANPLAG� �� ����-�������� ������ 2� ��� ������ �� ��������
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2� � ������� ������� �������� ������� �� � �� ����� �� � ������ ��
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Services
Health Care
Functional Products
Major BusinessEngineering, environment and application analyses, information management,information systems, logistics
Major BusinessClinical testing, diagnostic reagents and instruments, pharmaceuticals, supportfor drug discovery
Major BusinessAgricultural materials, construction and civil engineering materials, films andsheets, high performance materials 0 100 200 300
0 10 20 30
0 100 200 300
0 20 40 60
0 50 100 150
0 10 20 30
2002
2003
2004
2005
2002
2003
2004
2005
2002
2003
2004
2005
Net Sales / Operating Income
Net Sales / Operating Income
Net Sales / Operating Income
337.711.1
10.8
15.4
21.5
320.6
338.1
356.6
224.624.5
30.5
29.2
28.7
319.9
277.2
277.8
116.0
115.8
115.4
151.7
9.5
9.8
9.7
11.2
(Billions of Yen)
(Billions of Yen)
(Billions of Yen)
2005: FY2004 (April 1, 2004 — March 31, 2005)
The Ethylene Center at the Kashima Plant
Tokio NiikuniManaging Executive Officer,Chief Operation Officer, Petrochemicals Segment (Petrochemicals Derivatives Field),General Manager, Petrochemicals R&TD Division
Etsujiro KogeManaging Executive Officer,Chief Operation Officer, Petrochemicals Segment (Basic Petrochemicals Field), General Manager, Polyolefines Division
Major Products and Services
Segment Informat ion
15 ANNUAL REPORT 2005
Purified terephthalic acid �������� �������� � �� ����� �� �� ����
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C4 chemicals#� ��� ��&������� ��� ���������
�� �������� �� ��&��� � ���� ����� �� %'
��� ���� �� ������ (�')���������� �(�')
*+�� �������������� ��,-�� ��� �����
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Petrochemicals Segment
Helping to Create a Stable Social InfrastructureThe petrochemicals businesses of the Mitsubishi Chemical Group are broadly divided into basic chemicals and a large number of second and third derivative products. In the area of basic chemicals, we are developing an array of product chains covering a variety of solvents and resin products. These activities are led by our Olefin Centers, which have boosted competitiveness by constructing optimum production systems. Our derivative products bring together the advanced process development capabilities and diverse application technologies of the Group. While promoting the extensive rationalization of our commodities, we are focusing resources on products that are globally competitive. We take a global perspective into everything that we do, as we help to create a stable social infrastructure.
PET bottles
Cushioning made from C4 chemicals
16ANNUAL REPORT 2005
Polypropylene resins������������� �� ������ � �����
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Phenol chain "����� ��� ������������� ������� ���������
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2005 TOPICSKashima Plant’s Olefin Aroma Center expanded facilities in response to the diversification of raw materialsThe expansion of these facilities will enable the use of heavy oil such as condensate, light oil and kerosene and thereby reduce our dependence on naphtha in order to strengthen international competitiveness. The upgrade will also broaden the available range of plant operation modes to respond to dynamic demand-and-supply balance of derivatives and emerging market trends. Through these improvements, we will establish a more flexible operating system at the Olefin Aroma Center.
Mitsubishi Chemical Corporation agreed to examine a potential business alliance in the Kashima areaThe Company agreed to examine a concrete plan and consider opportunities for joint investment for a business alliance centered on an oil refinery and petrochemicals in the Kashima area involving Japan Energy Corporation and Kashima Oil Co., Ltd. The purpose of the plan is to more effectively address trends and growth of market demand as well as environmental concerns.
Chinese government approved feasibility study for purified terephthalic acid (PTA) project in Ningbo Daxie Development Zone Ningbo PTA Investment Co., Ltd., which was established by Mitsubishi Chemical Corporation, ITOCHU Corporation and Mitsubishi Corporation, submitted a detailed feasibility study for a purified terephthalic acid (PTA) project on Ningbo Daxie Development Zone to the Chinese government in collaboration with the Chinese International Trust and Investment Corporation, Beijing, China in March, 2004. The study was approved by the Chinese government. Our goal is to meet the rapidly growing demand for PTA, which is raw material for polyether fibers.
Product Family
A prime advantage of the Mitsubishi Chemical Group is comprehensive strength, generated by product families that extend from raw materials to secondary and tertiary derivatives and processed products. Products such as glacial acrylic acid, 1,4-butanediol, oxo products, phenol, acrylamide and purified terephthalic acid (PTA) benefit from our robust systems, encompassing monomers and polymer manufacturing, compounding, and processed resin products, which we continue to diversify and enhance with added functionality at every stage. These highly regarded proprietary manufacturing technologies have received high marks from customers and are being exported to countries around the world.
P O I N T
May 2004
November 2004
February 2005
Hiroshi HarayamaManaging Executive Officer,Chief Operation Officer, Performance Products Segment
Segment Informat ion
17 ANNUAL REPORT 2005
Printing supplies���������� �� ����� � ���� � ��
��� � ���� ��� ������� �� ���� ��
�� �� ������ �� �������
Representative products: Toners and organic photo conductors (OPCs) for printers and copiers, and dyes for inkjet printers.
Display materials�� ����� ���� ���� �� ����������
�� ������ ������� �� ��������� ���
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Representative products: Color resists, light-emitting diodes (LEDs), and components for mobile phones.
Optical recording media � !����"��� ���� � #���� �
����������� ��� �� ��$������� ����
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Representative products: CD-R/-RW, DVD±R/±RW, and magneto-optical (MO) discs.
Performance Products Segment
Information and electronics products
Pioneering the Future for an Array of Industries Integrating our Group strengths and stressing dialogue with our customers, we deliver a variety of performance products that are rich in high value added in the fields of information and electronics; environment and energy; medical care and food ingredients. These products demonstrate their superior performance in various ways and at various places in society at large.
Light emitting diodes (LED)
Nanocarbon products
Color toner
Sugar ester
Major Products and Services
18ANNUAL REPORT 2005
API and other intermediates �� �������� �� ��� ��� � ��� �����
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Representative products: Aldehydes used for raw materials in fragrances and pesticide, materials for hair care and cosmetics, materials for polyimides, special epoxy resins, and monomers.
Electronic chemicals �� ��� � ������� ���� � ���� ��������
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Food ingredients%� ������ ���� & ����� ��� ����������
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Battery materials %� ��� ��� ���� )������� �� ���� ���
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Carbon materials and products -��� ����� "������ "���������� ��� ����
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Performance polymers �� ��� � ������� ��� �������,������
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Representative products: Thermoplastic elastomers, crosslinked polymers, adhesive polymers, and conductive polymers.
Inorganic materials%� � ���� �������,���� �����
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Representative products: Synthetic silica, and materials for mesoporous silica.
Performance chemicals
Performance materials
•16x DVD disc for data use, the fastest writing speed currently available (DVD+R released in October 2004, DVD-R in December 2004)
•The new BIGAZO and Cine-R DVD disc series allow users to freely design and print their own DVD labels (March 2005)
2005 TopicsSales of urea solution started for next-generation, low-emission diesel trucksMitsubishi Chemical Corporation successfully developed a high-definition urea solution for selective catalytic reduction (SCR) systems in next-generation, low-emission diesel trucks. Nippon Kasei Chemical Co., Ltd. launched production and sales. The solution features technologies that significantly address environmental pollution and substantially reduce NOx emissions.
Production of materials started for high-intensity white LEDsMitsubishi Chemical Corporation successfully developed and introduced a mass production method for both phosphors required for high-intensity white LEDs that provide a more natural light than previously possible and GaN substrates with homogeneous crystals and low dislocation density.
A series of high-capacity recording media applying innovative technology is launched• Mitsubishi Kagaku Media Co., Ltd. and Verbatim Limited developed the world’s
first DVD discs based on the DVD9 format for single-sided double-layeredDVDs. The discs are compatible with almost all general DVD players. DVD+R was introduced in May 2004 and DVD-R is scheduled to be launched in 2005.
• Mitsubishi Kagaku Media Co., Ltd. and Verbatim Limited introduced Japan’s first ultra-density optical (UDO) discs with 30GB capacity.
Production facility expanded to boost global competitiveness• Shinryo Corporation set up a production plant for electrolytes in GEMtek Corporation in Suzhou, Jiangsu Province, China. • Mitsubishi Chemical Infonics Pte Ltd expanded its production facility for organic photo conductors in Singapore.
December 2004
January 2005
2004–2005
December 2004
June 2004
July 2004
Katsu TakeuchiManaging Executive Officer,Chief Operation Officer, Functional Products SegmentSupervising - Corporate Marketing Department
Segment Informat ion
19 ANNUAL REPORT 2005
Films and sheets���� ��� �� � ������ � ������ ���
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SANTONYL ��� �� � ������ ����������� ��������� ���� � ����� ��� ��
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Construction and civil engineering materialsALPOLIC� � ���� �������� ��� ������������ � �� ��������� ������
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Functional Products Segment
ALPOLICFilms for food product packaging Polyester films
Achieving Safe, Comfortable LivingThe Mitsubishi Chemical Group has long worked to develop technologies and has compiled an impressive record of success. The Functional Products Segment, which handles a variety of processed resin products, listens to the voice of its customers to quickly grasp the needs and issues of society. We make maximum use of the segment's accumulated knowledge in raw materials, polymer processing and composite technology to supply a broad range of products. In recent years, as the demands of customers have become more complex and more highly advanced, we have worked to provide solutions by transcending business segments and consolidating the various technologies and expertise possessed by the Group. We are working to give birth to new value that will help raise the level of social life.
Major Products and Services
20ANNUAL REPORT 2005
Agricultural materials��� ����� �� ���� ��������
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High performance materialsDIALEAD � ���)�� "�)�� �������� )# �����)��!�!������ %��������� �������� $��� ��*�#�
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MAFTEC ������� "�)�� �� ����# ���� ������������ �� �� ���� ��� �� !��! �����������
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2005 TOPICSMITSUBISHI CHEMICAL MKV COMPANY and MITSUI CHEMICAL PLATECH CO., LTD. jointly established MKV PLATECH CO., LTD.The new company offers a broad range of products, from agricultural films to other materials, for the agriculture and gardening business, and supports the development of Japanese agriculture and gardening through R&D activities in a wide range of fields.
Mitsubishi Chemical Functional Products, Inc. launched Excel EF Joint which enables fusion splice for single cross-linked polyethylene pipesThe company was the first to achieve fusion splicing for single cross-linked polyethylene pipes, a process that had been difficult to apply to hot and cold water feeding pipes for houses. This product is expected to substantially reduce cost while increasing reliability in installing tubes. We expect sales of 1.0 billion yen for fiscal year 2005.
Mitsubishi Plastics, Inc. launched new products for the first time in the industryIn January 2005, the company announced the successful development of HISHIRECYCLE, a three-layer unplasticized polyvinyl chloride joint made of recycled materials and used for sewage pipeline. Marketing of the product was launched in April 2005. Furthermore, in March 2005, the company introduced an ultra-thick unplasticized polyvinyl chloride sheet made by a continuous press process for use in the manufacturing industry. This polyvinyl chloride sheet facilitates the production of larger-sized LCDs and has been eagerly sought by makers of LCD manufacturing equipment. Both products demonstrate the company’s sophisticated technologies.
Solutions
The Functional Products Segment, which handles a variety of processed resin products, carefully listens customers to quickly grasp their needs and social concerns. We fully apply the segment’s accumulated knowledge in raw materials, polymer processing and composite technology to offer a broad range of products. In response to increasingly complex and sophisticated customer demands, we have worked to provide solutions that cross business segments and concentrate the Group’s diverse technologies and expertise. Our goal is to generate new value that significantly contributes to the quality of life.
P O I N T
April 2004
December 2004
January 2005and March 2005
Reusable folding containers Autowraps ReplarkDaiyasutar Partition that uses photocatalyst coating technology
Kiyoshi NakayamaManaging Executive Officer,Chief Operation Officer, Health Care Segment
The neuroprotective agent Radicut
Major Products and Services
Segment Informat ion
21 ANNUAL REPORT 2005
Pharmaceuticals�� � ������ ��� ��������� �� ��� ��
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Diagnostic reagents and instruments$���� �������� �� �������� ��� ���������
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Health Care Segment
Supporting Vibrant, Healthy LivingHealth care related activities are becoming more and more important as society ages, medical treatment becomes more advanced and globalization accelerates. The Mitsubishi Chemical Group is developing health care business in a wide range of areas including pharmaceuticals, diagnostics, clinical testing services, and technologies for drug discovery, while continuing the basic research it has conducted in life sciences over the past several decades. Entering the post-genome era, the Mitsubishi Chemical Group plans to devote efforts to the Health Care Segment as one of its most important businesses, and to contribute to further raising the quality of life of people everywhere.
Compact chemiluminescentimmunoassay system
22ANNUAL REPORT 2005
Clinical testing ���������� ��� �� �������� �� �� �����
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2005 TopicsMitsubishi Pharma Corporation• Mitsubishi Pharma Corporation acquired the remaining shares of the consolidated subsidiary Green Cross Guangzhou
Pharmaceutical Co., Ltd., making it a wholly owned subsidiary that manufactures and sells parenterals and also provides academic information on imported pharmaceuticals. The transaction was part of the restructuring of Mitsubishi Pharma Corporation’s business in Asia, and will better position the company to engage in the rapidly growing prescription pharmaceutical business in China.
• Mitsubishi Pharma Corporation launched Zione Injection, an internal hemorrhoid sclerotherapy agent for removing internal hemorrhoids. The locally injected product uses aluminum potassium sulfate and tannic acid as active ingredients and was jointly developed by the company and Lequio Pharma Co., Ltd., an Okinawa-based venture.
Mitsubishi Kagaku Iatron, Inc.Mitsubishi Kagaku Iatron, Inc. launched IMM-FAST Check J1 for detecting allergen-specific IgE associated with exposure to dust mites, cedar pollen, and cat dandruff. The product, which employs immunochromatography assay, is the quickest, high sensitivity test kit in the world and enables the use of whole blood for specimens. The testing reagent reduces inconvenience to the patient by simultaneously detecting three types of allergen in about twenty minutes, using one drop of whole blood.
ZOEGENE CorporationZOEGENE Corporation concluded a joint research agreement with Dainippon Pharmaceutical Co., Ltd. Under the agreement, Dainippon Pharmaceutical Co., Ltd. will conduct research into synthesis and pharmacological evaluation based on compounds designed by ZOEGENE Corporation in order to obtain candidate compounds for its own drug discovery related to diabetes and obesity. The objective is to discover and develop novel treatments with new mechanisms of action for diabetes and obesity.
Global Network
ICH guidelines are being applied to clinical trials worldwide to accelerate and improve the efficiency of pharmaceutical development, and Mitsubishi Pharma Corporation is applying these guidelines to expedite the development of novel pharmaceuticals. Specific efforts include setting up local firms in the United Kingdom, the United States and Germany, in an aggressive effort to establish alliances with U.S. and European pharmaceutical manufacturers and research institutes and to cultivate joint R&D projects.
P O I N T
April 2004
March 2005
November 2004
March 2005
Major Products and Services
Atsushi BabaManaging Executive Officer,Chief Operation Officer,Services SegmentSupervising - Public Relations; Administration; Human Resources; Purchasing and Logistics; Information Systems
Segment Informat ion
EngineeringMitsubishi Chemical Engineering CorporationDrawing upon decades of experience and expertise in chemical engineering, the company engages in an extensive range of activities, from consulting to design, procurement, construction, operations and maintenance, to fully address customer challenges.
Information systemsRyoka Systems Inc.This company’s array of solutions through the Mitsubishi Chemical Group includes highly advanced system integration services and the development of unique packaged software.
LogisticsMitsubishi Chemical Logistics CorporationLogistic services are provided beyond the chemical industries to a wider range of industries by applying the high quality services and proven capabilities in providing safe, economic solutions that we have gained through our extensive experience in all logistics operations related to chemical products, including land and marine transportation.
Environment and application analysesDia Analysis Service Inc. This company pursues research and analysis in areas such as the environment, applications, and testing, and maintains close communications with customers in order to provide consulting services targeting the solution of customer challenges.
