Annual Report 2008

Delivering Profitable Growth: The Challenge

http://www.teijin.co.jp

ANNUAL REPORT Cert no. SA-COC-001217 2008 Printed in Japan using soy ink and waterless printing. Covers and pages 1–48 are printed on FSC mixed-source paper. Issued 2008.7 Year ended March 31, 2008 Teijin Up Close

A History of Growth and Development

1918 Rayon

1952 Trading and retail

1958 Polyester fi bers

1960 Polycarbonate resin

1971 Aramid fi bers

1971 PET fi lm

90 Years of Taking on New Challenges

1973 Pharmaceuticals

1982 Home health care

1983 IT

1990 PEN fi lm

1999 Carbon fi bers

Focus on Cutting-Edge High Performance Materials and Health Care

Disclaimer Regarding Forward-Looking Statements Any statements in this document, other than those of historical fact, are forward-looking statements about the future performance of Teijin and its Group companies, which are based on management’s assumptions and beliefs in light of information currently available and involve risks and uncertainties. Actual results may differ materially from these forecasts. Potential risks and uncertainties include, but are not limited to, domestic and overseas economic conditions, such as consumer spending and private capital expenditures; currency ex- change rate fl uctuations, notably with the Japanese yen, U.S. dollar, Asian currencies, the euro and other currencies in which Teijin operates its international business; direct and indirect restrictions imposed by other countries; fl uctuations in the market prices of securities in which Teijin has substantial holdings; and Teijin’s ability to maintain its strength in many products and geographical areas, through such means as new product introductions, in a market that is highly competitive in terms of both price and technology, pertinent to the industry to which the Company primarily belongs. Aramid Fibers: No.1in terms of global market share In terms of global market share, Teijin is also second in carbon fibers, third in polycarbonate resin and fi rst in PET fi lm, underscoring its extensive lineup of top- class high-performance materials.

Home Oxygen Therapy: No.1in terms of domestic market share Teijin is No. 1 in Japan for ventilators for sufferers of sleep apnea syndrome (SAS), evidence of its commanding share of the domestic home health care market. Teijin’s core ethical drugs are also domestic market leaders. In both areas, Teijin is taking steps to expand into overseas markets.

Teijin’s history is one of turning challenges into opportunities. Established in 1918, Teijin was the fi rst company in Japan to manufacture rayon. Since then, the Company has expanded into various other fi elds and today has a diverse product portfolio that includes synthetic fibers, films, plastics, pharmaceuticals, home health care, and trading and retail. Since 1999, Teijin has implemented a series of groundbreaking management reforms with the aim of creating an advanced corporate system of corporate governance. These include establishing an Advisory Board, restructuring its Board of Directors, introducing a corporate offi cer system and adopting a holding company structure. By focusing on the new triple bottom line of business strategies, corporate governance and corporate social responsibility (CSR), we will continue working to ensure our ability to manage the Company in an environmentally sound manner.

commercially viable chemical World’s fi rst recycling system Teijin plans to develop systems not only for polyester products but also for polycarbonate products and bioplastics. Here and elsewhere, the Company continues to capitalize on its outstanding technological capabilities to help address global environmental issues.

Breakdown of Net Sales Breakdown of Operating Income

Health care 2008 30% 2008 Chemical Chemical materials Health care materials 60% 11% 59% (Year ended March 31)

Teijin Limited 1 Our Mission

2 Teijin Limited In Harmony with Society

1. Our goal is to achieve growth in corporate value as a corporate Group that is worthy of the trust and the expectations of our shareholders and customers. 2. We strive to earn the understanding and empathy of society at large. 3. We place a high priority on safety and the preservation of the global environment.

The Teijin Group is committed to enhancing the quality of life of Corporate people everywhere through its deep Philosophy insight into human nature and the application of its creative abilities.

Empowering our People

1. We encourage our employees to achieve self-realization by developing and exercising their abilities to the fullest. 2. Together with our employees, we strive to address the challenges of fostering creativity and innovation. 3. We work to nurture a richly diverse corporate community.

The promise of the Teijin brand is given voice in the statement, “Human Chemistry, Human Solutions.” We pledge to develop chemical technologies that are friendly to both people and the global environment and to keep providing solutions that deliver the real value that society and our customers expect.

Teijin Limited 3 Financial Highlights

Contents Long-Term Results Trends (Years ended March 31) (Index; 1998=100) Teijin Up Close Inside cover Our Mission 02 Operating Income 240 Financial Highlights 04 Net Sales 170 At a Glance 06 130 To Our Shareholders 08 100 Interview with the CEO 10

Special Feature: Net Income ECO CIRCLE™ 14

1998 2008

Business Group Review 20 Synthetic Fibers 20 Business Films and Plastics 24 Strategies Pharmaceuticals and Home Health Care 28 The Challenge of Achieving Trading and Retail 31 Sustainable Growth IT and New Products, etc. 32 Management System 33 Corporate CSR Corporate Governance 34 Governance Risk Management 40 Research and Development 42 Long-Term Key Ratios Trends Corporate Social (Years ended March 31) (%) (Times) Responsibility 46 1.59 10 9.7 1.5 Human Resources 48 1.40 1.38 8.5 1.18 ROA 6.5 Financial Section 49 1.08 1.21 7.9 5.9 7.7 1.02 5.2 5 4.2 1.0 11 Year-Summary 50 4.0 3.5 3.2 0.95 3.3 0.88 Management’s 3.3 0.81 0.83 3.1 2.7 2.8 2.7 3.1 Discussion and Analysis 52 2.4 3.0 D/E ratio 0 0.5 0.3 Consolidated Financial Statements 62 ROE -5 0

1998-7.1 2008 ■ ROA (left scale) ■ ROE (left scale) ■ D/E ratio (right scale)

4 Teijin Limited Operating and Net Income Down Operating Income Up in the Synthetic Fibers Segment Despite Record Net Sales • High-performance fi bers: Continued to drive growth. • Polyester fi bers: Operating loss shrank. • Net sales continued to rise, owing to the increasingly diverse Synthetic Fibers nature of Teijin’s businesses. (Billions of yen) 400 7.7% 40 • Operating income was down for the second consecutive year, 5.6% 5.9% 293 318 300 279 261 30 owing to a decrease in the Films and Plastics segment. 248 24 3.7% 3.8% 200 17 20 • Net income declined sharply, refl ecting an impairment loss 15 9 11 and other factors. 100 10 (Billions of yen) 0 2004 2005 2006 2007 2008 0 1,200 77 75 80 1,010 1,037 Net sales (left scale) Operating margin Operating income (right scale) 938 875 908 65 900 60 52 Pharmaceuticals and Home Health Care 39 Segment Reported Improved Results 600 34 40 Pharmaceuticals and Home Health Care 25 (Billions of yen) 300 20 113 114 13 120 106 40 8 9 93 97 90 30 18.5% 18.7% 18.3% 18.7% 19.0% 0 0 22 60 19 21 20 2004 2005 2006 2007 2008 17 18 30 10 Net sales (left scale) Operating margin (right scale) Operating income (right scale) 0 2004 2005 2006 2007 2008 0 Net sales (left scale) Operating margin Operating income (right scale)

Decisive Investment Films and Plastics Segment Teijin continued to invest decisively in promising businesses, notably high-performance fi bers and Continued to Struggle Key Points pharmacenticals and home health care. Plastics: Rising raw materials prices and fuel costs (Years ended March 31) continued to push operating income down. Films and Plastics (Billions of yen) (Billions of yen) 100 400 80 85 76 15.5% 288 294 75 67 300 265 60 216 11.8% 53 54 187 41 50 200 40 33 35 36 8.8% 6.9% 30 31 2.2% 19 34 20 25 100 20 4 0 0 0 2004 2005 2006 2007 2008 2004 2005 2006 2007 2008 Investment in property, plant and equipment Investment in R&D Net sales (left scale) Operating margin Operating income (right scale)

Years ended March 31 2004 2005 2006 2007 2008 2008 Billions of yen Millions of U.S. dollars(1) Operating Results Net sales ¥875 ¥908 ¥938 ¥1,010 ¥1,037 $10,347 Operating income 39 52 77 75 65 650 Net income 8 9 25 34 13 126 Financial Position Total assets 915 852 944 1,000 1,016 10,141 Interest-bearing debt 357 277 298 295 325 3,246 Shareholders’ equity 294 291 339 367 391 3,903 Yen U.S. dollars(1) Per Share Data Net income ¥ 9.0 ¥ 9.7 ¥ 26.6 ¥ 36.8 ¥ 13.2 $ 0.131 Shareholders’ equity 316.8 313.3 364.8 395.2 397.3 3.965 Cash dividends applicable to the year 6.5 6.5 7.5 10.0 8.0 0.080 Key Ratios Return on assets (ROA)(2) 4.0% 5.9% 8.5% 7.7% 6.5% Return on equity (ROE)(2) 3.0% 3.1% 7.9% 9.7% 3.3% Debt-to-equity ratio 1.21 times 0.95 times 0.88 times 0.81 times 0.83 times

Notes: 1. The U.S. dollar amounts represent translations of Japanese yen, for convenience only, at the rate of ¥100.19 to U.S.$1.00, the prevailing exchange rate at March 31, 2008. 2. Throughout this annual report, ROE is calculated as net income divided by average shareholders’ equity, and ROA is calculated as operating income divided by average total assets. Shareholders’ equity = Total net assets at year-end - Stock acquisition rights at year-end - Minority interest in consolidated subsidiaries at year-end.

Teijin Limited 5 At a Glance

Segment Operating Results (Years ended March 31)

(Billions of yen) 400 40 317.6 293.3 300 278.8 30 247.5 261.0 7.7% 5.6% 5.9% 24.4 200 20 3.8% Synthetic Fibers 3.7% 17.3 14.5 100 10 9.1 10.5

0 0 2004 2005 2006 2007 2008 Net sales (left scale) Operating margin Operating income (right scale)

(Billions of yen) 400 80 15.5% 264.5 287.9 300 293.8 60 11.8% 216.4 200 186.5 40 Films and Plastics 41.0 33.9 2.2% 8.8% 6.9% 100 20 19.1 20.2 4.0 0 0 2004 2005 2006 2007 2008 Net sales (left scale) Operating margin Operating income (right scale)

(Billions of yen) 120 113.1 114.4 40 105.6 93.1 97.1 90 30 Pharmaceuticals 21.7 17.3 18.1 19.3 21.2 60 20 and 18.5% 18.7% 18.3% 18.7% 19.0% Home Health Care 30 10

0 0 2004 2005 2006 2007 2008 Net sales (left scale) Operating margin Operating income (right scale)

(Billions of yen) 400 10.0 261.2 256.3 266.5 265.9 300 6.1 259.8 7.5 5.3 5.3 5.4 5.3 200 5.0 Trading and Retail 2.1% 2.4% 2.0% 2.0% 2.0% 100 2.5 0 0 2004 2005 2006 2007 2008 Net sales (left scale) Operating margin Operating income (right scale)

(Billions of yen) 80 11.4% 10.0 60 54.8 7.5 47.8 47.2 48.8 44.8 4.3 IT and New Products, etc. 40 5.5 3.8 3.8 3.5 5.0 20 8.8% 2.5 6.9% 8.0% 7.8% 0 0 2004 2005 2006 2007 2008 Net sales (left scale) Operating margin Operating income (right scale)

6 Teijin Limited Business Group and Summary of Operations Principal Products

Polyester fi bers Maximizing technologies that are Textiles Polyester Fibers among the top in the industry to PEN fi bers offer high-value-added products. Polyester monofi laments Polyester raw materials Polyester fi bers

Expanding its aramid and carbon Aramid fi bers High Performance fi bers businesses—both of which Carbon fi bers Fibers it dominates in terms of market share. Artifi cial leather Aramid Carbon fi bers fi bers

Focusing on expandig global industry-leading polyethylene PET fi lm terephthalate (PET) and PEN fi lm Films proprietary polyethylene naphthalate (PEN) fi lms Processed fi lm businesses. PET fi lm

Polycarbonate resin Capitalizing on polycarbonate Plastics resin that is the Asian market PET resin leader. PEN resin

Polycarbonate resin

Ethical drugs for treating bone and Developing ethical pharmaceuticals joint disease, respiratory disease Pharmaceuticals in three key therapeutic areas. and cardiovascular and metabolic disease

Home oxygen therapy (HOT) devices, A pioneer in Japan’s home health ventilators for treating sleep apnea care market and a domestic Home Health Care syndrome (SAS) and fracture healing market leader. devices Home oxygen therapy (HOT) device

Leveraging position as one Sales, import and export of fi bers of Japan’s leading trading raw materials, apparel, industrial companies specializing in fi bers Trading and Retail materials, and fi lms and plastics products to expand operations products. overseas.

Promoting the development of total IT solutions and services, IT solutions, software packages, IT including systems management, content and services and the provision of content.

Teijin Limited 7 To Our Shareholders

Fiscal 2007, ended March 31, 2008, marked the 90th anniversary of the Teijin Group. In the nine decades since our establishment, we have continuously sought to take on new challenges and push the boundaries of technological innovation, thus providing groundbreaking products that refl ect changing imperatives. These efforts have been guided by our commitment to the concept of “monozukuri,” that is, to quality, expertise and manufacturing excellence.

Results for the Period Our basic motivation for technological innovation is our deep consideration for the impact of corporate activities on the environment and for the quality of life of people everywhere. This is refl ected in our brand statement, “Human Chemistry, Human Solutions.” This succinct phrase exemplifi es our mission, which we see as being to advance chemical technologies that are friendly to both people and the global environment, as well as to rally our businesses and technologies to provide the products and services that resonate with our customers and with society at large.

In the period under review—the second year of our current three-year medium-term management plan—we reported record-high consolidated net sales of ¥1,036.6 billion, up 2.7% from fi scal 2006. Despite robust sales, operating income was down 13.2%, to ¥65.2 billion. Results were fi rm in the Synthetic Fibers segment—supported by brisk demand for aramid and carbon fi bers, among others— and the Pharmaceuticals and Home Health Care segment. In the Films and Plastics segment, in contrast, efforts to cut costs were insuffi cient to offset rising raw materials prices, particularly for plastics, and fuel costs, and the impact of currency exchange rate fl uctuations. The deteriorating profi tability of our U.S. fi lms joint venture also hindered results. The downturn in the U.S. economy— triggered by the subprime loan crisis—and the dollar continuing to lose value, along with the rising prices for resources and energy, all remain major causes for concern and continue to cloud the outlook for the coming year.

Fufi lling Responsibilities I regret being unable to respond to the expectations of investors in fi scal 2007. We have earnestly examined the situation we currently fi nd ourselves in and pledge to take prompt, bold steps to restore profi tability in the short term. Guiding the Company forward, we will also step up efforts to counter the impact of rising raw materials prices and fuel costs and to reduce administrative expenses.

As the new president of Teijin, I see my primary obligation as being to ensure sustainable growth, while at the same time to reinforce our operating foundation to ensure it is capable of nourishing that growth far into the future. Despite the harshness of the operating environment at present, we will continue to invest decisively in businesses we have positioned as major growth drivers under our current medium-term management plan. In particular, we will allocate investment to aramid fi bers, carbon fi bers, polyethylene napthalate (PEN) products (fi lm, resin and fi bers) and other promising materials businesses, as well as pharmaceuticals and home health care. In the area of pharmaceuticals, in April 2008 we obtained offi cial approval to market TMX-67, a new treatment for gout and hyperuricemia, from European Commission authorities. We are hoping this innovative drug will also be approved in the United States at some time in late 2008. In home health care, we

8 Teijin Limited To Our Shareholders

secured a foothold in the U.S. market by acquiring local home health care services companies on the East Coast and later on the West Coast of the United States, and are currently exploring the possibility of entering the European market. In line with our stated commitment to managing the Company in an environmentally sound manner, we will continue addressing key environmental issues with the aim of fulfi lling our corporate responsibility in this regard.

Looking Ahead During the period under review, we began formulating our next medium-term management plan. The new plan, which will guide us for the fi rst few years of the fi nal decade leading up to our centenary, will focus equally on assertive investment in promising growth businesses and environment-themed new businesses—such as bioplastics—and withdrawal from persistently unprofi table businesses.

We have coined the term “creative management” to describe a management style that emphasizes the generation of new value. As we endeavor to transform this concept into reality over the short to medium term, we will continue to promote technological innovation as a prerequisite to growth in the future. We are confi dent that this approach will enable us to build a vital, profi table Teijin Group, as well as increase corporate value.

Shigeo Ohyagi President and CEO

Teijin Limited 9 An Interview with Shigeo Ohyagi

in the fi lms business. The plastics business also struggled, registering an increase in net sales but a decline in operating income. The Pharmaceuticals and Home Health Care segment again reported robust results and signifi cant progress in R&D. Talking specifi cally about operating income—despite the negative impact of approximately ¥20 billion owing to rising raw materials prices and fuel costs—efforts by individual business groups to reduce costs, increase shipments and adjust product prices contributed an estimated ¥26 billion. Nonetheless, the impact of strategic investments aimed at diversifying the nature of our businesses and other factors translated to a decline in overall consolidated operating income. Looking back at results in recent years, it is clear that operating income was fettered by a deviation in the performance of our fi lms and plastics businesses, notably polycarbonate resins. Both fi lms and plastics have previously been key growth drivers. Given continued upward pressure on the price of crude oil—in part a consequence of soaring demand in emerging markets, particularly India and the People’s Republic of China (PRC)—and a signifi cant infl ux of capital into the markets for commodity resources, our outlook for fi lms and plastics remains cautious. In these and other businesses, we recognize the need to respond by promoting a shift toward high-value-added products and, with that, a reengineering of the Teijin Group’s overall business portfolio. This is something I’d like to go into in more detail later.

