Annual Report 2012

ANNUAL REPORT 2012 Evolution into a Company that Creates Added Value Profile Contents Ranking as one of Japan’s leading chemical companies, Showa Denko at a Glance 1 Showa Denko K.K. operates in the six major segments of Consolidated Five-Year Summary 2 petro chemicals, chemicals, electronics, inorganics, aluminum, Message from the Management 3 2012 Achievements of Medium-Term and others. Business Plan “PEGASUS” 7 The Showa Denko Group has been implementing its Research and Development 10 medium-term consolidated business plan “PEGASUS” since Review of Operations 14 January 2011. Despite the severe business environment owing Corporate Social Responsibility 18 to the slowdown in overseas economies centering on Europe Responsible Care Activities 19 and China, and prolonged appreciation of the yen, we took Board of Directors 20 Corporate Governance 21 various measures in 2012 under “PEGASUS.” Specifically, we Consolidated Six-Year Summary 24 promoted the capacity expansion project at our U.S. graphite Management’s Discussion and Analysis 25 electrode subsidiary, and decided to establish a new graphite Consolidated Balance Sheets 28 electrode production site in China. We also established an Consolidated Statements of Income 30 aluminum casting subsidiary in Malaysia for our Shotic Consolidated Statements of Comprehensive Income 31 business. Consolidated Statements of To establish ourselves as a chemical company with a strong Changes in Net Assets 32 presence on the global market, we will continue to promote Consolidated Statements of Cash Flows 33 growth strategies in which our HD media and graphite elec- Notes to Financial Statements 34 trode businesses serve as our “Wings.” We will also work to Report of Independent Certified improve our business portfolio and build up strong and diversi- Public Accountants 54 Major Subsidiaries and Affiliates 55 fied businesses on a global scale, thereby establishing leading Corporate Data 56 positions in various market segments. Showa Denko aims to earn the full trust and confidence of the market and society, always managing operations based on the principles of corporate social responsibility. The Company is also committed to the principles of Responsible Care and is vigorously carrying out an action plan to protect the environment as well as health and safety. Forward-Looking Statements This annual report contains statements relating to management’s projections of future profits, the pos- sible achievement of the Company’s financial goals and objectives, and management’s expectations for Vision the Company’s product development program. The Company cannot guarantee that these expectations and projections will be realized or correct. Actual We at the Showa Denko Group will provide products and ser- results may differ materially from the results antici- vices that are useful and safe and exceed our customers’ pated in the statements included herein due to a variety of factors, including such economic factors expectations, thereby enhancing the value of the Group, giving as fluctuations in foreign currency exchange rates satisfaction to our shareholders, and contributing to the sound as well as market supply and demand conditions. The timely commercialization of products under growth of international society as a responsible corporate development by the Company may be disrupted or citizen. delayed by a variety of factors, including market acceptance, the introduction of new products by competitors, and changes in regulations or laws. The foregoing list of factors is not inclusive. Showa Denko at a Glance Petrochemicals Olefins (ethylene and propylene) and organic chemicals (vinyl acetate mono- 24.6% mer, ethyl acetate, and allyl alcohol) Chemicals Functional polymers, industrial gases (liq- uefied carbon dioxide, dry ice, oxygen, 16.4% nitrogen, and hydrogen), basic chemicals (liquid ammonia, acrylonitrile, and chloro- prene rubber), and electronic chemicals (specialty gases) Electronics Hard disks (HDs), compound semiconduc- tors (LED chips), and rare earth magnetic 21.1% alloys Net Sales 2012 ¥739.8 billion Inorganics Graphite electrodes and ceramics (aluminum hydroxide, and alumina) 8.5% Aluminum Rolled products (high-purity foils for capacitors), extruded products (cylinders 11.9% for laser beam printers (LBPs)), forged products, heat exchangers, and beverage cans Others Lithium-ion battery (LIB) materials, build- ing products, and general trading 17.5% Note: The above ratios of respective segments have been calculated after adding the amount of adjustments to net sales. Showa Denko K.K. 1 Consolidated Five-Year Summary Showa Denko K.K. and Consolidated Subsidiaries Thousands of December 31 Millions of yen U.S. dollars (Note 1) 2012 2011 2010 2009 2008 2012 For the year Net sales ........................................................................... ¥739,811 ¥854,158 ¥797,189 ¥678,204 ¥1,003,876 $ 8,544,825 Operating income (loss) ...................................................... 