Research, information and consultingDIA RESEARCH MARTECH INC.This company offers research and consulting services in such areas as chemistry, the life sciences, information electronics, environmental safety, and business risks in order to meet the needs of the Group as well as those of public sector agencies, private sector companies, and other organizations.
Services Segment
Providing Diverse, More Highly Advanced SolutionsTaking advantages of its expertise and experience in a wide range of businesses, the Mitsubishi Chemical Group is developing and refining a variety of service functions that are necessary for business operations, including engineering, logistics, information systems, environment and application analyses, real estate and office services. These functions, technologies and expertise are provided to Group companies, and are used practically to resolve customer issues and provide solutions.
23 ANNUAL REPORT 2005
Segment Informat ion
Corporate Topics
Started PCB detoxification treatment at Yokkaichi PlantWe started detoxification treatment of all polychlorinated biphenyl (PCB), consisting of 968 tons stored in two tanks at Yokkaichi Plant, using treatment technology which is safe and environmentally sound in compliance with prevailing laws and regulations.
Established ‘Solvothermal Crystal Growth Technology Research Alliance’Mitsubishi Chemical Corporation, Tokyo Denpa Co., Ltd., The Japan Steel Works, Ltd., Nippon Kasei Chemical Co., Ltd., Furuya Metal Co., Ltd. and Intelligent Cosmos Research Institute jointly established ‘Solvothermal Crystal Growth Technology Research Alliance,’ with the goal of developing a single-crystal growth technology of gallium nitride and zinc oxide. The Alliance plans to collaborate in the commercializing of this technology and develop related manufacturing equipment.
Released joint research report by a comprehensive and integrative industry-academia alliance, including Mitsubishi Chemical Corporation, Kyoto University, Pioneer Corporation and Rohm Co., Ltd.Organic light-emitting transistor: Multi-function device which incorporates EL light-emitting function in an organic transistor. Using this transistor reduces the number of parts compared with existing organic EL displays. Low thermal-expansion transparent substrate: Flexible transparent substrate which applies for the first time the innovative concept of reinforcing transparent polymer with transparent nanofibers of biological origin. The use of a biological source enables biosynthesis, so that this substrate substantially reduces the environmental load associated with its production and disposal.
April 2004
June 2004
January 2005
24ANNUAL REPORT 2005
Optically transparent bio-nanofiber reinforced composite
OLED on bio-nanofiber reinforced composite substrate
The 1997 Kyoto Global Warming Conference challenged automakers to develop environmentally sound automobiles. The hybrid electric vehicle (HEV), which uses both electric power and gasoline, represents a very promising approach, although it requires high-performance electricity storage devices with superior efficiency and safety. Consequently, attention has focused on Li-ion batteries that generate 3.6V, nearly three times the rating of the currently popular nickel-metal-hydride (NiMH) batteries, and demonstrate greater power density in output of electric current per unit volume.
TOPICS 1
Li-ion batteries: opening the way for the automobiles of the next decade
25 ANNUAL REPORT 2005
Meeting the challenge of increasing the number of Li-ion battery-equipped HEVs by 2008 To date, mobile phones, notebook computers and digital cameras have been the primary devices that take advantage of the compact size of high-voltage Li-ion batteries. HEVs, however, are an ideal application. Only 80 Li-ion batteries could deliver the 288V specification of an HEV that would otherwise require 240 NiMH batteries. This advantage makes possible smaller, lighter batteries with more responsive driving performance and a roomier interior, with greater freedom in vehicle design.Today, although HEVs account for 200,000 to 300,000 of the approximately 60 million automobiles produced annually across the world, the number of HEVs is expected to surge over the next ten years to occupy a significant proportion of cars coming off the assembly line. And major overseas automakers are expected to join the Japanese makers who are currently turning out these vehicles.The challenges are daunting. Materials determine battery characteristics and performance, which, in turn, significantly influence the development of onboard software that controls the batteries. Moreover, automobile batteries are expected to operate for ten to fifteen years while maintaining consistent durability and safety. Consequently, a genuine Li-ion battery-equipped HEV is only possible through the creative “chemistry” of an expert automaker and a comprehensive chemical enterprise. Mitsubishi Chemical Corporation, which made an enormous contribution to commercialize automobile batteries in 2003, is a prime candidate for meeting these challenges and seizing this opportunity.The potential of Li-ion battery-equipped HEVs can already be seen in vehicles which use Li-ion batteries to eliminate idling. Mitsubishi Chemical Corporation has been concentrating its resources on Li-ion battery materials for HEVs that are expected to move into full-scale production around 2008. We are well-equipped to satisfy the sophisticated needs of customers with extensive experience and wealth of expertise in Li-ion batteries that support a comprehensive system encompassing R&D, manufacturing and sales.
Comparison of Secondary Batteries
Cell voltage
Operating temperature
Energy density by weight
Energy density by volume
Power density
(V)�
(˚C)�
(W/kg)�
(Wh/1)�
(W/kg)�
2.0
ー20~50
30~40
70~90
to 300
1.2
ー30~50
30~60
100~160
to 400
1.2
ー30~50
60~70
200~260
to 1100
3.6
ー30~60
90~150
260~360
to 3000
Lead-acidbattery
Nickel-cadmium(NiCad) battery
Nickel-metal hydride (NiMH) battery
Lithium-ion(Li-ion) battery
B a t t e r y M a t e r i a l s B u s i n e s s
Vehicle-mounted Li-ion batteries
Source: Institute of Information Technology, Ltd.
26ANNUAL REPORT 2005
The only comprehensive chemical manufacturer in the world that handles key battery materialsSince first entering the battery materials business in the 1970s with high-purity solvents for Lithium primary batteries, Mitsubishi Chemical Corporation has steadily advanced. An initiative sponsored by the Company president in 1998 led to the establishment of today’s Battery Materials Department. Our research and development is based on recognizing that a battery is essentially a small chemical factory that produces a stable supply of electricity through controlled chemical reactions. As a result, we possess an overwhelming competitive advantage in evaluation and analysis technologies related to batteries, and are widely recognized as the number one enterprise in the field. In 2004, we received the Battery Technology Award from the Electrochemical Society in the United States.Mitsubishi Chemical Corporation is the only comprehensive chemicals maker in the world that handles key battery materials, including cathodes, anodes and electrolytes. This allows us to uniquely offer the optimum combination of these components for the specific requirements of our customers.Dramatic growth in this market is virtually assured. The current annual production of Li-ion batteries for consumer products is estimated at 1.3 billion to 1.4 billion cells for the entire industry, and is expected to double over the next seven to eight years. Beyond consumer products, the greatest growth in demand is expected to come from HEVs, industrial robots and hybrid-type train carriages, adding up to an immense potential market for Li-ion batteries. Mitsubishi Chemical Corporation is well-positioned to lead the way into the coming era of high-performance storage devices.
Global Compact Secondary Battery Market
0 1,000
03CY
02CY
01CY
00CY
99CY
98CY
97CY
96CY
95CY
94CY
93CY
92CY
91CY
2,000 3,000 4,000 5,000 6,000 7,000
NiCad batteryNiMH batteryLithium polymer batteryLi-ion battery
Shift to Pentium in notebook computers
Start of LIB shift in GSM terminals
Full-scale LIB shift in GSM terminalsExpanding Chinese demand for battery packs
Growth Stage 3 (02Q3)
Tube cellsOversupply Stage 1(97Q1)�
Square cellsOversupply Stage 2(98Q3)�
Rise of Asian manufacturersOversupply Stage 3(01Q3)�
Growth Stage 2 (99Q3)
Growth Stage 1 (96Q2)
(¥100 million/year)
1973
1982
1984
1991
1992
1996
1999
2003
2004
Launched GBL as solvent for lithium primary battery
Electrolytes
Commenced research on electrolytes
Recieved the Battery Technology Award from the Electrochemical Society (USA)
Mitsubishi Chemical Corporation's key materials were mounted on lithium-ion batteries for Toyota's 'Vitz'
Established 'Battery Materials Department'Commenced development of four key materials for HEV
Commenced research on electrolytes for lithium primary batteries
Other key materials
Commenced research on carbon anode materials
Launched liniar graphite hybrid for anodes
Launched amorphous type carbon foranodesCommenced research on cathode materials
Launched cathode materials
Launched natural graphite-based anode materials
Journey to Lithium-ion Batteries (History of Mitsubishi Chemical Corporation's battery materials)
Associate Director,General Manager,
Battery Materials Department
Junji Eguchi
Emitting layer Crystal substrate
MCC, MCRC
MCC, MCRC
Kasei Optonix, Ltd.,MCC and MCRC
The most promising and realistic option for conserving energy is reducing the energy required for lighting, which accounts for 20% of all private-sector energy consumption. In addition, fluorescent lights contain mercury, a hazardous waste substance. Innovation in lighting technology, therefore, is vital for protecting the environment. One of the more revolutionary technologies is high-intensity white light emitting diodes (LEDs). First invented in the 1960s, LEDs have come into wide use, benefiting from the invention of blue LEDs and the subsequent availability of LEDs in the three primary colors of light: red, green and blue. Blue LEDs were recently brought to public attention in a high-profile, intellectual property lawsuit in Japan.
TOPICS 2
Evolving from accessory usage into a major, energy conserving lighting source—high-intensity white LEDs are poised to light up the settings of everyday life
27 ANNUAL REPORT 2005
Energy Efficiency
Energy conversion efficiency
Power consumption
Product life (hours)
40%
1
30,000-60,000
Approx. 27%
x1.5
6,000
5%
x8
1,000
LEDs Fluorescent lamps
Incandescentlamps
O p t o e l e c t r o n i c s B u s i n e s s
High-intensity white LEDs are broadening the range of LED applicationsLEDs are already indispensable to everyday life, such as infrared LEDs in remote control units for television and audio equipment, as well as light emitting units in color copying machines, scanners and laser printers. The establishment of blue LED technology opened the way to white LEDs, which emit a pseudo white light created by converting part of the blue light emitted from the LED into yellow light using phosphors. Thus, the white light emitted from white LEDs is less natural than that from traditional light sources, and white LEDs emit a weaker red component. Given these challenges, expectations have been high for the development of LEDs that emit high-intensity white light with more natural color. LEDs consume half the power of fluorescent lights and last ten times as long. In addition, due to their smaller size and cooler operation, LEDs can be incorporated into products or installed in places where incandescent lamps or fluorescent lights cannot be used. In automotive components, for example, LEDs have been used in interior lighting panels and brake lamps. Research is in progress to use high-intensity white LEDs in headlights. In fact, the use of LEDs for all automotive lighting needs would significantly reduce the weight of the vehicle, including cables, leading to higher fuel efficiency as well.Today, 90% of white LEDs are used for the backlighting of small LCDs, such as in mobile phones. High-intensity white LEDs have a virtually unlimited potential market. Their long product life and low-level power consumption make them ideal for street lights, emergency lights and security lights, and advances in R&D for developing clearer LCD displays with higher-quality images will make possible such applications as large outdoor displays and home lighting. Converting 70% of all lighting devices to LEDs would create a market estimated at 500 billion yen.
GaN LEDSubstrate
White-color light
Sealant —
Package
Phosphor —
LED chips
High-internsity white LED
MCC: Mitsubishi Chemical CorporationMCRC: Mitsubishi Chemical Group Science and
Technology Research Center, Inc.
Lum
ines
cenc
e pe
r LE
D
28ANNUAL REPORT 2005
Colors Created Using Green and Red Phosphors with a Blue LED
Projected Products Markets
Positioned to be world’s top supplier of materials for high-intensity white LEDs LEDs are structurally similar to computer chips in that they are made from layers of thinly sliced wafers, although LEDs use different materials. While sapphire substrates have been commonly used in LEDs, Mitsubishi Chemical Corporation has focused on developing gallium nitride (GaN) substrates, a key material for blue LDs used in laser pickups for next-generation optical disc devices. This year, we successfully developed GaN substrates with more uniform crystal quality and lower dislocation density. Through developing new materials, we have been able to create LED substrates with higher performance and lower costs, leading to the development of high-intensity white LEDs. Since GaN, which is used for substrates, is also used in the emitting layer, LEDs using GaN substrates will exhibit improved performance reliability. We have also developed phosphors which convert the blue light emitted from blue LEDs into red light or green light, which makes possible a more natural white color in place of the pseudo color of conventional white LEDs. Moreover, we were the first to develop a mass production system for high-intensity white LED phosphors. We plan to start full-scale production of this material and GaN substrates in our Tsukuba Plant. LED intensity, color quality and product life are significantly affected by the type of materials used. Mitsubishi Chemical Corporation is the only manufacturer capable of producing all three main materials for LEDs: sealants, phosphors and crystal substrates. This places us in the enviable position of being able to meet an extensive range of customer needs. Consequently, we intend to exploit highly anticipated potential to become the world’s top supplier of materials for high-intensity white LEDs.Given the extent to which modern society continues to depend on the incandescent lamp technology invented by Thomas Edison, high-intensity white LEDs may completely revolutionize the way we illuminate the world of tomorrow.
Lighting colors inside the triangle (shown to the left) can be created by mixing appropriate quantities of phosphors. • White color (high color rendering property)• Pastel color
Mitsubishi Chemical manufacturing process
Wafer processing technology for semiconductor bulk crystal growth
Conventional manufacturing process (ELO technology)
Blue
Yellow
Red
Green
Fluorescent image Fluorescent image
Uniform crystals
GaAs ingot
Source: New Energy and Industrial Technology Development Organization
Cyclical variation in dislocation density
Lighting
Display
Lighting for houses and manufacturing plants
Lighting for medical care
LCD backlighting
Automobile headlights
Lighting devices for general use
Mobile phone camera flash
Specialized lighting equipmentBacklighting formobile phonecolor display
Indicator, LED, display, Traffic signal
End of 1999 Around 2000 2002 2003 Around 2005 Around 2015Around 1993
Several thousand lm
Several hundreds lm
Tens of lm
Number lm
Yasuji KobashiGeneral Manager,
Optoelectronics Department
The Mitsubishi Chemical Group recognizes R&D as a principal driver of sustainable growth. Its mission is to deliver complete customer satisfaction and value through competitive science and technology.We produce a broad range of products, from petrochemical and biomedical products to digital home electronics. To support such diversity, our R&D efforts also vary in period and scope, encompassing both short-term and long-term efforts as well as basic research on specific themes and interdisciplinary research.
R&D Strategic R&D toward becoming a product innovator
29 ANNUAL REPORT 2005
Organization and Functions
Vision for Areas of R&D Focus
Solid-state LightingTo become a major player in the solid-state
lighting business.
To become the world’s No.1 supplier of
materials, such as GaN substrates and
phosphates.
DisplayTo become the world’s No.1 player in
materials for devices with organic coating.
Support of Drug DiscoveryTo improve R&D productivity by building
an efficient molecular design system and
support Mitsubishi Pharma Corporation in
its goal of becoming an international drug
discovery company.
Renewable ResourcesTo become a leader in developing an
environmentally sound product business by
utilizing technologies such as biosynthesis,
catalysis and synthesis/processing of
polymers which use plant resources.
Polymer for Automotive UseTo become the preferred solution partner for
automotive manufacturers based on the
polymer technology and functions of the
Mitsubishi Chemical Group.
Petrochemicals Segment
Performance Products Segment
Functional Products Segment
Health Care Segment
Services Segment
Mitsubishi Kagaku Institute of Life Sciences
MC Research & Innovation Center, Inc.
MCC-Group Science and Technology Office
Mitsubishi Chemical Group Science and Technology Research Center, Inc.