Basic Strategy: Ensure Sustainable Increase in Costs due to Rising Raw Materials Prices and Growth by Reengineering our Fuel Costs and Operating Income Business Portfolio (Billions of yen) Rising Prices for Resources and Energy Continue to 120 77 75 80 Squeeze Materials Businesses 20 ■ How do you evaluate Teijin’s performance in 90 17 65 60 52 fi scal 2007? 39 27 Looking at the overall picture, the deterioration of our 60 40 operating environment—primarily a consequence of rising 33 raw materials prices and fuel costs—served to highlight the 30 20 discrepancies among our various businesses in terms of 20 performance. In the Synthetic Fibers segment, the High 0 0 Performance Fibers Business Group reported increases in 20042005 2006 2007 2008 net sales and operating income, as fi rm demand supported Increase in costs due to rising raw Operating income materials prices and fuel costs (left scale) (right scale) solid growth in the aramid and carbon fi bers businesses, both of which performed largely in line with expectations. The Polyester Fibers Business Group was another bright Adding Value by Revamping Teijin’s Business spot as successful efforts to revise sales prices and a shift Portfolio toward high-margin products contributed to an increase ■ In a rapidly changing operating environment, how in net sales and a substantial reduction of the group’s will Teijin achieve sustainable growth in profi tability operating loss. In the Plastics and Films segment, fl agging and corporate value? demand in the U.S. fi lms market had a major impact, Teijin has many businesses based on cutting-edge resulting in a decline in net sales and operating income technologies. In aramid and carbon fi bers, for instance, we

10 Teijin Limited Operating Income and Operating Margin for Operating Income and Operating Margin for Operating Income and Operating Margin for Aramid Fibers Carbon Fibers Pharmaceuticals and Home Health Care (Years ended March 31) (Years ended March 31) (Years ended March 31) (Billions of yen) (%) (Billions of yen) (%) (Billions of yen) (%) 30.0 28.8 30.0 8 20 24 30.0 27.2 27.9 21.7 17.3 21.2 24.8 26.0 16.3 23.7 19.3 22.1 5.9 6.2 17.3 18.1 22.5 22.5 6 14.5 15 18 22.5 18.3 18.5 18.7 18.3 18.7 19.0 15.3 4.2 15.0 15.0 4 8.5 10 12 15.0 12.1

2.0 7.5 7.5 2 5 6 7.5

2.2 Interview with the CEO 0.4 0 0 0 0 0 0 20042005 2006 2007 2008 20042005 2006 2007 2008 20042005 2006 2007 2008

Operating income (left scale) Operating income (left scale) Operating income (left scale) Operating margin (right scale) Operating margin (right scale) Operating margin (right scale) expect to continue seeing signifi cant growth, stimulated by companies involved in only one industry have an easier time an increasing emphasis on reducing resource consumption formulating clear-cut business strategies, but the truth of and product weight. We will continue to allocate investment the matter is that many such companies are eventually to these businesses. That said, looking ahead 10 years or swallowed up by the waves of technological innovation. so, it is likely that we will be overtaken by producers from Among the many virtues of the conglomerate business emerging markets even in our most profi table materials model is a greater essential ability to adapt fl exibly to businesses. Accordingly, we will invest decisively with the changes in the operating environment. That said, adapting aim of staving off challenges from other manufacturers and fl exibly demands clear benchmarks for determining which establishing a value chain that extends to fi nished products, businesses to target for the selective investment of resources. thereby adding value. Another task will be to shift our Teijin has set several such benchmarks for evaluating portfolio toward products made with raw materials that are the viability of a business. These are operating margin, ROA not derived from petroleum—although this is a task that will (calculated using operating income), ROE, free cash fl ow, require a little time. Teijin Shareholders’ Value Added (TSVA) (net income less Our portfolio also includes a number of service the cost of capital) and sales growth. For a business to businesses that are not affected by economic fl uctuations enhance corporate value, it must generate returns in excess and in which we enjoy signifi cant competitive advantages. of capital cost. With this in mind, we set a basic required These include pharmaceuticals and home health care, IT, “hurdle” for profi tability for each individual business group, and retail and trading. Noncyclical by nature—although thereby demanding that each consistently demonstrate the nonetheless affected by, among others, changes in value of its existence within the conglomerate. demographic composition and disease patterns and technological advances—these businesses evolve along Securing Market Confi dence through Transparent different lines than materials businesses. Management Practices As a conglomerate with both materials and service ■ One often hears the term “conglomerate discount.” businesses, we are able to maintain a solid balance as we What must you do to transform this into a strive to reinforce our operating foundation and cultivate “conglomerate premium?” new, high-growth businesses. By investing strategically Conglomerate discount refers to the general tendency of in noncyclical businesses, we will strive to create a more the market to undervalue the stocks of conglomerates by profi table, value-added business portfolio that is largely overemphasizing certain poorly performing individual impervious to the impact of changes in business conditions, businesses and/or by ignoring businesses with robust fl uctuating energy prices and other variable factors. results and outstanding potential. Regardless of the reason, the resulting evaluation of the conglomerate’s stock is Capital Effi ciency as a Key Performance Benchmark inappropriate because it fails to consider the true value ■ With a conglomerate business model like Teijin’s, of the company as a whole. what are the benchmarks for increasing The fi rst condition for transforming a conglomerate corporate value? discount into a conglomerate premium is that the policies Companies generally owe their existence to years of diligent and strategies management has communicated to the management efforts. There is a tendency to think that market must be put into practice as promised and the

Teijin Limited 11 market encouraged to assess the outcome thereof fairly and accurately. In other words, it is important to ensure a management approach that emphasizes practical application and transparent disclosure. Second, when allocating management resources, the selectivity and concentration of investment must be clearly visible even to those on the outside looking in. We must articulate which businesses we aim to grow and which products we are prioritizing, focus decisive investment therein and successfully boost operating results. Third, it is important for Teijin, as a manufacturer, to generate ever-greater technological synergies and innovations by promoting collaboration among its various businesses and with external organizations, and to realize unparalleled R&D capabilities.

Future Focus on Cutting-Edge High-Performance Materials and Health Care, and Businesses Related to the Environment, Water and Energy ■ Looking ahead, what sort of business portfolio do Strategies for Individual Businesses you envision for Teijin and how will you go about building it? Global Expansion of the Pharmaceuticals and Home We are in the process of deliberating over the content of a Health Care Businesses ■ new long-term management vision that will guide our efforts Among noncyclical businesses, how do you see until fi scal 2018. One key task—which we plan to complete Pharmaceuticals and Home Health Care evolving? by February 2009—is to elucidate the business portfolio we We will step up efforts to expand into global markets in conceive for Teijin 10 years from now. both businesses. In pharmaceuticals, this effort will center We are currently addressing this task from two on TMX-67, a new drug candidate that the European perspectives. One of these is to identify industries that we Commission approved for marketing in pertinent European expect to grow on a global scale and design a business countries in April 2008. The fi rst new drug in the global portfolio around businesses that are pertinent to these market for gout and hyperuricemia treatments in four industries. The other is to ensure an effi cient balance decades, TMX-67 is highly anticipated by medical between materials and service businesses so as to ensure professionals. We are currently proceeding with efforts a consistently stable operating foundation that is capable of to obtain regulatory approval for this drug in the United sustaining the Company at a certain level, even in the event States—the world’s biggest market for gout treatments— of currently unforeseeable circumstances that could result and aim also to secure approval eventually in the in a drastically altered operating environment. Based on the Republic of Korea (ROK) and Japan. TMX-67 is the fi rst results of these efforts, we will endeavor to cultivate new, internationally trademarked major drug developed by Teijin high-growth global businesses. and we look forward to growing it gradually over the long Based on our vision for Teijin a decade from now, term. On another front, we will also consider the possibility we will formulate a new medium-term management plan of advantageous acquisitions in the domestic market. between 2009 and 2011. We will set concrete qualitative In the home health care business, we have begun to targets in three-year intervals, as well as outline plans for expand our home oxygen therapy (HOT) business—which R&D and capital investments and a development pipeline commands a 60% share of the domestic HOT market— for the specifi c products, business models and technologies overseas. By maximizing the Teijin business model, we have that will be necessary to sustain individual businesses. established a foothold in the U.S. market and are taking The Teijin Group has always thrived on change. This steps to do the same in Europe and other parts of Asia. ability has consistently enabled us to reorganize our business portfolio as necessary, withdrawing from Concentration and Selectivity in Materials Businesses ■ businesses that were potentially damaging to corporate What are your plans for your various materials value, while at the same time diversifying into new areas. businesses? In the area of high-performance fi bers, markets relevant to ® and ® aramid fi bers, Tenax® carbon fi bers and Teonex® PEN fi bers offer particularly outstanding

12 Teijin Limited growth potential. Accordingly, we will continue to promote BIOFRONT® heat-resistant PLA fi ber. We also acquired 50% the development of new applications with a view to ownership of NatureWorks LLC, the world’s leading capitalizing on expanding demand. In plastics, we are maker of bioplastics derived entirely from plants, and are seeing demand for molded polycarbonate resin products moving ahead with assertive development efforts. In the for new applications, including molded windows, which area of high-performance electronics materials, we were selected for use on the new Series N700 Shinkansen proceeded with efforts to cultivate markets for a heat- bullet trains, while demand for ELECLEAR® clear electroconductive resistant lithium ion battery (LIB) separator. In existing fi lm is increasing for use on touch panels. In polyester fi bers businesses, we continued to promote decisive R&D aimed buisness, we are accelerating efforts to cultivate applications at developing new materials, cultivating new applications for nanofi bers—a new core product—and BIOFRONT® and reinforcing downstream products.

heat-resistant polylactic acid (PLA) fi bers. In fi lms, we are To accelerate new business development, we also Interview with the CEO benefi ting from expanded demand for use as refl ective reinforced the theme-specifi c management of business sheets for liquid crystal display (LCD) panels, back sheets development efforts. We also completed the Teijin for solar cells and other new applications. In all our Technology Innovation Center in Japan, the purpose materials businesses, our fundamental approach will of which is to conduct research aimed at ensuring the continue to be to develop new products that respond to practical viability of new businesses. The center is designed market needs. Moving ahead, we will explore potential new to function as a base for advanced technological research business models for these businesses and endeavor to and as an open laboratory. It will also serve to facilitate expand our role to include the development of fi nished collaboration and joint efforts with customers and academic products, rather than remaining simply a supplier of institutions aimed at developing and integrating materials, in a bid to add value and remain abreast of advanced technologies. rapid market changes.

Transforming Earnings Structure of Polycarbonate Effective Leadership: The Key to Products Businesses Increasing Corporate Value ■ Do you agree with the opinion that polycarbonate Providing Leadership that Combines Vision and products have become commoditized? a Sense of Urgency It is true that in the case of polycarbonate products for ■ As the new president of Teijin, how will you optical applications, competition for market share continues exercise leadership as you seek to increase with very little regard for profi tability, as a result of which corporate value? operating conditions remain harsh. Although global demand I believe that leadership demands a balanced combination for polycarbonate products is expected to keep increasing of vision and prudence. Teijin’s overarching vision is to at a rate of approximately 7% annually, we must be attain “global excellence.” To this end, it is essential that particularly heedful of the impact of a steady stream of new our corporate value be recognized as among the highest market entrants. In addition to maintaining investment in in the world. Accordingly, we must achieve continuous, R&D aimed at cultivating new applications, it is crucial for sustainable growth that exceeds the profi tability bar— us to shift our focus to high-value-added compounds and based on the cost of capital—that we have set. As a processed products. In the years ahead, we expect the consistently favorable operating environment is unique properties of polycarbonate resin to attract new inconceivable, we must effectively manage risk and demand from the automotive and other industries. remain circumspect. Accordingly, we will reinforce our downstream product Teijin has set forth a corporate philosophy comprising capabilities, shifting our focus from simple polycarbonate three key phrases: “Quality of Life,” “In Harmony with resins to compounds and molded products. Society” and “Empowering Our People,” and has consistently adhered to the concepts of effective corporate Enhancing Ability to Develop New Businesses governance and socially responsible corporate activities ■ What has enabled Teijin to accelerate new to ensure fair, equitable and transparent management. As business development? a result, today’s Teijin is a forward-looking, open-minded We have taken steps to narrow the focus of new business company—evidenced by the number of younger development to three key themes—highly thermally employees who participate in our ongoing “I’ll do it!” conductive materials, bioplastics and high-performance campaign, a voluntary effort that seeks to improve business electronics materials. In the area of bioplastics, we practices. It is my fi rm belief that the ultimate key to Teijin’s completed development of our fi rst product, a car seat future is to ensure it remains an organization staffed by fabric made entirely with high-quality, highly durable positive, lively and passionate individuals.

Teijin Limited 13 The Outstanding Potential of Teijin’s ECO CIRCLE™ System

Developing a Practical Chemical Part Ⅰ Recycling Technology for Polyester Weaving the Loop

ECO CIRCLE™: The Beginning Part Ⅱ 1. A Strengthening the Loop 2. Broadening the Circle of Cooperation

Developing 100% Polyester Products Part Ⅲ Expanding the Loop

Developing Chemical Recycling Technologies Part Ⅳ for Polycarbonate and PLA Creating New Loops

In 2005, Teijin’s pioneering ECO CIRCLE™ closed-loop system for collecting and recycling polyester products received a Good Design Award in Japan in the New Frontier Design category. The Good Design Awards recognize products that are outstanding examples of design and that contribute to the improvement of life and the advancement of industry. In selecting ECO CIRCLE™ for the award, the jury acknowledged the outstanding potential of this innovative system, praising Teijin for its commitment to commercialization, as well as its contribution to a recycling-oriented society. From the beginning, we recognized that simply having developed a technology would not enable us to contribute in a meaningful manner to greater awareness of recycling unless we could transform this technology into a viable system that could be expanded. The fi rst hurdle was to increase recognition of ECO CIRCLE™ in society at large and encourage greater participation. The next was to increase the system’s breadth by promoting the development of more easily recyclable materials and products and by using the technology to expand the scope of ECO CIRCLE™ to include products other than polyester. We succeeded in the development of our innovative technology for the closed-loop recycling of polyester fi bers. Now, by having invited leading environmentally aware companies and organizations to participate as ECO CIRCLE™ members, we have established a fi rm basis for the widespread acceptance of ECO CIRCLE™. As we move forward, our technological strengths, business development prowess and ability to act decisively will be put to the test as we strive to expand and strengthen the circle of cooperation. The challenge continues.

14 Teijin Limited Developing a Viable Chemical Recycling Technology for Polyester Part Ⅰ Weaving the Loop

Chemically decomposing materials that are made from chemical recycling system. Other issues that demanded 100% polyester and recycling them back into a raw consideration were economic feasibility and overall material is not a particularly diffi cult process. Teijin has environmental impact. been chemically decomposing and recycling polyester yarn waste generated during the production of polyester fi bers ■ Taking on the Challenge for more than four decades. Until 2000, however, thermal Building on its accumulated in-house chemical recycling and materials recycling processes were the only options technologies, Teijin succeeded in developing a for recycling polyester fi bers. groundbreaking, commercially viable chemical recycling technology for polyester. Underscoring the scale of ■ Obstacles to Practical Application technological innovation involved, Teijin has fi led Most polyester textiles are not 100% pure polyester, but applications for 57 patents to date. contain other substances, including cotton, other polymers, Development efforts began in 1992—the same year dyes and other additives, and processing agents. Such Teijin published the Teijin Group Global Environmental materials are necessary to impart desired textures, colors Charter—as one way to give substance to its philosophy,

and other properties. The diffi culty of separating out such set forth in the charter, of coexistence with the Special Feature: substances in advance is the principle reason for the environment. Despite hard times, exacerbated by the signifi cant degradation of the polyester that occurs with outbreak of the Asian Financial Crisis in 1997, in 1998 Teijin materials recycling. Chemical recycling requires an even inaugurated the Chemical Recycling Committee and

more sophisticated method for separating out and expanded the scale of its efforts. In 2000, Teijin announced ECO CIRCLE removing such substances. This has traditionally been that it had succeeded in developing a new practical the biggest obstacle to the development of a practical chemical recycling technology. ™

Developer of Teijin’s Chemical Recycling Technology for Polyester

Koji Mukai Teijin’s chemical recycling technology has two constituent technologies. One of these is, of course, the technology for methanolysis with ethylene glycol decomposition. The second is the technology that enables the extraction and elimination of contaminants, notably dyes and other processing agents. Dyes for polyester fi bers enjoy a reputation for being highly colorfast, as the dyes used disperse well and bond fi rmly to fi ber molecules. Separating out and removing such dyes—a process called decolorizing—involves fi rst applying heat to the fi bers, which makes it easier to extract dye from between the expanded fi ber molecules, and then using a solvent to remove all traces of the dye. Teijin’s success in developing an effi cient decolorization technology and format was instrumental to the realization of a practical chemical recycling technology.

Recovered Chopped polyester Pellets Decolorized Polyester raw Polyester chips ECOPET PLUS® ECOPET® polyester products pellets material (DMT) (Filament) (Fiber products) Closed-Loop Recycling

Chemical Recycling Chemical recycling refers to treating a material chemically to recover its component raw materials, which are then reused. Teijin developed the world’s fi rst practical chemical recycling technology for polyester that facilitates the recovery of polyester raw materials of comparable purity to virgin materials derived from petroleum, thus making it possible to recycle and reuse the materials many times over.

Thermal recycling Incinerate for reuse as fuel One-time energy recovery

Materials recycling Dissolve materials for reuse In most cases, one cycle (reuse is limited due to deterioration of quality)

Chemical recycling Recover raw materials for reuse Endless cycle (recovered raw materials can be reused repeatedly)

Teijin Limited 15 ECO CIRCLE™: The Beginning Part Ⅱ A. Strengthening the Loop

No matter how advanced its chemical recycling technology the development of ECO CIRCLE™, a system for the for polyester, Teijin realized that the stability of the loop collection and chemical recycling of used polyester would be undermined unless it could ensure a steady products back into the raw material. With the aim of supply of used polyester products. This realization led to establishing the ECO CIRCLE™ system—and enhancing the breadth of the loop—Teijin created a three-stage plan of action. Three-Stage Plan of Action ■ Cooperate with Environmentally Aware Companies The fi rst stage focused on securing channels for the ™ Secure ECO CIRCLE partners collection of used polyester products. As no offi cial system Cooperate with other environmentally aware Stage 1 exists, our fi rst task was to secure ECO CIRCLE™ partners, companies in Japan to facilitate the effective that is, companies that can cooperate on this front. The recovery of polyester products only condition for being an ECO CIRCLE™ partner is that they can assume responsibility for collecting a substantial Expand geographical focus volume of used polyester products. To this end, Teijin Cooperate with environmentally aware selected employee uniforms of environmentally aware Stage 2 companies overseas companies as our main collection target and began promotional efforts in cooperation with apparel manufacturers. At present, Teijin collects and chemically recycles a signifi cant number of employee uniforms, and its Seek a broader range of participants roster of ECO CIRCLE™ partners continues to grow. The Cooperate with environmentally aware Stage 3 second and third stages were to expand the geographical individuals and organizations and promote focus of efforts and seek a broader range of participants global implementation with the aim of expanding and strengthening the circle of cooperation.

What is ECO CIRCLE™?

Developed by Teijin in 2000, ECO CIRCLE™ is the world’s fi rst closed-loop recycling system for polyester products. Full-scale efforts to promote the system began in 2002. Today, all of the 80 registered USER ECO CIRCLE™ participants are manufacturers of apparel and/or Collection sportswear that cooperate in the development of products made Sales from materials that can be recycled, the collection of used polyester products and the reuse of recycled fi bers. Used polyester products collected by participating companies are sent to Teijin Fibers’ recycling facility in Matsuyama, Japan. There MEMBER MEMBER the products are chemically decomposed and returned to dimethyl terephthalate (DMT) and processed to create new polyester fi bers. The facility has an annual recycling capacity of 10,000 tons— Chemical recycling equivalent to approximately 10 million uniforms. As the life cycle assessment (LCA) conducted for ECO CIRCLE™ Product Shipment shows, chemical recycling of polyester has only a minimal impact on the development in large lots environment. To further reduce that impact, ECO CIRCLE™ partners are encouraged to store collected products and ship in large lots.

