remaking today for a better tomorrow...polystyrene beads (eps), considered the key field in foamed...

ANNUAL REPORT 2006JSP Corporation

Remaking Today for aBetter Tomorrow

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JSP Corporation was established in 1962 as a manufacturer of foamed plastics and has since continuously

developed unique technologies and profitable products in the field. JSP Group businesses are controlled by the

following four internal companies: Living & Industrial Materials Company, Advanced Materials Company,

Construction & Civil Engineering Materials Company, EPS Company, plus the New Products Development

Division.

JSP merged with Mitsubishi Chemical Foam Plastic Corporation (MFP), a specialized manufacturer of

foamed plastics, on July 1, 2003. Through this merger JSP has added to its business the field of expandable

polystyrene beads (EPS), considered the key field in foamed plastics.

JSP will continue to pursue further cultivation of the market by enhancing the synergies created by combining

the technical and sales operations and strengthen its foundation as a global supplier.

2 Message from the Management

6 Special Feature

10 Review of Operations

14 Research and Development

15 Financial Section

33 Corporate Data

CONTENTS

Forward-Looking Statements:Statements contained in this report with respect to JSP’s plans, strategies and beliefs are nothistorical facts, but are forward-looking statements that involve known and unknown risks,uncertainties and other factors that may cause JSP’s actual plans, results, performance orachievements to differ materially from the expectations expressed herein.

PROFILE

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1JSP CORPORATION

Thousands ofU.S. dollars

Millions of yen (Note 1)

Years ended March 31 2006 2005 2004 2003 2002 2006

FOR THE YEAR:Net Sales ¥ 89,844 ¥ 87,135 ¥ 77,724 ¥ 64,155 ¥ 59,704 $ 764,824Operating Income 3,025 5,072 4,947 4,446 3,437 25,755Income before Income Taxes and Minority Interests 2,731 4,652 4,431 2,640 2,420 23,247Net Income 1,525 2,375 2,372 636 1,083 12,986

AT YEAR-END:Total Assets 88,039 83,981 78,631 66,782 68,831 749,462Total Shareholders’ Equity 40,058 36,963 31,423 28,840 29,407 341,007Common Stock 9,962 9,783 8,152 7,898 7,898 84,807

U.S. dollarsYen (Note 1)

AMOUNTS PER SHARE OF COMMON STOCK:Net Income ¥ 49.71 ¥ 83.17 ¥ 88.53 ¥ 25.54 ¥ 43.45 $ 0.42Cash Dividends 12.00 12.00 10.00 10.00 10.00 0.10Total Shareholders’ Equity 1,296.15 1,214.44 1,170.15 1,158.60 1,180.06 11.03

Notes: 1. U.S. dollar amounts are translated from yen, for convenience only, at the rate of ¥117.47=U.S.$1.2. Net income per share is computed based on the weighted average number of shares of common stock outstanding during each year.

1. Restoring Revenue Growth Worldwide

2. Seeking Business Efficiency through Cost Reduction Activities

3. Enhancing Compliance and Risk Management

4.Developing New Applications for Existing Products

Achieving a Turnaround for

Tomorrow’s Shareholders

FINANCIAL HIGHLIGHTS

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2 JSP CORPORATION

25.0100

80

60

40

20

0

(¥) (times)

15.0

20.0

10.0

5.0

0

Earnings per share (EPS)Price-to-earnings ratio (PER)

02 03 04 05 06

49.71

24.06

1.51,500

1,200

900

600

300

0

1.0

0.5

0

Book value per share (BPS)Price-to-book-value ratio (PBR)

02 03 04 05 06

(¥) (times)

1,296.15

0.92

MESSAGE FROM THE MANAGEMENT

300

200

150

100

50

0

250

02 03 04 05 06

(¥)

Cash flow per share

195

10,000

8,000

6,000

4,000

2,000

0

EBITDA

02 03 04 05 06

(millions of Yen)

7,388

The JSP Group has launched REMAKE21,

its new Medium-Term Management Plan that will run

until the end of March 2009 with the goal being

the creation of new business and revenue bases.

Rokurou Inoue, President


3JSP CORPORATION

OverviewShares in JSP Corporation (“JSP” or “the Company”) were moved to the First Section of the Tokyo

Stock Exchange as of March 1, 2005. JSP will continue working to meet the expectations of both its

existing and potential shareholders.

Business EnvironmentIn the fiscal year ended March 31, 2006, the Japanese economy continued on its way to recovery, with

improvements in the employment situation supporting sound personal consumption along with increases

in capital investment.

Economic conditions overseas were also favorable. The U.S. economy saw marked growth in the

housing market as a result of low interest rates. With the exception of automobile purchases, personal

consumption increased. In Europe, strong export-led demand supported an overall modest recovery, in

spite of the negative effects of higher crude oil prices and the rise of the euro in the second half of the

fiscal year. The Asian region was led by continued strong growth in the Chinese economy. South Korea,

Taiwan and Singapore also recorded increased growth rates driven by exports to China and stronger

internal demand.

Conditions in the foamed plastics industry remained challenging, hindered by hikes in raw material

prices and higher power costs.

Against this backdrop, the JSP Group (“the Group”) concluded its FORCE1 Medium-Term

Management Plan. Two years of steep increases in crude oil prices led to rising prices for raw materials,

including styrene monomer, polystyrene, polyethylene and polypropylene. In response to this, JSP

focused on adjusting product sales prices and lowering other costs. Nevertheless, price adjustments lagged

behind the market, and JSP struggled to maintain profitability throughout the year.

PerformancesFor the fiscal year ended March 31, 2006, net sales rose 3.1% to ¥89,844 million(US$ 764.8 million), as

a result of higher sales prices and increased sales in Asia. In addition to the rising costs for bought-in raw

materials, there was a switch to newer models in rear-projection television screen bases. This is the princi-

pal application of acrylic sheet (Acryace™), which had performed well in the first half of the period

under review. As a result, the clearance of earlier models led to a significant decline in earnings. Overseas,

the slump in sales of the Big Three U.S. automobile manufacturers resulted in a components maker filing

for Chapter 11 bankruptcy protection. The Group provided an allowance for doubtful accounts. These

resulted in a 40.3% year-on-year decline in operating income to ¥3,025 million(US$ 25.8 million).

The Company removed property and equipment related to plant reorganization, the Company and its

domestic subsidiaries wrote down of manufacturing facilities, and equity method investment losses were

incurred in France, all of which brought about a 35.8% decrease in net income to ¥1,525 million

(US$ 13.0 million).

Results by Geographical RegionBy geographical region, net sales and earnings in Japan were greatly diminished by Acryace™ inventory

adjustments, as previously mentioned.

In the second half of the fiscal year under review, polypropylene, which provides the raw material for the

beads business, and polyethylene, which is used by the sheets business for industrial packaging materials,

The Asian region

was led by continued

strong growth in the

Chinese economy,

with South Korea,

Taiwan and

Singapore also

recording increased

growth rates driven

by exports and

stronger internal

demand.


4 JSP CORPORATION

recorded the highest price rises in recent years. As a result of pursuing performance

differentiation, such as antistatic properties in the case of Miramat™ and Caplon™,

price adjustments progressed smoothly. On the other hand, negotiations aimed at

shifting the sales prices for the beads business’ P-Block™/ARPRO™ were lengthy

with customers such as automakers.

High prices also continued for polystyrene and styrene monomer. Consequently,

earnings were lower than the previous fiscal year for Styrene Paper food packaging,

Mirafoam™ polystyrene foam for heat-insulation board and Styrodia™ expandable

polystyrene beads for fish boxes and packaging, as well as construction industry

material applications that use these as raw materials.

As a result, net sales in Japan edged down 1.2% compared with the previous

fiscal year to ¥64,421 million (US$ 548.4 million).

In North America, the beads business is being developed with the focus on our mainstay energy

absorbers for automobiles (bumper cores). In the first half of the fiscal year under review, the weak perfor-

mance of the Big Three U.S. automakers brought about production cuts at their plants and intensified

price competition. Although this led to declining sales, demand gradually improved in the second half of

the fiscal year. A newly established plant in Tennessee commenced production in July 2005, advancing

the development of industrial packaging material and automotive interior materials such as seats. Net sales

for the fiscal year amounted to ¥9,274 million (US$ 79.0 million), a 10.7% increase compared with the

previous fiscal year.

Net sales in Europe of ¥8,408 million (US$ 71.6 million) slightly increased 0.8% compared with the

previous fiscal year. The promising first-half economic recovery centered on automotive-related materials

slowed down in the second half. From the profit and loss standpoint, expenses associated with the start-

up of a new plant in the Czech Republic, which is scheduled to commence operations in June 2006, sig-

nificantly increased costs, along with the steep rises in raw material prices.