Research Center
Performance Products Research Center
Group Company Research Centers
Department Laboratories
Group Company Research Centers
Group Company Research Centers
Group Company Research Centers
Group Company Research Centers
Analytical Services Division
Research and Technology Development Division
Roles of various parts
Strengthening existingbusinesses
Strengthening basic technologies and creating new business fields
Head
Offi
ce
Challenging to become a product innovatorThe Mitsubishi Chemical Group boasts the world's premier products, materials and expertise across a broad range of areas, such as phenol-chain, purified terephthalic acid, polycarbonates, C4 chemicals, OPC, lithium-ion secondary battery materials, compound semiconductors, optical recording media and drugs for improving brain functions.We will ensure our continued leadership in these areas and further advance our technologies and know-how to the highest level by fostering an intellectual environment conducive to obtaining our objectives.With the completion of ‘KAKUSHIN Plan: Phase 1’ last year, we reformed our corporate organizational structure toward improving our business infrastructure.Through these reforms, we are steadily evolving from a material supplier into a product innovator and customer solution partner that effectively responds to the latest market requirements.In the concentration and nurturing of businesses promoted in ‘KAKUSHIN Plan: Phase 2,’ we will clearly define the mission for research and continue to encourage the adoption of a product and customer-oriented approach, by establishing a review committee and a project team system. Each project team is led by a business strategy leader and a technology strategy leader, and projects are reviewed and implemented in relationship to their commercial and technological potential. Researchers must also be actively engaged as entrepreneurs in the entire R&D process. It is believed this change in the awareness of researchers will help to reinforce existing businesses, develop technology platforms and create new businesses.
Intellectual property strategy In order to achieve sustained growth that builds on Group synergies in a growing and increasingly complex global market, we must increase our intellectual capital, including the patents, expertise and trademarks amassed over the years, and we must fully and strategically apply these assets. The length of time that intellectual property is protected varies depending on the type of product and how it is used, factors which must be taken into account by any intellectual property strategy. The Group's strategy includes convening a patent strategy committee for key areas. In this way, we are able to establish and
Dr. Yoshimitsu Kobayashi
30ANNUAL REPORT 2005
Three key R&D activities
1. Individual creativity
2. R&D Globalization
3. R&D Infrastructure
Managing Executive Officers,Chief Technology Officer
Supervising - MCC-Group Corporate Science & Technology Strategy; MCC- Group Corporate
Science & Technology Research; Intellectual Property
implement specific patent strategies. We incorporate our patents into our business strategy based on reviews and decision on the creation of property rights related to specific patents, as well as how they would be effectively used by the divisions concerned.
Contributing to sustainable growth by commitment to harmony with the environmentHaving been involved in past incidents of pollution, the chemical industry is extremely sensitive to its impact on the environment. Accordingly, responsible care is a key concern for chemical manufacturers. Only we, as a participant in the chemical industry, can implement the fundamental reforms for achieving substantial CO2 reductions and creating environmentally sound materials and products. The entire industry must take these issues into consideration.We plan to establish a new entity to oversee the Group's efforts to address environmental issues as a chemical manufacturer, from the perspective of the environment as well as from the point of view of our products, while exploring the best approach for the efficient use of the environment and for preventing future problems.
Creating product innovation through synergies that reach across boundariesWhere we have established goals, we can achieve R&D results more efficiently and strategically through joint R&D activities with customers or through cooperation with university researchers in accordance with our strategy. In the present business environment, companies should not only invest their own capital into R&D but must also consider outsourcing projects. For an integrated chemistry solution partner, there is no single organizational structure which can effectively pursue R&D that varies widely depending on the nature of the products. We must manage R&D activities by adopting different approaches, such as business or product-oriented R&D, long-term basic research and interdisciplinary studies. In fact, many products-for example, hologram memory-cannot be readily commercialized when basic raw materials have not been discovered, even if the system is essentially completed and marketing channels are established. Thus chemistry can support a broad range of products through the discovery of new materials by focusing on the common ground between science and solutions. As an integrated chemistry solution partner, we are well-positioned to develop new opportunities by applying our diverse technologies and R&D capabilities to create solutions. The Mitsubishi Chemical Group retains over 3,000 R&D researchers, including 650 working at the Mitsubishi Chemical Group Science and Technology Research Center, Inc. We will make our R&D as a self-stand or self-controlled, dispersed in nature but cooperated or conjugated system for the market.
Mitsubishi Chemical Group Yokohama Research Center
Responsible Care (RC) is a voluntary program implemented by chemical companies to ensure safety and environmental protection throughout all processes related to the handling of chemical substances and products, from research and development, manufacturing, and distribution, to consumption and disposal. Mitsubishi Chemical Corporation began its RC activities in 1995 and established a Group RC policy in 2003 to actively promote environmental management across the Group.
RC/CSRResponsible Care Activities:Ensuring safety and environment protection in all corporate activities
31 ANNUAL REPORT 2005
Helping to realize a recycling-oriented society for sustainable growthThe Mitsubishi Chemical Group deeply believes that safety and environmental protection are essential to its business and forms a vital part of its management foundations. Consequently, we promote the most appropriate RC activities for the specific nature of each company’s business, based on the principle of personal responsibility and initiative. We believe these efforts contribute to the creation of a recycling-oriented society and sustainable growth while enhancing our own development and strengthening public trust in the Group.We established the Group's RC Promotion Committee, chaired by the president of Mitsubishi Chemical Corporation, to oversee the implementation of RC activities across the Group and to evaluate the action program for the entire Group. In addition, we established a Group-wide system to promote RC activities by setting up an RC Committee for each Group company, segment, plant, branch office, and sales office. We also identified five principal areas of RC activities: disaster prevention, occupational health and safety, environmental protection, chemical safety, and quality assurance. Our RC activities are guided by a Plan-Do-Check-Action (PDCA) cycle.
Fulfilling our commitment as a chemical manufacturer to promote RC activitiesIn the area of preventing disasters and ensuring occupational safety, our goal is zero accidents and disasters in every plant and research center. As part of these efforts, we conduct safety assessments when building or upgrading plants as well as safety reviews of existing processes. We also work to establish manufacturing processes with unparalleled improvement in operational safety, utilizing our wealth of accumulated production technologies.
To ensure chemical safety, we promote the total management of chemical substances, and we participate in establishing international guidelines and conducting green procurement. We are also actively involved in the prevention of global warming, the reduction and recycling of industrial wastes and the Pollutant Release and Transfer Register (PRTR).The Mitsubishi Chemical Group is deeply committed to ensuring safety and environmental protection as a chemical manufacturer and a responsible corporate citizen.
RC Organizational Structure of the Mitsubishi Chemical Group
The PDCA Spiral for RC Activities
RC Follow-up Committee
RC Promotion Committee of the Mitsubishi Chemical GroupChairman: President of Mitsubishi Chemical Corporation
Group Company RC Promotion MeetingSegment (Department) RC Committee
Segment
Branch Office RC CommitteePlant RC Committee
Chairman: Director of Technology and
ManufacturingCenter
Mitsubishi Chemical RC Promotion
Committee
RC PolicyPlan
Review and guidance from top management.
Group-wide efforts to achieve targets.
Review of RC activities and program progress by audit teams.
Annual development of RC policy and program activities.
Excerpt from a document produced by Environment, Safety and Quality Department of Technology and Manufacturing Center.
Action
Do
Check
Osamu FujishimaManaging Executive OfficerGeneral Manager, Technology and Production CenterSupervising - Production; Process Safety Technology; Environment and Health Safety; Quality Assurance; Utility
RC
Compliance Activities:Thoroughly implementing our compliance program
32ANNUAL REPORT 2005
Compliance with laws and regulations is a fundamental requirement for corporate activities. The Mitsubishi Chemical Group launched its Compliance Program in October 2004 and continually strives to raise the awareness of compliance with laws, regulations and corporate ethics across the entire Group.
Establishing corporate ethics and a code of conductIn the past, each company of the Mitsubishi Chemical Group developed its own compliance program, and as a result, the relative priority of compliance and systems to address compliance-related issues varied from company to company.To address this issue, we enhanced our system for promoting compliance within the Group by designating a Chief Compliance Officer in October 2004 and establishing the compliance committee and the Compliance Office.Three documents summarize our corporate ethics and code of conduct that collectively serve as the foundation for compliance by all Group companies and personnel. The ‘Mitsubishi Chemical Group Corporate Ethics’ is the ethical standard which we expect all employees to observe in their daily activities. The ‘Mitsubishi Chemical Group Compliance Code of Conduct’ provides guidelines for each employee’s behavior based on the ‘Mitsubishi Chemical Group Corporate Ethics’. The third document is the Mitsubishi Chemical Group Compliance Promotion Policy, which provides the system for promoting compliance as well as the procedures for dealing with non-compliance.
Advancing CSR activities under ‘KAKUSHIN Plan: Phase 2’The Mitsubishi Chemical Group recognizes the vital role of CSR in the Group and places top priority on CSR in its corporate mission. As a result, the Group actively promotes activities such as Responsible Care (RC), compliance, protection of human rights, job security and social contributions. ‘KAKUSHIN Plan: Phase 2’ identifies the promotion of CSR as a key aspect for improvement in our corporate infrastructures. We intend to increase corporate value by establishing solid relationships with all our stakeholders throughout various stages of corporate action, including the timely disclosure of corporate information.The Mitsubishi Chemical Group has always grown by contributing to society through its products and technologies. We intend to continue evolving in harmony with society by actively promoting CSR and earning the public’s trust.
(‘KAKUSHIN Plan: Phase 2’)Advancing CSR ActivitiesCSR activities–uniting all activities in every area
Compliance
Responsible care
Social contribution
Employment, industry relations, human rights
Disclosure
etc.
Promotion of activities in every area
Yosuke Yamada Representative Director,
Member of the Board,Senior Managing Executive Officer,
Chief Compliance Officer
33 ANNUAL REPORT 2005
Kanji Shono
Yoshiyuki Maekawa George Stephanopoulos Shinichiro Handa
Board of Directors, Executive Officers and Corporate Auditors(As of June 28, 2005)
Hiroshi Harayama
Katsu Takeuchi
Osamu Fujishima
Hisashi Ishikawa
Ryuichi Sato
Ryuichi Tomizawa
Kiyoshi Nakayama
Atsushi Baba
Masaoki Funada
Etsujiro Koge
Yosuke Yamada
Yoshimitsu Kobayashi
Tokio Niikuni
34ANNUAL REPORT 2005
Chairman of the BoardKanji Shono
Representative Director, Member of the Board,President and Chief Executive OfficerRyuichi Tomizawa
Representative Director, Member of the Board,Deputy Chief Executive OfficerMasaoki Funada Supervising - Special Mission, Internal Audit
Representative Director, Member of the Board,Senior Managing Executive OfficerYosuke Yamada Chief Compliance Officer
Members of the Board, Managing Executive OfficersRyuichi Sato General Manager, Carbon Products Division Supervising - Corporate Planning
Hisashi Ishikawa Supervising - Consolidated Management; Investor Relations; Finance and Accounting
Members of the BoardYoshiyuki Maekawa
George Stephanopoulos Arthur D. Little Professor of Chemical Engineering, Massachusetts Institute of Technology
Outside Member of the BoardShinichiro Handa Senior Corporate Adviser, Mitsubishi Pharma Corporation
Managing Executive OfficersEtsujiro Koge
Chief Operation Officer, Petrochemicals Segment (Basic Petrochemicals Field)General Manager, Polyolefines Division
Yoshimitsu KobayashiChief Technology OfficerSupervising - MCC-Group Corporate Science & Technology Strategy; MCC- Group Corporate Science & Technology Research; Intellectual Property
Katsu TakeuchiChief Operation Officer, Functional Products SegmentSupervising - Corporate Marketing Department
Kiyoshi NakayamaChief Operation Officer, Health Care Segment
Tokio NiikuniChief Operation Officer, Petrochemicals Segment (Petrochemicals Derivatives Field)General Manager, Petrochemicals R&TD Division
Atsushi BabaChief Operation Officer, Services Segment Supervising - Public Relations; Administration; Human Resources; Purchasing and Logistics; Information Systems
Hiroshi HarayamaChief Operation Officer, Performance Products Segment
Osamu FujishimaGeneral Manager, Technology and Production CenterSupervising - Production; Process Safety Technology;
Environment and Health Safety; Quality Assurance; Utility
Executive OfficersTomihisa Ikeura
General Manager, Yokkaichi Plant, Technology and Production Center
Nobukazu Imamura(Petrochemicals Segment)
Kenichi Uno(Corporate Planning Department)
Shigenori OtsukaPresident, Mitsubishi Kagaku Media Co., Ltd.
Toshihiko OkadaGeneral Manager, Mizushima Plant, Technology and Production Center
Hiromi OgawaGeneral Manager, Internal Audit Department
Yasuhiro KajiwaraGeneral Manager, Technology Coordination Department, Technology and Production Center; General Manager, Planning and Coordination Department, Technology and Production Center
Kazuo Kikuchi(Performance Products Segment)
Eiji TanakaGeneral Manager, MCC-Group Science & Technology Office
Shigeo TanakaGeneral Manager, Kurosaki Plant, Technology and Production Center
Noboru TsudaGeneral Manager, Corporate Planning Department
Akira NaitoGeneral Manager, Performance Products Planning and Coordination Division
Takashi FurusawaGeneral Manager, Corporate Marketing Department
Shigeyoshi MuraseGeneral Manager, Finance and Accounting Department
Toshikazu YamabeGeneral Manager, Terephthalic Acid Division; General Manager, Petrochemicals Planning and Coordination Division
Hiroshi YoshidaGeneral Manager, Kashima Plant, Technology and Production Center
Shotaro YoshimuraGeneral Manager, Consolidated Management Department
Corporate AuditorsHideaki Yoshida (Full-time)
Koichi Takami (Full-time)
Outside Corporate AuditorsYoshikazu Takagaki (Full-time)
Hiroyasu Sugihara (Attorney-at-law)
2005
35 ANNUAL REPORT 2005
Financial SectionConsolidated Five–Year Summary
Segment Information
Management’s Discussion and Analysis
Consolidated Financial Statements
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Shareholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Report of Independent Auditors
Corporate Data
Investors’ Information
36
37
39
45
47
48
49
50
59
60
65
20036ANNUAL REPORT 2005
Consolidated Five-Year Summary
Results of operations:Net salesOperating incomeIncome (loss) before income taxesNet income (loss)
Financial position:Total assetsInventoriesProperty, plant and equipmentShort-term and long-term debtShareholders’ equityRatio of shareholders’ equity to total assets (%)
General:Capital expendituresDepreciation and amortizationR&D expendituresShareholders of record (number)Employees (number)
Per share:Net income (loss)Shareholders’ equityCash dividends
¥2,189,462148,624106,604
55,372
1,970,528277,721674,953704,077445,977
22.6
67,12387,70889,215
166,21733,261
¥ 25.40205.09
6.00
¥1,925,33198,16370,80434,547
2,001,601251,762723,265861,496397,063
19.8
69,33195,55988,513
175,13833,496
¥ 15.82182.59
4.00
¥1,887,49391,96243,82121,386
2,117,002276,072811,892962,197350,338
16.5
85,339103,15191,041
181,40737,633
¥ 9.75161.06
3.00
$20,462.31,389.0
996.3517.5
18,416.12,595.56,308.06,580.24,168.0
0.2
627.3819.7833.8
$ 0.2371.9170.056
¥1,747,16766,41015,7673,176
2,016,553253,091761,592956,910383,872
19.0
86,298104,11068,020
169,34233,034
¥ 1.45176.27
2.00
¥1,780,34634,841(55,444)(45,253)
2,246,150290,568844,193
1,051,675343,749
15.3
99,750116,27984,588
180,61538,617
¥ (20.78)157.86
–
2005 2004 2003 2002 2001 2005
Millions of Yen
Years ended March 31
Notes: 1. U.S. dollar amounts are converted, for convenience only, at the rate of ¥107=US$1.2. Net income per share is based on the average number of shares outstanding during each period.3. Cash dividends represent the amount that is approved by the shareholders of the Corporation after the fiscal year.