16 Teijin Limited B. Broadening the Circle of Cooperation

■ Collaborative Efforts with Patagonia recognition and acceptance by consumers, Teijin is today The second stage of the ECO CIRCLE™ plan of action working to promote ECO CIRCLE™ products. Efforts to was to broaden our geographical focus with the aim of date have included collaboration with retailers and outdoor expanding and strengthening the circle of cooperation. apparel manufacturers to develop products aimed at Here Teijin began to look for potential partners overseas, environmentally aware consumers and publicizing these focusing on companies with advanced environmental efforts through the media and by staging special responsibility programs and globally recognized brands. related events. It was here that Teijin’s excellent partnership with outdoor gear and apparel company Patagonia, Inc., began. Noted internationally for its commitment to product quality and environmental activism, Patagonia had begun exploring Patagonia’s Participation in ways to make its entire garment line recyclable, or made ECO CIRCLE™ from recycled products, by 2010. Patagonia’s participation in ECO CIRCLE™ began in 2005 with the launch of a 2005 Capilene® baselayers ® program for collecting worn-out Capilene baselayers for Special Feature: ® recycling into new garments. Later, Patagonia broadened 2006 Polartec fl eece clothing the scope of the program to include polyester fl eece and 2008 Hard-shell jackets hard-shell jackets. Today, Teijin is working to further

advance its relationship with Patagonia and to develop ECO CIRCLE similar relationships with other leading companies. ™ ■ Targeting Environmentally Aware Consumers Teijin’s efforts to promote cooperation with environmentally aware companies during the fi rst stage of the ECO CIRCLE™ plan of action were given a boost by such external factors as Japan’s Law Concerning the Promotion of Procurement of Eco-Friendly Goods and Services by the State and Other Entities—commonly known as the Law Capilene® baselayers, on Promoting Green Purchasing. With the understanding manufactured by that further expansion of ECO CIRCLE™ demands its Patagonia

Environmental Impact of Chemical Recycling (Life Cycle Assessment)

MJ*/DMT (tons) CO2: tons J = joule (unit of energy measuring heat ) DMT: tons 1MJ = 1 million joules

2.103 (Incinerated) Reduces energy Reduces CO2 72,422 consumption by 84% emissions by 77%

2.080 11,962 0.978

DMT derived from DMT produced using DMT derived from DMT produced using petroleum Teijin chemical recycling petroleum Teijin chemical recycling Dimethyl terephthalate (DMT) is the raw material used to make polyester.

In full operation, the ECO CIRCLE™ system makes it possible for Teijin to reduce its annual consumption of crude oil by 39,000 tons and natural 3 gas by 24 million Nm . CO2 emissions are approximately 3.2 tons less per ton of polyester than for polyester produced from petroleum.

Teijin Limited 17 Developing 100% Polyester Products Part Ⅲ Expanding the Loop

Teijin recognizes that increasing the polyester content ■ ELK® of polyester products is key to making collection and A high-performance cushion material currently used recycling easier—because it reduces the need to separate primarily for automobile and train seats, ELK® was out other materials—and thereby to expanding and developed by Teijin with the aim of creating a polyester strengthening the circle of cooperation. With this in mind, material that outperformed polyurethane, traditionally the Teijin is working to develop 100% polyester materials material of choice for seat cushions due to its excellent and has broadened its focus beyond apparel to include resilience, durability and formability. Developed using two such products as fully recyclable interior materials for kinds of polymer with different melting points and a unique automobiles, trains and other applications. structure, ELK® is fl exible yet holds its shape well and offers outstanding resilience and durability. The material Comment from Noboru Watanabe, Developer of ELK® is also signifi cantly more breathable than polyurethane, meaning it doesn’t get as sweaty, and is 20% lighter. “Unlike conventional These properties have attracted attention from railway nonwoven textiles, ELK® uses operators in Japan seeking materials that reduce carriage two kinds of polymer with weight—thereby reducing energy consumption and different melting points and improving acceleration—and which can be recycled. features a unique tangle- The material is currently used for seat cushions in spring structure in which approximately 20% of the railway carriages in use nationwide. elastic fi bers and spring- structured fi bers are entangled ■ ECO STORM® stereoscopically. ELK® is used Hard-shell jackets and rainwear for outdoor and sporting in combination with Teijin’s Solotex® polytrimethylene purposes demand materials that are more waterproof, terephthalate (PTT) fi ber in a composite-structure water repellent, wind resistant and highly wickable than cushion surface material, which together enhance the regular outdoor wear. Accordingly, the materials of choice comfort of seated passengers. ELK® and Solotex® to date have been nylon or other fi bers coated or laminated were adopted for use in the new Series N700 with fl uoropolymers or polyurethane. However, the Shinkansen bullet trains, which went into service in July presence of fl uoropolymers or polyurethane means that 2007. At present, we are cultivating new applications materials cannot be chemically recycled. Teijin’s for ELK®, particularly in aircraft and automobile seats.” ECO STORM® is a woven polyester textile made from recycled polyester fi bers that has been laminated with highly durable thin polyester fi lm, thereby creating a 100% polyester material that delivers an outstanding performance ELK®’s unique tangle-spring and is also easily recycled. structure

Comment from Kenji Iwashita, Developer of ECO STORM®

“With ECO STORM®, we are confi dent that we have developed a material that is highly water repellant and waterproof, even in heavy rain, but is also outstanding in terms of texture, appearance

and elasticity.” ECO STORM® textile ECO STORM® jacket

18 Teijin Limited Developing Chemical Recycling Technologies for Polycarbonate and PLA Part Ⅳ Creating New Loops

Teijin is broadening the focus of ECO CIRCLE™ beyond in 2003. In 2005, this technology was tested at the EXPO polyester fi bers and currently collects a variety of polyester 2005 Aichi international exposition, the theme of which products, including used PET bottles and PET fi lm, for emphasized environmental issues. recycling back into polyester raw material. Teijin is also This technology uses water alone as a reactor and developing new collection systems and chemical recycling requires no catalysts or other additives. Normally, PLA is technologies to ensure polyester from a wide range of its produced from L-lactic acid. If its optical isomer, D-lactic polyester products is recycled. acid—a byproduct of the recycling process—is mixed in, Teijin is exploring the potential for recycling its many the physical properties of the polymer deteriorate. Teijin’s non-polyester products and has succeeded in developing technology facilitates the recovery of almost 100% of the chemical recycling technologies for polycarbonate products L-lactic acid and essentially prevents the production of and polylactic acid (PLA). The Company is also close to byproduct D-lactic acid. Production of recycled PLA using commercializing a materials recycling system for notoriously this technology uses over 33% less energy than production diffi cult-to-recycle carbon fi bers. using plant matter.

■ Chemical Recycling of Polycarbonate Products Special Feature: Teijin’s chemical recycling technology for polycarbonate Chemical Recycling Process for products, originally developed in 2004, facilitates an Polycarbonate Products amazing recovery and recycle rate of 96% for key raw Collection of waste polycarbonate products

material bisphenol-A (BPA) as well as minimizes impurities Crushing ECO CIRCLE and reduces impact in terms of energy consumption. In Depolymerization addition to such outstanding performance features, this Purification technology facilitates a signifi cant reduction in recycling Extraction of BPA ™ costs compared with conventional distillation recycling Polymerization processes, thanks to the development of component technologies that make possible alkaline decomposition Polycarbonate resin of polycarbonate at low temperatures and which ensure Finished product the recovery of high-purity BPA from liquid polycarbonate. Chemical Recycling Process for PLA Teijin has built a demonstration plant and is conducting Plant matter tests with a view to commercialization. Decomposition Starch

■ Chemical Recycling of PLA Lactic acid Developed in 2004, Teijin’s chemical recycling technology PLA for PLA was realized through collaborative research with Finished product Japan’s Toyohashi University of Technology, which began

Environment-Friendly Design Certifi cation System Assessment of ELK® Using Teijin’s Environment-Friendly Design Certifi cation System Teijin is promoting environmental initiatives in three categories: Environmental preservation, environment-friendly design and Reduction of Safety environmental business. “Environment-friendly design” refers environmental impact 5.0 at the production 4.0 2.4 to design that seeks to reduce environmental impact at all stage 3.0 stages of a product’s life cycle, from the procurement of raw Energy conservation 5.0 2.0 materials through production, sale, use, recycling and 1.0 2.6 disposal. One initiative in this category has been the 0.0 Conventional products establishment of a proprietary certifi cation system for Teijin ELK® Group products that assesses the environment-friendliness 2.7 Provision of 2.0 Resource conservation of design according to six key criteria. An assessment of information ELK® using the system, for example, reveals that it equals or 2.5 surpasses existing products in Teijin’s lineup on all six counts. Environmental preservation

Teijin Limited 19 Business Group Review

Net Sales and Asset Turnover Operating Income and Operating Margin

(Billions of yen) (Times) (Billions of yen) (%) 400 2.0 40 20

317.6 293.3 300 278.8 1.5 30 15 261.0 247.5 24.4

200 1.0 20 17.3 10 14.5 7.7 0.79 0.75 0.77 0.73 10.5 5.9 100 0.5 10 9.1 5 5.6 3.8 3.7

0 0 0 0 20042005 2006 2007 2008 20042005 2006 2007 2008 Net sales (left scale) Operating income (left scale) Asset turnover (right scale) Operating margin (right scale)

Total Assets and ROA

(Billions of yen) (%) 600 10.0

464.3 450 7.5 406.5 369.7 355.9 335.5 5.6 Synthetic Fibers 300 5.0 4.5 (Years ended March 31) 4.2 3.0 150 2.5

0 0 20042005 2006 2007 2008 Total assets (left scale) ROA (right scale)

Capital Expenditure and R&D Expenses and as Depreciation and Amortization a Percentage of Net Sales

(Billions of yen) (Billions of yen) (%) 60 12 8 53.5 10.4 9.8

45 42.2 9 6 7.2 7.4 33.8 6.9

30 24.2 27.0 6 4 24.2 24.6 21.8 22.9 19.6 3.3 3.3 2.8 2.8 2.6 15 3 2

0 0 0 20042005 2006 2007 2008 20042005 2006 2007 2008 Capital expenditure R&D expenses (left scale) Depreciation and amortization R&D expenses as a percentage of net sales (right scale)

ROA and asset turnover data is not included for 2004 because of a difference in segmentation in the year ended March 31, 2003.

20 Teijin Limited Polyester Fibers Basic Strategy Business Group Grow the business into a stable-profi t SBU by maximizing the functional properties of polyester fi bers. By leveraging the innate potential of polyester fi bers and Teijin’s top- class polymer and processing technologies, we are shifting toward value-added products. We are also striving to reengineer this business by taking initiatives to reduce costs, withdrawing from products that are less commercially viable and revising sales prices in response to rising raw materials prices and fuel costs. Through such actions, we are striving to create a stable profi t foundation.

Key Points (For more information, see page 22)

Operating Operating loss shrank signifi cantly results: Business Growth market, but oversupply of products continues Yoshinaga Karasawa General Manager, Polyester environment: Fibers Business Group Challenges and Achieve an early return to profi tability, shift to highly responses: functional products to create a stable profi t base. Business Group Review High Performance Fibers Basic Strategy Business Group Expand operations and reinforce Teijin’s position as a major player through the decisive investment of resources. We are stepping up efforts to reinforce our position as a major player and to ensure profi table growth. In particular, we are investing resources in the high-growth para-aramid and carbon fi bers businesses, strengthening our ability to offer solutions that respond to customers’ needs, and taking steps to secure world-class product quality and cost competitiveness.

Key Points (For more information, see page 23)

Operating Sales and operating income rose favorably, refl ecting results: steadily increasing results for para-aramid and carbon fi bers products Business Markets for para-aramid and carbon fi bers continue Norio Kamei General Manager, High environment: to grow Performance Fibers Business Challenges and Expand production capacity in line with market growth Group responses: and cultivate new applications. • Augment production facilities for para-aramid fi bers • Build new production line for carbon fi bers

Teijin Limited 21 Polyester Fibers Business Group

Q: How do you evaluate the performance of the Polyester Net Sales and Operating Income (Loss) at Fibers Business Group in fi scal 2007? Subsidiaries in Southeast Asia (Years ended March 31) A: We succeeded in signifi cantly shrinking the operating loss. (Billions of yen) 90 15 Despite persistently harsh operating conditions, owing to rising raw 69.7 77.0 materials prices and fuel costs, continued forceful efforts to revise sales 62.5 65.3 60 54.9 10 prices enabled us to signifi cantly reduce the operating loss and in the second half we only just fell short of returning to profi tability. In Southeast 30 5 Asia, our subsidiary in Thailand returned to profi tability, while our subsidiary 0.6 0 0 in Indonesia sharply reduced its operating loss. -0.4 -0.4 -1.3 -4.1 -5 20042005 2006 2007 2008 Q: How do you view the current operating environment? Net sales (left scale) Operating income (loss) (right scale) A: The market is expected to continue growing, but the oversupply of products continues—a situation that is likely to trigger price adjustments. Polyester Fiber Sales Prices and Raw In fi scal 2007, global production of polyester fi lament yarn and staple fi ber Materials Prices rose more than 10% from the previous period, with each totaling (Cents/kg) approximately 30 million tons. Production also increased by more than 200 POY 150D 10% in the PRC—which accounts for more than 50% of total global 150 production—but overcapacity was still a problem. EG On the costs front, prices for purifi ed terephthalic acid (PTA), the 100 principle raw material in polyester fi bers, remained stable throughout the PTA 50 period. In contrast, production problems and a resulting disruption of the SPREAD supply–demand balance triggered a sharp increase in prices for ethylene 0 2006 2007 2008 glycol (EG), although prices have since begun to stabilize as production March July March July March has recovered. There is a danger, however, that rising crude oil prices will Source: Teijin estimates based on data published by PCI drive prices up again in the coming year.

Q: What do you see as your principal challenges ahead? A: The biggest challenge facing us is to achieve an early return Highly Functional Products as a to profi tability and shift to highly functional products to create Percentage of Polyester Fibers a stable profi t base. Porfolio In the short term, we aim to restore this business to profi tability in fi scal 2008. In the medium to long term, we will shift our focus to highly functional products with the aim of establishing a stable profi t base. In fi scal 2008, we will also continue to implement concrete measures 65% 75% aimed at facilitating further profi t growth in subsequent years, including revising sales prices in response to rising raw materials prices and fuel costs. We recognize that a move to expand highly functional products by 2005 2008 itself is insuffi cient to create a stable profi t base. Accordingly, we will continue to capitalize on our outstanding polymerization and processing technologies to develop innovative and highly competitive proprietary products. To date, related efforts have led to the development of such products as BEWELL®, an ultrafi ne fi ber with durable antistatic properties, and nanofi bers, as well as the establishment of a substantial lineup of functional products. We have also developed a heavy metal-free polyester polymer and are currently exploring the possibility of licensing production technologies out to other major fi bers manufacturers.

BEWELL® (magnifi ed)

22 Teijin Limited High Performance Fibers Business Group

Q: How do you evaluate the performance of the High Net Sales and Operating Income for Performance Fibers Business Group in fi scal 2007? Aramid Fibers (Years ended March 31) A: Steadily increasing results for para-aramid and carbon fi bers (Billions of yen) products led to favorable growth of segment sales and 100 93.2 40 76.7 operating income. 75 67.4 30 61.7 26.0 Results for both aramid and carbon fi bers continued to increase, refl ecting 51.2 22.1 50 18.3 20 efforts to respond effectively to soaring demand, although the growth in 15.3 12.1 operating income was smaller for carbon fi bers, owing to a tax adjustment 25 10 arising from an increase in depreciation and amortization charges. 0 0 20042005 2006 2007 2008 Q: How do you view the current operating environment? Net sales (left scale) Operating income (right scale) A: The markets for para-aramid and carbon fi bers are continuing to grow. Net Sales and Operating Income for In fi scal 2007, demand remained steady for para-aramid fi bers, particularly Carbon Fibers for automotive, safety and protective apparel application. We expect (Years ended March 31) (Billions of yen) demand for para-aramid fi bers to continue rising at approximately 9% 40 38.1 8 34.1 annually for the foreseeable future, driven primarily by demand from these 6.2 28.9 5.9 30 6 industries. While we are seeing a few new companies in the market, para- 23.6 4.2 aramid fi bers is a business that requires considerable expertise, as well as 18.6 20 4 one in which the producer and customer work together to develop 2.0 products to the customer’s specifi cations, so the barriers to new entrants 10 2 are considerable. At this point in time, two companies basically share the 0.4 0 0 market: Teijin and DuPont. 20042005 2006 2007 2008 Accelerated demand for carbon fi bers in the period under review Net sales (left scale) Operating income (right scale) centered on industrial applications, notably wind power generation equipment and automotive-related equipment, and for use in private-sector Business Group Review aircraft. We expect demand to increase by an average of 15% for the foreseeable future, led by intensifying demand for wind power generation equipment and other general industrial applications and for aircraft. Competitors in the carbon fi bers businesses are also expanding, or are Demand for Para-Aramid Fibers planning to expand, production facilities to accommodate demand. As a (Estimate) consequence, we see a temporary easing of the supply–demand situation. (Thousands of tons) 60 9% Q: What do you see as your principal challenges ahead? year 45 A: Our principal challenge is to expand production capacity in line with market growth and cultivate new applications. 30

Against a background of soaring demand, we are constructing new 15 production facilities for para-aramid fi bers that will increase capacity. These facilities will come on line gradually beginning in the second half of 2008. 0 2003 20052007 2010 We are also taking determined steps to cultivate new applications, including Sulfron®, developed for use in tire reinforcements. To respond to increasing demand for carbon fi bers, we began operations at a new large-scale production facility in Japan in April 2008 Demand for Carbon Fibers (Estimate) and are proceeding with construction of a second such plant in Germany (Thousands of tons) that is expected to come on line in August 2009. 60 15% Recognizing the expansion of our mid- and downstream businesses 45 year as an important task, we are taking steps to bolster our prepreg and compounds businesses, which currently account for approximately 20% 30

of the business unit’s sales, with the aim of increasing this share to 40%. 15 In response to increasingly diverse needs, we are also promoting efforts to cultivate demand in new markets. 0 20052006 2007 2012

Teijin Limited 23 Net Sales and Asset Turnover Operating Income and Operating Margin

(Billions of yen) (Times) (Billions of yen) 41.0 (%) 400 2.0 40 40 33.9 293.8 300 287.9 1.5 30 30 264.5

216.4 1.10 20.2 200 186.5 1.0 20 19.1 20 1.02 0.94 1.02 0.84 15.5 11.8 100 0.5 10 10 8.8 4.0 6.9 2.2 0 0 0 0 20042005 2006 2007 2008 20042005 2006 2007 2008 Net sales (left scale) Operating income (left scale) Asset turnover (right scale) Operating margin (right scale)

Total Assets and ROA

(Billions of yen) (%) 400 20

279.6 15.8 300 284.2 15 251.6 239.0 219.7 12.0 Films and Plastics 200 10 8.3 (Years ended March 31) 7.6

100 5

1.5 0 0 20042005 2006 2007 2008 Total assets (left scale) ROA (right scale)

Capital Expenditure and R&D Expenses and as Depreciation and Amortization a Percentage of Net Sales

(Billions of yen) (Billions of yen) (%) 19.9 19.5 20 19.2 8 8 6.8 16.6 16.1 16.6 6.6 15.4 14.8 5.9 6.0 6.1 15 14.5 6 6

10.9 10 4 4 3.2 2.8 2.3 2.3 2.3 5 2 2

0 0 0 20042005 2006 2007 2008 20042005 2006 2007 2008 Capital expenditure R&D expenses (left scale) Depreciation and amortization R&D expenses as a percentage of net sales (right scale)

24 Teijin Limited Films Business Group Basic Strategy

Ensure profi table growth for the Films Business Group by implementing the “hybrid strategy.” The hybrid strategy divides our fi lms operations into growth businesses and existing specialty and commodity products businesses. In line with this strategy, we are investing decisively in growth businesses, allocating resources steadily to improve productivity and profi tability in specialty products businesses, and implementing extensive rationalization measures in commodity products businesses to bolster cash fl ow. We are also applying the hybrid strategy on a regional market basis and have positioned Asia—which continues to exhibit particular promise—as a major growth market.