The market for automobile energy absorber material and IT-related industrial packaging materials was

strong throughout Asia, especially in China, South Korea, Taiwan and Singapore. Significant increases in

sales to meet growing demand were particularly evident in China and South Korea. Site expansion work

at the Wuxi plant in China was completed in July 2005, and there are plans for a second plant acquired

in northern Pusan, Gimcheon, South Korea, to be fully operational in September 2006 in response to

vigorous demand.

In Japan, investment in facility reorganization in Yokkaichi resulting from the merger with Mitsubishi

Chemical Foam Plastic Corporation (MFP) has also been concluded. The synergistic effects from the manu-

facturing standpoint are expected to add to those derived from both personnel and technology.

Right-sizing the capabilities of the PSP business and plans to consolidate manufacturing at Kanuma

are well advanced, with the Hiratsuka plant due to close down in the summer of 2006.

REMAKE21 New Medium-Term Management Strategy JSP brought the FORCE1 consolidated Medium-Term Management Plan to an end in March 2006. JSP

has formulated the new plan, REMAKE21, which is named for the creation of new business and revenue

bases. This plan will continue until the end of March 2009. Full details are given in the Special Feature

section, but the plan envisages implementing all the measures needed to target annual net sales of ¥100

billion (US$ 851.3 million).

Masaaki Harada, Chairman


5JSP CORPORATION

Corporate GovernanceAs an internationally competitive company that attaches the utmost importance to safety and environ-

mental responsiveness, JSP aims to satisfy and gain the trust of all its stakeholders. For that reason, the

Company acknowledges the pursuit of effective corporate governance, management efficiency, trans-

parency, and ensuring a financially sound footing as critical management issues.

JSP’s Board of Directors consists of nine members. In principle, the Board of Directors convenes once

a month to deliberate, make decisions and conduct the Company’s business affairs concerning the neces-

sary items relating to management and in accordance with the Company’s internal rules and regulations

under law.

In addition, JSP has instituted a corporate auditor system with an auditors’ meeting made up of four

auditors, two of whom are external auditors. Corporate auditors attend Board of Directors’ meetings and

other important internal meetings. In addition, Corporate auditors meet responsible Company officials

and carry out a detailed audit into the legality and validity of the Group’s business activities and financial

status at monthly auditors’ meetings.

With regard to internal controls and risk management, over and above overhauling internal manage-

ment rules and regulations, an additional staff member joined the Audit Office in April 2005 to

strengthen internal audit operations, including those at Japanese subsidiaries. Contracts have also been

signed with Takashiba Law Office and the law firm of Mori Hamada & Matsumoto to act as legal advi-

sors in a structure from which the Company derives appropriate advice and guidance.

Measures Regarding Shareholder DividendsJSP places the highest priority on its shareholder dividend policies. The objective is to make well-

thought-out decisions with regard to profit dividends, not only on the basis of stable dividend distribu-

tion, but also considering such factors as strengthening business structure and enhancing internal reserves

that are necessary for future business development.

Dividends per share for the fiscal year under review totaled ¥12 (US$ 0.10), with a cash dividend of

¥6 (US$ 0.05) per share for both the interim and end-of-fiscal-term payments.

In terms of internal reserves, as well as strengthening the Company’s financial standing, funds were

appropriated for capital investment in new products, R&D into innovative technology and new business

development.

Fully utilizing its proprietary synthetic foam technologies, and responding appropriately to the needs

of a constantly changing market, JSP has set clear targets as it endeavors to become a highly competitive

and profitable company in the global market.

July 2006

JSP is fully utilizing

its proprietary

synthetic foam

technologies and

responding appro-

priately to the needs

of a constantly

changing market.

Masaaki Harada, Chairman

Rokurou Inoue, President


6 JSP CORPORATION

SPECIAL FEATURE REMAKE21 Medium-Term Management Plan

The JSP Group has started working to achieve the new targets set out in REMAKE21. The targets to be fulfilled

by the end of the final fiscal year of the plan, ending March 31, 2009, are as follows:

Medium-Term Management Plan OutlineThe JSP Group has started working toward the new targets set out in REMAKE21, its new Medium-Term

Management Plan that runs until the end of March 2009.

Over and above establishing technical development capabilities as the core of the JSP Group, the Plan, which has

adopted “Contributing to Society through Creative Leverage” as its management principle, has as its aim a highly

profitable corporate group that rapidly brings to fruition the creation of new businesses and develops new applica-

tions for existing products. Furthermore, as a leading global company, it will implement business development

models geared to responding to the market on a global scale and accelerate the business streamlining process by

accelerating business structural reforms.


7JSP CORPORATION

The main points of the plan are as follows:

1. Shift to a high-earnings structure

(1) Press ahead with business reforms and clarification of what the future vision should be from the long-term

perspective

(2) Early commercialization of high-value-added plastic products

(3) Allocation of company resources by selection and concentration

(4) Independent management of each group company

(5) Switch to streamlined structure by improving back-office productivity

2. Expand business as a global company

(1) Expand business in Asia and Europe with a high prospect of increased demand

(2) Exploit new applications through technical collaboration with overseas subsidiaries

(3) Develop new products and hybrid molded products throughout the world

In JSP’s business operations in Japan, in addition to implementing cost reductions to counteract the high prices of

raw materials and addressing environmental concerns by such measures as switching to foaming agents and promot-

ing product differentiation by high functionality to bring about further management efficiencies (all within the

Medium-Term Plan’s timeframe), we also have plans to implement measures that will improve profit-earning poten-

tial. These involve business structure reforms that include the closure and consolidation at one site of plants produc-

ing styrene paper for food packaging. Focusing on such strategies as the rapid commercialization of high-value-

added plastic products, as a new business, will strengthen JSP’s business base. REMAKE21’s implications for JSP’s

overseas businesses are explained overleaf.


8 JSP CORPORATION

Overseas sales accounted for 28.3% of total net sales

in the fiscal year ended March 31, 2006 (fiscal 2005),

having remained at approximately 25% for the previ-

ous three years. In fiscal 2008, REMAKE21’s final

year, the proportion of overseas sales is targeted to

increase to 31.8%. The central thrusts during the

three years of REMAKE21 are to “remake” business

in Japan and further expand the overseas EPP busi-

ness.

Using three years of capital investment by way of

illustration, the primary target is investment in new

and expansion of existing facilities, with ¥2,500

million (US$ 21.3 million) going to the Americas,

¥1,800 million (US$ 15.3 million) to Europe and

¥2,200 million (US$ 18.7 million) being allocated to

Asia (a total of ¥6,500 million [US$ 55.3 million]

overseas). On the other hand, the ¥9,300 million

(US$ 79.1 million) for Japan is primarily earmarked

for equipment costs related to the development of

new applications and eco-friendly products, follow-

ing the rationalization or renewal of production facil-

ities. The themes of “select and focus” is reflected in

the measures as well as the figures.

If we can exceed the targets of REMAKE21, then

it will be possible to look ahead to the next step.

JSP’s overseas development, which started with the

export of Miramat™ technology in 1978, has

switched to a local manufacture and sales strategy

with the emergence of EPP. If nurturing the second

and third technological developments can develop

business overseas and achieves a proportion of over-

seas sales in excess of 50% in the not-too-distant

future, the JSP Group will become a company that is

truly global.

Strategic Global Development through REMAKE21

13,00012.2%

10,3509.8%

10,3609.8%

72,29068.2%

JSP International, LLC

JSP International s.r.o.

Kanuma Research Center

North America

Europe

Asia

Japan

JSP Plastics (Wuxi) Co., Ltd.

Sales Target by Region (millions of yen)


9JSP CORPORATION

In North America, the expanded polypropy-

lene beads(EPP) business has been developed

primarily by focusing on bumper core mater-

ial for the traditional Big Three automakers.

It has become necessary to revise this situa-

tion, however, amid drastic changes brought

about by various factors such as environmen-

tal measures and high oil and energy costs.

This will be achieved by the development of

new, wider applications for automobile

Answering the growing demand for automo-

tive materials in the Eurozone, primarily in

Germany and Eastern Europe (including

Russia), an EPP beads plant is under con-

struction in the Czech Republic and will

commence full-scale operations. Once in

operation, the Czech Plant will significantly

increase the overall European capacity and

allow JSP to meet the expected increase in

To integrate beads production, the second

phase of construction work to expand the

plant at Wuxi in China was completed in

July 2005, followed by the commencement

of the third phase that will expand foam pro-

duction facilities. Upon completion, the lack

of capacity in the region will be resolved.

Nevertheless, it will become necessary to

expand all the new plants across China in the

near future. In South Korea as well, a second

plant is planned to be built Gimcheon, north

of Pusan, and in operation in September

2006 in response to burgeoning demand. In

Southeast Asia, where Singapore serves as a

sales base, there is healthy demand for IT-

related packaging and automotive materials

in Thailand and from an emergent India.