Millions ofU.S. Dollars
Yen U.S. Dollars
37 ANNUAL REPORT 2005
Net Sales Operating Income (Loss)
PetrochemicalsPerfomance ProductsFunctional ProductsHealth CareServices
SubtotalCorporate Costs
Total
¥ 933,425469,946356,641277,808151,642
2,189,462–
¥2,189,462
$ 547.5379.8200.9268.2104.8
1,501.3(112.3)
$1,389.0
$ 8,723.64,392.03,333.12,596.31,417.2
20,462.3–
$20,462.3
¥ 58,58640,64221,49928,69411,215
160,636(12,012)
¥148,624
¥ 741,443453,118338,144277,217115,409
1,925,331–
¥1,925,331
¥ 20,46339,23415,44629,2069,794
114,143(15,980)
¥ 98,163
2005 2004 2005 2005 2004 2005
2005 2004 2005 2005 2004 2005
2005 2004 2005 2005 2004 2005
Millions ofU.S. Dollars
INDUSTRY SEGMENT
Mitsubishi Chemical Corporation and its consolidated subsidiariesYears ended March 31, 2005 and 2004Segment Information
Total Assets Depreciation
PetrochemicalsPerfomance ProductsFunctional ProductsHealth CareServices
SubtotalCorporate Assets and Eliminations
Total
¥ 631,681426,098331,888331,293293,418
2,014,378(43,850)
¥1,970,528
$221.1187.1166.4132.0
68.3774.9
44.8$819.7
$ 5,903.63,982.23,101.83,096.22,742.2
18,825.9(409.8)
$18,416.1
¥23,66020,02117,80814,119
7,31182,919
4,789¥87,708
¥ 599,968412,021331,369339,148301,558
1,984,06417,537
¥2,001,601
¥30,34822,05916,71814,7437,721
91,5893,970
¥95,559
INDUSTRY SEGMENT
Capital Expenditures R&D Expenditures
PetrochemicalsPerfomance ProductsFunctional ProductsHealth CareServices
SubtotalCorporate R&D and Other
Total
¥14,01917,91612,12215,709
5,23865,004
2,119¥67,123
$ 65.8129.2
61.2465.0
2.1723.4110.4
$833.8
$131.0167.4113.3146.8
48.9607.5
19.8$627.3
¥ 7,04313,826
6,54649,758
22777,40011,815
¥89,215
¥13,70416,51015,25515,1985,651
66,3183,013
¥69,331
¥ 7,24214,2446,486
49,278178
77,42811,085
¥88,513
INDUSTRY SEGMENT
Millions of YenMillions ofU.S. DollarsMillions of Yen
Millions ofU.S. DollarsMillions of Yen
Millions ofU.S. DollarsMillions of Yen
Millions ofU.S. DollarsMillions of Yen
Millions ofU.S. DollarsMillions of Yen
PetrochemicalsPerfomance ProductsFunctional ProductsHealth CareServices
SubtotalCorporate R&D and OtherTotal
4,5306,6227,0538,6085,648
32,461800
33,261
4,6116,9197,0278,6695,451
32,677819
33,496
2005 2004INDUSTRY SEGMENT
Employees (Number)
Note: For the fiscal year ended March 31, 2005, one consolidated subsidiary was reclassified from the Performance Products Segment to the Services Segment toreflect its performance in the more appropriate segment. This change increased sales by 13,833 million yen and total assets by 9,365 million yen in the ServicesSegment and decreased sales by 13,833 million yen and total assets by 9,365 million yen in the Performance Products Segment compared to the results thatwould have been achieved under the previous segmentation. The impact on the operating income, depreciation, capital expenditures, and R&D expenditures in bothsegments is immaterial.
38ANNUAL REPORT 2005
Millions ofU.S. DollarsMillions of Yen
Millions ofU.S. DollarsMillions of Yen
2005 2004 2005 2005 2004 2005
Net Sales Operating Income (Loss)
JapanAsiaOther
SubtotalCorporate Costs
Total
¥1,826,246235,552127,664
2,189,462–
¥2,189,462
$1,349.7114.1
37.41,501.3(112.3)
$1,389.0
$17,067.72,201.41,193.1
20,462.3–
$20,462.3
¥144,41712,213
4,006160,636(12,012)
¥148,624
¥1,632,220174,749118,362
1,925,331–
¥1,925,331
¥ 98,2109,0316,902
114,143(15,980)
¥ 98,163
GEOGRAPHIC DISTRIBUTION
Millions ofU.S. DollarsMillions of Yen
2005 2004 2005
Total Assets
JapanAsiaOther
SubtotalCorporate Assets and Eliminations
Total
¥1,630,874167,767
94,9451,893,586
76,942¥1,970,528
$15,241.81,567.9
887.317,697.1
719.1$18,416.1
¥1,631,886153,216105,817
1,890,919110,682
¥2,001,601
GEOGRAPHIC DISTRIBUTION
Millions ofU.S. DollarsMillions of Yen
2005 2004 2005
AsiaOtherTotal Overseas SalesConsolidated SalesPercentage of Overseas Sales to
Consolidated Sales
¥ 397,315170,898568,213
2,189,462
25.9%
$ 3,713.21,597.25,310.4
20,462.3
25.9%
¥ 281,492157,724439,216
1,925,331
22.8%
OVERSEAS SALES
As noted in Significant Accounting Policies, the Corporation changed the foreign currency translation policy for the income and costs of overseas subsidiaries andaffiliates from the fiscal year ended March 31, 2005. This change in the accounting policy had the following effect on sales compared to the previous method: for thePetrochemical Segment, an increase of 5,633 million yen; for the Performance Products Segment, a decrease of 926 million yen; for the Functional Products Segment,an increase of 66 million yen; for the Health Care Segment, an increase of 20 million yen. Operating income for the fiscal year ended March 31, 2005 was affected asfollows: for the Petrochemical Segment, an increase of 131 million yen; for the Performance Products Segment, a decrease of 48 million yen; for the FunctionalProducts Segment, an increase of 65 million yen; for the Health Care Segment, an increase of 18 million yen; for the Services Segment, a decrease of 1 million yen.As noted in Significant Accounting Policies, the Corporation has adopted the accounting policy for impairment loss on fixed assets from the fiscal year ended March 31,2005. This change in the accounting policy had the following effect on operating income compared to the previous method: for the Petrochemical Segment, a decreaseof 666 million yen; for the Performance Products Segment, a decrease of 2,451 million yen; for the Functional Products Segment, a decrease of 767 million yen; for theHealth Care Segment, a decrease of 4,070 million yen; for the Service Segment, 7,100 million yen; for the Corporate and Eliminations, a decrease of 2,248 million yen.
Note: As noted in Significant Accounting Policies, the Corporation changed the foreign currency translation policy for the income and costs of overseas subsidiaries andaffiliates from the fiscal year ended March 31, 2005. This change in the accounting policy affected sales by geographic area compared to the previous method asfollows: for Asia, an increase of 5,332 million yen; for other areas, a decrease of 539 million yen. Operating income for the fiscal year ended March 31, 2005 wasaffected as follows: for Asia, an increase of 164 million yen; for other areas, an increase of 1 million yen.
Note: Major countries or areas in the categories Asia and Other are as follows:Asia : China, Taiwan, Korea, Indonesia, Thailand, IndiaOther: North America, Europe
39 ANNUAL REPORT 2005
Management’s Discussion and Analysis
In the consolidated accounting period ended March 31, 2005, the Japaneseeconomy generally fared well, benefiting from robust exports due to a strong globaleconomy, particularly in the United States and China, and the growth of capitalspending caused by improved corporate profitability, despite excessive inventoriesin the IT and digital industries.
The business environment surrounding the Mitsubishi Chemical Group was favorabledue to the solid performance of our customers’ industries in Japan and abroad,despite a sharp rise in the prices of crude oil and naphtha, which continued athigher-than-expected levels.
Under these circumstances, all the Group companies continued to strongly pursuemarketing activities to increase sales and develop new demand as well as torecover product prices and achieve the targets of the ‘KAKUSHIN Plan: Phase 1—Rebuilding Foundations.’
As a result of these efforts, net sales for the fiscal year ended March 31, 2005reached ¥2,189.4 billion, up 13.7% year-on-year due to the continued strongperformance of petrochemical products and robust demand from the steel industry,despite the adverse affect of reduced National Health Insurance (NHI)pharmaceutical prices on the pharmaceutical business. Operating income rose by51.4% to ¥148.6 billion due to the favorable market for petrochemical productsand the streamlining of overall business operations. Ordinary income increased by79.2% to ¥148.0 billion due to improvements in the balance of interest income andexpenses and equity method income. Income before income taxes rose by 60.2% to¥55.3 billion.
Results of Operations
Net SalesThe business environment for the Mitsubishi Chemical Group fared well due to the favorableperformance of our customers’ industries in Japan and abroad, despite a sharp rise in theprices of crude oil and naphtha, which subsequently remained at high levels.
Consequently, net sales for the fiscal year under review increased by ¥264.1 billion or 13.7%compared to the previous fiscal year, to ¥2,189.4 billion, due to the recovery of productprices resulting from continued high crude oil prices, strong performance of petrochemicalproducts in the Petrochemicals Segment, strong demand from the steel industry in thePerformance Products Segment, and in spite of the adverse impact of a decline in NHIpharmaceutical prices on businesses in the Heath Care Segment.
Operating IncomeOperating income for the fiscal year under review increased by ¥50.4 billion or 51.4%compared to the previous fiscal year, to ¥148.6 billion. The positive factors affectingoperating income included a favorable balance of supply and demand in basic petrochemicalproducts, industrial chemicals and raw materials for synthetic fibers in the PetrochemicalsSegment; strong performance in the overseas market due to strong demand from China,large gains on the price difference in inventories as a result of sharply rising naphtha prices;an increase in sales volume attributable to the launch of new products, despite the negativeeffect of declining selling prices of information and electronics products, including opticaldiscs in the Performance Products Segment; streamlining benefits and reducing fixed costs,mainly in the Petrochemical, Functional Products and Health Care Segments. The ratio ofoperating income to net sales for the fiscal year under review improved from 5.0% in theprevious fiscal year to 6.7%.
Other Income and ExpensesInterest received declined by ¥0.1 billion from the previous fiscal year to ¥1.1 billion anddividends received increased by ¥1.0 billion to ¥3.5 billion. Interest payments declined by¥2.2 billion to ¥10.8 billion. Consequently, net financial expenses amounted to ¥6.1 billion, ayear-on-year reduction of ¥3.0 billion.
40ANNUAL REPORT 2005
Equity method investment income amounted to ¥8.9 billion, up ¥4.3 billion compared to theprevious fiscal year. This was due primarily to the fact that a majority of the affiliates to whichthe equity method was applied, including Sam Nam Petrochemical Co., Ltd., Korea, reportedincreased net income.
An exchange gain of ¥4.0 billion was reported for the fiscal year under review as non-operating income, compared to an exchange loss of ¥3.4 billion reported as non-operatinglosses in the previous fiscal year. This was due mainly to the fact that the Corporation and itsconsolidated subsidiaries in Japan reported exchange gains from the appreciation of thedollar against the yen.
Personnel expenses for employees temporarily assigned to other companies amounted to¥4.5 billion, a reduction of ¥5.1 billion compared to the previous fiscal year. This wasattributable to the reduced amortization of actuarial differences as a reduced liability relatingto pension fund investment, and lowered post-employment benefit obligations associated withthe Corporation’s amendment of its retirement benefits and pension fund program.
The main other income items were a ¥3.1 billion gain on the sales of property, plant andequipment, a ¥2.4 billion from a decrease of post-employment profit obligations resulting fromthe transition of the pension system, and a ¥2.0 billion gain on sales of investment securities.
The major items recorded as other expenses were a ¥17.3 billion for impairment loss onfixed assets; ¥8.0 billion for the amortization of differences due to a change in the retirementbenefit accounting standard; a ¥7.3 billion loss on disposal of property, plant and equipment;a ¥3.4 billion loss for allowance for disposal of property, plant and equipment; a ¥3.4 billionrevaluation loss in investment securities; and ¥3.3 billion in additional benefits for employees’early retirement.
Net IncomeIncome taxes paid in the fiscal year under review totaled ¥35.7 billion. Net income taxamounted to ¥5.1 billion. Taxation expenses came to ¥40.8 billion. The income tax burdenafter applying tax effect accounting was 38.2%.
Minority interests for the fiscal year under review were ¥10.4 billion, up ¥1.6 billion from theprevious fiscal year. This increase was primarily the result of a substantial year-on-yearimprovement in the net income of V-Tech Corporation.
As a result, net income rose by ¥20.8 billion or 60.2% from the previous fiscal year to ¥55.3billion.
2,400
2,000
1,600
1,200
800
400
0
¥1,747.1
19.7%
¥1,780.3¥1,887.5
¥2,189.5
21.6%22.4% 22.8%
25.9%
30
25
20
15
10
5
0
2001 2002 2003 2004 2005
Net SalesOverseas Sales Ratio (%)(Billions of Yen)
2001 2002 2003 2004 2005
0
30
60
90
120
150
Operating Income
0
2
4
6
8
10
Operating Income Ratio (%)(Billions of Yen)
Net Income (Loss)
-50
-40
-30
-20
-10
0
10
20
30
-100
-80
-60
-40
-20
0
20
40
60
2001 2002 2003 2004 2005
Net Income per Share (Yen)(Billions of Yen)
¥66.4
3.80%¥34.8
1.95%
¥91.9
4.87%
¥98.1
5.09%
¥148.6
6.79%
¥3.1
¥1.45
¥(20.78)
¥(45.2)
¥21.4
¥9.75
¥15.82
¥34.5
¥55.4
¥25.40¥1,925.3¥1,925.3
41 ANNUAL REPORT 2005
Management’s Discussion and Analysis
Results by Industry Segment
PetrochemicalsAs in the previous fiscal year, the annual production volume of ethylene as basic material forthe Petrochemicals Segment remained at the full capacity of 1.33 million tons. Businessessuch as basic petrochemicals, industrial chemicals and raw materials for synthetic fibersperformed well against the continued high prices of naphtha, thanks to tight supply anddemand and robust overseas markets, particularly in China. Polyolefin and polyvinyl chlorideachieved favorable performance due to a rise in product prices caused by higher raw materialprices and the implementation of various measures for cost reduction. In the fiscal year underreview, we reported a significant gain in the value of inventories due to rapidly increasednaphtha prices.
As a result, net sales in the Petrochemicals Segment increased by 25.8% from the previousfiscal year, to ¥933.4 billion and operating income rose by 186.3%, to ¥58.5 billion.
Performance ProductsPerformance polymers and food ingredients continued to show strong results. In theinformation and electronics product business, the overall performance of the optical discbusiness was generally good due to the launch of new products such as a single-sided,double-layer DVD+R disc, despite a decline in sales prices. Organic photo conductor (OPC)drums achieved solid results with an increase in sales volume offsetting a decline in salesprices. In the carbon business, coke shipments were especially strong, thanks to the highlevel of steel production. However, the performance of the carbon black business fell short ofprojections due to the continuing high prices of raw materials. In the fertilizer business, westrove to expand the sales of high value-added products and streamline operations in order todeal with the elevated raw material prices.
As a result, net sales in the Performance Products Segment increased by 3.7% compared tothe previous fiscal year, to ¥469.9 billion. Operating income rose by 3.5% to ¥40.6 billion.
Functional ProductsIn polyester films and composite film and sheet products, shipments for semiconductors andLCDs grew considerably while packaging materials performed well in the wake of growingdemand from the beverage industry and strong sales growth for new products. Civilengineering and construction-related products achieved favorable results despite theappreciation of the yen and high raw material prices.
As a result, net sales in the Functional Products Segment increased by 5.4% compared to theprevious fiscal year, to 356.6 billion. Operating income rose by 39.1% to ¥21.4 billion.
Health CareIn the pharmaceutical business, total sales declined under the impact of the April 2004reduction in NHI pharmaceutical prices and the transfer of the over-the-counter (OTC) drugbusiness while the sales of products such as RADICUT, a cerebral neuroprotective agent, andANPLAG, an anti-platelet agent, increased. The clinical diagnosis business performedadequately, despite the negative effect from national medical service fee system reforms.Sales for the clinical testing business grew, partly in response to major orders for large-scaletesting.
As a result, net sales in the Health Care Segment amounted to ¥277.8 billion, up 0.2% fromthe previous fiscal year. Operating income declined by 1.7% to ¥28.6 billion.
ServicesThe logistics service business operated at a high level as a result of the acquisition of newcustomers, and the volume of orders in the engineering service business increased.
As a result, net sales in the Services Segment rose by 31.3% to ¥151.6 billion and operatingincome rose by 14.5% to ¥11.2 billion.
42ANNUAL REPORT 2005
Results by Geographic Distribution
JapanNet sales for Mitsubishi Chemical Corporation and its Group consolidated subsidiaries inJapan were ¥1,826.2 billion, up 11.8% from the previous fiscal year, due to an increase inproduct sales prices resulting from high prices for crude oil and coke materials. Operatingincome for the region amounted to ¥144.4 billion, up 47.0%, due primarily to the strongmarkets for petrochemical and steel-related products, in spite of a decline in the sales pricesof optical disc products.