Key Points (For more information, see page 26) Masaaki Hojo General Manager, Films Operating Net sales and operating income down as results at our Business Groups results: U.S. fi lms joint venture deteriorated Business Weakening demand in Europe and the United States a environment: cause for concern, but demand in Asia remains strong Challenges and Implement a drastic reorganization of our U.S. fi lms responses: joint venture and invest intensively in growth markets

Plastics Basic Strategy Business Group Business Group Review Maintain Teijin’s leading position in Asia to ensure continued high growth and improve product mix and enhance downstream businesses to restore profi tability. Growth in the market for polycarbonate resin is expected to continue, led by the PRC. We will continue to respond decisively to customer needs in the PRC to maintain our leading position in the Asian market. In addition, we will take steps to counter further increase in raw materials prices and fuel costs and secure profi tability by redoubling marketing efforts and achieving cost reductions, as well as by improving our product mix, reinforcing our compounding capabilities and reorganizing our portfolio of downstream products, including polycarbonate sheet, fi lm and molded products.

Key Points (For more information, see page 27)

Kazuyuki Sakai Operating Signifi cant decline in operating income due to rising General Manager, Plastics results: raw materials prices and fuel costs Business Groups Business Growth potential high, but conditions persistently environment: harsh in terms of supply–demand balance and operating costs Challenges and Reorganize business portfolio with the aim of responses: achieving a high profi tability • Reinforce compounding capabilities • Expand downstream products, in which we enjoy a competitive advantage

Teijin Limited 25 Films Business Group

Q: How do you evaluate the performance of the Films Business Group in fi scal 2007? A: The deterioration of results at our U.S. fi lms joint venture prompted declines in net sales and operating income. Sales of mainstay polyethylene terephthalate (PET) fi lm for industrial applications, notably fl at panel displays (FPDs), remained fi rm in Japan. Despite ongoing rationalization efforts, our U.S. fi lms joint venture registered a decline in sales and an operating loss, as a consequence of sluggish demand and rising raw materials prices and fuel costs. In Europe, a persistently strong euro continued to spur imports, thereby intensifying competition. During the period, efforts by local joint ventures to improve profi ts by expanding sales of distinctive products and lowering fi xed costs began to yield results. Sales of Teonex® polyethylene naphthalate (PEN) fi lm remained solid PET Film Market by Region for use in next-generation high-density data backup tapes. PEN fi lm sales (Thousands of tons) also increased for automotive and electronics-related applications. 2,400 1,800 Q: How do you view the current operating environment? A: Weakening demand in the United States and Europe is a cause 1,200 for concern, but demand in Asia is expected to remain strong. 600 We anticipate steady growth for electronics-related applications in Japan, 0 the ROK and Taiwan, but there is concern that recessionary conditions in 2000 2002 2004 2006 2008 the United States and Europe will dull demand for general-use products. Other Asia (Excluding Japan) Japan Q: What do you see as your principal challenges ahead? Europe Central and South America A: We must implement a drastic reorganization of our U.S. fi lms North America joint venture and invest intensively in growth markets. Sources: Industry statistics (2000–2006) and Teijin estimates (2007–2009) In the area of PET fi lm, we are addressing two key tasks by investing intensively in Asia, a major growth market, and by implementing a drastic reorganization of our U.S. fi lms joint venture. Also in the United States, we are working to expand sales, as well as to maximize competitiveness by improving productivity and lowering costs in an effort to restore profi tability. In Japan and elsewhere in Asia, we are stepping up efforts to reduce costs and strengthen product development and marketing capabilities with the aim of bolstering our stable profi t base.

Q: Do you expect robust results in the PEN fi lms business Outstanding Functionality of PEN Film to continue? Maximum temperature for continuous use ( ºC) 180.0 A: We expect that rising demand, together with PEN fi lm’s Oligomer extraction outstanding functionality, will continue to ensure robust results. (mg/m2/hr) Glass 2.0 transition point At present, demand for PEN fi lm is primarily for use in data backup tapes, 105.0 155.0 for which it has become the de facto standard. The need for higher-density 110.0 Moisture 15.0 backup tapes to accommodate increasing PC and server speeds, as well transmission Young’s rate (hrs) modulus (GPa) as the proliferation of local area networks (LANs), continues to support 200.0 50.0 10.7 growth in demand, a trend we anticipate will persist in the years ahead. 12.2 PEN fi lm is also attracting attention from the automotive and energy 4.1 fi elds. We are promoting active product development with the aim of 460.0 1.5 expanding demand in these promising arenas. 1.2 550.0 Vapor Fracture transmission rate strength (MPa) (g/m2/24 hrs) 0.4 Thermal contraction (%) PET PEN

26 Teijin Limited Plastics Business Group

Q: How do you evaluate the performance of the Plastics Net Sales and Operating Income in Business Group in fi scal 2007? the Plastics Business Group (Years ended March 31) A: Rising raw materials prices and fuel costs led to a signifi cant (Billions of yen) decline in operating income. 240 60 186.8 196.8 172.2 Increased shipments—particularly for use in offi ce automation (OA) 180 45 equipment and electrical and electronics equipment—boosted sales. 130.9 31.5 120 30 Despite efforts to enhance profi tability through an improved product mix 97.9 23.3 and determined cost-cutting measures, operating income fell short of the 14.8 60 12.5 15 previous fi scal year’s results, owing to rising raw materials prices and fuel costs. 4.7 0 0 20042005 2006 2007 2008 Q: How do you view the current operating environment? Net sales (left scale) Operating income (right scale) A: The growth potential of the Plastics business is high, but conditions are persistently harsh in terms of supply–demand balance and operating costs. Demand for Polycarbonate Resin by Region (Estimate) We anticipate that annual sales of polycarbonate resin will continue (Thousands of tons) expanding by approximately 7%—and in the PRC by an astonishing 1,600 14%—for the foreseeable future. With raw material prices and fuel costs PRC/Taiwan expected to continue rising, owing to high prices for crude oil, and with 1,200 other manufacturers, including new market entrants, planning to build North, Central and 800 new polymerization plants, we expect competition to further intensify. South America Europe 400 Japan Q: What do you see as your principal challenges ahead? Asia/Oceania 0 A: We need to reorganize our business portfolio with the aim of 2000 2002 2004 2006 2008 2010 achieving a high profi tability.

Over the short term, in response to further increases in raw materials prices Business Group Review and fuel costs, we will strive to ensure profi tability by improving our product mix, expanding marketing efforts and achieving cost reductions. Over the medium term, we will take decisive steps to fortify sales to the high-growth OA and electrical and electronics equipment markets by promoting a reorganization of this business by, among others, reorganizing our business portfolio and reinforcing downstream products.

Q: Can you give us any specifi c examples of what steps Demand for Polycarbonate Resin you plan to take? by Application (Estimate)

A: We will strive to reinforce compounding capabilities and expand (Thousands of tons) downstream products, in which we enjoy a competitive advantage. 4,000 With the aim of reinforcing our capabilities in this area, in December 2007 3,000 we completed phase 3 of a project to build new facilities at our compounding plant in Shanghai that has transformed the plant into one of largest of 2,000 its kind in the world. In the coming years, we will endeavor to further 1,000 strengthen our operating foundation in this area by, among others, making full use of the new facilities. 0 2005 2006 2007 2008 2010 In downstream businesses, we have stepped up efforts to expand Others into areas that enable us to leverage our competitive advantage, and are Water bottles working to increase sales of polycarbonate sheet and fi lm. Spurred by rising Optical discs Resin sheets demand for clear electroconductive fi lm for use in touch panels, particularly Automotive for smart phones and game devices, we are currently augmenting Electrical and electronics OA production facilities for clear electroconductive fi lm, a project we aim to complete by October 2008. The new facilities will more than double our production capacity for this important product.

Teijin Limited 27 Net Sales and Asset Turnover Operating Income and Operating Margin

21.7 21.2 (Billions of yen) (Times) (Billions of yen) (%) 120 113.1 114.4 2.0 20 19.3 60 18.1 105.6 17.3 93.1 97.1 90 1.5 15 45 1.39 1.33 1.38 1.31 1.40

60 1.0 10 30

18.5 18.7 18.3 18.7 19.0 30 0.5 5 15

0 0 0 0 20042005 2006 2007 2008 20042005 2006 2007 2008 Net sales (left scale) Operating income (left scale) Asset turnover (right scale) Operating margin (right scale)

Total Assets and ROA

(Billions of yen) (%) 120 40

90 82.8 85.1 30 78.7 79.0 Pharmaceuticals and 62.0 26.2 26.4 25.8 23.9 Home Health Care 60 21.7 20 (Years ended March 31) 30 10

0 0 20042005 2006 2007 2008 Total assets (left scale) ROA (right scale)

Capital Expenditure and Depreciation R&D Expenses and as and Amortization a Percentage of Net Sales

(Billions of yen) (Billions of yen) (%) 16 20 40

13.3 15.1 12 15 14.4 30 13.4 13.6 13.5

8.7 7.9 7.8 7.6 8 6.7 10 20 6.0 6.2 6.4 6.6 16.2 13.8 11.8 4 5 12.8 12.8 10

0 0 0 20042005 2006 2007 2008 20042005 2006 2007 2008 Capital expenditure R&D expenses (left scale) Depreciation and amortization R&D expenses as a percentage of net sales (right scale)

28 Teijin Limited Medical and Basic Strategy Pharmaceuticals Maintain emphasis on three key therapeutic areas and maximize Business Group synergies between pharmaceuticals and home health care. We continue to emphasize three key therapeutic areas—bone and joint disease, respiratory disease, and cardiovascular and metabolic disease—in which we offer a variety of highly competitive products and services. By building on our unique business model, we continue to approach these areas from the twin perspectives of pharmaceuticals and home health care. To ensure ongoing robust growth, we are expanding our efforts in global markets.

Key Points (For more information, see page 30)

Operating Net sales and operating income rose as both results: pharmaceuticals and home health care performed well. R&D pipeline: • Broadened R&D pipeline in the area of cardiovascular Osamu Nishikawa and metabolic disease General Manager, Medical and • Reinforced R&D pipeline in the area of bone and joint Pharmaceuticals Business disease Group Global Secured a foothold in the U.S. home health care market expansion: Strategic Obtained regulatory approval for TMX-67 in Europe products:

Clinical Development: Six Drug Candidates Advance to the Next Phase

Recently, six drug candidates advanced to the next phase of clinical trials, with two obtaining regulatory approval. Business Group Review In cardiovascular and metabolic disease, a key therapeutic area, we commenced phase I clinical trials for NTC-801, an atrial fi brillation and fl utter agent, and phase II clinical trials for TPC-806, a treatment for cardiac disease. In bone and joint disease, another key therapeutic area, we concluded a licensing agreement with Dong Wha Pharmaceutical Industrial Co., Ltd., of the ROK, for a new osteoporosis drug.

R&D Pipeline

Code Medical Properties/ Phase of Clinical Trials Area Target Disease Approved/ No. Characteristic Phase Phase Phase Filed Ⅰ Ⅱ Ⅲ New Launch

Bone and joint GTH-42V Osteoporosis Alendronate Nov. 2007 disease ITM-058 Osteoporosis Human PTHrP analog Dec. 2007 Respiratory BTR-15 Asthma (adults) Inhaled steroid June 2007 disease BTR-15K Asthma (children) Inhaled steroid May 2007 (EU) TMX-67 Gout and hyperuricemia XOD inhibitor April 2008 (USA/Japan) Sustained-release formulation ITM-014 Acromegaly Cardiovascular of somatostain analog and TPC-806 Cardiac disease Chymase inhibitor metabolic Sept. 2007 disease LTC-203 Severe sepsis Recombinant-activated protein C Human glucagon-like peptide ITM-077 Type II Diabetes 1 analog Sept. 2007 NTC-801 Atrial fi brillation and fl utter Selective anti-arrythmia agent TV-02HS Psoriasis Active vitamin D3 GGS Churg–Strauss syndrome Human immunoglobulin Other GGS Multiple sclerosis Human immunoglobulin Humanized monoclonal (Overseas) TMA-15 STEC (O-157) infection antibody (Japan) April 2007

Teijin Limited 29 Medical and Pharmaceuticals Business Group

Q: How do you evaluate the performance of the Medical and Pharmaceuticals Business Group in fi scal 2007? A: Net sales and operating income rose as both pharmaceuticals and home health care performed well. In the pharmaceuticals business, we reported solid results, led by drugs used in the treatment of osteoporosis, including Bonalon®* 35mg tablet, a once-weekly formulation of Bonalon®. In the home health care business, rental volume for home oxygen therapy (HOT) equipment remained high, while results for continuous positive airway pressure (CPAP) ventilators were favorable.

Q: What do you see as your principal challenges ahead? A: To further expand pharmaceuticals and home health care businesses. Despite a revision of drug reimbursement prices—that is, the prices paid by insurers to medical institutions under Japan’s National Health Insurance (NHI) scheme—in April 2008, we continued to promote strategic marketing efforts in an endeavor to expand sales of key pharmaceuticals, notably Bonalon® 35mg tablet, a once-weekly osteoporosis treatment, and Alvesco®, an inhaled steroid agent for the treatment of asthma in adults, which was launched in June 2007. In home health care, we will step up efforts to expand the scale of our business.

Q: How are you addressing the challenge of global expansion? A: We recently secured a foothold in the U.S. home health care market. Alvesco® As we move forward, we will endeavor to sell pharmaceuticals developed in-house and establish home health care businesses in overseas markets. In home health care, we will step up efforts to expand our HOT business, an area in which we enjoy an overwhelming domestic market share, and our rentals of ventilators for treating SAS. Following the decision that HOT would be covered by the Korean National Health Insurance program, in 2006 we established a joint venture in the ROK and commenced services. More recently, we took the fi rst steps toward What is TMX-67? entering the U.S. home health care market by acquiring home health care At present, gout and hyperuricemia services fi rm Associated Healthcare Systems Inc. in January 2008 and are treated primarily with Braden Partners L.P. in May 2008. allopurinol, a xanthine oxidase—an enzyme directly related to the Q: You have positioned TMX-67 as a strategic product for production of uric acid—inhibitor the global market. How are development efforts for this developed nearly 40 years ago, drug proceeding? and a novel drug that can provide A: We recently obtained regulatory approval in Europe. a more effective new treatment Partner Beaufour Ipsen S.A., of France, to which we have licensed out option has long been sought. The gout and hyperuricemia treatment TMX-67, was granted marketing world’s fi rst non-purine selective authorization by the European Commission on April 21, 2008, and is xanthine oxidase inhibitor, TMX-67 preparing for the launch of this drug in Europe. In the United States, license features a structure that is partner TAP Pharmaceutical Products Inc. is striving to secure approval from the U.S. authorities at the earliest possible date. completely different from that of allopurinol and effectively reduces uric acid in the blood with an oral, * Bonalon ® is the registered trademark of Merck & Co., Inc., Whitehouse Station, once-daily dose. NJ, U.S.A.

30 Teijin Limited Trading and Retail

Trading and Retail (Years ended March 31)

Net Sales and Asset Turnover Operating Income and Operating Margin Total Assets and ROA (Billions of yen) (Times) (Billions of yen) (%) (Billions of yen) (%) 400 8 8 4 120 12

6.1 94.4 93.7 90.6 89.0 92.3 300 6 6 3 90 9 5.4 256.3 261.2 259.8 266.5 265.9 5.3 5.3 5.3 2.4

200 4 4 2.1 2 60 6 2.0 2.0 2.0 6.6 5.9 6.0 5.7 2.86 2.82 2.89 2.94 100 2 2 1 30 3

0 0 0 0 0 0 20042005 2006 2007 2008 20042005 2006 2007 2008 20042005 2006 2007 2008 Net sales (left scale) Operating income (left scale) Total assets (left scale) Asset turnover (right scale) Operating margin (right scale) ROA (right scale)

ROA and asset turnover data is not included for 2004 because of a difference in segmentation in the year ended March 31, 2003.

Fiber Products Basic Strategy Business Group Review Marketing Business Achieve steady growth by reinforcing ability to propose and deliver Group effective solutions. Rather than simply be an intermediary between suppliers and customers, we are a proactive, value-building trading company that responds to the needs of customers with a diverse range of products. These efforts are guided by what we call our “3C” value creating functions, which are: • Coordinating our value chain; • Compounding materials, technologies and human resources to cultivate new business opportunities; and, • Converting, i.e., maximizing our converter functions to add value. Operating Results Sales fl at and operating income down as textiles and apparel business struggled. In textiles and apparel, our main original equipment manufacturer (OEM) business struggled, while in industrial textiles and materials, high- performance materials registered brisk results. Junji Morita General Manager, Fiber Challenges and Responses Products Marketing Business Group Reinforce sales of OEM apparel and promote global development of industrial textiles and materials business. In the textiles and apparel business, we will continue to take steps to achieve further cost reductions, including, for example, reorganizing production bases in the PRC and increasing production capacity in Vietnam, in a drive to enhance profi tability in our struggling OEM business. In industrial textiles and materials, we will focus on business development in global markets to meet the needs of customers, principally those in automobile-related industries establishing production facilities abroad.

Teijin Limited 31 IT and New Products, etc.

IT and New Products, etc. (Years ended March 31)

Net Sales and Asset Turnover Operating Income and Operating Margin Total Assets and ROA (Billions of yen) (Times) (Billions of yen) (%) (Billions of yen) (%) 60 1.6 8 20 120 12 54.8

47.8 47.2 48.8 44.8 45 1.2 6 15 90 84.2 9 5.5 72.9 67.2 67.2 4.3 6.5 5.7 30 0.8 4 3.8 3.8 10 60 6 0.83 3.5 6.5 0.82 47.8 0.63 6.2 0.70 0.64 8.8 7.8 5.0 8.0 11.4 6.9 15 0.4 2 5 30 3

0 0 0 0 0 0 20042005 2006 2007 2008 20042005 2006 2007 2008 20042005 2006 2007 2008 Net sales (left scale) Operating income (left scale) Total assets (left scale) Asset turnover (right scale) Operating margin (right scale) ROA (right scale)

IT Business Group Basic Strategy

Offer innovative solutions and accelerate management responsiveness. To preserve our competitive edge, we are aiming to establish a business model based on superior, distinctive technological capabilities, particularly in the areas of product and service development and consulting capabilities. To this end, we are taking steps to reinforce our operating foundation and enhance employee training, as well as to accelerate management responsiveness.

Operating Results

Sales and operating income down as IT solutions business struggled. The Services business continued to report favorable results. In the IT solutions business, however, an increase in software development requests and time required for customization delayed inspections of Takashi Yoshino General Manager, IT Business received goods and the start of projects, while rising costs related to Group bugs in major newly developed software packages pushed both sales and operating income down. As a consequence, sales and operating income declined.

Challenges and Responses

Restore profi tability and expand businesses. In the IT solutions business, we will endeavor to promote thoroughgoing management of profi tability and progress for each project we undertake. In the Services business, we will work to expand our data center services and e-commerce businesses.