Under REMAKE21, the Asian region is

being counted on to provide the steadiest

sales growth and to maintain earnings.

For REMAKE21 to be successful, JSP must

assume difficult conditions in Japan by com-

parison with overseas. The main reason for

these conditions is the lack of scope for busi-

ness growth outside of EPP. The three most

pressing factors in REMAKE21 with a bearing

on the Japanese market can be summarized as

follows:

(1) Rapid commercialization of new materials

and products; (2) Promptly passing on

seating core material for automakers world-

wide. These applications are the fruits of

rapid development work pursued through

Japanese, U.S. and European technical col-

laboration in materials and simulated design.

Not confined to these automobile markets

alone, diversification is being promoted in

such areas as sound absorbing and cushioning

material for apartment accommodation,

packaging material and foam underlay for

sales. Developing new applications like those

in North America, there are plans for a diver-

sified market for seating core materials in

such fields as furniture, toys, marine, distrib-

ution and construction material.

increases in raw material costs to prices; and

(3) Restructuring that spans the entire business

Miramat Ace™, a PE high-foamed sheet for

the prevention of static build-up over long

periods, has been a successful product for some

time, but it is essential that its market be

further expanded. Markets were found in

hybrid molded products and materials for

bathrooms and automobiles, but a little more

time is necessary before these become estab-

American football field applications. These

new applications currently account for only

about 6% of sales, but targets have been set

to increase this to 35% by the final fiscal year

of the REMAKE21 Medium-Term

Management Plan. To shift the overall

balance toward the sales of these products, a

new plant was built in southern Tennessee

and has been in operation since July 2005.

Adding Japan to the Americas, Europe and

Asia, JSP occupies the No. 1 position in the

world EPP market.

lished in terms of revenue. The R&D designed

to narrow down the list of possible eco-friendly

products to start the shift away from foaming

agents has not changed.

Japan also saw good news from JSP companies,

including the recovery in Acryace™ business

performance and the good showing of Seihoku

Packaging Company. For JSP as a whole,

bringing the three above-mentioned issues to

fruition will be unremittingly addressed.


10 JSP CORPORATION

REVIEW OF OPERATIONS

Mirafoam,Miraplank, others

PB-Beads,Styrodia,Bumper cores,Side fixtures, Tool boxes, Mirafit,P-Block/ARPRO,L-Block,Green Block, others

194.802 mm

Foam Core, Super Foam, Plastic regeneration machines, Processing machines, Laminators, General packaging materials, others

Styrene Paper, Miraboard, P-Pearl, P-Board, Miramat, Caplon, Acryace, PC Sheet, others

’06

’05

SHEETS BUSINESS

BEADS BUSINESS

BOARDS BUSINESS

OTHER BUSINESS

51.3%

54.4%

30.9%8.0%6.7%

34.5%

6.5%7.7%

In an effort to secure future growth, we will strengthen existing businesses as well as

reduce costs and improve production efficiency.

Furthermore, as a leading global company, we will implement business development

models geared to responding to the market on a global scale and accelerate the business

streamlining process by making business structural reforms.


11JSP CORPORATION

30.9%

Representative products of this segment are the

expanded polyethylene foam sheets (Miramat™) that

are excellent for wrapping delicate items such as note-

book computers and liquid crystal televisions; airtight

bubble wrap (Caplon™), packaging foam sheets that

reduce damage to apples, pears and melons when in

transit (Miramat™); and polystyrene paper used to

keep food fresh, for takeout food trays, lunch contain-

ers and foldable boxes (Styrene Paper), and acrylic

sheet in rear-projection television screen bases

(Acryace™).

Miramat™ in particular led to the development of

manufacturing process technology that recently

enabled permanent antistatic features, for which JSP

has been granted patents. This acclaimed feature has

applications in protecting the glass base material of

liquid crystal televisions and for preventing dust from

entering in between the glass, while supporting the

weight of enlarged television screens and also protect-

ing them from scratches.

In addition to having capitalized on such capabili-

ties as unique selling points, since the liquid crystal and

IT-related sectors are recovering, net sales and earnings

of Miramat™ and Caplon™ improved compared with

the previous fiscal year. However, net sales of P-Board™

polypropylene foam sheet decreased as a result of a

drop in demand for returnable boxes.

As there has been a move toward new models of

rear-projection television screen bases, the resulting

clearance of earlier models led to significant declines in

net sales and earnings of Acryace™ acrylic sheet in the

first half of the fiscal period under review.

Consequently, sales in the segment dropped 7.8%

year on year to ¥27,735 million (US$ 236.1 million),

and operating income fell 80.2% to ¥464 million

(US$ 3.9 million). In the fiscal year ended March 31,

2006, the sheets business accounted for 30.9% of total

net sales.

SHEETS BUSINESS


12 JSP CORPORATION

P-Block™/ARPRO™, which JSP invented, is used for

automobile bumper cores and side impact pads, house-

hold electrical goods, office automation equipment and

precision equipment. Of these, the automotive compo-

nents are not only used in Japan, but also by major

automakers in North America, Europe and Asia, so the

second-phase development has been completed at the

beads plant at Wuxi, China, and a first plant at Cheb

in the Czech Republic to meet the increase in overseas

demand. Recently P-Block™/ARPRO™ has been

used as inner material for satellite television broadcast

receiving dishes, developed into permeable, sound-

absorbing products such as PEPP™ by special manu-

facturing techniques for automobile floors, as well as

for permeable sheets and drainage sheets for rooftop

gardens, and it is expected that wider applications will

be found.

In the Japanese market during the fiscal year under

review, energy absorber materials focusing on bumper

cores performed favorably, with both sales volume and

net sales improving on the previous fiscal year’s figures.

However, due to the surge in prices for the raw materi-

als for polypropylene, earnings declined somewhat over

the same period. Net sales of mainstay products over-

seas increased in all three regions—North America,

Europe and Asia—but in terms of earnings, North

America recorded a sales loss, and profits in Europe

were halved, whereas Asia continued to perform well.

Expandable polystyrene beads (Styrodia™) used for

fish boxes and packaging, as well as building and civil

engineering materials, suffered a drop in sales volumes

in the face of price competition from other producers,

but they managed a slight improvement in terms of net

sales compared to the previous fiscal year by passing on

the costs of raw materials in product prices.

As a result, segment sales rose 9.3% compared with

the previous fiscal year to ¥48,889 million (US$ 416.2

million), while segment operating income dipped 5.2%

to ¥3,777 million (US$ 32.2 million). In the fiscal year

ended March 31, 2006, the beads business accounted

for 54.4% of total net sales.

54.4%

BEADS BUSINESS


13JSP CORPORATION

OTHER BUSINESS

Mirafoam™ is a polystyrene-based extruded foam

product that is used as heat insulation for housing.

With excellent heat-insulating qualities and outstand-

ing size stability, it is a product that offers real energy

savings and is used by general construction contractors

as a highly heat-resistant material for reinforced con-

crete buildings.

Miraplank™, an extruded polyethylene foam board

used as industrial-use shock-absorbing material, uses

the same polystyrene foam, protects aluminum drink

cans from dents and scratches when being transported

in a truck.

Based on the favorable results achieved by cushion-

ing materials, net sales and earnings figures both

improved year on year.

As a result, sales for the boards segment rose 7.5%

to ¥7,189 million (US$ 61.2 million), while operating

income dropped 8.7% to ¥291 million (US$ 2.5 million).

In the fiscal year ended March 31, 2006, the beads

business accounted for 8.0% of total net sales.

Utilizing technologies stemming from the merger

between JSP and Mitsubishi Chemical Foam Plastic

Corporation (MFP), the hybrid (integrated skin and

core) molded foam Foamcore™ and molded foam

Superfoam™ products all come under this segment. As

well as having a myriad of applications as durable, heat-

insulating construction materials, such as in unit bath-

room ceilings, their lightweight properties, heat resis-

tance and ease of installation has led to their being used

as ducting in automobile air-conditioning systems.

With the focus in the year under review having been

on these hybrid foams, net sales increased, but in addi-

tion to the raw material price hikes, the higher depreci-

ation costs incurred by the construction of new facili-

ties and increased costs related to new business

development resulted in a drop in earnings.

The packaging material business, which has

recorded favorable net sales and earnings, has delegated

part of its IT-related product packaging planning and

design functions to China as part of the ongoing busi-

ness expansion it is undertaking.

The plastic recycling machinery business also

enjoyed higher net sales and earnings on the back of

increased demand for resource recycling spurred by

high prices for plastic raw materials.

As a result of the above factors, segment sales

increased 7.2% to ¥6,031 million (US$ 51.3 million)

and operating income fell 46.3% to ¥93 million

(US$ 0.8 million). In the fiscal year ended March 31,

2006, the others business accounted for 6.7% of total

net sales.