AsiaNet sales for Group consolidated subsidiaries in Asia rose by 34.7% over the previous fiscalyear to ¥235.5 billion, due mainly to an increase in the sales prices of petrochemicalproducts, including styrene monomer. Operating income for the region increased by 35.2% to¥12.2 billion, partially as a result of the improved profitability of raw materials forsynthetic fibers.
Other RegionsSales for overseas Group consolidated subsidiaries other than those in Asia amounted to¥127.6 billion, up 7.8% from the previous fiscal year, due in part to the sales growth ofoptical disc products. Operating income, on the other hand, declined by 41.9% to ¥4.0billion, primarily because of a decline in the sales prices of optical disc products.
R&D ExpendituresThe Mitsubishi Chemical Group actively promotes the development of new technologies andthe improvement of existing technologies across the enterprise. Our approach includeshaving each Group company pursue unique R&D efforts, encouraging dynamic informationexchange and joint research into technologies and markets among Group companies, as well asdistributing R&D tasks across the Group. This encourages collaboration and strengthensmutual ties. We also cultivate joint R&D with outside companies. In July 2003, we spun-off thecorporate R&D function of the Corporation and established Mitsubishi Chemical GroupScience and Technology Research Center, Inc. in order to integrate and reinforce the R&Dcapabilities of the Group.
A total of 3,036 persons are involved in R&D activities across the Group. Total R&Dexpenditures of the Group for the fiscal year under review amounted to ¥89.2 billion.
0
80
60
40
20
100
2001 2002 2003 2004 2005
R&D Expenditures(Billions of Yen)
¥68.0
¥84.5
¥91.0 ¥88.5 ¥89.2
43 ANNUAL REPORT 2005
Management’s Discussion and Analysis
Financial Position
AssetsTotal assets of the Mitsubishi Chemical Group at the end of the year under review were¥1,970.5 billion, down ¥31.0 billion compared to the end of the previous fiscal year. Thisresult was due mainly to a reduction of ¥48.3 billion in property, plant and equipment, whichresulted from constrained capital expenditures under depreciation and impairment loss onfixed assets. This led to a reduction of ¥11.7 billion in deferred tax assets, despite a ¥25.9billion increase in the value of inventories due to higher raw material prices.
LiabilitiesLiabilities declined by ¥83.5 billion to ¥1,385.1 billion at the end of the fiscal year underreview. Positive factors, including a reduction of ¥157.4 billion in interest-bearing debt,particularly loans and commercial paper, more than compensated for such negative factorsas the increase of ¥57.7 billion in trade payables (accounts and bills payable) due mainly tohigher raw material prices.
Minority InterestsMinority interests at the end of the fiscal year under review rose by ¥3.6 billion from the endof the previous fiscal year, to ¥139.4 billion.
EquityEquity at the end of the fiscal year under review increased by ¥48.9 billion from the previousfiscal year to ¥445.9 billion. The primary reason was an increase of ¥35.2 billion in retainedearnings resulting from a net income of ¥55.3 billion, an increase of ¥12.8 billion in valuationgain on investment securities.
As a result, the shareholders’ equity ratio at the end of the fiscal year under review was22.6%, up from 19.8% at the end of the previous fiscal year.
Cash Flows
Free cash flows, which consist of cash flows provided by operating activities and investmentactivities, amounted to ¥165.1 billion, up ¥95.8 billion from the previous fiscal year. Thefactors behind the increase were income before income taxes of ¥106.6 billion, a reduction inworking capital by improving payment terms of trade receivables, and no substantial fundingneeds comparable to the previous fiscal year’s acquisition of Mitsubishi Pharma Corporationshares through a takeover bid.
Cash and cash equivalents provided by these cash flows were used to repay interest-bearingdebt and to pay dividends to shareholders of the Corporation and its consolidatedsubsidiaries. The balance of cash and cash equivalents at the end of the fiscal year underreview was ¥52.5 billion, down ¥4.9 billion from the previous fiscal year.
Net Cash Provided by Operating ActivitiesNet cash provided by operating activities at the end of the fiscal year under review amountedto ¥222.8 billion, up ¥77.8 billion from the end of the previous fiscal year. The increaseresulted mainly from a ¥35.8 billion rise in income before income taxes, reduced workingcapital, achieved through offsetting increased accounts receivables associated with higherraw material prices by improving payment terms, and an increase in trade payables resultingfrom higher raw material prices.
Net Cash used in Investing ActivitiesNet cash used in investing activities declined by ¥18.0 billion to ¥57.6 billion at the end ofthe fiscal year under review. This was primarily the result of requiring no substantial fundingsuch as the previous fiscal year’s payments of ¥53.5 billion for the acquisition of MitsubishiPharma Corporation shares by a takeover bid, even as revenue declined due to reducedrevenue from the transfer of goodwill and a reduction in investment assets due to sales ofinvestment securities.
44ANNUAL REPORT 2005
Net Cash used in Financing ActivitiesNet cash used in financing activities in the fiscal year under review amounted to ¥171.3billion, up ¥101.0 billion from the previous fiscal year.The main financing activities included the redemption of corporate bonds of ¥44.4 billion, therepayment of ¥87.5 billion in long-term debt, revenue from the issuance of ¥43.1 billion innew corporate bonds, revenue from new long-term debt of ¥26.5 billion; repayment of ¥26.0billion in short-term debt; a reduction in the balance of commercial paper of ¥70.0 billion, and¥12.2 billion in payments of cash dividends to the shareholders of the Corporation and itsconsolidated subsidiaries.
Capital ExpendituresCapital expenditures were ¥67.1 billion, down ¥2.2 billion from the previous fiscal year. Themain factor behind this decrease was the fact that capital expenditures were kept within theamount of depreciation. This figure breaks down into ¥21.6 billion for new facilities or facilityexpansion, ¥17.3 billion for streamlining, ¥10.2 billion for research and development, and¥18.0 billion for other purposes. The main projects requiring investment in new or expandedfacilities were the transfer of operations of the Yodogawa Plant of Benesis in the Health CareSegment and the expansion of the OPC production facilities of Mitsubishi Chemical InfonicsPte Ltd. in the Performance Products Segment.
0
200
150
100
50
250
2001 2002 2003 2004 2005
Net Cash Provided byOperating Activities
(Billions of Yen)
0
80
60
40
20
100
2001 2002 2003 2004 2005
Capital Expenditures(Billions of Yen)
0
2,000
1,500
1,000
500
2500
2001 2002 2003 2004 2005
Total Assets(Billions of Yen)
0
400
300
200
100
500
2001 2002 2003 2004 2005
Shareholders' Equity(Billions of Yen)
5
0
10
15
20
25
Equity Ratio (%)
¥2,016.5
¥2,246.1¥2,117.0
¥2,001.6 ¥1,970.5
¥383.8
19.0%
¥343.7
15.3%
¥350.3
16.5%
¥397.0
19.8%
¥446.0
22.6%
¥113.7
¥92.2
¥132.4
¥144.9
¥222.8¥86.2
¥99.7
¥85.3
¥69.3 ¥67.1
45 ANNUAL REPORT 2005
Mitsubishi Chemical Corporation and its consolidated subsidiariesConsolidated Financial Statements
Current assets:Cash and cash equivalentsShort-term investmentsSecurities (Note 6)Trade receivables (Notes 7, 9)Inventories (Note 7):
Finished goodsWork in processRaw materials and suppliesLand held for sale
Deferred income taxes-current (Note 12)Prepaid expenses and other current assetsAllowance for doubtful accounts
Total current assets
Property, plant and equipment (Note 7):LandBuildingsMachinery and equipmentConstruction in progress
Accumulated depreciationNet property, plant and equipment
Investments and other assets:Investment securities (Note 6)Long-term loansDeferred income taxes-non-current (Note 12)Other (Note 7)Allowance for doubtful accounts
Total investments and other assetsTotal assets
¥ 52,5752,648
13515,274
126,68263,92282,177
4,94032,80636,169(2,327)
914,879
176,169631,316
1,489,94426,538
2,323,967(1,649,014)
674,953
259,8163,024
44,73174,477(1,352)
380,696¥1,970,528
$ 491,35524,748
1214,815,645
1,183,944597,402768,009
46,168306,598338,028(21,748)
8,550,271
1,646,4395,900,150
13,924,710248,018
21,719,318(15,411,346)
6,307,972
2,428,18728,262
418,047696,047(12,636)
3,557,907$18,416,150
¥ 57,538116
2,763511,039
119,22759,33369,012
4,19038,16534,779(3,036)
893,126
192,187635,567
1,501,48222,686
2,351,922(1,628,657)
723,265
248,7295,454
51,13981,206(1,318)
385,210¥2,001,601
2005 2004
March 31
ASSETS 2005
Millions of Yen
Consolidated Balance Sheets
See Notes to Consolidated Financial Statements.
Thousands ofU.S. Dollars
(Note 3)
46ANNUAL REPORT 2005
March 31
Current liabilities:Short-term debt (Note 7)Current portion of long-term debt (Note 7)Trade payablesAccrued expensesAccrued income taxesOther current liabilities
Total current liabilities
Long-term liabilities:Long-term debt (Note 7)Accrued retirement benefits (Note 8)Other non-current liabilities
Total long-term liabilities
Minority interests
Shareholders' equity:Common stock:Authorized-5,900,000 thousand shares;Issued-2,177,675 thousand shares at March 31, 2005 and
2,177,675 thousand shares at March 31, 2004Additional paid-in capitalRetained earnings (Note 16)Revaluation surplusValuation gain on investment securities after tax effectForeign currency translation adjustmentsTreasury stock at cost-
3,880 thousand shares at March 31, 2005 and3,911 thousand shares at March 31, 2004
Total shareholders' equityTotal liabilities and shareholders' equity
¥ 248,38178,875
439,00948,77623,33344,168
882,542
376,821102,600
23,184502,605
139,404
145,086117,108162,966
1,90137,794
(17,917)
(961)445,977
¥1,970,528
$ 2,321,318737,150
4,102,888455,850218,065412,785
8,248,056
3,521,692958,879216,673
4,697,243
1,302,841
1,355,9441,094,4671,523,047
17,766353,215
(167,449)
(8,981)4,168,009
$18,416,150
¥ 343,314102,179360,463
50,06017,40349,750
923,169
416,003108,386
21,186545,575
135,794
145,086116,980127,744
1,90124,897(18,772)
(773)397,063
¥2,001,601
2005 2004LIABILITIES AND SHAREHOLDERS' EQUITY 2005
Millions of Yen
See Notes to Consolidated Financial Statements.
Thousands ofU.S. Dollars
(Note 3)
47 ANNUAL REPORT 2005
Consolidated Statements of Operations
Net salesCost of sales (Notes 13, 14)
Gross profitSelling, general and administrative expenses (Notes 13, 14)
Operating incomeOther income (expenses):
Interest expensesInterest incomeDividend incomeEquity in earnings of non-consolidated subsidiaries and affiliatesExchange gain (loss)Impairment loss on fixed assetsGain (Loss) on sale and disposal of property, plant and equipment, netAmortization of transition amount under post-employment benefits accounting (Note 8)Personnel expenses of employees on secondment charged by affiliated and unaffiliated companiesWrite-down of securities and investment securitiesProvision for prospective loss on removal of fixed assetsAdditional benefits for employees' early retirement (Note 8)Write-down of property, plant and equipmentProvision for loss on the disposal of businesses in the affiliated companiesGain on sale of securities and investment securitiesImmediate recognition of reduction in prior service cost (Note 8)Gain on sale of businessOther, net
Income before income taxesIncome taxes (Note 12):
CurrentDeferred
Minority interests in consolidated subsidiariesNet income
¥2,189,4621,668,818
520,644372,020148,624
(10,856)1,1783,5738,9994,081
(17,302)(8,639)(8,061)(4,541)(3,601)(3,493)(3,300)(1,462)
(917)2,4992,427
535(3,140)
106,604
35,7065,121
40,827(10,405)
¥ 55,372
$20,462,26215,596,430
4,865,8323,476,8221,389,009
(101,458)11,00933,39384,10338,140
(161,701)(80,738)(75,336)(42,439)(33,654)(32,645)(30,841)(13,664)
(8,570)23,35522,682
5,000(29,346)996,299
333,70147,860
381,561(97,243)
$ 517,495
¥1,925,3311,455,267
470,064371,901
98,163
(13,060)1,3602,5724,699(3,492)
–811
(8,341)(9,670)
(656)–
(3,063)(3,190)(4,948)4,3594,8872,545(2,172)
70,804
23,9823,500
27,482(8,775)
¥ 34,547
2005 2004
Years ended March 31
2005
Millions of Yen
See Notes to Consolidated Financial Statements.
Note: Cash dividends represent the amount that is approved by the shareholders of the Corporation after the fiscal year.
Thousands ofU.S. Dollars
(Note 3)
¥ 25.406.00
$ 0.2370.056
¥ 15.824.00
Per share:Net incomeCash dividends
Yen U.S. Dollars
48ANNUAL REPORT 2005
Net incomeCash dividendsBonuses to directorsIncrease from retirement or resale of treasury stockRevaluation of land by an affliate, after tax effectValuation gain on investment securities, after tax effectForeign currency translation adjustmentsDecrease resulting from exclusion of an affiliate from
the scope of application of the consolidatedsubsidiaries
Decrease resulting from exclusion of subsidiariesand affiliates from the scope of application of theequity method
Increase resulting from exclusion of subsidiariesand affiliates from the scope of application of theequity method
Increase resulting from exclusion of an affiliate fromthe scope of application of the consolidatedsubsidiaries
Increase resulting from the merger of subsidiariesaccounted for by the equity method with non-consolidated subsidiaries
Minimum pension liability adjustmentDecrease resulting from reorganization of subsidiaries
and affiliatesNet increase in treasury stock
Balance at March 31, 2004Net incomeCash dividendsBonuses to directorsIncrease from retirement or resale of treasury stockValuation gain on investment securities, after tax effectForeign currency translation adjustmentsDecrease resulting from exclusion of an affiliate from
the scope of application of the equity methodIncrease resulting from exclusion of subsidiaries and
affiliates from the scope of application of the equitymethod
Decrease resulting from the merger of a consolidatedsubsidiary with a non-consolidated subsidiary
Decrease resulting from the merger of a subsidiaryaccounted for by the equity method with a non-consolidated subsidiary
Decrease resulting from inclusion of a subsidiary inthe scope of application of the consolidatedsubsidiaries
Decrease resulting from inclusion of an affiliate inthe scope of application of the equity method
Minimum pension liability adjustmentNet increase in treasury stock
Balance at March 31, 2005
Balance at March 31, 2003
Number ofoutstandingshares of
common stock(thousands)
See Notes to Consolidated Financial Statements.