32 Teijin Limited Management System

In 1999, the Teijin Group executed a number of management reforms aimed at ensuring its position as a key global player. Of particular note was the establishment of a corporate governance system. Since then, the Company has continued to advance its management system with the aim of attaining global excellence, implementing further reforms, which include introducing “CSR management,” or the management of its businesses in socially responsible manner, as well as enhancing risk management and reinforcing R&D. Management System

CSR

Risk R&D Management

Corporate Governance

Intellectual Human Property Resources

Teijin Limited 33 Corporate Governance

In my six-plus years as president and CEO of Teijin, one of the most important things I came to understand was that effective corporate governance is absolutely central to the realization of sustainable growth. In my capacity now as chairman, I look forward to maintaining a fi rm awareness of the role of corporate governance and to leading discussions and debates by the Advisory Board and the Board of Directors.

Activities of the Advisory Board in Fiscal 2007 The Advisory Board met with all members present in April and November 2007. Principal matters discussed by the Advisory Board included reports on Teijin’s operating results for fi scal 2006 and its outlook for fi scal 2007, the appointment of a new CEO and issues pertaining to remuneration, as well as reports from individual business groups.

Activities of the Board of Directors in Fiscal 2007 Teijin’s Board of Directors met 12 times during fi scal 2007. Debates were lively and productive. Principal issues deliberated by the Board of Directors included the transformation of Toho Tenax into a wholly owned subsidiary, the establishment of a local subsidiary in India, the purchase of a 50% stake in NatureWorks LLC, the acquisition of a U.S. health care services company and the establishment of internal control systems.

Toru Nagashima Chairman

Basic Corporate Mission First Duty of Management Any company that secures capital from shareholders is Create consistent, profi table growth through business expected to create consistent, profi table growth through activities and steadily increase corporate value its business activities and to steadily increase returns to shareholders on their investments. The fi rst duty of management is to respond to this expectation. Teijin recognizes that management must also fulfi ll its Corporate Governance responsibilities to other stakeholders, including employees, creditors, customers, suppliers and local communities. Recognizing the signifi cant role of corporate Responsibility to Stakeholders governance in fulfi lling these responsibilities, Teijin views the strengthening of its performance in this area as a crucial, ongoing task.

34 Teijin Limited Building a Superior Management Foundation basic management policies, which emphasize Since 1999, we have implemented a series of increasing corporate value, return on equity (ROE) has groundbreaking management reforms with the aim been added to the list of performance measures used of enhancing transparency, ensuring fairness and to determine compensation for directors. objectivity and accelerating decision making. These include establishing an Advisory Board, reducing the number of directors on the Board of Directors and introducing a corporate offi cer system and a compensation system for directors that is linked to consolidated return on assets (ROA), calculated using Corporate Governance Guide operating income. In 2003, we published the Corporate Teijin’s Corporate Governance Guide delineates:

Governance Guide and resolved to strive for the further •Teijin’s view on corporate governance; improvement and clarifi cation of management mechanisms. • Mechanisms for decision making, surveillance Since then, we have continued to modify systems and control, and auditing; and procedures in response to changes in the operating • Roles of compliance and total risk management; and legislative environments—including increasing the and, number of external auditors on our Board of Auditors to •Accountability to stakeholders. enhance the Board’s capabilities and independence— For more information on our system of internal and are in the process of establishing internal control controls, please visit Teijin’s web site: http://www. systems in compliance with Japan’s revised Corporate teijin.co.jp/english/about/about04_10.html Law. In line with the Teijin Group’s medium-to-long-term

Advisory Board One focus of the management reforms Advisory Board Members implemented since 1999 was the creation of (As of July 2008)

a fi rst-class corporate governance system, a Toru Nagashima move designed to bring Teijin into line with Chairman of Teijin

other top global players. Our Advisory Board John W. Himes Management System performed a key role in this effort. In addition Former senior vice-president of DuPont to leading experts from Japan, the Advisory Lord William Waldegrave Board’s original members included John A. Vice-chairman of UBS Investment Bank Krol, former chairman of global chemicals Katsunari Suzuki giant DuPont, and Sir Ronald Hampel, Former ambassador of Japan to Vietnam and Brazil previously chairman of ICI and of the Hampel Committee, which established certain key principles of corporate governance in the United Kingdom. Current members include Kunio Suzuki Chairman of Mitsui O.S.K. Lines, Ltd. John W. Himes, former senior vice-president of DuPont, and Lord William Waldegrave, Hajime Sawabe vice-chairman of UBS Investment Bank, both of whom make valuable contributions that Chairman, TDK Corporation consistently enhance Teijin’s corporate governance system. Shigeo Ohyagi President and CEO of Teijin

Teijin Limited 35 Separating and Reinforcing Decision Making, Frontline Management and Monitoring/Auditing Functions ■ Board of Directors of Auditors comprising auditors from Teijin Group To expedite decision making and clarify accountability, companies, which is charged with monitoring/auditing we have set the number of directors on Teijin’s Board the Group with respect to consolidated management, of Directors at a maximum of 10 and have delegated thereby ensuring the fairness of auditing. considerable authority and responsibility to corporate offi cers. To further enhance autonomy, three directors ■ Advisory Board on the Board—which in principle meets monthly—are The Advisory Board serves in a consultative capacity independent. To ensure the appropriate separation of and is tasked with advising on management issues and responsibility for monitoring/auditing and internal, evaluating the performance of top executives. The frontline management of operations, the Board of Board, which meets twice annually, comprises fi ve or six Directors is directly responsible to the chairman. external members—of whom three are Japanese, and Decisions pertaining to the execution of business, two or three non-Japanese—as well as the chairman responsibility for which has been delegated largely to and the CEO. the corporate offi cers, are deliberated by the CEO The Advisory Board is also charged with Management Committee, which meets twice monthly. deliberating the appointment and retirement of presidents and the selection of successors, as well ■ Board of Auditors as appraising remuneration systems for directors and Teijin’s Board of Auditors comprises fi ve members, corporate offi cers and the performance of the CEO three of whom are external, thereby ensuring and representative directors. Deliberations pertaining transparency and the effective monitoring/auditing of to the CEO or the chairman are conducted without management. The independence of external auditors the participation of the relevant individual. is guaranteed. We have also installed a Group Board

The Teijin Group’s Corporate Governance System (As of July 2008) Corporate Governance System

Majority of members are external Advisory Board Nomination and Remuneration Holding Company System

Board of Directors Seven Business Groups Shareholders’ Nine members (of whom three are external) Meeting CEO TRM Committee (CEO, CSO, CSRO, CTO, CHO) Management Committee (Heads of Business Groups Board of Auditors and Chief Officers*) Five members (of whom three are external) Group Board of Auditors

*Chief Offi cers CFO: Chief Financial Offi cer CEO: Chief Executive Offi cer CHO: Chief Human Resources Offi cer CSO: Chief Strategy Offi cer CIO: Chief Information Offi cer CSRO: Chief Social Responsibility Offi cer CENO: Chief Engineering Offi cer CTO: Chief Technology Offi cer CMO: Chief Marketing Offi cer

36 Teijin Limited Message from Katsunari Suzuki, Independent External Director

In Europe and the United States, it has become the norm for the majority of directors on a company’s board to be external. Quite a few major Japanese companies have also elected external directors to their boards. At the same time, there are still many people who are not convinced by the idea, not recognizing what an external director could possibly understand about the workings of a company. Thus the trend has yet to take fi rm hold in Japan. The role of an external director is to evaluate—from the shareholder’s standpoint—a company’s success in raising corporate value through the selective and concentrated application of management resources and ensuring sound corporate governance. Teijin’s Board of Directors’ meetings are always long and the debate substantial—and I can assure you that the president’s proposals are by no means simply rubber-stamped. During my three years as an external director, there have been many occasions in which the president’s proposals were remanded for further consideration, turned down or taken to a vote. Teijin’s external directors always take an active part in these discussions and are encouraged to be frank in expressing their views as “outsiders.” In particular, my two fellow external directors, both of whom had previously served as chairman of a major company, brought with them shrewd insight and a wealth of experience, so their opinions carried considerable weight. Both of these esteemed gentlemen have since retired and I now fi nd myself the senior member of Teijin’s team of external directors. I am acutely aware of the responsibility this position carries. Regardless of the negative views of some people, the presence of external directors is important in stimulating meaningful debate and more care and thought is given to decisions than is the case when all the people are “insiders.” For these and other reasons, I remain convinced that this is a highly worthwhile system.

Percentage of Independent External Members on Teijin’s Board of Directors (As of July 2008) Board of Directors Board of Auditors Advisory Board

Number of members 9 5 7

Number of independent Management System external members 3 3 5

Percentage of independent external members 33% 60% 70% Note: Teijin has formulated its own requirements concerning the independence of external directors and corporate auditors that are comparable with those mandated by U.S. stock exchanges. Under Teijin’s regulations, persons to whom the following fi ve descriptions do not apply are recognized as independent. 1. Internal offi cers or employees and former internal offi cers or employees of the Teijin Group. 2. Providers of specialized services to the Teijin Group. 3. Persons having customer or business partner relations with the Teijin Group. 4. Persons having “inter-directorship” relations with the Teijin Group. 5. Persons having other special interests in the Teijin Group. For more information, please visit Teijin’s web site: http://www.teijin.co.jp/english/about/about04_11.html

Teijin Limited 37 Compliance and Total Risk Management Nomination and Remuneration The Teijin Group operates on the principle that effective ■ Nomination of Directors corporate governance depends on strict compliance The nomination of directors is deliberated by the Group and the comprehensive management of risk. Human Resources Committee, the members of which We defi ne compliance as the ability of every Teijin are all senior managing directors or higher in rank, and Group employee to act in accordance with relevant selections are made based on character, judgment, laws, ordinances and rules and to observe a strict code ability and past record. Nominations are fi nalized and of corporate ethics. To ensure compliance on both submitted in the form of a proposal to shareholders at levels, we have established Group standards of conduct the annual meeting of shareholders. and work tirelessly to promote greater awareness of corporate ethics among employees. ■ Selection of President and Chairman To counter the various risks and uncertainties Nomination and remuneration functions fall within the facing the Teijin Group, we have established a Total Risk authority of the Advisory Board, which is responsible for Management (TRM) Committee within the Board of deliberating retirement of the president and the selection Directors. We are also developing a risk management of a successor, and the selection of the chairman. Final system that will accelerate Groupwide decision making determinations are made by the Board of Directors, and facilitate prompt action to deal with risk. which gives due consideration to the views of the committee in making its decisions. Accountability Recognizing accountability as essential to ensuring its ■ Compensation for Directors ongoing prosperity and enhancing shareholder value, Compensation and bonuses for Teijin Group directors Teijin is committed at all times to providing information in are determined by the Advisory Board. Compensation a manner that takes into consideration the requirements for directors is determined based on consolidated ROA, of its shareholders and society at large. To this end, we calculated using operating income; consolidated ROE; place a high priority on consistent, timely disclosure in and consolidated operating income—i.e., on an Japan and overseas, and on communicating with our examination of whether targets have been met and/or shareholders. We take an active approach to disclosing improvements seen—as well as a qualitative corporate information from the perspective of proper CSR. assessment of each individual director’s execution of his/her duties. Compensation for corporate offi cers is also determined based on consolidated ROA, calculated using operating income, and consolidated operating income as well as a qualitative assessment of each individual corporate offi cer’s execution of his/her duties. Compensation for directors and corporate offi cers in fi scal 2007 is shown in the table below.

Compensation for Directors Internal Directors External Directors Total

Number of individuals Amount (Millions of yen) Number of individuals Amount (Millions of yen) Number of individuals Amount (Millions of yen) 7 ¥284 3 ¥36 10 ¥321

Compensation for Corporate Auditors Internal Corporate Auditors External Corporate Auditors Total

Number of individuals Amount (Millions of yen) Number of individuals Amount (Millions of yen) Number of individuals Amount (Millions of yen) 2 ¥31 3 ¥26 5 ¥57

38 Teijin Limited Management Team Board of Directors, Corporate Auditors, Advisory Board and Teijin Group Corporate Offi cers (As of July 2008)

Board of Directors Corporate Auditors Corporate Offi cers Hiroshi Furukawa Mamoru Kiyoki Kihachiro Sano Masao Ishida Independent Outside Auditors Toyoshi Okada Kiyoko Kinjo Hiroaki Furuya Ryozo Hayashi Hiromu Furuta Chairman President and CEO, Toshiharu Moriya Shiro Inoue Toru Nagashima CSO Shigeo Ohyagi Keiichiro Shinozuka Advisory Board Masaru Yoshikawa Toru Nagashima (Chairman) Tatsuya Shibata John W. Himes Takashi Yoshino Lord William Waldegrave Yoshio Fukuda Katsunari Suzuki Masaya Endo Kunio Suzuki Hiroshi Kitano Executive Vice Executive Vice Hajime Sawabe Yoshihiro Ichii President and CSRO President and CMO Takayuki Katayama Yoshinaga Karasawa Shigeo Ohyagi Teruki Nakajima Takashi Takahashi Teijin Group Corporate Atsuo Amano Offi cers Hirofusa Furuya Senior Executive Offi cers Yushiro Ogawa Junji Morita Hideo Ninomiya Giichi Morita (CHO) Yoshikiyo Hataya Executive Vice Senior Managing Masaaki Hojo Yuji Maruyama President and CTO Director and CFO Norio Kamei Tsutomu Matsuda Takashi Yamagishi Naoto Takano Hiroyuki Iimuro Kentaro Arao Kazuyuki Sakai Kimihiko Sato Osamu Nishikawa Gert W. Frederiks

Executive Offi cers Management System Yasutoshi Noguchi (CIO) Haruo Akao

Independent Independent Keiji Toda Outside Director Outside Director Shuichi Sato (CENO) Katsunari Suzuki Kunio Suzuki Toshiaki Yatabe Yasunobu Yamamoto Takashi Mishima CEO: Chief Executive Offi cer CSO: Chief Strategy Offi cer Kenji Kubo CSRO: Chief Social Responsibility Offi cer Eiso W.A. Alberda van Ekenstein CTO: Chief Technology Offi cer Hideyuki Minorikawa CMO: Chief Marketing Offi cer CFO: Chief Financial Offi cer Independent CHO: Chief Human Resources Offi cer Outside Director CIO: Chief Information Offi cer Hajime Sawabe CENO: Chief Engineering Offi cer

Teijin Limited 39 Risk Management capabilities, ensuring management is based on superior corporate ethics, strengthening internal controls and reinforcing our ability to respond promptly to strategic risk.

Strategic Risk ■ Strategic Risk We defi ne strategic risk as risks and uncertainties that TRM Committee have the potential to prevent the achievement of Operational Risk management and/or business targets and objectives. These include risks related to market conditions, raw materials prices and fuel costs, our ability to procure raw Organizational and Systematic Responses materials, technological advantages, the life cycles of ■ Total Risk Management our products and businesses and cost competitiveness. To facilitate organizational and systematic responses to The CSO is charged with assessing the potential the identifi cation and comprehensive management of impact of such risks on operating results and formulating the various risks and uncertainties it faces, the Teijin appropriate countermeasures. The Investment Committee, Group has introduced Total Risk Management (TRM), established as a consultative body to the CEO, which it continuously endeavors to reinforce. conducts advance risk assessments for important We divide risk into two distinct categories: investment proposals, as well as monitors the progress Strategic risk, that is, risk related to management of investments Groupwide. strategies, and operational risk, which is risk related to the execution of business. Responsibility for addressing ■ Operational Risk the former lies with the Chief Strategy Offi cer (CSO), Operational risk is defi ned as risks and uncertainties while the Chief Social Responsibility Offi cer (CSRO) is in that have the potential to adversely affect our ability to charge of responding to the latter. The TRM Committee, ensure stable, sound operations. These include risks which is positioned within the Board of Directors, related to compliance; environment, safety and health facilitates comprehensive management of both types (ESH) issues; product liability and quality assurance; of risk. and accidents and natural disasters. The TRM Committee is also charged with We investigate, evaluate the frequency and severity proposing and implementing action plans designed to of potential impact, and conduct drills aimed at further enhance the effectiveness of risk management. predicting, preventing and responding to operational In fi scal 2007, the Committee proposed action plans risks. By promoting such efforts, we are enhancing our aimed primarily at enhancing risk management operational risk management capabilities. During fi scal

Internal Controls The Teijin Group strives continuously to reinforce internal controls, which it recognizes as essential to facilitating effective corporate governance. In April 2006, we established an internal controls promotion team, which is overseen by the Chief Financial Offi cer (CFO), with the aim of creating a system of internal controls that would comply with J-SOX, regulatory requirements similar to the U.S. Sarbanes–Oxley Act that were incorporated into Japan’s Financial Instruments and Exchange Law, which came into effect in April 2008. In June 2006, we began conducting pilot tests at core Group companies and in November of the same year we completed a written internal control system model that encompassed all business processes. Having set a two-year period to complete preparations, we began Corporate Governance introducing this model gradually at Group companies in Japan and overseas beginning in December 2006. In March 2008, we established a system of internal controls designed not only to comply with relevant legal requirements but also to improve Internal Controls operational effi ciency. For more information on our system of internal controls, please visit Teijin’s web site: http://www.teijin.co.jp/english/about/about04_08.html Compliance Risk Management

Positioning of Teijin’s System of Internal Controls

40 Teijin Limited 2007, we identifi ed a total of 3,666 operational risks ■ Disclosure and Accountability throughout the Teijin Group. We prioritized these risks Recognizing that accountability is essential to securing according to severity, thereby enabling us to implement effective corporate governance, we have set a coherent appropriate countermeasures. policy to guide our disclosure activities, which is to provide information to all stakeholders in a timely, fair, ■ Reinforcing Corporate Ethics and Compliance accurate and consistent manner. We view the Teijin believes that observing a strict code of corporate establishment of a relationship of trust with shareholders ethics and abiding by the law are essential core values and investors as a management priority and strive, for any corporate entity and has accordingly drafted therefore, to enhance disclosure and communication. rules of conduct, standards of conduct and corporate ethics guidelines. We also endeavor to promote For more information on our disclosure policy, please awareness of these core values among management visit Teijin’s web site: http://www.teijin.co.jp/english/ir/ and employees through distribution of the Teijin Group’s ir24.html Corporate Ethics Handbook to all employees, as well as through education and our annual Corporate Ethics Month. Teijin Group Hotlines We use surveys to help us monitor awareness of Corporate Ethics Opinion Box (Overseas)

corporate ethics. We have also installed hotlines that CSRO, General Manager and CSR Office Staff Group Company Executives and Employees enable us to address issues and provide feedback to employees. The sexual harassment hotline and the compliance hotline are staffed by independent experts Corporate Ethics Opinion Box, who advise employees and, while protecting the identity Intranet, E-mails of the individual, report issues to the Company. Teijin places great emphasis on regulations regarding the protection of employees seeking to consult with exports Compliance Hotline, Outside Law Firms or report problems, which are stipulated in the Group Corporate Ethics Guidelines, and appropriate care is taken in this respect in addressing queries and reports. Sexual Harassment Hotline In fi scal 2007, these and other reporting channels dealt Outsourcing Firm with 47 requests for advice and reports of related issues from individuals inside and outside the Group.