BOARDS BUSINESS

6.7%

8.0%


14 JSP CORPORATION

RESEARCH AND DEVELOPMENT

Hubs of JSP’s R&D efforts are the Kanuma and Yokkaichi Research Centers, which are engaged in a wide variety

of research projects. Located within the Kanuma plant complex in Tochigi Prefecture, the Center is equipped with

research and experimental wings and a pilot plant, where teams of young, capable researchers carry out the develop-

ment of new technologies that will become world firsts. The Yokkaichi Research Center undertakes the develop-

ment of foamed plastic bead products.

Miramat Ace™, a polyethylene foamed sheet that adds a permanent antistatic feature to Miramat™, is cur-

rently being developed as a new, breakthrough product. Liquid crystal and plasma TV glass screen bases are getting

larger by the year, and it is hoped that this packaging will prevent static and exclude dust buildup during shipment.

By the nature of plastic made from hydrocarbons, it readily became statically charged, and in the event that tight

controls became necessary, an antistatic agent was applied to the surface or mixed in plastics to commercialize.

The effects of antistatic agents wear off with time and there is a drawback that the antistatic agents cloud up the

surface of the products.

In developing polymers with antistatic features, JSP solved this complex problem by bringing laminated material

production processes to multilayered structures and has been granted patent rights for this advanced technology.

Not confined to the shipment of flat-screen plasma television bases, there is also an expanding market for pro-

tecting IC chips, computer-related components and mobile telephones.

R&D Product Planning

Product

Marketing & Planning

Marketing & Needs

Core Technology

Semicommercial Plant

Driven by a pioneering spirit since its establishment, JSP’s R&D efforts have focused on the

creation of innovative technology and new products that are of service to society. While cen-

tering our R&D activities in Japan, we regularly hold technical information exchange meet-

ings to share research results obtained from around the world.


15JSP CORPORATION

Sheets 30.9%Beads 54.4%Boards 8.0%Others 6.7%

Total sales¥89,844million

Sales Breakdownby Business Segment

6,000

4,000

3,000

2,000

1,000

0

5,000

02 03 04 05 06

Operating Income

3,025

(millions of Yen)

2,500

1,500

1,000

500

0

2,000

02 03 04 05 06

Net Income

1,525

(millions of Yen)

FINANCIAL SECTION

Results of OperationsIn the fiscal year ended March 31, 2006, JSP and its consolidated subsidiaries reported net sales of

¥89,844 million (US$ 764.8 million), up 3.1% from the previous fiscal year.

Cost of sales increased 5.8%, to ¥65,602 million (US$558.5 million), owing to sharp rises in raw

material prices across a broad spectrum of JSP products. As a result, gross profit dropped 3.5%, to

¥24,242 million (US$ 206.4 million), and the gross profit margin edged down 1.8 percentage points, to

27.0%.

Selling, general and administrative expenses, which recorded such factors as allowance for doubtful

accounts in the United States, rose 6.6% to ¥19,211 million (US$ 163.5 million). Research and

development expenses edged down 1.9% year on year, to ¥2,006 million (US$ 17.1 million).

Consequently, operating income fell 40.3%, to ¥3,025 million (US$ 25.8 million), and the operating

income margin was down 2.4 percentage points, to 3.4%.

Within other income (expenses), the loss in equity in earnings of affiliates, net, increased ¥262 million,

to ¥328 million (US$ 2.8 million); the loss on disposal of fixed assets, net, increased ¥133 million, to

¥298 million (US$ 2.5 million); and interest expense fell ¥85 million, to ¥263 million (US$ 2.2 million),

owing to a reduction in short-term liabilities. Consequently, income before income taxes and minority

interests decreased 41.3%, to ¥2,731 million (US$ 23.2 million), and net income fell 35.8%, to ¥1,525

million (US$ 13.0 million). Net income per share fell to ¥49.71, from ¥83.17.


16 JSP CORPORATION

Financial PositionAs of March 31, 2006, total current assets stood at ¥45,691 million (US$ 389.0 million), edging up 1.4% from a

year earlier. Trade notes and accounts receivable, as well as other receivables, increased by ¥662 million and ¥427

million, respectively. On the other hand, cash and cash equivalents fell by ¥683 million.

At ¥33,434 million (US$ 284.6 million), total current liabilities decreased by 3.0%, contributory factors

including declines in both short-term bonds and short-term bank loans (including the current portion of long-

term debts) of ¥1,000 million and ¥818 million, respectively. As a consequence, working capital increased 15.9%,

to ¥12,257 million (US$ 104.4 million), and the current ratio improved to 1.37 times, from 1.31.

Long-term assets increased 8.9%, to ¥42,339 million (US$ 360.4 million). These included an 11.1% rise in

net property, plant and equipment, to ¥37,718 million (US$ 321.1 million), while its accumulated depreciation

grew by 7.0%, to ¥61,157 million (US$ 520.6 million).

Within long-term liabilities, which increased 13.6% to ¥12,020 million (US$ 102.3 million), long-term debts

increased 24.5%, to ¥9,138 million (US$ 77.8 million).

The equity ratio improved from 44.0% to 45.5%.

100,000

80,000

6,0000

40,000

20,000

0

Total AssetsTotal Shareholders’ Equity

02 03 04 05 06

88,039

40,058

(millions of Yen)

50

40

30

20

10

0

Shareholders’ Equity Ratio

02 03 04 05 06

(%)

45.510

8

6

4

2

0

Return on Equity

02 03 04 05 06

(%)

4.0


17JSP CORPORATION

Cash FlowsNet cash provided by operating activities amounted to ¥5,987 million (US$ 51.0 million), a decrease of ¥700

million compared with the previous fiscal year. Major components of this total included: ¥2,731 million

(US$ 23.2 million) in income before income taxes and minority interests, ¥4,657 million (US$ 39.7 million) in

depreciation and amortization, ¥328 million (US$ 2.8 million) from the effect of equity in earnings of affiliates,

net, and ¥174 million in decrease in notes and accounts payable.

Net cash used in investing activities amounted to ¥6,400 million (US$ 54.5 million), an increase of ¥342

million compared with previous fiscal year. The expenses involved in the acquisition of property and equipment to

enhance production facilities were a key factor in this increase.

Net cash used in financing activities amounted to ¥839 million (US$ 7.1 million), compared with ¥709

million provided by financing activities in the previous fiscal year. Principal income amounts were ¥1,014 million

(US$ 8.6 million) from long-term loans, net, and proceeds from common stock issued of ¥359 million

(US$ 3.1million). Principal outlays were ¥1,000 million (US$ 8.5 million) for commercial paper, ¥397 million

(US$ 3.4 million) for cash dividends, ¥369 million (US$ 3.1 million) for short-term bank loans, net, and ¥322

million for the redemption of bonds.

Taking all these factors into account, cash and cash equivalents at the end of the fiscal year under review totaled

¥5,658 million (US$ 48.2 million), down ¥683 million (US$ 5.8 million) from a year earlier.

4,000

3,000

2,000

1,000

0

-1,000

-2,000

Free Cash Flows

02 03 04 05 06

(millions of Yen)

-413

7,000

6,000

5,000

4,000

2,000

0

3,000

1,000

Net IncomeDepreciation and AmortizationOperating Cash Flows

02 03 04 05 06

(millions of Yen)

4,657

1,525

5,987

12

9

6

3

0

Operating Cash Flows toNet Sales Ratio

02 03 04 05 06

(%)

6.7


18 JSP CORPORATION

REPORT OF INDEPENDENT ACCOUNTANTSJSP Corporation and Consolidated Subsidiaries

To the Board of Directors of

JSP Corporation

We have audited the accompanying consolidated balance sheets of JSP Corporation and its subsidiaries as of March 31, 2006 and 2005, and the

related consolidated statements of income, shareholders’ equity, and cash flows for the years then ended. These consolidated financial statements are

the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our

audits.

We conducted our audits in accordance with auditing standards generally accepted in Japan. Those standards require that we plan and perform

the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes

examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing

the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement

presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of JSP

Corporation and its subsidiaries as of March 31, 2006 and 2005, and the results of their operations and their cash flows for the years then ended in

conformity with accounting principles generally accepted in Japan.

The United States dollar amounts shown in the consolidated financial statements have been translated solely for convenience. We have reviewed

this translation and, in our opinion, the consolidated financial statements expressed in Japanese Yen have been translated into United States dollars

on the basis described in Note 1.