Commonstock
Additionalpaid-incapital
Retainedearnings
Revaluationsurplus
Valuation gainon investment
securitiesafter
tax effect
Foreigncurrency
translationadjustments
Treasurystock
at cost
Millions of Yen
Thousands of U.S. Dollars (Note 3)
Consolidated Statements of Shareholders' Equity
Net incomeCash dividendsBonuses to directorsIncrease from retirement or resale of treasury stockValuation gain on investment securities, after tax effectForeign currency translation adjustmentsDecrease resulting from exclusion of an affiliate from
the scope of application of the equity methodIncrease resulting from exclusion of subsidiaries and
affiliates from the scope of application of the equitymethod
Decrease resulting from the merger of a consolidatedsubsidiary with a non-consolidated subsidiary
Decrease resulting from the merger of a subsidiaryaccounted for by the equity method with a non-consolidated subsidiary
Decrease resulting from inclusion of a subsidiary inthe scope of application of the consolidatedsubsidiaries
Decrease resulting from inclusion of an affiliate inthe scope of application of the equity method
Minimum pension liability adjustmentNet increase in treasury stock
Balance at March 31, 2005
Balance at March 31, 2004
2,177,675–––––––
–
–
–
–
––
––
2,177,675––––––
–
–
–
–
–
–––
2,177,675
––––––
–
–
–
–
–
–––
2,177,675
2,177,675
¥145,086–––––––
–
–
–
–
––
––
¥145,086––––––
–
–
–
–
–
–––
¥145,086
––––––
–
–
–
–
–
–––
$1,355,944
$1,355,944
¥116,978–––1–––
–
–
–
–
––
––
¥116,980–––
128––
–
–
–
–
–
–––
¥117,108
–––
1,196––
–
–
–
–
–
–––
$1,094,467
¥100,61134,547(6,527)
(81)––––
(547)
(471)
455
377
39(352)
(307)–
¥127,74455,372(8,701)
(102)–––
(11,501)
343
31
(18)
(13)
(13)(176)
–¥162,966
517,495(81,318)
(953)–––
(107,486)
3,206
290
(168)(121)
(121)(1,645)
–$1,523,047
$1,193,869
¥1,894––––7––
–
–
–
–
––
––
¥1,901––––––
–
–
–
–
–
–––
¥1,901
––––––
–
–
–
–
–
–––
$17,766
$17,766
¥ (2,629)–––––
27,526–
–
–
–
–
––
––
¥24,897––––
12,897–
–
–
–
–
–
–––
¥37,794
––––
120,533–
–
–
–
–
–
–––
$353,215
$232,682
¥(10,940)––––––
(7,832)
–
–
–
–
––
––
¥(18,772)–––––
855
–
–
–
–
–
–––
¥(17,917)
–––––
7,991
–
–
–
–
–
–––
$(167,449)
$(175,439)
¥(662)–––––––
–
–
–
–
––
–(111)
¥(773)––––––
–
–
–
–
–
––
(188)¥(961)
––––––
–
–
–
–
–
––
(1,757)$(8,981)
$(7,224)$1,093,271
49 ANNUAL REPORT 2005
Consolidated Statements of Cash Flows
Cash flows from operating activities:Income before income taxesAdjustments for:
Depreciation and amortizationWrite-down of property, plant and equipmentInterest expensesInterest and dividend incomeEquity in earnings of the non-consolidated subsidiaries and affiliatesExchange loss (gain)Impairment loss on fixed assetsGain (loss) on sale and disposal of property, plant and equipment, netAmortization of transition amount under post-employment benefits accountingWrite-down of securities and investment securitiesProvision for prospective loss on removal of fixed assetsGain on sale of securities and investment securitiesIncrease in trade receivablesIncrease in inventoriesIncrease in trade payablesOther, net
Interest and dividends receivedInterest paidIncome taxes paid
Net cash provided by operating activities
Cash flows from investing activities:Payments for purchases of securitiesProceeds from repayments of securitiesPayments for purchases of property, plant and equipmentProceeds from sales of property, plant and equipmentPayments for purchases of investment securitiesProceeds from sales of investment securitiesProceeds form sales of businessDecrease in loans receivable, netOther, net
Net cash used in investing activities
Cash flows from financing activities:Decrease in short-term debt, netProceeds from issuance of long-term debtRepayments of long-term debtCash dividends paidOther, net
Net cash used in financing activitiesEffect of exchange rate changes on cash and cash equivalentsDecrease in cash and cash equivalents
Cash and cash equivalents at beginning of the yearEffect of adjustment of scope of consolidation on cash and cash equivalents at beginning of the yearCash and cash equivalents at end of the year
¥ 106,604
86,2461,462
10,856(4,751)(8,999)
14217,3028,6398,0613,6013,493
(2,499)(1,312)
(25,090)63,340
(11,748)255,347
7,404(10,842)(29,088)222,821
–2,751
(67,873)8,598
(9,854)11,525
5351,271
(4,595)(57,642)
(96,006)69,733
(132,027)(8,701)(4,305)
(171,306)414
(5,713)
57,538750
¥ 52,575
$ 996,299
806,03713,664
101,458(44,402)(84,103)
1,327161,70180,73875,33633,65432,645
(23,355)(12,261)
(234,486)591,963
(109,794)2,386,421
69,196(101,327)(271,851)
2,082,439
–25,710
(634,327)80,355
(92,093)107,710
5,00011,879
(42,944)(538,710)
(897,252)651,710
(1,233,897)(81,318)(40,234)
(1,600,991)3,869
(53,393)
537,7387,009
$ 491,355
¥ 70,804
92,3693,190
13,060(3,932)(4,699)
(158)–
(811)8,341
656–
(4,359)(22,455)(8,552)
23,596(7,324)
159,7266,629
(13,252)(8,111)
144,992
(2,731)7,721
(64,689)9,609
(79,068)16,61328,9614,1473,730
(75,707)
(22,207)107,368(144,664)
(6,527)(4,222)
(70,252)(305)
(1,272)
59,317(507)
¥ 57,538
2005 2004
Years ended March 31
2005
Millions of Yen
Thousands ofU.S. Dollars
(Note 3)
See Notes to Consolidated Financial Statements.
50ANNUAL REPORT 2005
Notes to Consolidated Financial Statements
1. Significant Accounting Policies(a) Basis of PresentationThe accompanying consolidated financial statements have been prepared from the accounts maintained by Mitsubishi Chemical Corporation (the"Corporation") and its consolidated subsidiaries in accordance with the provisions set forth in the Japanese Commercial Code and in conformity withaccounting principles and practices generally accepted in Japan, which are different in certain respects from the application and disclosurerequirements of International Financial Reporting Standards.Certain items presented in the consolidated financial statements filed with the Director of the Kanto Local Finance Bureau have been reclassified forthe convenience of readers outside Japan.Where appropriate, certain prior year balances have been reclassified to conform to the fiscal year 2005 presentation.
(b) Principles of ConsolidationThe consolidated financial statements include the accounts of the Corporation and its significant subsidiaries. Investments in subsidiaries notconsolidated and affiliates are, with minor exceptions, accounted for by the equity method of accounting.Generally, companies that are owned more than 50% fall under the category of subsidiaries and companies that are owned 20% or more but notmore than 50% fall under the category of affiliates. However, companies that are owned 40% to 50% may also fall under the category ofsubsidiaries and companies that are owned 15% to under 20% may also fall under the category of affiliates, if the Corporation substantially controlsthe investees’ management or has significant influence and relationship with the investees.All significant intercompany accounts and transactions have been eliminated in consolidation. In the initial consolidation and application of the equitymethod, the Corporation’s shares in net assets of subsidiaries and affiliates are valued at fair value. Minority interests in net assets of subsidiariesare stated at historical cost in the accompanying consolidated financial statements.The excess of the cost over the fair value of underlying net equity in subsidiaries and affiliates that are consolidated or accounted for by the equitymethod is amortized on a straight-line basis within a period of twenty years, but mainly five years.
(c) SecuritiesDebt securities that are intended to be held to maturity ("held- to-maturity debt securities") are measured at amortized cost in the balance sheet.Securities other than held-to-maturity debt securities and equity investments in subsidiaries and affiliates ("other securities") are measured at fairvalue.The difference between the fair value and the historical cost is recorded as a separate component of shareholders' equity. The historical cost isdetermined by the moving average cost. Securities that have no market price, if not impaired, are stated at their historical cost.Debt securities due within one year are presented as "current" in the consolidated balance sheets. All the other securities are presented as "non-current" in the consolidated balance sheets.
(d) Allowance for Doubtful AccountsAllowance for doubtful accounts is provided for at an amount estimated with reference to individual accounts deemed uncollectible plus an amountcalculated by a historical rate based on the actual uncollectible amounts in prior years.
(e) InventoriesFinished goods are stated principally at the lower of cost or market, using the average cost method. Other inventories are stated principally ataverage cost.
(f) Property, Plant and EquipmentProperty, plant and equipment is stated at cost. Depreciation for the property, plant and equipment of the Corporation and its consolidatedsubsidiaries in Japan is principally calculated using the declining-balance method at rates based on estimated useful lives, and depreciation for thatof overseas consolidated subsidiaries is principally calculated using the straight-line method over the estimated useful lives. Principal estimateduseful lives of the assets are as follows:
(g) LeasesFinance leases other than those that are deemed to transfer the ownership of the leased assets to the lessees are principally accounted for by themethod that is applicable to ordinary operating leases.
(h) Research and DevelopmentExpenses related to research and development activities are charged to income as incurred.
(i) Foreign Currency TranslationAll receivables and payables denominated in foreign currencies at the balance sheet date are translated into Japanese yen at the current exchangerates. The resulting exchange gains or losses are charged to income.
( j) Foreign Currency Financial StatementsThe balance sheet accounts of foreign subsidiaries and affiliates are translated into Japanese yen at the exchange rate as of the balance sheetdate, except for shareholders’ equity, which is translated at the historical exchange rate. Revenues and expense accounts of foreign subsidiariesand affiliates are translated into Japanese yen at the average exchange rates during the fiscal year.Translation adjustments resulting from the process of translating the financial statements of foreign subsidiaries and affiliates into Japanese yen areaccumulated and reported as a component of shareholders’ equity in the consolidated balance sheet.
(k) Income TaxesThe tax effect of temporary differences between the financial statements and income tax basis of assets and liabilities is recognized as deferredincome taxes, using enacted tax rates applicable to the periods in which the differences are expected to affect taxable income.A valuation allowance is provided for any portion of the deferred tax assets where it is considered more likely than not that they will not be realized.
(l ) Accrued Retirement Benefits and Pension PlanUpon terminating their employments, employees of the Corporation and its subsidiaries in Japan are entitled, under most circum-stances, to lump-sumseverance payments or pension payments as described below. For retiring employees, under normal circumstances, payment is an amount based
Buildings: 10–50 yearsMachinery and equipment: 4–17 years
51 ANNUAL REPORT 2005
Notes to Consolidated Financial Statements
on current rates of pay, length of service and the type of termination (voluntary or involuntary). In calculating the payment for employees retiring due tomeeting mandatory retirement age requirements, the Corporation and its significant subsidiaries in Japan may grant additional benefits. TheCorporation and its significant subsidiaries in Japan have defined benefit pension plans funded through several financial institutions in accordance withthe applicable laws and regulations. The funding policy is to make actuarially determined contributions to provide the plans with sufficient assets tomeet future benefit payment requirements. The pension benefits are determined based on years of service and the compensation amounts, asstipulated in the pension plan's regulations, are payable at the option of the retiring employee in a lump-sum amount or as a monthly pension.Some foreign subsidiaries have defined benefit pension plans that substantially cover all of their employees, under which the cost of benefits is currentlyfunded or accrued.Benefits awarded under these plans are based primarily on the current rate of pay and length of service.
(m) Directors' Retirement BenefitsAccrued lump-sum retirement benefits for directors, executive officers and corporate auditors are determined based on the Corporation's internalregulations approved by the Board of Directors. Similar plans are adopted by several consolidated subsidiaries. In the consolidated balance sheet,¥2,435 million ($22,757 thousand) and ¥2,326 million were included in other non-current liabilities at March 31, 2005 and 2004, respectively.
(n) Appropriations of Retained EarningsCash dividends and bonuses to directors (including those of consolidated subsidiaries) are recorded in the fiscal year in which they are approved at therelevant shareholders' meeting or, in the case of interim dividends, the years in which they are declared by the Board of Directors.
(o) Reserve for Periodic RepairsThe Corporation and several consolidated subsidiaries provide for the costs of periodic repairs of production facilities in the plants and oil tanks. In theconsolidated balance sheet, ¥10,012 million ($93,570 thousand) and ¥7,780 million were included in Other current liabilities andOther non-current liabilities at March 31, 2005 and 2004, respectively.
(p) Net Income (Loss) per ShareNet income (loss) per share has been computed based on the average number of shares of common stock outstanding during the fiscal year. Fullydiluted net income per share additionally assumes the conversion of the convertible bonds.
(q) Cash and Cash EquivalentsCash and cash equivalents in the consolidated statements of cash flows are composed of cash on hand, bank deposits available for withdrawal ondemand and short-term investments with original maturities of three months or less and which represent a minor risk of fluctuation in value.
2. Accounting Change(a) Foreign Currency Financial StatementsThe exchange rates at which the revenue and expense accounts of foreign subsidiaries and affiliates are translated from local currencies to Japaneseyen, have been changed from the exchange rates as of the balance sheet date to the average exchange rates during the fiscal year from the fiscal yearended March 31, 2005. This change has increased sales by 4,793 million yen, operating income by 165 million yen, and net income by 160 millionyen, compared to the results that would have been obtained using the previous method.
(b) Adoption of Accounting Standard for Impairment of Fixed AssetsThe Corporation and its consolidated subsidiaries in Japan have chosen the early adoption of the new accounting standard for impairment losson fixed assets, which had the effect of decreasing income before income taxes by 15,554 million yen for the fiscal year ended March 31,2005. Accumulated impairment losses on fixed assets are included in "accumulated depreciation" on the consolidated balance sheets.
(c) Provision for Prospective Loss on Removal of Fixed AssetsThe Corporation and its consolidated subsidiaries in Japan have added a new provision for prospective loss on removal of fixed assets fromthe fiscal year ended March 31, 2005, because they have changed the timing of recording loss incurred through the removal of fixed assetsfrom the year when removal is completed with the actual amount of loss to the year when the removal is decided with the amount of estimatedloss. This change has decreased net income by 3,493 million yen, with 3,493 million yen recorded on the provision account.
3. U.S. Dollar AmountsThe Corporation and its domestic consolidated subsidiaries maintain their accounting records in Japanese yen. The U.S. dollar amounts areincluded solely for convenience and have been translated, as a matter of arithmetical computation only, at the rate of ¥107 to US$1, theapproximate exchange rate prevailing on the Tokyo foreign exchange market at the end of March 2005.This translation should not be construed as a representation that the yen amounts actually represent, or have been, or could be, converted intoU.S. dollars at this, or at any other rate.
4. Information on Environmental RemediationThe Umeda Plant in Adachi Ward, Tokyo, of Mitsubishi Pharma Corporation (“MPC”), a consolidated subsidiary of the Corporation, was closedon May 31, 2003. The bulk manufacturing of Urso, an agent for improving hepatic, biliary, and digestive functions, was moved to APICorporation’s Iwaki Plant in Fukushima Prefecture. As there had been a history of mercury use on the site vacated by the plant, MPC wasengaged in survey activities and measures to prevent the spread of pollution from March 2001 in accordance with the Environmental Ordinancefor the Securing of Public Health and Safety issued by the Tokyo metropolitan government and with soil treatment guidelines. These operationswere completed in September 2004.The results of the above survey activities were summarized in a soil contamination status report which was submitted to the Adachi Wardauthorities together with a plan detailing measures to prevent the spread of the pollution. These were accepted in October 2004. In November,meetings were held with local residents to present the results of the soil surveys and to explain the details of the clean-up operations.The clean-up operations, which will be conducted using methods sensitive to the surrounding environment and with appropriate disclosure of
52ANNUAL REPORT 2005
Millions of Yen
Held-to-maturity debt securities:Government bondsCorporate bondsOther debt securities
March 31
2004
¥ 20320
–¥340
¥0––
¥0
¥02–
¥2
¥ 20318
–¥338
CarryingAmount
Gross UnrealizedGains
Gross UnrealizedLosses
EstimatedFair Value
Millions of Yen
Held-to-maturity debt securities:Government bondsCorporate bondsOther debt securities
March 31
2005
¥20––
¥20
¥0––
¥0
¥0––
¥0
¥20––
¥20
CarryingAmount
Gross UnrealizedGains
Gross UnrealizedLosses
EstimatedFair Value
Thousands of U.S. Dollars
Held-to-maturity debt securities:Government bondsCorporate bondsOther debt securities
March 31
2005
$186––
$186
$0––
$0
$0––
$0
$186––
$186
CarryingAmount
Gross UnrealizedGains
Gross UnrealizedLosses
EstimatedFair Value
Other securities are measured at fair value. The difference between the fair value and the historical cost is recorded in the category of shareholders' equity.The differences at March 31, 2005 and 2004, are summarized as follows.
Millions of Yen
Other securities:Equity securitiesGovernment bondsCorporate bondsOther debt securities
March 31
2005
¥65,0670–0
¥65,067
¥124,86230–3
¥124,895
¥59,79530–3
¥59,828
Historical Costs Fair Value Net Differences Gross Gains
¥(491)–00
¥(491)
¥65,5580––
¥65,558
Gross Losses(Breakdown)
information, are planned for the 16-month period from December 2004 to March 2006.Following negotiations aimed at the sale of the site after completion of the clean-up operations, a sales agreement was reached in February2005. According to current estimates, when the cost of disposing of the site (book value plus cost of clean-up operations) is taken intoaccount together with attendant costs, a profit is expected to be realized on the sale.