Customers External Reporting Channel CSR and Suppliers (Teijin Web Site) Office Staff

Hostile Takeover Defense Measures 30 days from the date the acquisition statement is submitted Management System Teijin has introduced hostile takeover defense measures that to forge its opinions on the acquisition. After this period, the are applicable to acquisitions that would lead to holdings of independent committee has a maximum of 60 days to prepare 20% or more of the Company’s shares and are designed to its recommendation. The Board of Directors—which must prevent inappropriate transfers of ownership. Inappropriate respect and adhere to the recommendation of the independent transfers of ownership are defi ned as those that run counter to committee—then resolves whether to implement a gratis the common interest of shareholders and/or are likely to hinder allotment of stock acquisition rights. Should a gratis allotment long-term improvement in corporate value. An independent be implemented, the Company will acquire shareholders’ stock committee has been established to determine the acquisition rights and exchange them 1:1 for the equivalent appropriateness of such proposals. This committee consists number of shares. This will result in dilution of the acquirer’s holding. of fi ve members appointed from among external directors and For more information on our hostile takeover defense external auditors who satisfy independence requirements measures, please visit Teijin’s web site: http://www.teijin.co.jp/ comparable with those mandated by U.S. stock exchanges. english/about/about04_13.html Any individual or company (“acquirer”) proposing to acquire 20% or more of Teijin’s shares is required to submit an acquisition statement in advance. The Board of Directors has

Teijin Limited 41 Research and Development

Executive Vice President and CTO Takashi Yamagishi

Teijin understands that technological innovation is essential to ensure continued growth. In line with our current medium-term management plan, STEP UP 2006, we are endeavoring to create new value by promoting the development of innovative technologies through: • Ambitious R&D focused on four key fi elds, and • Strategic R&D aimed at cultivating new businesses. At the same time, we are taking steps to reinforce our R&D capabilities. The Teijin Technology Innovation Center, opened in April 2008, houses project promotion activities—which aim to commercialize research achievements—and is positioned as a facility for the incubation of new businesses. The Center also contains an open laboratory designed to encourage the integration of Teijin’s extensive technologies with those of individuals and organizations outside the Company. Teijin Mirai Studio, which opened in 2007, is designed to serve as a showroom for Teijin Group technologies and gives us the opportunity to gain valuable ideas and product suggestions from visitors. The Teijin Composites Innovation Center, established in 2008 in Gotemba, Shizuoka, is designed to enable us to collaborate with customers to transform such ideas and suggestions into new technologies and products.

Strategic Efforts electronics, health care and environment, water and ■ Global R&D System energy. The CTO works with the Chief Marketing Offi cer Recognizing technological innovation as the source of (CMO) to identify market needs and advance Groupwide, corporate growth, we continue to promote ambitious yet cross-business R&D projects. effi cient investment in R&D with the aim of cultivating new businesses. We currently have eight major research sites ■ Achieving the Promise of the Teijin Brand in Japan and seven overseas, employing a total of more We continue to conduct R&D that embodies our brand than 1,600 researchers. The Chief Technology Offi cer statement—“Human Chemistry, Human Solutions”—and (CTO) is responsible for determining Groupwide R&D to promote the development of original business models. strategies, including those for basic research, and for In line with the Teijin Group Global Environmental Charter, reinforcing collaboration among Teijin Group companies formulated in 1992, we have developed environment- to expedite the transformation of technologies into friendly design guidelines and are fostering greater commercially viable products. awareness of recycling by promoting the use of our groundbreaking closed-loop polyester chemical recycling ■ Focus on Four Key Fields technology. We are also striving to develop high- To ensure sustainable growth in each of our existing performance bioplastics, or plastics made from biologically businesses, as well as to develop new businesses, we are sound materials—particularly polylactic acid (PLA)—that taking steps to reinforce R&D capabilities—the wellspring offer an alternative to petroleum-based materials, as well of corporate competitiveness and creativity—and to focus as wastewater treatment and biomethanol production the allocation of R&D resources in promising growth techniques that incorporate environment-friendly markets, which we have grouped into four key fi elds that biotechnologies and state-of-the art processing technologies. we term automobiles and aircraft, information and

Four Key Fields

Core Technologies Businesses Four Key Fields

Synthesis Aramid fibers Automobiles and aircraft Carbon fibers Polymer science PEN resin, fibers and film Information and electronics Spinning and film fabrication Polycarbonate resin and film

Molding and processing PET resin, fibers and film Health care Pharmaceuticals Pharmaceuticals and health care Home health care Environment, water and energy Information processing IT services and solutions

42 Teijin Limited R&D Activities in Fiscal 2007 In high-performance polyester fi bers, we developed ■ Corporate Research Fibalive®, a fabric for undergarments that ensures comfort We are making efforts to reinforce our foundation in by automatically adjusting humidity. Fibalive® was selected chemical synthesis and polymer science—which is shared by Wacoal Corp. for use in a line of men’s undergarments by all Teijin Group companies—as well as to cultivate new that went on sale through retailers in Japan in spring businesses. In the environment, water and energy fi eld, 2008. In fi scal 2007, we introduced BEWELL®, a newly recent efforts have yielded exciting new materials, developed ultrafi ne fi ber with durable and antistatic including an innovative, heat-resistant bioplastic for which properties, which met with a favorable market response. our Group companies are currently developing a variety of Subsequently, we began construction of a mass applications under the BIOFRONT® brand name, as well production line for this new product. as cultivating relevant markets. We also succeeded in With the aim of expanding applications for Teonex® developing polyster made from CO2 and a new polycarbonate PEN fi bers, the principal product in our industrial-use derived entirely from plant matter. Seeking to make an polyester fi bers lineup, we proceeded with R&D aimed at early entry into the wastewater treatment and recycling enhancing performance. We also neared completion of market, we are also exploring avenues for combining development of a two-dimensional signal transmission technologies introduced from outside the Group with sheet, sales of which are scheduled to start in fi scal 2008. proprietary developmental technologies—namely our We also developed and commenced sales of a variety of unique bell-like structure for nanomaterials—and carbon polyester staple fi bers for use in new nonwoven textiles. fi bers. To this end, we have established the WPT Business These included a staple fi ber for nonwoven textiles Development Department and are promoting collaborative manufactured using airlaid technology. research and marketing efforts with organizations in Japan and overseas. In information and electronics, we have designated the promotion of Raheama® highly thermally conductive carbon fi bers as a core Group project with an eye to early commercialization. On another front, we developed a highly safe litium ion battely (LIB) separator that prevents fi res resulting from short circuits in PCs and BEWELL® (magnifi ed) Apparel made with BEWELL® mobile phones. We have also commenced development of fi lm substrates for fl exible displays. In the health care High Performance Fibers fi eld, our focus is on the development of basic technologies In the area of meta-aramid fi bers, subsidiary Teijin Techno in such areas as advanced biotechnology. Also in the area Products Limited emphasizes the development of of corporate research, the Hasegawa Fellow Research applications for Teijinconex® in next-generation, high- Center focuses on the development of advanced fi lm performance fi reproof clothing, as well as the development coating technologies and high-performance fi lms. of production technologies to enhance productivity. In para-aramid fi bers, the company focused on developing production technologies to bolster productivity for Technora® fi bers and new applications for Twaron® in the production of new types of para-aramid pulp offering a variety of innovative performance features. Teijin Techno Products also continued to conduct research in the use of BIOFRONT® Wastewater processing nanotechnology to enhance fi ber performance. Overseas, Teijin Aramid BV in the Netherlands continued to work ®

toward the commercialization of Sulfron , a newly Management System developed rubber reinforcement that signifi cantly enhances the performance and economy of tires. Subsidiary Toho Tenax Co.,Ltd., is endeavoring to develop technologies that maximize the superb strength and tenacity of Tenax® Raheama® Transparent electroconductive fi lm carbon fi bers, as well as to cultivate applications in materials requiring electroconductivity and corrosion-resistance. ■ Synthetic Fibers The company also sought to develop composite Polyester Fibers technologies and cultivating applications for composites In the area of polyester fi bers, we have narrowed our in parts for aircraft, automobiles and robots. focus to environment-friendly and high-performance products, and are promoting research in the area of new polyester materials, as well as product development efforts aimed at cultivating new businesses. Efforts to develop environment-friendly products facilitated the use of ECOPET PLUS® chemically recycled polyester fi bers to produce a material particularly suited for formal black clothing. Tire without Sulfron® Tire with Sulfron®

Teijin Limited 43 ■ Films and Plastics to cut vehicle production costs by reducing the number of Films vehicle parts. In July 2007, Teijin Chemicals completed In the area of fi lms, we are focusing development efforts a new R&D center within the Matsuyama Plant. Furnished on high-performance fi lms, notably PET and PEN fi lms. with state-of-the-art equipment for polymer development, In the area of fi lms for FPDs, we are emphasizing the the new facility is thereby enhancing its R&D capabilities development of new high-performance fi lms and and positioning it to respond in a timely manner to processed fi lms, while in the area of data storage media, customer needs. we are responding to needs arising from rapidly increasing storage capacities by developing high-performance base fi lms. We are also focusing on the development of fi lms for solar batteries to accommodate soaring demand, and of industrial-use and packaging fi lms with reduced environmental impact. Additionally, we are promoting efforts to expand applications for Teonex® PEN fi lm and ® Tefl ex formable fi lm in the IT and automobile industries, Series N700 Shinkansen bullet train Panlite® SP and multilayered fi lms for use in ornamental and design applications, as well as in the prevention of forgery. ■ Pharmaceuticals and Home Health Care Plastics Pharmaceuticals In plastics, our efforts currently highlight improving the R&D in pharmaceuticals focuses on three key therapeutic physical properties of Panlite® polycarbonate resin, as well areas—bone and joint disease, respiratory disease, and as the development of molding technologies and new cardiovascular and metabolic disease—and encompasses polymers and conducting research in the area of extrusion independent efforts, as well as collaborative R&D with technologies for polycarbonate fi lm and sheet. In fi scal universities, research institutes and pharmaceuticals 2007, molded windows made from a special polycarbonate companies in Japan and overseas. In April 2007, we developed by subsidiary Teijin Chemicals Ltd. were obtained approval in Japan to manufacture and market selected for use for the windows of next-generation Series Alvesco®, an inhaled corticosteroid for treating adult N700 Shinkansen bullet trains, which went into service in asthma, which was launched two months later, in June. July 2007. During the period, we also developed Panlite® In August 2007, we signed a joint development agreement SP, an optical-grade polycarbonate resin that combines with Chugai Pharmaceutical Co., Ltd., for diabetes minimal optical strain with a high refractive index. This resin treatments. In September 2007, we commenced phase I was subsequently selected for use in mobile phone clinical trials for a new atrial fi brillation and fl utter agent camera lenses, as well as in optical components for, developed jointly with Nissan Chemical Industries, Ltd. among others, high-resolution camera lenses and optical We also commenced phase II clinical trials for a new sensors. For automotive applications, we are developing cardiac disease treatment. polycarbonate for vehicle windows to accommodate In March 2008, we signed efforts to lower vehicle weight. Capitalizing on one of the an agreement with Dong world’s largest extrusion presses for two-color molding, Wha Pharmaceutical which is installed at its Plastics Technical Center, Teijin Industrial Co., Ltd., of the Chemicals is forging ahead with the development of ROK, to license in technologies for the integrated molding of vehicle windows development and sales of an and frame materials with the aim of contributing to efforts osteoporosis drug in Japan. Alvesco®

Teijin Technology Innovation Center development projects, as well as research that organically On April 23, 2008, Teijin opened the Teijin Technology integrates expertise and advanced technology. The center also Innovation Center. Designed to facilitate the provision of timely features an open laboratory designed to promote collaboration solutions to market and customer needs, the new center and joint efforts with customers and academic institutions, with boasts a research infrastructure that is capable of a full range the aim of accelerating development and the cultivation of of research activities, from developmental research to pilot-scale new businesses.

Technological Fields and Technologies/Products

Polymer science, nanotechnology, biotechnology, engineering and fields Technological fields combing some or all of the above

Technologies/ Bioplastics, new carbon materials, wastewater treatment technologies, next-generation Products electronics materials, high-performance nanomaterials and compound nanomaterials

44 Teijin Limited For a list of drugs currently in Teijin’s development market needs, we produce samples and conduct quality pipeline, please refer to page 29. testing and materials research.

Home Health Care ■ IT and New Products, etc. In the home health care fi eld, we obtained approval to In IT, in the area of solutions for biotechnology and health manufacture and market Hi-Sanso™ 2U, a new, care facilities, as well as corporate customers, we ultracompact therapeutic oxygen continue to conduct cutting-edge R&D in such areas as concentrator, in April 2007. speech recognition technology. We are also promoting Moving forward, we will continue corporate research in the area of quality control to promote the development of technologies in response to the increasingly complex new home health care nature of software development. equipment offering improved In engineering, subsidiary Teijin Engineering Limited safety and ease of operation, completed development of the TEL-CON® System, as well as to cultivate new health whereby proprietary air concentrators are attached to care markets. the external units of exiting air conditioners to realize ™ Hi-Sanso 2U signifi cant reductions in ■ Trading and Retail energy consumption and

Spearheaded by N.I. Teijin Shoji Co.,Ltd., R&D in this CO2 emissions. segment emphasizes the planning and development of Commercial sales of this new products. To ensure our ability to develop products system commenced in that respond to increasingly diverse and fractionalized early fi scal 2008.

TEL-CON®

Intellectual Property Focus on Patent Applications that Refl ect Key From the twin perspectives of Group and global business Technological Themes development, the Teijin Group strives to create, protect and To ensure a leading global position in core businesses, and make effective use of its intellectual property. Teijin Intellectual to accelerate the development of new businesses, we have Property Center Limited, an independent entity, spearheads designated a number of strategic businesses and markets in the Group’s intellectual property strategy, which is forged in which we are developing our capabilities. We are also actively close alliance—and implemented in an integrated manner— applying for patents and expanding our patent portfolio in key with its business and R&D strategies. areas of research, as well as making use of patent maps to Basic Policy analyze patent information. Teijin Intellectual Property Center recognizes its principal As a consequence, in fi scal 2007 26% of the patent objective as being to reinforce intellectual assets and focuses applications submitted in Japan for R&D achievements related particularly on activities designed to contribute to the smooth to key Groupwide R&D themes were granted patents, up from commercialization of research achievements and increase the 23% in fi scal 2006. In addition to Europe and North America, value of the Group’s intellectual property. Accordingly, the we are increasing independent overseas patent applications in center works closely with Group companies to propose the fi lms, plastics, and pharmaceuticals and home health care intellectual property strategies tailored to R&D themes fi elds in the PRC, ROK and other Asian countries, in line with

advanced by individual companies, as well as by the entire the increasingly global nature of our businesses in these Management System Group, and to build and reinforce intellectual property portfolios arenas. In the period under review, the number of our by applying for patents and transforming research achievements international patent applications* was 1.2 times higher than in into intellectual property rights. Through such efforts, the center the previous period, while the number of applications submitted strives to contribute to the cultivation of new businesses, as in Asia—notably in the PRC and the ROK—was up 1.5 times. well as to the Group’s income. In alliance with R&D teams, the Submissions in the BRIC countries—Brazil, Russia, India and Patent Application and the Intellectual Property Information the PRC—increased. groups—which are responsible for principal related activities— Of particular note, we are striving to create patent and the Trademarks and Intellectual Property Administration portfolios in the environmental products and information and groups are also making use of comprehensive intellectual electronics fi elds for, respectively, bioplastics, battery property management and information systems and other means separators and magnetic recording media. to ensure pertinent information is shared throughout the Group.

* Refers to international patent applications, which encompass the 138 countries belonging to the Patent Cooperation Treaty as of March 31, 2008. Patent counts are based on discovery, not on the number of categories for which applications are submitted, and patent applications are categorized as single country; multiple countries within Europe, North America and Asia; or international.

Teijin Limited 45 Corporate Social Responsibility

Executive Vice President and CSRO Takayuki Katayama

Teijin believes that a commitment to the implementation of robust measures with a long-term perspective is vital, as is the acknowledgment of this imperative by top management. This belief underscores our Sustainable Environment Declaration.

The declaration calls for a reduction in CO2 emissions in Japan by at least 20% from the 1990 level by the year 2020. The Teijin Group will continue promoting comprehensive initiatives aimed at achieving this target, one of the most ambitious to be set by any corporation in the world.

CSR Management The Teijin Group’s commitment to CSR To realize the goals implied in its corporate philosophy— management is underscored by its inclusion in key articulated by the phrases “Quality of Life,” “In Harmony global socially responsible investment indexes, including with Society” and “Empowering Our People”—Teijin the FTSE4Good Index Series and the Ethibel has formulated a basic policy for corporate social Sustainability Index, both of which evaluate companies responsibility (CSR) and is promoting systematic, well- for socially responsible investment (SRI). planned CSR activities. Recognizing CSR as prerequisite to achieving Teijin’s CSR Framework “global excellence,” the principal aspiration outlined in Category Subcategory our long-term vision, we also understand the importance Corporate ethics and compliance of ongoing efforts to raise the level of our CSR activities. Risk management ESH Environment To this end, in April 2005 we inaugurated the role of Basic CSR issues Disaster relief Chief Social Responsibility Offi cer (CSRO) and created Safety Health an internal organization to coordinate all aspects of our Product liability issues/quality assurance CSR program, including corporate ethics, compliance, Personnel and occupational issues risk management, environment, safety and health (ESH), Advanced CSR issues Purchasing and logistics and related activities and efforts to contribute to society. Selective CSR issues Social contribution We also formulated a basic CSR policy, as well as developed targets and strategies, in line with which we continue to conduct various related activities. Specifi c Socially Responsible Investment actions have included categorizing our various CSR The Teijin Group is included in the FTSE4Good Index initiatives as addressing either “basic,” “advanced” or Series, which measures the performance of companies that meet globally recognized CSR standards (criteria “selective” issues. Basic CSR issues include those for inclusion: efforts to ensure environmental related to corporate ethics, ESH, environmental sustainability, development of positive relationships contribution, and product liability and quality assurance, with stakeholders and support for universal human while advanced CSR issues are those that arise in rights); and the Ethibel Sustainability Index (criteria for inclusion: internal social policy, environmental policy, the process of refl ecting CSR in policies governing external social policy and ethical economic policy). personnel and labor, as well as purchasing and logistics. (As of July 2008) Selective CSR issues encompass issues related to social contribution and support. Such steps have enabled us to clarify the focus and objectives of these activities, as well as to set medium-term targets and enhance effectiveness.

46 Teijin Limited Environmental Preservation environment, international exchanges and social Teijin’s Sustainable Environment Declaration education—and centers on employee volunteer The Teijin Group formulated the Teijin Group Global programs contributing to the community, while at the Environmental Charter and the Teijin Global same time it aims to raise employee awareness of social Environmental Activity Goals in 1992, and has long been issues. To support the efforts of employees participating committed to protecting the global environment. To in community activities, Teijin has implemented a system accelerate these efforts, in July 2007 we published our that allows employees to take days off and extended Sustainable Environment Declaration. This declaration leave for volunteer activities, as well as support systems outlines three core elements: environmental designed to enable employees to become, for example, preservation, environment-friendly design and registered bone marrow donors or volunteer fi refi ghters. environmental business. In line with these elements, we are implementing a variety of advanced initiatives. In the area of environmental preservation, we engage in a wide range of activities aimed at reducing Principal Environmental Targets of the Teijin Group for 2020 the environmental impact of our daily business Item Scope Minimum Target processes. In particular, we have set medium- to long-

CO2 emissions Japan 20% reduction from the 1990 level term targets for lowering emissions of CO2 and harmful chemicals, as well as for reducing the amount of waste Chemical substance emissions Global 80% reduction from the 1998 level disposed of as landfi ll, and are taking systematic steps Disposal of unusable Global 85% reduction from the 1998 level to ensure these targets are met. industrial waste In the area of environment-friendly design, we recently formulated our own environment-friendly design guidelines. In line with these guidelines, we incorporate the potential environmental impact of both processes and products throughout their life cycles with a view to lowering overall environmental impact. In the area of environmental business, we are working to advance such innovations as the ECO CIRCLE™ ® closed-loop recycling system and BIOFRONT , a heat- Teijin is a sponsor of the Japan Wheelchair resistant bioplastic, among others. Moving forward, we Basketball Championship will actively promote the development of products and businesses that contribute to environmental conservation.