Tokyo, Japan

June 29, 2006

Toho Audit Corporation

jsp_ar_fs_戻し 06.8.10 14:31 ページ 18

19JSP CORPORATION

CONSOLIDATED STATEMENTS OF INCOMEJSP Corporation and Consolidated SubsidiariesYears ended March 31



2006 2005 2006

NET SALES ¥ 89,844 ¥ 87,135 $ 764,824

COSTS OF SALES 65,602 62,001 558,455

Gross Profit 24,242 25,134 206,369

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 19,211 18,018 163,541

RESEARCH AND DEVELOPMENT 2,006 2,044 17,073

Operating income 3,025 5,072 25,755

OTHER INCOME (EXPENSES):

Interest and dividend income 129 94 1,096

Interest expense (263) (348) (2,235)

Loss on disposal of fixed assets, net (298) (165) (2,536)

Impairments (Note 11) (76) — (647)

Gain (Loss) on disposal/write down of investments in securities 187 184 1,593

Equity in earnings of affiliates, net (328) (66) (2,796)

Amortization of consolidation adjustments 40 40 339

Other, net 315 (159) 2,678

(294) (420) (2,508)

INCOME BEFORE INCOME TAXES AND MINORITY INTERESTS 2,731 4,652 23,247

INCOME TAXES (Note 7) 778 1,738 6,626

INCOME BEFORE MINORITY INTERESTS 1,953 2,914 16,621

MINORITY INTERESTS (428) (539) (3,635)

NET INCOME ¥ 1,525 ¥ 2,375 $ 12,986

U.S. dollarsYen (Note 1)

PER SHARE OF COMMON STOCK (Note 12):

NET INCOME ¥ 49.71 ¥ 83.17 $ 0.42

NET INCOME DILUTED 49.27 81.52 0.42

CASH DIVIDENDS 12.00 12.00 0.10

The accompanying notes are an integral part of these statements.

jsp_ar_fs_戻し 06.8.10 14:31 ページ 19

20 JSP CORPORATION

CONSOLIDATED BALANCE SHEETSJSP Corporation and Consolidated SubsidiariesAs of March 31



ASSETS 2006 2005 2006

CURRENT ASSETS:

Cash and Cash equivalents (Notes 2) ¥ 5,658 ¥ 6,341 $ 48,167

Receivables:

Trade notes and accounts 26,980 26,318 229,662

Other 1,048 621 8,922

Allowance for doubtful accounts (Note 2) (351) (348) (2,985)

Inventories (Notes 2 and 3) 8,775 8,709 74,697

Deferred income taxes (Notes 2 and 7) 771 658 6,567

Prepaid expenses and other current assets 2,810 2,760 23,925

Total current assets 45,691 45,059 388,955

PROPERTY, PLANT AND EQUIPMENT:

Land 10,203 9,762 86,853

Buildings and structures 24,965 23,755 212,523

Machinery and equipment 52,423 48,606 446,275

Tools, furniture and fixtures 8,373 7,978 71,276

Other 418 353 3,556

Construction in progress 2,493 672 21,221

98,875 91,126 841,704

Less accumulated depreciation (61,157) (57,164) (520,621)

Net property, plant and equipment 37,718 33,962 321,083

INVESTMENT AND OTHER ASSETS:

Investments in securities (Notes 2, 4 and 5) 1,874 1,607 15,953

Investments in related companies 341 679 2,906


Long-term loans receivable and other 1,291 1,224 10,993

Allowance for doubtful accounts (Note 2) (21) (23) (178)

Total investments and other assets 3,800 3,761 32,353

INTANGIBLE ASSETS AND OTHER 821 1,143 6,987

DEFERRED ASSETS 9 56 84

¥ 88,039 ¥ 83,981 $ 749,462


jsp_ar_fs_戻し 06.8.10 14:31 ページ 20

21JSP CORPORATION



LIABILITIES AND SHAREHOLDERS’ EQUITY 2006 2005 2006

CURRENT LIABILITIES:

Short-term bank loans (Note 5) ¥ 9,474 ¥ 9,808 $ 80,647

Current portion of long-term debts (Note 5) 2,938 3,422 25,012

Short-term bonds (Note 6) 322 1,322 2,741

Payables:

Trade notes and accounts 13,525 13,437 115,135

Construction 1,085 158 9,240

Other 2,330 2,574 19,836

Accrued income taxes 628 1,156 5,345

Deferred income taxes (Notes 2 and 7) 23 — 197

Accrued expenses and other current liabilities 3,109 2,607 26,464

Total current liabilities 33,434 34,484 284,617

LONG-TERM LIABILITIES:

Bonds (Note 6) 828 1,150 7,049

Long-term debts (Note 5) 9,138 7,342 77,791

Provision for post-retirement benefits (Note 10) 617 722 5,252


Consolidation adjustments (Note 2) 120 159 1,018

Other 854 743 7,273

Total liabilities 45,454 45,062 386,940

MINORITY INTERESTS IN CONSOLIDATED SUBSIDIARIES 2,527 1,956 21,515

SHAREHOLDERS' EQUITY:

Common stock (Notes 8) 9,962 9,783 84,807

Additional paid-in capital 13,239 13,060 112,704

Retained earnings 16,936 15,835 144,177

Unrealized gains and losses on securities, net 352 225 2,998

Foreign currency translation adjustment (394) (1,905) (3,357)

Less treasury common stock, at cost (37) (35) (322)

Total shareholders’ equity 40,058 36,963 341,007

¥ 88,039 ¥ 83,981 $ 749,462

jsp_ar_fs_戻し 06.8.10 14:31 ページ 21

22 JSP CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITYJSP Corporation and Consolidated SubsidiariesYears ended March 31

Additional Unrealized gains and losses Foreign currenCommon Stock Paid-in Capital Retained earnings on securities, net translation adjust

Shares Millions of yen Millions of yen Millions of yen Millions of yen Millions of ye

Balance at March 31, 2003 24,925,273 ¥7,898 ¥10,520 ¥11,740 ¥(35) ¥(1,266

Merger 1,234,200 10 613 — — —

Stock option exercised 747,000 244 243 — — —

Net income — — 2,372 — —

Dividend declared ¥10.00 per share — — — (256) — —

Increase (Decrease) due to change in scope of consolidation — — — (75) — —

Transfer to additional paid-in capital — — — (29) — —

Purchase of treasury common stock — — — — — —

Others, net — — — — 348 (872

Balance at March 31, 2004 26,906,473 ¥8,152 ¥11,376 ¥13,752 ¥313 ¥(2,138

Stock issued 2,813,000 1,386 1,440 — — —


Net income — — — 2,375 — —


Bonuses to directors and corporate auditors — — — (36) — —

Increase (Decrease) due to change in scope of consolidation — — — 15 — —


Others, net — — — — (88) 233

Balance at March 31, 2005 30,470,473 ¥9,783 ¥13,060 ¥15,835 ¥225 ¥(1,905


Net income — — — 1,525 — —


Bonuses to directors and corporate auditors — — — (27) — —


Others, net — — — — 127 1,51

Balance at March 31, 2006 30,962,473 ¥9,962 ¥13,239 ¥16,936 ¥352 ¥(394


jsp_ar_fs_戻し 06.8.10 14:31 ページ 22

23JSP CORPORATION

Unrealized gains and losses Foreign currency Less treasury commonRetained earnings on securities, net translation adjustment stock, at cost Total shareholders’ equity

Thousands of U.S. dollarMillions of yen Millions of yen Millions of yen Shares Millions of yen Millions of yen (Note 1)

¥11,740 ¥(35) ¥(1,266) (33,245) ¥(17) ¥28,840 $245,509

— — — — — 623 5,304

— — — — 487 4,140

2,372 — — — — 2,372 20,195

(256) — — — — (256) (2,178)

(75) — — — — (75) (642)

(29) — — — — (29) (244)

— — — (19,049) (15) (15) (130)

— 348 (872) — — (524) (4,453)

¥13,752 ¥313 ¥(2,138) (52,294) ¥(32) ¥31,423 $267,501

— — — — — 2,826 24,066

— — — — — 489 4,157

2,375 — — — — 2,375 20,218

(271) — — — — (271) (2,310)

(36) — — — — (36) (310)

15 — — — — 15 138

— — — (2,782) (3) (3) (30)

— (88) 233 — — 145 1,229

¥15,835 ¥225 ¥(1,905) (55,076) ¥(35) ¥36,963 $314,659

— — — — — 358 3,054

1,525 — — — — 1,525 12,986

(397) — — — — (397) (3,383)

(27) — — — — (27) (230)

— — — (1,963) (2) (2) (17)

— 127 1,511 — — 1,638 13,938

¥16,936 ¥352 ¥(394) (57,039) ¥(37) ¥40,058 $341,007

jsp_ar_fs_戻し 06.8.10 14:31 ページ 23

24 JSP CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWSJSP Corporation and Consolidated SubsidiariesYears ended March 31