5. Dual Corporate Tax SystemThe Law for Partial Amendments to Local Tax Law, which came into force on March 31, 2003, introduced a dual corporate tax system,applicable to fiscal years starting on or after April 1, 2004. Accordingly, from the fiscal year ended March 31, 2005, and in accordancewith the practical guidelines for the presentation in the statements of operations of portions of corporate business tax subject to dualcorporate taxation, the added value portion and the asset portion of corporate business tax are presented under selling, general andadministrative expenses.As a result, the total of selling, general and administrative expenses increased by ¥2,227 million ($20,813 thousand), while operatingincome, and income before income taxes and minority interests each decreased by ¥2,227 million ($20,813 thousand).
6. SecuritiesHeld-to-maturity debt securities are measured at amortized cost in the balance sheet. However, some held-to-maturity debt securities havefair value, The carrying amount, gross unrealized gains, gross unrealized losses and estimated fair value of held-to-maturity debt securitiesat March 31, 2005 and 2004, are summarized as follows:
53 ANNUAL REPORT 2005
Notes to Consolidated Financial Statements
Thousands of U.S. Dollars
Other securities:Equity securitiesGovernment bondsCorporate bondsOther debt securities
March 31
2005
$608,1030–0
$608,103
$1,166,935280
–28
$1,167,243
$558,832280
–28
$559,140
Historical Costs Fair Value Net Differences Gross Gains
$612,6920––
$612,692
Gross Losses(Breakdown)
The carrying amount of held-to-maturity debt securities and other securities which have maturities at March 31, 2005 and 2004,by contractual maturity, are shown below.
Millions of Yen
2005
Maturity:Due in one year or lessDue after one year through five yearsDue after five years through ten yearsDue after ten years
Held-to-Maturity Debt Securities
¥3–21
¥ ––
2,000–
¥1040––
GovernmentSecurities
CorporateSecurities
Other DebtSecurities
OtherSecurities
¥ 1340
2,0021
¥ ––––
Total
Millions of Yen
2004
Maturity:Due in one year or lessDue after one year through five yearsDue after five years through ten yearsDue after ten years
Held-to-Maturity Debt Securities
¥3–21
¥ 340–
2,000–
¥1040––
GovernmentSecurities
CorporateSecurities
Other DebtSecurities
OtherSecurities
¥ 35340
2,0021
¥ ––––
Total
Thousands of U.S. Dollars
2005
Maturity:Due in one year or lessDue after one year through five yearsDue after five years through ten yearsDue after ten years
Held-to-Maturity Debt Securities
$28–
199
$ ––
18,692–
$ 93374
––
GovernmentSecurities
CorporateSecurities
Other DebtSecurities
OtherSecurities
$ 121374
18,7109
$ ––––
Total
Millions of Yen
Other securities:Equity securitiesGovernment bondsCorporate bondsOther debt securities
March 31
2004
¥41,995000
¥41,995
¥97,5903020
3¥97,643
¥55,5953020
3¥55,648
Historical Costs Fair Value Net Differences Gross Gains
¥(1,180)–00
¥(1,180)
¥43,1750––
¥43,175
Gross Losses(Breakdown)
($4,589)–00
($4,589)
54ANNUAL REPORT 2005
Millions of YenThousands ofU.S. Dollars
Short-term loans, principally from banks and other financial institutions,interest ranging from 0.06% to 6.20% at March 31, 2005,and from 0.06% to 13.00% at March 31, 2004
Commercial paper
March 31 2005 2004 2005
¥233,38115,000
¥248,381
$2,181,130140,187
$2,321,318
¥258,31485,000
¥343,314
7. Short-Term Debt and Long-Term DebtAt March 31, 2005 and 2004, the short-term debt of the Corporation and its consolidated subsidiaries consisted of the following:
Millions of YenThousands ofU.S. Dollars
1.6% convertible bonds due 2006, currently convertible at ¥502.94.2% notes due 20042.425% notes due 20042.325% notes due 20043.0% notes due 20053.1% notes due 20054.2% notes due 20063.4% notes due 20062.85% notes due 20073.05% notes due 20072.775% notes due 20072.675% notes due 20073.25% notes due 2007Floating rate notes due 20072.75% notes due 20080.55% notes due 20081.08% notes due 20083.0% notes due 20091.43% notes due 20091.27% notes due 20092.65% notes due 20101.15% notes due 20101.46% notes due 20111.8% notes due 20131.16% notes due 20131.90% notes due 20142.02% notes due 2014Debt issued by consolidated subsidiaries, due 2004–2009,
interest 0.58%–1.621% ranging from 0.58% to 1.621% at March 31, 2005and from 0.58% to 2.6% at March 31, 2004
Loans, principally from banks and insurance companies due 2004 to 2027,interest ranging from 0.0% to 13.407% at March 31, 2005, and from 0.0% to 13.407%at March 31, 2004:
CollateralizedNon-collateralized
Less, current portion
March 31 2005 2004 2005
¥ 8,000–––
10,00010,00010,00010,00010,00010,00010,00010,00010,000
5,00010,00010,00015,00010,00015,00020,000
5,00010,00010,00015,00010,00010,00010,000
14,151
19,296169,249455,696(78,875)
¥376,821
$ 74,766–––
93,45893,45893,45893,45893,45893,45893,45893,45893,45846,72993,45893,458
140,18793,458
140,187186,916
46,72993,45893,458
140,18793,45893,45893,458
132,252
180,3361,581,7614,258,841(737,149)
$3,521,692
¥ 8,00010,00020,00010,00010,00010,00010,00010,00010,00010,00010,00010,00010,0005,000
10,00010,00015,00010,00015,00020,0005,000
––
15,00010,000
––
15,269
31,815218,098518,182(102,179)
¥416,003
At March 31, 2005 and 2004, the long-term debt of the Corporation and its consolidated subsidiaries consisted of the following:
55 ANNUAL REPORT 2005
Notes to Consolidated Financial Statements
8. Pension and Severance PlansAt March 31, 2005 and 2004, the compositions of amounts recognized in the consolidated balance sheets were as follows:
Notes: 1. Actuarial loss is recognized using the straight-line method over a period of mainly five years from the fiscal year following the year in which the loss arises.2. Prior service cost is amortized using the straight-line method over a period of mainly five years from the relevant fiscal year.3. Transition amount under post-employment benefits accounting is amortized using the straight-line method over a period of mainly five years from the fiscal year ended March 31,2001.4. On March 1, 2003, the consolidated subsidiary Mitsubishi Pharma Corporation received approval from the Minister of Health, Labor and Welfare with respect to its
application for an exemption from the benefit obligation related to future employees’ services under the substitutional portion of the Welfare Pension Fund Plans (“WPFP”).Regarding the restitution of the past portions, approval was received from the Minister of Labor, Health and Welfare on July 1, 2004, and the return of the assetswas completed on March 29, 2005. Effective from July 1, 2004, the future payment of an extra portion, corresponding to the added substitutional portion, of thebasic pension was terminated, and a sum corresponding to the past portion was transferred to a cash-balance pension system. The large decrease in the retirementbenefit obligation resulting from the transition to this system was accounted for by applying Clause 32 of “Practical Guidelines for Accounting for Transition betweenRetirement Benefit Systems” (Financial Accounting Standards Implementation Guideline No.1) whereby all prior service cost was amortized concurrently with thecorresponding unrecognized actuarial loss and net unrecognized retirement benefit obligation at transition.
5. Additional benefits for employees' early retirement amounting to ¥3,300 million and ¥3,063 million were recorded in addition to the amount of net periodic benefitcost for the year ended March 31, 2005 and 2004, respectively.
2005 2004 2005
Projected benefit obligation at end of yearFair value of plan assets at end of yearFunded statusUnrecognized transition amount under post-employment benefits accountingUnrecognized actuarial lossUnrecognized prior service costNet amount recognizedPrepaid pension expenseAccrued retirement benefits
March 31
$(3,507,794)2,466,981
(1,040,813)79,467
367,757(330,794)(924,383)
34,496(958,879)
¥(380,495)249,138(131,357)
16,74752,533(44,289)
(106,366)2,020
(108,386)
¥(375,334)263,967
(111,367)8,503
39,350(35,395)(98,909)
3,691(102,600)
Millions of YenThousands ofU.S. Dollars
2005 2004 2005
Service costInterest costExpected return on plan assetsAmortization of transition amount under post-employment benefits accountingRecognized actuarial lossAmortization of prior service costDecrease of post-employment benefits obligationNet periodic benefit cost
Years ended March 31
$ 96,02876,906
(40,542)75,336
154,430(82,925)(22,682)256,551
¥12,00211,254(3,829)8,341
17,755(912)
(4,887)39,724
¥10,2758,229
(4,338)8,061
16,524(8,873)(2,427)27,451
Millions of YenThousands ofU.S. Dollars
The components of net pension and severance costs for the year ended March 31, 2005 and 2004, were as follows:
At March 31, 2005, the number of shares of common stock necessary for conversion of all outstanding convertible bonds was approximately 16 million shares.
Millions of Yen
Current assetsProperty, plant and equipment
March 31
¥ 9,45593,505
¥102,960
$ 88,364873,879
$962,243
Millions of Yen
2007200820092010 and thereafter
Years ending March 31
¥ 92,59876,04864,881
143,294¥376,821
$ 865,402710,729606,364
1,339,196$3,521,691
The aggregate annual maturities of the non-current portion of long-term debt are as follows:
Thousands ofU.S. Dollars
Thousands ofU.S. Dollars
At March 31, 2005, the following assets were pledged as collateral for short-term debt and long-term debt:
56ANNUAL REPORT 2005
10. Lease TransactionsAt March 31, 2005 and 2004, finance leases other than those that are deemed to transfer the ownership of the leased assets tothe lessees were accounted for as operating leases. Equivalent amounts for these leases, as if they had been capitalized, are asfollows:Equivalent Purchase Amount, Accumulated Depreciation Amount, Accumulated Impairment Amount and Balance at Year-End
Future Minimum Lease Payments for the Remaining Lease Periods
Assumptions used as of March 31, 2005 and 2004, were as follows:
2005 2004
Discount rateExpected return on plan assets
Years ended March 31
2.0%2.0%
2.0%2.0%
9. Contingent LiabilitiesAt March 31, 2005, the Corporation and its consolidated subsidiaries were contingently liable for trade notes discounted for ¥7,385 million($69,018 thousand). They were also construed as guarantors for the borrowing below, principally incurred by non-consolidated subsidiaries,affiliates, and others.
Millions of YenThousands ofU.S. Dollars Millions of Yen
Thousands ofU.S. Dollars
Net Corporation and Its ConsolidatedSubsidiaries' Own Liabilities
Gross includingThird Parties' Liabilities
GuaranteeStand-by guaranteeOther construed guarantee
March 31
$196,39313,23447,093
¥21,0141,4165,039
$270,00014,33599,561
¥28,8901,536
10,653
2005 2004 2005
Machinery and equipment:Equivalent purchase amountEquivalent accumulated depreciation amountEquivalent accumulated impairment amountEquivalent balance at year-end
March 31
$205,019114,103
1,48689,430
¥25,04413,462
–11,582
¥21,93712,209
1599,569
Millions of YenThousands ofU.S. Dollars
2005 2004 2005
Due within one yearDue after one year
Impairment of lease assets amount on the balance sheet
$35,69261,53397,225
$ 1,262
¥ 3,8548,956
12,810–
¥ 3,8196,584
10,403¥ 135
Millions of YenThousands ofU.S. Dollars
Notes: 1. Equivalent purchase amount includes interest.2. Equivalent purchase amount excludes subleased assets.
Notes: 1. Lease Payments include interest.2. Lease Payments include sublease payments.
Note: Equivalent depreciation expense amount is calculated using the straight-line method,with the lease period as the useful life and zero (0) as the residual value.
Paid Lease Fees, Equivalent Depreciation Expense Amount, Amortization Expense Amount, and Impairment Loss
2005 2004 2005
Paid lease feesEquivalent depreciation expense amountAmortization expense amountImpairment loss on lease assets
Years ended March 31
$48,49548,271
224$ 1,486
¥4,4554,455
––
¥5,1895,165
24¥ 159
Millions of YenThousands ofU.S. Dollars
57 ANNUAL REPORT 2005
Deferred tax assets:Tax loss carryforwardsEmployees' retirement benefitsWrite-down of investment securitiesBonus payment reserve for employeesImpairemnt of fixed assetsDepreciationUnrealized earningsOther
Deferred tax assetsValuation allowance
Total deferred tax assetsDeferred tax liabilities:
Valuation gain of investment securitiesValuation of assetsAccelerated tax depreciationTax deductible reserveOther
Total deferred tax liabilitiesNet deferred tax assets
¥ 42,36641,29510,4679,8937,2926,7576,242
36,723¥161,035
(45,022)¥116,013
(22,509)(10,263)(8,377)(1,401)(1,254)
(43,804)¥ 72,209
$ 395,944385,93597,82292,45868,15063,15058,336
343,206$1,505,000
(420,766)$1,084,234
(210,364)(95,916)(78,290)(13,093)(11,720)
(409,383)$ 674,850
¥ 59,02542,493
9,4379,239
–5,8796,800
29,904¥162,777
(40,868)¥121,909
(12,704)(9,418)(9,168)(1,630)(1,740)
(34,660)¥ 87,249
2005 2004March 31 2005Millions of Yen
Thousands ofU.S. Dollars
Notes to Consolidated Financial Statements
Future Minimum Sublease Income for the Remaining Lease Periods
2005 2004 2005
Due within one yearDue after one year
$1,6076,187
$7,794
¥ 1361,092
¥1,228
¥172662
¥834
Millions of YenThousands ofU.S. Dollars
2005 2004 2005
Due within one yearDue after one year
$10,07532,729
$42,804
¥1,1285,144
¥6,272
¥1,0783,502
¥4,580
Millions of YenThousands ofU.S. Dollars
At March 31, 2005 and 2004, noncancellable operating lease obligations were accounted for as follows:Future Minimum Lease Payments for the Remaining Lease Periods
11. Derivative Financial InstrumentsThe Corporation and several consolidated subsidiaries enter into foreign currency forward exchange contracts, currency swaps, interest rateswaps, interest rate caps and commodity futures contracts in order to manage exposures resulting from fluctuations in foreign currencyexchange rates, interest rates and commodity prices.The Corporation and its subsidiaries have internal rules to designate the purpose, policy and procedures for derivative financial instruments.It is the Corporation's policy that the Corporation and its subsidiaries do not enter into derivative instruments for any purpose other thanhedging purposes.The forward exchange contracts and currency swaps are used to hedge the risk of foreign currency exchange rates associated with assets andliabilities denominated in foreign currencies, and to fix the future net cash flows from operating transactions denominated in foreign currencies.The interest rate swaps and caps contracts are used to manage fluctuations in cash flows resulting from interest rate risk associated withfinancial transactions.The commodity future contracts are used to hedge the risk of fluctuations in commodity prices.The hedging relationship between the derivative financial instrument and its hedged item is highly effective in achieving offsetting changes inforeign currency exchange rate, interest rate and commodity price.The Corporation and its subsidiaries are also exposed to credit-related losses in the event of non-performance by counterparties to derivativefinancial instruments, but it is not expected that any counterparties will fail to meet their obligations, because most of the counterparties areinternationally recognized financial institutions and contracts are diversified across a number of major financial institutions.
12. Income TaxesAt March 31, 2005 and 2004, significant components of deferred tax assets and liabilities were as follows:
58ANNUAL REPORT 2005
Reconciliations of the statutory tax rate and the effective income tax rate for the years ended March 31, 2005 and 2004 are not disclosedbecause the differences are immaterial.