Social Responsibility Relationships Built on Mutual Trust The Teijin Group recognizes that as a corporate citizen Management System it is a member of the communities in which it operates, as well as of the wider global community. We believe Teijin soccer school that working with people outside the Group to cultivate positive relationships based on mutual trust is one of the most important roles of any corporate entity. Accordingly, our current target for expenditures for related activities is more than 1% of annual ordinary income. Individual factories and Group companies take the initiative in developing corporate citizenship activities in their own communities. Complementing these measures Stedelijk Museum in Amsterdam, is a common Groupwide social contribution program the Netherlands formulated and launched in fi scal 2006. The program Teijin signed a sponsorship contract with Amsterdam’s Stedelijk Museum, and provided fi nancial assistance for construction of places particular emphasis on three areas— the new span and facade for the museum’s extension.

Teijin Limited 47 Human Resources In line with its philosophy of growing with its employees, the Teijin Group recognizes the importance of ensuring its employees are highly motivated. To this end, the Group strives to create a work environment that encourages personal growth and skill enhancement and has created a human resources development scheme to manage personnel in a way that respects individual lifestyles and values.

Enhancing the Capabilities of Tomorrow’s Frontline Leaders expanded to embrace employees in their 30s, and we Our current medium-term management plan, STEP UP also introduced important new early-career growth 2006, identifi es the cultivation of skilled human resources opportunities, including participation in Groupwide in production roles as a key policy. Accordingly, we are projects and overseas assignments. taking steps to upgrade the capabilities of tomorrow’s leaders, thereby enhancing workplace—and thus Promoting Personnel Initiatives that Respect Diversity production—capabilities. One such step has been the In 2000, we established a section to promote the establishment of Teijin Techno College. The teaching staff advancement of female employees, enabling us to create of the college consists of former employees who have work environments that maximize the capabilities of retired from management-level positions and are experts female employees. This program has received critical in their fi elds. The college is expected to provide training acclaim from various quarters. Today, the section is for approximately 80 potential frontline leaders annually, responsible for promoting amendments to our personnel or 400 individuals over fi ve years. Training focuses on system designed to ensure that all Teijin Group employees passing on proprietary workplace skills and technologies, enjoy a work environment in which they are treated with as well as on improving profi ciency in problem dignity, feel motivated and are encouraged to realize their identifi cation and resolution. full potential, as well as to enable them to maintain a healthy work–life balance. Recently, the Teijin Group Efforts to Ensure Effective Group and Global Management introduced a new work-at-home system designed to Securing sustainable growth in an increasingly competitive assist employees in balancing the demands of work and global market demands effective, coordinated home life and improve productivity. This system is targeted management of the approximately 160 companies and particularly at employees who fi nd it diffi cult to commute 19,000 employees of the Teijin Group worldwide. To due to issues at home, including the need to look after this end, we have established a program that selects children or care for elderly or sick family members, or candidates for future management positions and provides physical reasons, such as pregnancy, the recent birth systematic training to develop necessary management of a child, injury or disability. expertise. In fi scal 2006, eligibility for the program was

Percentage of Women in Management Women in Career-Track Positions as a Positions in the Teijin Group Percentage of the Teijin Group’s Total Labor Force (%) (%) 4 16 14.5 13.0 12.0 3 12 11.1 2.5 2.5 9.5 2.3 2.1 8.8 2 1.6 8 6.9 5.9 1.3 4.8 1.2 4.5 In 2007, Teijin won fi rst prize in the Nikkei 1 0.7 4 0.6 Childcare Support Awards, sponsored by 0.5 Nikkei Inc., one of Japan’s largest media 0 0 corporations, specializing in fi nancial, business ’98 ’99 ’00 ’01 ’02* ’03 ’04 ’05’06 ’07 ’98 ’99 ’00 ’01 ’02* ’03 ’04 ’05’06 ’07 and industry news. These awards recognize (Fiscal year) (Fiscal year) companies that have taken steps to create a Note: Data for fi scal 1998–fi scal 2002 is for the parent company, Teijin Limited. Owing to Teijin’s adoption of working environment that supports the efforts a holding company system, data from fi scal 2003 forward is for the parent company, Teijin Limited, of employees raising children, thereby and the 12 main subsidiaries of the Teijin Group. contributing to a sound, healthy society.

48 Teijin Limited Financial Section

CONTENTS

Consolidated 11-Year Summary ...... 50 Management’s Discussion and Analysis ...... 52 Summary ...... 52 Results of Operations ...... 53 Business Segment Results ...... 55 Financial Position ...... 58 Outlook for Fiscal 2008 ...... 59 Risk Factors ...... 61 Consolidated Balance Sheets ...... 62 Consolidated Statements of Income ...... 64 Consolidated Statements of Changes in Net Assets ...65 Consolidated Statements of Cash Flows ...... 66 Notes to Consolidated Financial Statements ...... 67 Independent Auditors’ Report ...... 86

Teijin Limited 49 Consolidated 11-Year Summary

Years ended March 31 1998 1999 2000

Operating Results Net sales ¥608,132 ¥574,175 ¥ 604,173 Gross profi t 165,444 162,001 169,188 Percentage of net sales 27.2% 28.2% 28.0% Operating income 27,422 29,899 26,285 Percentage of net sales 4.5% 5.2% 4.4% Net income (loss) 9,793 8,138 7,079 Percentage of net sales 1.6% 1.4% 1.2% Segment Information Net sales: Fibers and Textiles 323,874 295,701 317,544 Synthetic Fibers — — — Films and Plastics 130,937 126,370 112,921 Pharmaceuticals and Home Health Care 82,617 84,072 87,217 Machinery and Engineering — — 38,990 Trading and Retail — — — IT and New Products, etc.(2) 70,704 68,032 47,501 Total ¥608,132 ¥574,175 ¥ 604,173 Operating income (loss): Fibers and Textiles 4,241 2,601 (1,953) Synthetic Fibers — — — Films and Plastics 7,829 8,809 7,779 Pharmaceuticals and Home Health Care 14,129 14,719 16,570 Machinery and Engineering — — (313) Trading and Retail — — — IT and New Products, etc.(2) 513 3,690 3,552 Elimination and corporate 710 80 650 Total ¥ 27,422 ¥ 29,899 ¥ 26,285 Financial Position Total assets ¥850,215 ¥838,677 ¥1,015,857 Total current assets 376,380 379,491 437,876 Property, plant and equipment, net 257,746 247,979 369,819 Total current liabilities 294,232 254,957 354,680 Long-term debt due after one year 177,149 215,217 220,564 Shareholders’ equity 309,981 299,602 294,643 Cash Flows Cash fl ows from operating activities 31,659 50,482 61,061 Depreciation and amortization 32,330 34,216 36,824 Cash fl ows from investing activities (42,416) (26,057) (39,852) Purchase of property, plant and equipment (37,033) (29,403) (36,484) Cash fl ows from fi nancing activities (5,968) (14,305) (22,925) Net increase (decrease) in cash and cash equivalents(3) (16,725) 10,120 (4,601) Per Share Data (Yen) Net income (loss): Primary ¥ 10.1 ¥ 8.8 ¥ 7.8 Fully diluted 10.0 8.7 — Shareholders’ equity 327.6 330.6 325.2 Cash dividends 6.0 6.0 6.0 Ratios Net income to shareholders’ equity (ROE)(4) 3.1% 2.7% 2.4% Operating income to total assets (ROA)(4) 3.2 3.5 2.8 Shareholders’ equity to total assets 36.5 35.7 29.0 Dividend payout ratio 59 69 77 Other Data R&D expenses (Millions of yen) ¥ 27,434 ¥ 27,605 ¥ 28,452 Number of shares outstanding (Thousands) 946,289 906,393 905,993 Number of employees 17,607 17,227 21,971 Notes: 1. Since fi scal 2003, ended March 31, 2004, the allocation method for corporate expenses has been changed. 2. Up to fi scal 2003, this segment was called “New Products and Other Businesses.” 3. Owing to a change in accounting standards, the defi nition of cash and cash equivalents after fi scal 1999, ended March 31, 2000, differs from previous years. 4. Throughout this annual report, ROE is calculated as net income divided by average shareholders’ equity, and ROA is calculated as operating income divided by average total assets. Shareholders’ equity = Total net assets at year-end - Stock acquisition rights at year-end - Minority interest in consolidated subsidiaries at year-end.

50 Teijin Limited Millions of yen 2001 2002 2003 2004 2005 2006 2007 2008

¥ 761,410 ¥ 923,446 ¥ 890,434 ¥874,569 ¥908,389 ¥938,082 ¥1,009,586 ¥1,036,624 205,404 211,660 209,491 212,682 222,607 250,365 258,737 256,428 27.0% 22.9% 23.5% 24.3% 24.5% 26.7% 25.6% 24.7% 43,713 29,497 35,298 38,745 51,865 76,757 75,061 65,162 5.7% 3.2% 4.0% 4.4% 5.7% 8.2% 7.4% 6.3% 15,950 975 (20,977) 8,455 9,159 24,853 34,125 12,613 2.1% 0.1% –2.4% 1.0% 1.0% 2.6% 3.4% 1.2%

343,911 509,891 489,485 — — — — — — — — 247,530 278,846 260,967 293,280 317,612 210,997 192,426 182,398 186,504 216,432 264,511 287,902 293,834 88,643 94,542 92,464 93,104 97,104 105,589 113,093 114,403 71,538 74,481 72,784 43,290 — — — — — — — 256,295 261,199 259,828 266,492 265,931 46,321 52,106 53,303 47,846 54,808 47,187 48,819 44,844 ¥ 761,410 ¥ 923,446 ¥ 890,434 ¥874,569 ¥908,389 ¥938,082 ¥1,009,586 ¥1,036,624

430 7,435 8,221 — — — — — — — — 9,144 10,520 14,549 17,342 24,448 17,560 (3,158) 3,734 4,020 19,145 40,950 33,900 20,247 15,809 16,916 16,192 17,252 18,148 19,318 21,192 21,691 4,744 2,568 3,723 3,861 — — — — — — — 5,320 6,145 5,316 5,395 5,255 4,684 4,919 3,528 5,456 3,758 3,760 4,320 3,516 486 817 (100) (6,308) (5,851) (7,136) (7,088) (9,995) ¥ 43,713 ¥ 29,497 ¥ 35,298 ¥ 38,745 ¥ 51,865 ¥ 76,757 ¥ 75,061 ¥ 65,162

¥1,058,514 ¥1,104,633 ¥1,036,518 ¥914,502 ¥852,029 ¥943,991 ¥ 999,917 ¥1,015,991 416,784 459,334 435,187 342,127 369,860 399,002 417,409 417,395 391,383 433,022 432,999 393,820 322,652 346,498 379,632 382,568 386,477 495,591 444,140 330,862 320,828 397,919 426,748 417,534 189,121 159,661 207,774 199,298 158,959 108,715 102,105 117,200 320,769 311,469 278,527 293,898 290,586 338,609 366,753 391,010

79,446 52,394 58,316 44,973 73,313 75,491 96,456 53,740 48,777 51,185 53,028 52,794 52,287 50,389 54,009 62,668 (50,511) (51,284) (65,919) (16,715) 12,708 (74,062) (87,065) (79,218) (41,520) (50,862) (66,936) (47,569) (43,900) (66,620) (69,996) (78,821) (55,842) (6,197) 10,842 (32,325) (79,643) 1,511 (19,074) 16,080 (26,267) (3,957) 2,762 (4,451) 6,249 4,689 (9,309) (9,271)

¥ 17.6 ¥ 1.1 ¥ (22.7) ¥ 9.0 ¥ 9.7 ¥0 26.6 ¥ 36.8 ¥ 13.2 17.3 1.1 (22.7) 9.0 9.7 26.6 36.8 13.2 354.1 335.5 300.3 316.8 313.3 364.8 395.2 397.3 6.5 6.5 6.5 6.5 6.5 7.5 10.0 8.0

5.2% 0.3% –7.1% 3.0% 3.1% 7.9% 9.7% 3.3% 4.2 2.7 3.3 4.0 5.9 8.5 7.7 6.5 30.3 28.2 26.9 32.1 34.1 35.9 36.7 38.5 37 607 — 72 67 28 27 61

¥ 30,275 ¥ 31,864 ¥ 29,880 ¥ 32,830 ¥ 30,024 ¥ 31,196 ¥ 35,097 ¥ 36,282

905,993 928,299 928,299 928,299 928,299 928,299 928,299 984,754 Financial Section 22,256 24,026 23,265 20,551 18,960 18,819 19,053 19,125

Teijin Limited 51 Management’s Discussion and Analysis

Summary

Operating Environment Strategies in Action In fi scal 2007, ended March 31, 2008, global In this environment, the Teijin Group economic conditions refl ected a sharp downturn implemented a variety of initiatives in line with in the United States and bearish tendencies in its STEP UP 2006 medium-term management Europe in the second half of the period. In con- plan, decisively investing resources in growth trast, in the PRC, investment and brisk exports SBUs*, strengthening R&D and cultivating new continued to drive strong growth. In Japan, the businesses, and reinforcing its focus on four prospect of a slowdown intensifi ed, although the key fi elds: automobiles and aircraft, information economy continued to expand gradually, buoyed and electronics, health care, and environment, by exports and capital investment. water and energy. *For more information on Teijin’s SBUs, see page 55. Net Sales Free Cash Flow* (Years ended March 31) (Billions of yen) (Years ended March 31) (Billions of yen) 2007 2008 Change (%) 2007 2008 ¥1,009.6 ¥1,036.6 +2.7% ¥9.4 ¥(25.5) Net sales increased, owing mainly to the increasingly *Cash fl ows from operating activities + Cash fl ows from investing activities diverse nature of our businesses, a consequence of A sharp decline in net cash and cash equivalents strategic investments in aramid and carbon fi bers. provided by operating activities, together with assertive capital investment, particularly in growth SBUs, resulted Operating Income in a negative free cash fl ow for the fi rst time after fi ve (Years ended March 31) (Billions of yen) consecutive years of positive results. 2007 2008 Change (%) ¥75.1 ¥65.2 –13.2% Key Indicators (Years ended March 31) Operating income declined, primarily as a consequence of sagging conditions in the market for plastics and in 2009 2007 2008 (STEP UP the market for fi lms in the United States, which pushed 2006 targets) down operating income in the Films and Plastics seg- ment. This countered the positive impact of higher ROA 7.7% 6.5% 10.0%+ operating income in the Synthetic Fibers segment, the ROE 9.7% 3.3% 12.0%+ result of an improved performance in the polyester fi bers Debt-to- 0.81 0.83 0.6–0.7 times business and favorable gains in the high-performance equity ratio times times fi bers business. ROA—calculated using operating income—and ROE were down, due primarily to declines in operating and Net Income net income. (Years ended March 31) (Billions of yen) 2007 2008 Change (%) ¥34.1 ¥12.6 –63.0% Tasks Ahead Recognizing our priority objectives as being Net income declined sharply, refl ecting the drop in to ensure sustainable growth and restructure operating income and the application of impairment unprofi table businesses, we will continue to accounting to the fi xed assets of our fi lms joint ventures focus the investment of management resources in the United States and Luxembourg. on growth SBUs and expand the allocation of resources to the cultivation of new businesses. Total Assets At the same time, we will accelerate efforts to (Years ended March 31) (Billions of yen) address outstanding tasks, including the re- 2007 2008 Change (%) structuring of our plastics business and our ¥999.9 ¥1,016.0 +1.6% U.S. and European fi lms joint ventures. Total assets rose, a consequence of higher invento- ries—owing to the increasingly diverse nature of Teijin’s businesses and rising raw materials prices and fuel costs—and fi xed assets, which offset the impact of a decline in investments in securities attributable to falling stock prices. The increase in fi xed assets partly refl ected an increase in goodwill, a result of the purchase of shares in subsidiaries, and assertive capital investment, which countered the negative impact of the application of impairment accounting to the fi xed assets of our U.S. fi lms joint venture.