2006 2005 2006

CASH FLOWS FROM OPERATING ACTIVITIES:Income before income taxes and minority interests ¥ 2,731 ¥ 4,652 $ 23,247Adjustments to reconcile income before income taxes and minority interests

to net cash provided by operating activities;Depreciation and amortization 4,657 4,838 39,641Impairments (Note 11) 76 — 647Amortization of consolidation adjustments (40) (40) (339)Loss on disposal of fixed assets, net 298 165 2,536(Gain) Loss on write down of investments in securities (187) (184) (1,593)Interest and dividends receivable (129) (94) (1,096)Interest expense 263 348 2,235Effect of equity in earning of affiliates, net 328 66 2,796Changes in operating assets and liabilities;

(Increase) decrease in notes and accounts receivable (21) (599) (178)Increase (decrease) in notes and accounts payable (174) 58 (1,483)(Increase) decrease in inventories 129 (1,331) 1,101

Payment of bonuses to directors and corporate auditors (27) (36) (230)Other (185) 522 (1,575)

Subtotal 7,719 8,365 65,709Proceeds from interest and dividend income 147 85 1,249Interest paid (274) (346) (2,332)Income taxes paid (1,605) (1,417) (13,656)

Net cash provided by operating activities 5,987 6,687 50,970

CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of non-current assets (6,641) (6,113) (56,527)Proceeds from sales of non-current assets 144 81 1,226Proceeds from sales of investment in securities 160 246 1,359Purchases from minorities with subsidiaries’ shares — (6) —Other (63) (266) (539)

Net cash used in investing activities (6,400) (6,058) (54,481)

CASH FLOWS FROM FINANCING ACTIVITIES:Increase (decrease) in short-term bank loans, net (369) 140 (3,143)Increase (decrease) in long-term loans, net 1,014 (2,559) 8,635Increase (decrease) in bonds, net (1,322) 178 (11,254)Proceeds from common stock issued 359 3,282 3,054Purchases of treasury common stock (2) (3) (18)Cash dividends (397) (272) (3,381)Cash dividends to minority interest (122) (88) (1,038)Proceeds from minorities’ investment in capital — 31 —

Net cash provided by financing activities (839) 709 (7,145)

EFFECT OF TRANSLATION ON CASH AND CASH EQUIVALENTS 569 8 4,842INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (683) 1,346 (5,814)CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 6,341 4,607 53,981INCREASE IN CASH AND CASH EQUIVALENTS FOR

NEW CONSOLIDATED SUBSIDIARIES — 388 —

CASH AND CASH EQUIVALENTS AT END OF PERIOD ¥ 5,658 ¥ 6,341 $ 48,167

Note: The accompanying notes are an integral part of these statements.

jsp_ar_fs_戻し 06.8.10 14:31 ページ 24

25JSP CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The accompanying consolidated financial statements have been prepared

from the financial statements filed with the Ministry of Finance as

required by the Securities and Exchange Law of Japan, in accordance

with accounting principles and practices generally accepted in Japan.

The accompanying consolidated financial statements include the

accounts of JSP Corporation (the“Company”), and its domestic and

foreign subsidiaries which are more than 50% owned. Significant

intercompany balances and transactions have been eliminated in

consolidation. Investments in affiliates more than 15% owned are

accounted for under the equity method of accounting.

Solely for the convenience of the reader outside Japan, certain items

presented in the original financial statements have been reclassified in the

accompanying financial statements. In addition, the accompanying notes

include certain information which is not required under generally

accepted accounting principles and practices in Japan, but is presented

herein as additional information. The accompanying consolidated finan-

cial statements have also been presented in U.S. dollars by translating all

yen amounts for the year ended March 31, 2006 using an exchange rate

of ¥117.47 to $ 1.

1. BASIS OF PRESENTING CONSOLIDATED FINANCIAL STATEMENTS

(a) Cash equivalents

Cash equivalents includes all highly liquid time deposits, generally with

original maturities of three months or less, that are readily convertible to

known amounts of cash and are so short that they have rarely the risk of

changing values due to floating rates of the interest.

(b) Marketable securities and investments in securities

Securities registered on the exchange market are stated at fair value.

The differences between the market value and the book value of securi-

ties are charged to income, so the market value is expected to be hard to

recover a book value. And if it is considered to be recoverable, the differ-

ences will be presented in “Shareholders’ Equity.”

On the other hand, in case that the market value is more than the

book value, all the gain realizable will be presented in“Shareholders’

Equity.”

(c) Inventories

Inventories of the Company and its domestic subsidiaries are stated at

cost determined on a moving average method.

Overseas subsidiaries are stated as lower of cost or market, being

determined on a first-in first-out method.

(d) Property, plant and equipment

Property, plant and equipment are principally stated at cost.

Depreciation of the Company’s and domestic subsidiaries’ property,

plant and equipment is basically calculated using the declining-balance

method over the estimated useful lives of the respective assets as

prescribed in the Corporation Tax Law of Japan, and depreciation of

overseas subsidiaries’ is computed using the straight-line method over

the estimated useful lives.

Expenditures for new facilities and those that substantially extend

the useful lives of existing plant and equipment are capitalized.

Maintenance and repairs including minor replacement and

betterment are charged to income as incurred.

Amortization of intangible assets is calculated by using the straight-

line method.

(e) Allowance for doubtful accounts

Allowance for doubtful accounts is provided for an amount, which is

considered the risk of account receivables not to be collected.

(f) Research and development expenses

Research and development expenses are charged to income as incurred.

(g) Income taxes

Deferred taxation is provided, using the asset-and-liability method, on all

material timing differences between accounting and taxation purposes.

A deferred tax benefit is, however, not recognized in the financial state-

ments except for a reasonable expectation of its realization.

(h) Appropriation of retained earnings

Under the Japanese Commercial Code, retained earnings are appropri-

ated after approval obtained at the shareholders’ meeting in the following

year, except for semi-annual cash dividends which may be paid by

a resolution of the Board of Directors and subject to provisions in the

Articles of Incorporation of the Company.

The appropriations of year-end retained earnings are reflected in the

books of account in the following year.

(i) Translation of foreign currency amounts

Foreign currency amounts are translated into Japanese yen on the basis

of the period-end rate for the balance receivable and payable, and on

the basis of the period-average rate for the transactions. The amount of

translation adjustment is presented in“Shareholders’ Equity,” and

included in“Minority Interests in Consolidated Subsidiaries.”

(j) Amortization of consolidation adjustments

It is the difference between the cost and the net assets of the acquired

subsidiary, which is being amortized over a period within 20 years from

the date of acquisition. The unamortized amount is presented in

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

jsp_ar_fs_戻し 06.8.10 14:31 ページ 25

26 JSP CORPORATION

5. SHORT-TERM BANK LOANS AND LONG-TERM DEBTS

Short-term bank loans are represented substantially by six-month notes

bearing interest at weighted average rates of 0.89% and 0.81% at March

31, 2006 and 2005, respectively.

Long-term loans from banks and insurance companies with weighted

average rates of 1.56%, are maturing serially through 2013.

4. SECURITIES

Securities at March 31, 2006 and 2005 consist of the following:

Millions of yen

As of March 31, 2006 Unrealized Realized Fair BookCost Gain Loss gain (loss) value value

Investments in securities:

Marketable equity securities ¥1,282 ¥597 ¥ 5 ¥ — ¥1,874 ¥1,874

Millions of yen



Marketable equity securities ¥1,228 ¥390 ¥10 ¥(1) ¥1,607 ¥1,607

Thousands of U.S. dollars (Note 1)



Marketable equity securities $10,912 $5,083 $ 42 $ — $15,953 $15,953

“Long-term liabilities.” If these amounts have little significant impact on

the consolidated statements of income, they are charged to income as

acquired.

(k) Impairment

In connection with its long-lived assets, the Company and its subsidiaries

shall determine whether or not to recognize impairment losses for assets

or an asset group that exhibit the potential for impairment loss. If certain

indications of asset impairment exist and the carrying amount of an asset

or asset group exceeds the sum of the undiscounted future cash flows

expected, based on the residual economic life of the asset or asset group,

an impairment loss shall be recognized. The impairment loss shall be

charged to income in the fiscal period and calculated after deducting

from the carrying amount, the amount that is estimated as recoverable.

3. INVENTORIES

Inventories at March 31, 2006 and 2005 consist of the following:



2006 2005 2006

Merchandise and finished goods ¥5,108 ¥ 5,260 $43,478

Work in process 520 558 4,428

Raw material and supplies 3,147 2,891 26,791

¥8,775 ¥ 8,709 $74,697

jsp_ar_fs_戻し 06.8.10 14:31 ページ 26

27JSP CORPORATION

Maturities of long-term loans at March 31,2006 are as follows:Thousands ofU.S. dollars


2007 ¥ 2,938 $ 25,012

2008 3,277 27,890

2009 2,663 22,671

2010 1,787 15,216

2011 and after 1,411 12,014

¥12,076 $102,803



2006 2005 2006

Collateralized ¥ 157 ¥ 839 $ 1,337

Unsecured 11,919 9,925 101,466

Less current portion (2,938) (3,422) (25,012)

¥ 9,138 ¥ 7,342 $ 77,791

A summary of assets pledged as collateral for short-term bank loans and long-term debt at March 31, 2006 and 2005 is as follows:



2006 2005 2006

Property, plant and equipment,

at cost less accumulated depreciation ¥4,876 ¥ 5,159 $41,505

6. BONDS

The Company issued bonds totaling ¥500 million (US$ 4,256

thousand) in face value and bearing 0.83% interest without collateral

and guarantee on March 27, 2002. The amount of the bonds is payable

in semi-annual installments of ¥50 million (US$ 426 thousand)

through March, 2007.