Deferred income taxes-currentDeferred income taxes-non-currentOther current liabilitiesOther non-current liabilities
¥32,80644,731(2,649)(2,679)
306,598418,047(24,757)(25,037)
¥38,16551,139
(481)(1,574)
2005 2004March 31 2005Millions of Yen
Thousands ofU.S. Dollars
Research and Development ¥89,215 $833,785¥88,513
2005 2004Years ended March 31 2005
Millions of YenThousands ofU.S. Dollars
13. Research and DevelopmentFor the years ended March 31, 2005 and 2004, the following items were recorded in the statements of operations:
Depreciation and amortization $819,701¥95,559
2005 2004
¥87,708
Years ended March 31 2005
Millions of YenThousands ofU.S. Dollars
14. Supplemental Information to the Statements of OperationsFor the years ended March 31, 2005 and 2004, the following items were recorded in the statements of operations:
15. Segment InformationSegment Information is described on page 38 and 39.
Cash dividends $121,935
Years ended March 31Thousands ofU.S. Dollars
¥13,047
Millions of Yen
Pursuant to the Japanese Commercial Code, the maximum amount available for cash dividends is determined based upon the Corporation’s non-consolidated financial position.
16. Subsequent Events(a) Appropriation of Retained EarningsOn June 28, 2005, the shareholders of the Corporation approved the following appropriations of retained earnings:
At March 31, 2005 and 2004 the net deferred tax assets are included in the consolidated balance sheets as follows:
(b) Establishment of Holding Company through stock transferAt the 11th regular general meeting of shareholders held on June 28, 2005, approval was given for the joint establishment of a holding company(“HC”) with Mitsubishi Pharma Corporation (“MPC”), one of the Corporation’s consolidated subsidiaries, by means of a stock-for-stock exchangeeffective on October 1, 2005.The Corporation has made the decision to further develop and enhance its Group portfolio management through establishing HC, to increase thecorporate value and accelerate strengthening of the pharmaceutical business, as well as to expedite business restructuring and alliances. The HCwill manage the portfolios of the Group, with both the Corporation and MPC respectively managing their business operations under the HC.MPC has also concluded that establishing the HC will accelerate its management plan to become a global research-driven pharmaceutical company,to manage domestic business environment with more stringent government control of medical costs and severer competition with overseaspharmaceutical companies. The new scheme will expand strategic options to strengthen R&D and develop overseas infrastructure through alliances,and to maximize synergies with the Mitsubishi Chemical Group’s health care businesses to meet changing needs in medical care.The Corporation and MPC believe that the establishment of the HC will enhance our shareholders’ value. The HC will also seek to increase corporatevalue by further executing a phased restructuring of business portfolios for other Group companies.The name of the HC will be Mitsubishi Chemical Holdings Corporation. The number of shares to be issued is 1,806,288,107, with the shareholdersof the Corporation receiving 0.5 shares of the HC for each share of common stock held and those of MPC recieving 1.565 shares of the HC foreach share of common stock held.The common stock of the HC will amount to ¥50,000 million ($467,290 thousand) while the additional paid-in capital will be equal to the sum of thenet assets of the two companies as of the day of stock transfer minus the amount of above mentioned common stock.
59 ANNUAL REPORT 2005
Report of Independent Auditors
60ANNUAL REPORT 2005
Corporate Data
Japan
Name
Petrochemicals Segment
• Chuo Rika Kogyo Corporation
• Dia Chemical Co., Ltd.
• Dia-Nitrix Co., Ltd.
• Dia Terephthalic Acid Corporation
• Echizen Polymer Co., Ltd.
• Japan Ethanol Company Limited
• Japan Polychem Corporation
• Japan Polyethylene Corporation
• Japan Polypropylene Corporation
• Japan Unipet Co., Ltd.
• J-PLUS Co., Ltd.
• KAWASAKI KASEI CHEMICALS LTD.
• Mitsubishi Engineering-Plastics Corporation
• Nihon Isobutylene Company Limited
• Nippon Ester Co., Ltd.
• PS Japan Corporation
• San-Dia Polymers, Ltd.
• Techno Polymer Co., Ltd.
• The Nippon Synthetic Chemical Industry Co., Ltd.
• V-Tech Corporation
• Yokkaichi Chemical Co., Ltd.
• Yuka Schenectady Co., Ltd.
• Consolidated subsidiaries
• Affiliates accounted for by the equity method
Major Products or Lines of Business
Emulsions
Industrial chemicals, Specialty chemicals
Acrylnitrile, Acrylamide, Polyacrylamide, N-vinylformamide and its polymers
Purified terephthalic acid
PET resins, A-PET sheet
Synthetic alcohol for industrial use
Holding company of Japan Polyethylene Corp. and Japan Polypropylene Corp.
Polyethylene resins
Polypropylene resins
Polyethylene terephthalate resins for bottles
Plasticizers
Organic acid and its derivatives, Quinone-related products
Engineering plastics
Isobutylene
Polyester fibers, PET resins
Polystyrene resins
Super-absorbent polymers
ABS resins
PVOH, EVOH, PVOH films, Specialty polymers, Industrial and fine chemicals
Electrolytes products, Vinyl chloride monomer, Polyvinyl chloride resins
Nonionic surfactants, Glycol ethers, Fine chemicals
Alkylphenol products (PTBP, PTOP, PDDP)
Equity Participation (%)
45.8
100.0
50.0
65.0
80.0
100.0
100.0
50.0
65.0
44.9
50.0
38.4
50.0
50.0
40.0
27.5
40.0
40.0
35.5
85.1
55.0
50.0
Major Affiliates
61 ANNUAL REPORT 2005
Major Affiliates
Name
Performance Products Segment
• API Corporation
• Calgon Mitsubishi Chemical Corporation
• Dia Chemco Company Limited
• Dia Fine Co., Ltd.
• Dia Instruments Co., Ltd.
• Frontier Carbon Corporation
• Japan Epoxy Resins Co., Ltd.
• Kasei Optonix, Ltd.
• Mitsubishi Chemical Agri, Inc.
• Mitsubishi-Kagaku Foods Corporation
• Mitsubishi Kagaku Media Co., Ltd.
• Nippon Kasei Chemical Company Limited
• Shinryo Corporation
• Yuka Denshi Company Limited
Functional Products Segment
• Alpolic Co.
• ASTRO CORPORATION
• Kodama Chemical Industry Co., Ltd.
• Mitsubishi Chemical Functional Products, Inc.
• MITSUBISHI CHEMICAL MKV COMPANY
• Mitsubishi Plastics, Inc.
• Mitsubishi Polyester Film Corporation
• NITTO KAKO CO., LTD.
• Ryoka MACS Corporation
• YUPO CORPORATION
Major Products or Lines of Business
Active pharmaceutical ingredients, Fine chemicals
Activated carbon
Substrate for cosmetics
Dye stuff and chemicals for paper industry
Analytical Instruments
Nanocarbon products
Epoxy resins
Phosphors, Intensifying screen for radiography
Fertilizers, Green and gardening materials
Food ingredients, Sugar ester, Erythritol
FD, MO, CD-R/-RW, DVD R/ RW
Industrial chemicals, Specialty chemicals, Inorganic chemicals
Ecological recycling, Semiconductors, Fine chemicals
Materials for electronics devices
Aluminum-plastic composite panels
Artificial turf
Plastic molding products
Products for construction, civil engineering, and other industries
Plastic films for agricultural use, Plastic films and sheets for general use
Plastic pipes, Plates, Films, Containers, and Tanks
Polyester films
Rubbers for industrial use
Aluminum mold and casting
Synthetic paper
Equity Participation (%)
100.0
51.0
100.0
50.0
100.0
50.0
90.0
97.4
100.0
100.0
100.0
52.8
100.0
100.0
100.0
95.0
20.7
100.0
100.0
52.7
100.0
40.0
100.0
50.0
Corporate Data
Japan
62ANNUAL REPORT 2005
Name
Health Care Segment
• Mitsubishi Chemical Safety Institute Ltd.
• Mitsubishi Kagaku Bio-Clinical Laboratories, Inc.
• Mitsubishi Kagaku Iatron, Inc.
• Mitsubishi Pharma Corporation
• ZOEGENE Corporation
Services Segment
• Dia Analysis Service Inc.
• DIA RESEARCH MARTECH INC.
• DIA RIX CORPORATION
• Kitakyushu Prince Hotel Inc.
• Misuzu Erie Co., Ltd.
• Mitsubishi Chemical Engineering Corporation
• Mitsubishi Chemical Logistics Corporation
• Nippon Rensui Co.
• RHOMBIC CORPORATION
• Ryoka Systems Inc.
Others
• Arpa Staff Inc.
• MCFA Inc.
• Mitsubishi Chemical Group Science and
Technology Research Center, Inc.
• Mitsubishi Kagaku Institute of Life Sciences
• MNET Corporation
• Osaka Kasei Co., Ltd.
• THE KANSAI COKE AND CHEMICALS CO., LTD.
Major Products or Lines of Business
Safety testing and research for chemicals
Clinical testing
Clinical diagnostics, Medical analytical instruments, Research reagents
Pharmaceuticals
Drug candidate compounds, Protein engineering
Environmental analysis, Investigation and assessment
Investigation, Consulting, Publication, Informational services, Agency services
Real estate, Insurance agency, Office services
Hotel business
Construction and maintenance of electrical measuring instruments
Engineering, Plant construction
Logistics services
Plant engineering for water treatment, Ion exchange resins
Resin compounds
Computer systems, Software development
Recruiting, Job placement, Temporary personnel services, Job consulting
Financing and accounting for the Mitsubishi Chemical Group
Research and technology development, Analysis services
Research institute of life sciences
Education, Training
Chemicals
Coke, Tar derivatives
Equity Participation (%)
100.0
94.2
86.3
59.7
100.0
100.0
93.2
100.0
80.0
92.0
100.0
100.0
100.0
100.0
84.0
100.0
100.0
100.0
100.0
100.0
100.0
51.0
63 ANNUAL REPORT 2005
Asia
Name
• Dia Chemics Korea Limited
• HMT Polystyrene Co., Ltd.
• MCC PTA India Corp. Private Limited
• Mitsubishi Chemical (Thailand) Co., Ltd.
• Mitsubishi Chemical Hong Kong Ltd.
• Mitsubishi Chemical Infonics Pte Ltd
• Mitsubishi Chemical Singapore Pte Ltd
• Mytex Polymers Asia Pacific Pte Ltd
• Novapex Australia Pty Ltd.
• PT. Mitsubishi Chemical Indonesia
• Sam Nam Petrochemical Co., Ltd.
• Sam Yang Kasei Co., Ltd.
• Tai Young Chemical Co., Ltd.
• Tai Young High Tech Co., Ltd.
• Tai Young Nylon Co., Ltd.
• Yuka Seraya Private Limited
America
Name
• MC Research & Innovation Center, Inc.
• Mitsubishi Chemical America, Inc.
• Mitsubishi Polyester Film, LLC
• Mytex Polymer General Partnership
• USR Optonix Inc.
• Verbatim Corporation
Europe
Name
• Mitsubishi Chemical Europe GmbH
• Mitsubishi Polyester Film GmbH
• RESINDION S.R.L.
• Verbatim Limited
Major Products or Lines of Business
1,4-BG, THF, PTMG, GBL, NMP
Polystyrene resins
Purified terephthalic acid
Liaison activities, Export, Import
Liaison activities, Export, Import
OPC, CD-RW, DVD R/ RW
Liaison activities, Export, Import
Polypropylene polymers and compounds for automobile and
consumer-electronics industries
PET resins
Purified terephthalic acid, PET resins
Purified terephthalic acid
Polycarbonate
Ion exchange resins
Electronics grade chemicals, Precision cleaning, LCD glass recycling
Nylon resins
Styrene monomer
Major Products or Lines of Business
Research and technology development
Holding company of American subsidiaries
Polyester films
Polypropylene compounds for automobile industry
Intensifying screen for radiography
CD-R/-RW, DVD R/ RW, MO
Major Products or Lines of Business
Liaison activities, Export, Import
Polyester films
Ion exchange resins
CD-R/-RW, DVD R/ RW, MO
Equity Participation (%)
100.0
100.0
66.0
49.0
100.0
100.0
100.0
50.0
100.0
100.0
40.0
25.0
100.0
100.0
100.0
100.0
Equity Participation (%)
100.0
100.0
100.0
50.0
100.0
100.0
Equity Participation (%)
100.0
100.0
100.0
100.0
Major Affiliates (Overseas)
Corporate Data
64ANNUAL REPORT 2005
DOMESTICDOMESTICMitsubishi Chemical Corporation (Head Office)
33-8, Shiba 5-chome, Minato-ku, Tokyo 108-0014, Japan
Phone: [+81] (0)3-6414-3730 Fax: [+81] (0)3-6414-3745
OVERSEASMitsubishi Chemical America, Inc. (Head Office)
One North Lexington Avenue, White Plains, NY 10601, USA
Phone: [+1] 914-286-3600 Fax: [+1] 914-681-0760
Mitsubishi Chemical America, Inc. (Virginia Office)
401 Volvo Parkway, Chesapeake, VA 23320, USA
Phone: [+1] 757-382-5750 Fax: [+1] 757-547-0119
Mitsubishi Chemical Europe GmbH
Prinzenallee 13, Duesseldorf 40549, Germany
Phone: [+49] (0)211-523920 Fax: [+49] (0)211-591272
Mitsubishi Chemical Hong Kong Ltd.
Room 1303, 13th Floor, Tower 1, Admiralty Centre,
18 Harcourt Road, Hong Kong
Phone: [+852] 2522-7031 Fax: [+852] 2868-1470
Mitsubishi Chemical Singapore Pte Ltd
79 Anson Road, #12-01, Singapore 079906
Phone: [+65] 6226-3707 Fax: [+65] 6226-1676
Mitsubishi Chemical (Thailand) Co., Ltd.
18th Floor, Regent House Building, 183 Rajdamri Road,
Bangkok 10330, Thailand
Phone: [+66] (0)-2255-2821 Fax: [+66] (0)-2255-2824
Mitsubishi Chemical Corporation (Beijing Office)
No.5, Dong San Huan Bei Lu, Chao Yang District,
Beijing 100004, PRC
Phone: [+86] (0)10-6590-8621 Fax: [+86] (0)10-6590-8623
Mitsubishi Chemical Corporation (Shanghai Office)
No.4209, The Center, 989 Chang Le Road,
Shanghai 200031, PRC
Phone: [+86] (0)21-5407-6000 Fax: [+86] (0)21-5407-6111
Directory
65 ANNUAL REPORT 2005
Financial institutions
Individuals and others
Foreign corporations and other foreign investors
Other corporations
Securities companies
National and local government institutions
52.8%
21.7
18.2
6.1
0.8
0.0
Distribution of Shareholders Percentageof Total
Japan Trustee Services Bank, Ltd.
(Trust account)
The Master Trust Bank of Japan Ltd.
(Trust account)
Meiji Yasuda Life Insurance Co.
Nippon Life Insurance Co.
The Bank of Tokyo-Mitsubishi, Ltd.
The Tokio Marine & Nichido Fire Insurance Co., Ltd.
The Taiyo Life Insurance Co.
The Mizuho Corporate Bank, Ltd.
The Mitsubishi Trust and Banking Corp.
(Trust account)
The Norinchukin Bank
Percentageof Total
Major Shareholders Number ofShares Held(Thousands)
Date of Incorporation
June 1, 1950
Paid-in Capital
¥145,086 million
Authorized Shares
5,900,000,000
Outstanding Shares
2,177,675,032
Number of Shareholders
166,217
General Meeting
The General Meeting of Shareholders was held
on June 28, 2005
Stock Listings
Tokyo, Osaka Stock Exchanges
Transfer Agent
The Mitsubishi Trust & Banking Corp.
4-5, Marunouchi 1-chome, Chiyoda-ku, Tokyo
100-8212
Mitsubishi Chemical CorporationAs of March 31, 2005Investors' Information
149,151
142,489
114,116
88,500
73,680
66,488
47,095
36,826
33,950
26,994
6.8%
6.5
5.2
4.0
3.3
3.0
2.1
1.6
1.5
1.2
Common Stock Price Range (left scale) andNikkei Stock Average
Common Stock Price Range
2003 2004 2005 2006 (㈵)*FY ending March 31
High (¥)Low (¥)
332190
318187
365250
364300
* From April to June 2005
0
100
200
300
400(¥)
0
5,000
10,000
15,000
20,000(¥)
2003
㈵ ㈼ ㈽ ㈿2004
㈵ ㈼ ㈽ ㈿2005
㈵ ㈼ ㈽ ㈿2006
㈵
2005.09.3K
http://www.m-kagaku.co.jp