28,108 47,357 38,723 (4,983) 26,792 324,646 Net income (loss) ............................................................... 9,368 16,980 12,706 (37,981) 2,451 108,196 Depreciation and amortization (Note 2) ................................ 46,232 49,413 50,678 54,358 60,439 533,975 At year-end Total assets ....................................................................... 933,162 941,303 924,484 958,303 962,010 10,778,029 Total net assets .................................................................. 314,966 295,745 284,965 286,722 265,459 3,637,863 Yen U.S. dollars (Note 1) Per share Net income (loss)—primary (Note 3) ................................... ¥ 6.26 ¥ 11.35 ¥ 8.49 ¥ (29.44) ¥ 1.96 $0.07 Net income—fully diluted (Note 3) ...................................... — 11.20 — — — — Net assets ......................................................................... 182.24 168.33 161.47 163.11 192.85 2.10 Cash dividends (applicable to the period) ............................. 3.00 3.00 3.00 3.00 5.00 0.03 Number of employees at year-end ..................................... 9,890 11,542 11,597 11,564 11,756 Notes: 1. Yen amounts have been translated into U.S. dollars, for convenience only, at the rate of ¥86.58 to US$1.00, the approximate rate of exchange at December 31, 2012. 2. Effective from the year ended December 31, 2011, the Companies have applied “Accounting Standard for Disclosures about Segments of an Enterprise and Related Information” (Accounting Standards Board of Japan (ASBJ) Statement No. 17, issued on June 30, 2010) and “Guidance on the Accounting Standard for Disclosures about Segments of an Enterprise and Related Information” (ASBJ Guidance No. 20, issued on March 21, 2008). The segment information for the year ended December 31, 2010, which is restated under the accounting standard, is disclosed for comparison purposes. 3. Net income per share has been computed based on the average number of shares of common stock outstanding during the respective fiscal year. Fully diluted net income per share additionally assumes the conversion of the convertible bonds. Diluted net income per share for 2012 and 2010 was not disclosed because the Company had no securities with dilutive effects. Although the potential for stock dilution exists, diluted net income per share for 2009 was not disclosed because the Company posted a net loss. Diluted net income per share in 2008 was not disclosed because there was no dilutive stock at December 31, 2008. Operating Income by Segment Net Income (Billions of yen) (Billions of yen) 60 20 50 15 40 30 10 20 10 5 0 0 -10 -20 -40 2008 2009 2010 2011 2012 2008 2009 2010 2011 2012 L Electronics L Petrochemicals L Electronics L Petrochemicals L Chemicals L Inorganics L Chemicals L Inorganics L Aluminum L HQ costs L Aluminum L Others L Adjustments See note 2. 2 A Unique Chemical Company Message from the Management Kyohei Takahashi, Chairman of the Board Hideo Ichikawa, President and CEO Our business environment in 2012 Under these circumstances, the Showa Aluminum segment, which transferred the remained severe, with the Japanese econo- Denko Group is aiming to strengthen its automotive air-conditioner heat exchanger my facing a difficult situation due to the presence on the global market by imple- business. Operating income decreased slowdown in overseas economies amid the menting its medium-term consolidated busi- 40.6%, to ¥28,108 million, due to lower sovereign debt crisis in Europe, lower eco- ness plan PEGASUS launched in 2011. The profit in all segments except Electronics, in nomic growth in China, strong appreciation Group is promoting its growth strategies which profit increased due to higher ship- of the yen, and the resultant decline in with the hard disk (HD) media and graphite ment volumes of HD media. Net income exports. These factors combined to cause electrode businesses as its “Wings,” while decreased 44.8%, to ¥9,368 million. negative growth of the Japanese economy aiming to build up strong and diversified Dividends of ¥3.00 per share were paid to in the third quarter of 2012. In the petro- businesses on a global scale and establish shareholders on record at the end of Decem- chemicals industry, severe production leading positions on the market. ber 2012. We made capital investments to adjustments continued, reflecting stagnant In 2012, the Group recorded consolidated ensure future growth, expanding the capacity demand in Japan and China. The electronic net sales of ¥739,811 million, down 13.4% for producing HD media, centering

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