On June 27, 2003, the Company issued bonds worth ¥1,605 million

(US$13,663 thousand) at face value and bearing annual 0.61% interest

without collateral and guarantee. The amounts of the bonds are payable

in semi-annual installments of ¥111 million (US$945 thousand)

through 2010.

The Company also issued, by means of financing the working capital,

commercial papers seven times and eight times, bearing interest at

weighted average rates of 0.067% and 0.047% in 2006 and 2005,

respectively. The last commercial paper expired just at the end of this

period. The amount is ¥1,000 million (US$8,513 thousand), and

bearing interest is 0.069% at March 31, 2005.



2006 2005 2006

Current portion of bonds ¥ 322 ¥ 322 $2,741

Commercial papers — 1,000 —

Short-term Bonds 322 1,322 2,741

Bonds 828 1,150 7,049

¥1,150 ¥ 2,472 $9,790

jsp_ar_fs_戻し 06.8.10 14:31 ページ 27

28 JSP CORPORATION

Deferred income taxes are recorded, based upon the material timing differences between accounting and tax purposes. The deferred income taxes at

March 31, 2006 and 2005, respectively are as follows;



2006 2005 2006

Deferred tax assets:

Accounts receivable ¥ 123 ¥ 91 $ 1,046

Provision for bonuses 254 275 2,161

Depreciation 54 51 457

Local taxes payable 32 76 271

Provision for retirement benefits 219 481 1,861

Provision for directors’ retirement benefits 79 88 676

Investments in securities 68 78 582

Membership of golf club 45 45 381

Unrealized losses on securities — 3 —

Net loss carried forward 241 59 2,049

Deduction for foreign taxes 105 — 896

Other 524 271 4,465

Sub total ¥ 1,744 ¥ 1,518 $14,845

Less: Allowance (31) (48) (262)

Total deferred tax assets ¥ 1,713 ¥ 1,470 $14,583

Deferred tax liabilities:

Property, plant and equipment ¥ 512 ¥ 607 $ 4,360

Unrealized gains on securities 241 158 2,049

Other 360 235 3,065

Total deferred tax liabilities ¥ 1,113 ¥ 1,000 $ 9,474

Net deferred tax assets: ¥ 600 ¥ 470 $ 5,109

7. INCOME TAXES

Income tax expenses at March 31, 2006 and 2005 consist of the following:



2006 2005 2006

Current ¥1,002 ¥ 1,719 $ 8,529

Deferred (224) 19 (1,903)

¥ 778 ¥ 1,738 $ 6,626

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29JSP CORPORATION

8. COMMON STOCK

The Company has authorized 46,000,000 shares; 30,962,473 shares and 30,470,473 shares had been issued. And treasury common stock was 57,039

shares and 55,076 shares. As the result, 30,905,434 shares and 30,415,397 shares were trading on the Tokyo Stock Exchange at March 31, 2006 and

2005, respectively.

10. EMPLOYEES’ BENEFITS

1. Schedule of benefit plan liabilities recognized in the balance sheet as of March 31, 2006 and 2005.Thousands ofU.S. dollars


2006 2005 2006

Present value of a defined benefit obligation ¥(5,513) ¥ (5,275) $(46,934)

Pension fund 4,697 3,564 39,988

Subtotal ¥ (816) ¥ (1,711) $ (6,946)

Unrecognized actuarial gains and losses (63) 702 (540)

Unrecognized past service obligation 262 287 2,234

Total ¥ (617) ¥ (722) $ (5,252)

Less: Prepayment of pension cost — — —

Provision for post-retirement benefits ¥ (617) ¥ (722) $ (5,252)

The Company and its domestic subsidiaries bear the cost of half the tax

payable by the employees and their dependents on the welfare pension

scheme and national health insurance.

The Company and its domestic subsidiaries have defined

benefit plans.

9. OPERATING LEASES



2007 ¥ 158 $1,349

2008 147 1,250

2009 88 748

2010 67 570

2011 and after 287 2,445

Total future minimum lease payments ¥ 747 $6,362

The Company and its consolidated subsidiaries have made use of various

facilities, equipment and other under non-cancelable lease agreements.

These leases will expire on various dates through 2027.

Future minimum payments required under operating leases that have

remaining non-cancelable lease terms in excess of one year at March 31,

2006 are summarized as follows:

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30 JSP CORPORATION

12. PER SHARE INFORMATION

Considering stock options exercised, the computations of net income per

share are based on the weighted average number of them. The weighted

average number of shares issued is 30,687 thousand shares and 28,253

thousand shares during the year ended March 31, 2006 and 2005

respectively.

More over considering stock options not to be exercised, the

weighted average number of share is 30,963 thousand shares and 28,825

thousand shares during the years ended March 31, 2006 and 2005,

respectively.

Cash dividends consisted of annual and semi-annual dividends.

Cash dividends per share represented the actual amounts applicable to

the respective years.

The Company made decisions on basic terms to compute post-

retirement benefit obligation and so on.

The discount rate of assumptions used to compute the accumulated

post-retirement benefit obligation are around 2.5% in 2006 and 2005,

respectively. The expected rate of return on plan assets is approximately

2.5% in 2006 and 2005, respectively, considering the interest rate of a

20- year national bond similar to the period while the rest of the average

term each employee will remain.

11. IMPAIRMENT

The Company and its domestic subsidiaries records the charge of the

impairments, totaled ¥76 million (US$647 thousand) in 2006, due to

declining sales volume of some groups in recent these years. The

Company and its domestic subsidiaries consider it difficult to generate

enough cash-flow if the costs remain as they are.

Contingent liabilities as of March 31, 2006 and 2005 are as follows.Thousands ofU.S. dollars


2006 2005 2006

Guarantees given for borrowings:

Affiliates ¥418 ¥ — $3,562

Employees’ housing loans 291 342 2,482

13. CONTINGENT LIABILITIES

2. Schedule of post-retirement cost during the fiscal year ended in March 31, 2006 and 2005.Thousands ofU.S. dollars


2006 2005 2006

Current service cost ¥ 328 ¥ 290 $ 2,788

Interest cost 124 119 1,053

Expected return on plan assets (88) (78) (746)

Recognized actuarial 48 51 408

Recognized past service cost 24 25 211

Post-retirement cost ¥ 436 ¥ 407 $ 3,714

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31JSP CORPORATION

The following appropriation of retained earnings of the Company as of March 31, 2006 was approved at the shareholders’ meeting held on June

29, 2006.Thousands ofU.S. dollars


Cash dividends, ¥6.00 ($0.05) per share ¥ 185 $1,578

14. SUBSEQUENT EVENTS

16. SEGMENT INFORMATION

(a) Information by business activities

The Company and its consolidated subsidiaries operate in four segments, which consist of “Sheets,” “Beads,” “Boards” and “Others,” based on both

the kind of products and the similarities of manufacturing methods.

2006 Millions of yen

EliminationSheets Beads Boards Others Total or adjustment Consolidated

I. Net sales

Outside ¥27,735 ¥48,889 ¥7,189 ¥6,031 ¥89,844 ¥ — ¥89,844

Intersegment sales and transfer 0 75 6 366 447 (447) —

Total net sales 27,735 48,964 7,195 6,397 90,291 (447) 89,844

II. Operating cost (excluding undivided cost) 27,271 45,187 6,904 6,304 85,666 (438) 85,228

III. Operating income (before undivided cost) 464 3,777 291 93 4,625 (9) 4,616

Undivided cost 1,591

Operating income 3,025

Total assets ¥23,448 ¥47,355 ¥6,416 ¥4,513 ¥81,732 ¥6,307 ¥88,039

Depreciation and amortization ¥ 1,120 ¥ 2,930 ¥ 297 ¥ 141 ¥ 4,488 ¥ 169 ¥ 4,657

Capital expenditure ¥ 1,617 ¥ 5,203 ¥ 293 ¥ 257 ¥ 7,370 ¥ 176 ¥ 7,546

Directors, executive officers and employees are eligible for stock options. Employees need to meet some definite conditions in order to be entitled.

The schedules of their stock options are as follows.

Amount of shares Payment per shareDate of approval (Thousand) (Yen) Period to be eligible

June 28, 2001 1,716 651 July 1, 2003 through June 30, 2006

June 27, 2002 129 645 July 1, 2004 through June 30, 2007

June 29, 2003 664 760 July 1, 2005 through June 30, 2008

June 29, 2004 117 1,516 July 1, 2006 through June 30, 2009

June 29, 2005 120 1,258 July 1, 2007 through June 30, 2010

15. STOCK OPTIONS

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32 JSP CORPORATION

(b) Net sales to areas outside Japan

The amounts of the Company’s and its consolidated subsidiaries’ net sales to areas outside Japan at March 31, 2006 and 2005, summarized bellow:


To America To Europe To others Total

I. Net sales ¥9,289 ¥8,394 ¥7,909 ¥25,592

II. Consolidated net sales 89,844

Proportion of I to II 10.3% 9.3% 8.8% 28.5%



I. Net sales ¥8,399 ¥8,338 ¥5,474 ¥22,221



2006 Thousands of U.S. dollars (Note 1)


I. Net sales $79,079 $71,454 $67,324 $217,857



Note: Main areas presented in the section above are as follows:

America: the U.S., Canada and Mexico.

Europe: France, Germany, Italy and the U.K.

Other: Asia and Oceania

2006 Thousands of U.S. dollars (Note 1)

EliminationSheets Beads Boards Others Total or adjustment Consolidated

I. Net sales

Outside $236,098 $416,186 $61,195 $51,345 $764,824 $ — $764,824

Intersegment sales and transfer 1 635 55 3,115 3,806 (3,806) —

Total net sales 236,099 416,821 61,250 54,460 768,630 (3,806) 764,824

II. Operating cost (excluding undivided cost) 232,152 384,668 58,773 53,664 729,257 (3,726) 725,531

III. Operating income (before undivided cost) 3,947 32,153 2,477 796 39,373 (80) 39,293

Undivided cost 13,538

Operating income 25,755

Total assets $199,608 $403,125 $54,620 $38,422 $695,775 $53,687 $749,262

Depreciation and amortization $ 9,530 $ 24,942 $ 2,529 $ 1,201 $ 38,202 $ 1,439 $ 39,641

Capital expenditure $ 13,767 $ 44,290 $ 2,498 $ 2,184 $ 62,739 $ 1,496 $ 64,235

Note: Main Products presented in the business segments are as follows:

Sheets: Styrene Paper, Miraboard, P-Pearl, P-Board, P-Mat, Miramat, Caplon, Acryace, PC Sheet

Beads: PB-Beads, Styrodia, Bumper cores, Side fixtures, Tool boxes, P-Block/ARPRO, L-Block, Green Block

Boards : Mirafoam, Miraplank, Mirakku Panel, J-Slit

Others : Foam Core, Super Foam, Plastic regeneration machines, Processing machines, Laminators, General packaging materials

jsp_ar_fs_戻し 06.8.10 14:31 ページ 32

CORPORATE DATA

BOARD OF DIRECTORS,

EXECUTIVE OFFICERS,

AND STATUTORY AUDITORS

Representative Director, ChairmanMasaaki Harada

Representative Director, PresidentRokurou Inoue

Representative Director, Chief Financial OfficerKen Toyoguchi

DirectorAkira Ohira *1

Directors, Senior Managing Executive OfficersYuichi IinoKouichi TeranishiKatsuhiro Matsumoto

Directors, Executive OfficersKouzo SanoMasahiro Harada

Executive OfficersMasahiko KishidaKen ShiosakaHisao MoriTakashi MatsukasaHiroshi UsuiNobuaki YamazakiHitoshi Yamamoto

Corporate Statutory Auditors Isao IkedaShigehisa KimuraYukio Sakai *2

Toshirou Kouda

*1 Representative Director, Chairman of Mitsubishi

Gas Chemical Company, Inc.

*2 Executive Officer of Mitsubishi Gas Chemical

Company, Inc.

(As of June 30, 2006)

CORPORATE DATA

Head Office4-2, Marunouchi 3-chome, Chiyoda-ku, Tokyo100-0005, JapanTel: 81(3) 6212-6300Fax: 81(3) 6212-6302

Date of EstablishmentJanuary 24, 1962

Paid-in Capital¥10,040 million (As of June 30, 2006)

Number of Employees647 (As of March 31, 2006)

Stock Exchange ListingTokyo Stock Exchange

Transfer Agent of Common StockMitsubishi UFJ Trust and BankingCorporation4-5, Marunouchi 1-chome, Chiyoda-ku, Tokyo100-0005, Japan

PlantsHokkaido (Hokkaido)Kanuma (Tochigi)Kashima (Ibaraki)Hiratsuka (Kanagawa)Yokkaichi (Mie)Kansai (Hyogo)Kyushu (Kumamoto)

NET WORKS

JapanSubsidiaries• Japan Xanpak Corporation

• KP Corporation

• Japan Repromachine Industries Co., Ltd.

• Seihoku Packaging Company

• Japan Acryace Corporation

• JSP Molding Corporation

• MIRAX Corporation

• Kansai Plast Corporation

• Yuka Sansho Kenzai Co., Ltd.

• Hokuryo Eps Co., Ltd.

• Honshu Petrochemistry Co., Ltd.

An affiliate• Sanin Kasei Co., Ltd.

North AmericaSubsidiaries• JSP International Group Ltd. (USA)

• JSP International, LLC. (USA)

• JSP Mold, LLC. (USA)

• JSP Licenses, Inc. (USA)

• JSP International Specialty Foams, LLC. (USA)

• JSP Automotive Interiors, LLC. (USA)

• JSP International de Mexico, S.A. de C.V. (Mexico)

EuropeSubsidiaries• JSP International SARL (France)

• JSP International GmbH & Co. KG (Germany)

• JSP International GmbH (Germany)

• JSP International SRL (Italy)

• JSP International s.r.o. (Czech Republic)

An affiliate• Sealed Air Packaging S.A.S. (France)

AsiaSubsidiaries• KOSPA Corporation (Korea)

• Taiwan JSP Chemical Co., Ltd. (Taiwan)

• JSP Foam Products, Pte. Ltd. (Singapore)

• JSP Foam Products Hong Kong Limited (China)

• JSP Plastics (Wuxi) Co. Ltd. (China)

• JSP International Trading (Shanghai) Co., Ltd. (China)

33JSP CORPORATION

表2-3_戻し 06.8.10 14:35 ページ 2

PRINTED IN JAPAN

4-2, Marunouchi 3-chome,Chiyoda-ku, Tokyo 100-0005, JapanTel: 81 (3) 6212-6300Fax: 81 (3) 6212-6302URL: http://www.co-jsp.co.jp

For further information, please contact the Financeand Accounting Dept. at81 (3) 6212-6312, or at the above address.

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17JSP CORPORATION

Cash FlowsNet cash provided by operating activities amounted to ¥5,987 million (US$ 51.0 million), a decrease of ¥700

million compared with the previous fiscal year. Major components of this total included: ¥2,731 million

(US$ 23.2 million) in income before income taxes and minority interests, ¥4,657 million (US$ 39.7 million) in

depreciation and amortization, ¥328 million (US$ 2.8 million) from the effect of equity in earnings of affiliates,

net, and ¥174 million in decrease in notes and accounts payable.

Net cash used in investing activities amounted to ¥6,400 million (US$ 54.5 million), an increase of ¥342

million compared with previous fiscal year. The expenses involved in the acquisition of property and equipment to

enhance production facilities were a key factor in this increase.

Net cash used in financing activities amounted to ¥839 million (US$ 7.1 million), compared with ¥709

million provided by financing activities in the previous fiscal year. Principal income amounts were ¥1,014 million

(US$ 8.6 million) from long-term loans, net, and proceeds from common stock issued of ¥359 million

(US$ 3.1million). Principal outlays were ¥1,000 million (US$ 8.5 million) for commercial paper, ¥397 million

(US$ 3.4 million) for cash dividends, ¥369 million (US$ 3.1 million) for short-term bank loans, net, and ¥322

million for the redemption of bonds.

Taking all these factors into account, cash and cash equivalents at the end of the fiscal year under review totaled

¥5,658 million (US$ 48.2 million), down ¥683 million (US$ 5.8 million) from a year earlier.

4,000

3,000

2,000

1,000

0

-1,000

-2,000

Free Cash Flows

02 03 04 05 06

(millions of Yen)

-413

7,000

6,000

5,000

4,000

2,000

0

3,000

1,000

Net IncomeDepreciation and AmortizationOperating Cash Flows

02 03 04 05 06

(millions of Yen)

4,657

1,525

5,987

12

9

6

3

0

Operating Cash Flows toNet Sales Ratio

02 03 04 05 06

(%)

6.7

jsp_ar_本文_戻し 06.8.10 14:45 ページ 17

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