52 Teijin Limited Results of Operations

Net Sales Costs and Expenses Consolidated net sales increased 2.7%, or ¥27.0 billion, Cost of sales rose 3.9%, or ¥29.3 billion, to ¥780.2 billion, from the previous fi scal year, to ¥1,036.6 billion. owing primarily to the impact of rising raw materials prices The increase in net sales was mainly due to the increas- and fuel costs and investments aimed at diversifying the ingly diverse nature of Teijin’s businesses, a consequence nature of our business. Despite determined cost-cutting of strategic investments in aramid and carbon fi bers, which measures, we succeeded in offsetting only about 70% of supported an 8.3%, or ¥24.3 billion, increase in sales in the the impact of rising raw materials prices and fuel costs. Synthetic Fibers segment. Despite rising sales of plastics, As a consequence, cost of sales was equivalent to 75.3% particularly for use in OA equipment and electrical and of net sales, up 0.9 percentage point from the previous electronics equipment, deteriorating sales in our U.S. fi lms period. SG&A expenses were equivalent to 15.0% of net joint venture held back sales in the Films and Plastics sales, up 0.3 percentage point, as higher sales boosted segment to an increase of only 2.1%, or ¥5.9 billion. selling expenses. R&D expenses were up 3.4%, or ¥1.2 billion, to ¥36.3 Analysis of Net Sales billion, refl ecting aggressive investments in key strategic (Years ended March 31) businesses and in the cultivation of new businesses, in Pharmaceuticals and line with our medium-term management plan. (Billions of yen) Films and Home Health Care 1,050 Synthetic Plastics Fibers 5.9 1.3 1,036.6 24.3 Trading and Retail IT and Ratio of Cost of Sales to Net Sales and 1,025 –0.6 New Products, etc. Ratio of SG&A Expenses to Net Sales –4.0 (Years ended March 31) 1,009.6 (%) 1,000 100 40

75.7 75.5 73.3 74.4 75.3 975 75 30

0 50 20 16.1 2007 2008 15.5 15.2 14.7 15.0

25 10

0 0 2004 2005 2006 2007 2008

Ratio of cost of sales to net sales (left scale) Ratio of SG&A expenses to net sales (right scale)

Research and Development R&D Expenses and Percentage of R&D Expenses Accounted for by Corporate Research In line with our medium-term management plan, (Years ended March 31) STEP UP 2006, we are endeavoring to ensure sus- (Billions of yen) (%) tainable growth through concentrated efforts to 40 20 cultivate new businesses. These efforts center on 36.3 35.1 corporate research, in which we are focusing the 32.8 31.2 30.0 10.4 allocation of management resources. In the period 30 9.8 15 6.9 14.3% under review, corporate research accounted for 7.2 7.4 14.3% of total R&D expenses. For more information 11.7% 5.9 6.6 6.8 on our R&D activities, see pages 42–45. 6.0 6.1 20 8.8% 10.8% 10 8.1% 15.1 13.4 13.6 14.4 13.5 10 5 0.2 0.2 0.2 0.2 0.2 0.2 1.8 0.8 0.3 0.3 5.2 2.9 3.7 3.8 0 2.4 0 Financial Section 2004 2005 2006 2007 2008

(left scale) Synthetic Fibers (right scale) Percentage of Films and Plastics R&D expenses Pharmaceuticals and Home Health Care Trading and Retail IT and New Products, etc. R&D expenses

Teijin Limited 53 Operating Income Other Income (Expenses) Operating income fell 13.2%, or ¥9.9 billion, to ¥65.2 bil- Other expenses, a net fi gure comprising nonoperating lion. The operating margin slipped 1.1 percentage points, expenses and extraordinary expenses—also both net fi g- to 6.3%. The decline in operating income was largely ures—amounted to ¥52.9 billion, a decline of ¥36.3 billion. owing to sagging conditions in the market for plastics and The decline was largely due to impairment losses of ¥24.4 in the market for fi lms in the United States, which pushed billion for the U.S. fi lms joint venture, a consolidated sub- down operating income in the Films and Plastics segment. sidiary, in extraordinary losses, and ¥4.5 billion for the This countered the positive impact of higher operating Luxembourg fi lms joint venture, an equity-method affi liate, income in the Synthetic Fibers segment, the result of an in nonoperating expenses, as equity in losses of unconsoli- improved performance in the polyester fi bers business and dated subsidiaries and affi liates. Owing to harsh operating favorable gains in the high-performance fi bers business. conditions, particularly in the U.S. fi lms business—a conse- The drop in operating income also refl ected outlays for quence of sagging demand and rising raw materials prices corporate research aimed at creating new businesses. and fuel costs—a prompt improvement in the results is Additionally, while cost-cutting measures, increased ship- seen as unlikely. Accordingly, we applied impairment ments and fl uctuations in retail prices added approximately accounting to the fi xed assets of both companies. Other ¥26.0 billion to operating income, this was offset by the factors contributing to the decline in net other expenses negative impact—estimated at ¥36.0 billion—of rising raw included an increase in interest expense, a decrease in materials prices and fuel costs, investments in growth gain on sales of property, plant and equipment, and a SBUs aimed at the cultivation of new businesses and a tax higher special factory operating loss. rate adjustment arising from an increase in depreciation and amortization charges. Net Income Net income, at ¥12.6 billion, was down 63.0%, or ¥21.5 Analysis of Operating Income billion. The dominant factors contributing to the sharp (Years ended March 31) decline in net income were lower operating income and Sales prices up (Billions of yen) Sales volume up 3.0 the application of impairment accounting to the fi xed 9.0 100 Cost-cutting assets of our fi lms joint ventures in the United States and 14.0 Luxembourg. These impairment losses accounted for ¥13.0 billion of the decline in net income. As a conse- 75.1 Raw material prices 75 and fuel costs up quence, ROE fell 6.4 percentage points, to 3.3%, from 65.2 –20.0 9.7% in fi scal 2006. Advance investment, etc. Change of –14.0 tax law 50 –2.0 Net Income and ROE (Years ended March 31)

25 (Billions of yen) (%) 40 12 9.7% 34.1 0 30 9 2007 2008 7.9% 24.9 Operating Income and Operating Margin 20 6 (Years ended March 31) (Billions of yen) (%) 3.3% 3.0% 3.1% 12.6 100 12 10 3 8.5 9.2 76.8 75.1 14.5 65.2 75 9 8.2% 17.3 0 0 2004 2005 2006 2007 2008 7.4% 24.4 51.910.5 6.3% Net income (left scale) ROE (right scale) 50 6 38.7 5.7% 41.0 33.9 20.2 4.4% 9.1 19.1 4.0 25 3 17.3 18.1 19.3 21.2 21.7 5.3 6.1 5.3 5.4 5.3 5.5 3.8 3.8 4.3 3.5 0 –6.3 –5.9 –7.1 –7.1 –10.0 0 2004 2005 2006 2007 2008

(left scale) Synthetic Fibers (right scale) Operating margin Films and Plastics Pharmaceuticals and Home Health Care Trading and Retail IT and New Products, etc. Elimination and Corporate

54 Teijin Limited Business Segment Results subsidiary in Indonesia sharply reduced its operating loss, thanks to determined steps to reduce costs and shift to Synthetic Fibers highly profi table businesses. Sales in the Synthetic Fibers segment increased 8.3%, On another front, we continue to focus on establishing to ¥317.6 billion, and operating income climbed new business models and developing new products. In fi s- 41.0%, to ¥24.4 billion. cal 2007, we succeeded in developing BEWELL®, an ultra- In the polyester fi bers business, the operating loss fi ne fi ber with durable and antistatic properties, as well as a shrank signifi cantly, owing to successful efforts to super-ultrafi ne nanofi ber. We are also stepping up efforts revise sales prices and lower costs. In the high- to expand ECO CIRCLE™, a closed-loop recycling system, performance fi bers business, sales and operating including the development of new proposals. In the period income expanded favorably for both aramid and under review, these efforts facilitated the introduction of an carbon fi bers. attractive eco-bag. Additionally, we are actively promoting the use of polyester polymers that contain no heavy metals Net Sales and Operating Income and are exploring the possibility of licensing out production in the Synthetic Fibers Segment to a leading polyester fi bers manufacturer. (Years ended March 31) (Billions of yen) High Performance Fibers Sales of Twaron® and 400 40 Technora® para-aramid fi bers continued to rise favorably, 317.6 as demand remained fi rm, particularly for automotive, 293.3 safety and protective apparel applications. Against a back- 300 278.8 30 261.0 7.7% ground of healthy demand , we are constructing new pro- 247.5 duction facilities for Twaron® para-aramid fi bers that will 5.9% 24.4 200 5.6% 20 increase capacity by approximately 15%. These facilities 17.3 3.8% 14.5 will come on line gradually beginning in the second half of 3.7% 2008. We are also considering the expansion of production 10.5 100 9.1 10 capacity for Technora® para-aramid fi bers. Production and sales of Teijinconex® meta-aramid fi bers expanded steadily, bolstered by robust demand, primarily for use in industrial 0 0 materials. In addition, we saw steadily increasing results for 2004 2005 2006 2007 2008 Tenax® carbon fi bers, owing to rising demand worldwide, Net sales Operating margin Operating income particularly for use in general industrial materials and pri- (left scale) (right scale) vate-sector aircraft. In response to increasingly diverse needs and a shift toward higher added value, we are pro- Polyester Fibers Despite persistently harsh operating moting efforts to expand our mid- and downstream carbon conditions, owing to rising raw materials prices and fuel fi bers businesses and cultivate demand in new markets. A costs worldwide, the full-term operating loss shrank signifi - new large-scale production line for Tenax® in Japan was cantly, attributable to continued, forceful efforts to revise completed and commenced production in April 2008, while sales prices, and the business fell just short of turning a a second such plant, in Germany, is expected to come on profi t in the second half of the period. In Southeast Asia, line in August 2009. our subsidiary in Thailand returned to profi tability, while our

STEP UP 2006 Business Strategies Having positioned the period of STEP UP 2006 as a Our management vision outlines three goals, which time of innovative growth, we have focused on realiz- we intend to achieve in the next fi ve–10 years: ing our long-term vision. To this end, the plan features • Attain global excellence; strategies for investing aggressively in growth SBUs and • Foster sustainable growth through chemical four key fi elds, as well as cultivating new businesses. technologies and biotechnologies, as well through We have reorganized our operations into SBUs with business solutions; and, the aim of optimizing our business portfolio. SBUs are • Accelerate growth through the cultivation of new categorized, based on the extent of their contribution businesses. to corporate value and prospects for sustainable growth, as “Growth SBUs,” Stable-profi t SBUs” or “Restructuring SBUs.”

Growth SBUs Stable-profi t SBUs Restructuring SBUs Invest resources with a Secure stable profi ts and Overhaul according to long-term outlook cash fl ows fundamental policies Para-aramid fi bers Synthetic Fibers Polyester fi bers Carbon fi bers, PEN fi bers Polycarbonate Polyester fi lm and Films and Plastics PEN fi lm and resin polyester resin Financial Section Pharmaceuticals and Pharmaceuticals and Home Health Care home health care Trading and Retail Trading and retail IT and New Products, etc. IT

Note: An SBU is a business unit that can be clearly classifi ed according to, for example, its mission, management resources, products and services, customers and competitors, and for which independent strategies and plans should be proposed.

Teijin Limited 55 Films and Plastics and electrical and electronics equipment—boosted sales. In the Films and Plastics segment, sales rose 2.1%, Despite efforts to enhance profi tability through an improved to ¥293.8 billion. Nonetheless, operating income fell product mix and determined cost-cutting measures, oper- 40.3%, to ¥20.2 billion. ating income fell short of the previous fi scal year’s results, In the fi lms business, results in Asian markets were owing to rising raw materials prices and fuel costs. steady, but fl agging demand led to a decline in operat- In the area of optical fi lms, a sharp increase in demand ing income in the United States. In the plastics busi- for use on touch panels supported an increase in ship- ness, operating income was down as a consequence ments of clear electroconductive fi lm ELECLEAR®. With of rising raw materials prices. demand expected to increase further, we resolved to expand production capacity at existing facilities, as well as Net Sales and Operating Income to build a second production line, which is scheduled to in the Films and Plastics Segment begin operations in October 2008. (Years ended March 31) Underscoring the high marks accorded our polymeriza- (Billions of yen) tion and molding technologies, our molded polycarbonate 400 80 windows were selected for use on the new Series N700 Shinkansen bullet trains, which went into service in July 2007. 15.5% 300 287.9 293.8 60 264.5 Pharmaceuticals and Home Health Care 11.8% The Pharmaceuticals and Home Health Care segment 216.4 41.0 registered sales of ¥114.4 billion, an increase of 1.2%, 200 186.5 40 8.8% 33.9 and operating income of ¥21.7 billion, up 2.4%, 6.9% In the pharmaceuticals business, we reported solid 20.2 100 19.1 20 results, led by drugs used in the treatment of osteopo- 2.2% rosis, including Bonalon® 35mg tablet, a once-weekly ® 4.0 formulation of Bonalon . In the home health care busi- 0 0 ness, rental volume for HOT equipment remained high, 2004 2005 2006 2007 2008 while results for CPAP ventilators and other home Net sales Operating margin Operating income health care equipment were favorable. Progress was (left scale) (right scale) also reported in R&D.

Films We currently have polyester fi lms joint ventures with Net Sales and Operating Income DuPont of the United States in six countries. In the period in the Pharmaceuticals and Home Health Care Segment under review, sales of PET fi lm for industrial applications, (Years ended March 31) notably FPDs, remained fi rm in Japan. Thanks to various (Billions of yen) efforts, operating rates at our production facilities for 200 80 19.0% clear, thick PET fi lm, which came on line in January 2007, 18.5% 18.7% 18.3% 18.7% continued to rise. 150 60 Despite ongoing rationalization efforts, our U.S. fi lms joint venture registered a decline in sales and an operating loss, 113.1 114.4 as a consequence of sluggish demand and rising raw 105.6 100 93.1 97.1 40 materials prices and fuel costs. In Europe, a persistently strong euro continues to spur imports, thereby intensifying 21.2 21.7 competition. During the period, efforts by local joint ven- 50 17.3 18.1 19.3 20 tures to improve profi ts by expanding sales of distinctive products and lowering fi xed costs began to yield results. Sales of Teonex® PEN fi lm remained solid for use in next- 0 0 generation high-density data backup tapes. PEN fi lm sales 2004 2005 2006 2007 2008 also increased for automotive and electronics-related applications. Net sales Operating margin Operating income In summary, our global fi lms joint ventures—which include (left scale) (right scale) unconsolidated subsidiaries and affi liates accounted for using the equity method—reported decreases in sales and Pharmaceuticals In the area of osteoporosis treatments, operating income, mainly owing to the deterioration of a key focus, Bonalon® 35mg tablet, a once-weekly formu- results in the United States. lation, became available for long-term prescription in October 2007, contributing to a favorable increase in ship- Plastics In the area of Panlite® polycarbonate resin, the ments, while sales of active vitamin D3-based Onealfa® December 2006 start of commercial production on a sec- rose steadily. We also saw a favorable increase in sales of ond line at our polymer plant in Zhejiang Province, in the Alvesco®, an inhaled steroid for adult asthma launched in PRC, doubled our production capacity. In December 2007, June 2007. we completed the third phase of construction in a project In R&D, we proceeded with development efforts for new to expand production capacity at our compounding plant in drugs in line with themes developed in-house, as well as Shanghai, making it one of the largest compounding plants themes introduced from outside sources. During the period in the world. We were one of the fi rst companies to estab- under review, six drug candidates advanced to the next lish an integrated supply system, encompassing products phase of clinical trials. In cardiovascular and metabolic dis- ranging from polymers to compounds, in the PRC—one of ease, another key therapeutic area, we commenced phase the world’s largest high-growth markets—thereby position- I clinical trials for NTC-801, an atrial fi brillation and fl utter ing us to cultivate demand and ensure a stable supply. agent, and phase II clinical trials for TPC-806, a treatment As a consequence, in the period under review, increased for cardiac disease, as part of an ongoing effort to enhance shipments of Panlite®—particularly for use in OA equipment our R&D pipeline.

56 Teijin Limited Home Health Care Rental volume for mainstay HOT IT and New Products, etc. equipment in Japan remained fi rm. With the aim of cultivat- Sales in the IT and New Products, etc., segment ing additional markets, in June 2007 we commenced rent- decreased 8.1%, to ¥44.8 billion, and operating als of Hi-Sanso™ 2U, one of Japan’s smallest therapeutic income was down 18.6%, to ¥3.5 billion. oxygen concentrators for HOT, recording satisfactory gains In the IT business, we recorded declines in both sales in rental volume in the remainder of the period. We also and operating income. continued to see favorable growth in rental volume for other home health care equipment, notably SAFHS® (Sonic Net Sales and Operating Income Accelerated Fracture Healing System). In the area of CPAP in the IT and New Products, etc. Segment ventilators, in January 2008 we launched AutoSet™ C, one (Years ended March 31) of the quietest devices in the world. In addition, we took (Billions of yen) the fi rst step toward entering the U.S. home health care 100 11.4% 10.0 market in January 2008 by acquiring an 85% equity stake in Associated Healthcare Systems Inc., a home health care 75 8.8% 7.5 services fi rm based in the New York area that is reporting 8.0% 7.8% 6.9% strong growth, particularly in sales and rentals. In the years 5.5 54.8 ahead, we intend to accelerate our global expansion in 47.8 47.2 48.8 50 4.3 44.8 5.0 this business. 3.8 3.8 3.5

Trading and Retail 25 2.5 In the Trading and Retail segment, sales slipped 0.2%, to ¥265.9 billion, and operating income declined 2.6%, to ¥5.3 billion. 0 0 In textiles and apparel, our main OEM business strug- 2004 2005 2006 2007 2008 gled, while in industrial textiles and materials, high- Net sales Operating margin Operating income performance materials registered brisk results. (left scale) (right scale)

Net Sales and Operating Income IT The IT business is divided into IT solutions and in the Trading and Retail Segment Services, both provided by subsidiary Infocom Corporation. (Years ended March 31) IT solutions includes GRANDIT®, an enterprise resource (Billions of yen) planning (ERP) software package, as well as solutions 400 10.0 for medical institutions and intellectual property and patent management, while Services includes data center 300 7.5 management, the provision of e-books, ring tones and 261.2 259.8 266.5 265.9 other content for mobile phones, and the management of 256.3 6.1 e-commerce sites. In the period under review, the Services 5.3 5.3 5.4 5.3 2.4% business continued to report favorable results. In the 200 2.1% 5.0 2.0% 2.0% 2.0% IT solutions business, however, an increase in software development requests and time required for customization 100 2.5 delayed inspections of received goods and the start of projects, while rising costs related to bugs in major newly developed software packages pushed both sales and 0 0 operating income down. 2004 2005 2006 2007 2008 Net sales Operating margin Operating income New Products, etc. With the aim of developing new (left scale) (right scale) businesses, we have selected three key themes—highly thermally conductive materials, bioplastics and high- Textiles and Apparel In a harsh operating environment, performance electronics materials—on which we intend characterized by rising costs and a stagnant retail market, to focus our R&D efforts. our mainstay OEM business continued to struggle. With In the area of bioplastics, we completed development a view to expanding our apparel business, we sought to of our fi rst product, a car seat fabric, in cooperation with cultivate new markets in the promising Greater Tokyo Mazda Motor Corporation. The fabric is made entirely with Metropolitan Area by investing in commercial rights and high-quality, highly durable BIOFRONT® heat-resistant poly- human resources. lactic acid fi bers. We also acquired 50% ownership of NatureWorks LLC, the world’s leading maker of bioplastics Industrial Textiles and Materials Soaring demand for derived entirely from plants, and are moving ahead with aramid, carbon and other high-performance fi bers, as well assertive market development efforts. as plastics and fi lms, supported robust sales. With the In the area of high-performance electronics materials, aim of reinforcing our local sourcing capabilities overseas we proceeded with efforts to cultivate markets for a lithium to meet the needs of customers—principally those in ion battery (LIB) separator that delivers outstanding heat automobile-related industries establishing production resistance, durability and safety.

facilities abroad—we continued to reinforce our overseas On another front, with the aim of laying a foundation for Financial Section expansion in the period under review. We commenced sustainable future growth, we established a new waste- operations at a rubber processing plant in Thailand and car water treatment business. Under the direct supervision of seat manufacturing plants in Thailand and the PRC. We the president, this business is focusing on cultivating mar- will also step up efforts to cultivate new markets, focusing kets for reused wastewater from industrial plants and for on four key themes—environment and safety, automobiles, purifi ed groundwater. high-performance materials and new distribution channels.

Teijin Limited 57 Financial Position

Assets, Liabilities, Net Assets and Cash Flows Assets, Liabilities and Net Assets Total Assets, Interest-Bearing Debt and D/E Ratio Interest-bearing debt increased ¥29.8 billion in fi scal 2007. (As of March 31) As a consequence, the debt-to-equity ratio rose 0.02 per- (Billions of yen) (Times) 1,200 2.0 centage point, to 0.83 times. Total shareholders’ equity increased ¥24.3 billion, pushing the equity ratio up 1.8 per- 999.9 1,016.0 944.0 centage points, to 38.5%, underscoring the essential 914.5 900 852.0 1.5 soundness of Teijin’s fi nancial position. Debt ratings remained the same as in fi scal 2006, and are expected to 1.21 remain stable for the foreseeable future. Owing to the dete- 600 0.95 1.0 0.88 0.81 rioration of our operating results, the interest coverage ratio 0.83 declined to 6.2 times, from 8.1 times in fi scal 2006, while 356.7 298.3 295.5 325.2 the debt payback period rose to 6.1 years, from 3.1 years. 300 277.0 0.5

(As of June 30, 2008)

Rating and 0 0 Moody’s Investment 2004 2005 2006 2007 2008 Information, Inc. Total assets (left scale) D/E ratio (right scale) Interest-bearing debt (left scale) Rating A3 A

Debt Payback Period and Equity Ratio Outlook Stable Stable (Years ended March 31) (Years) (%) 20 40 35.9% 36.7% 38.5% Total assets as of March 31, 2008, amounted to ¥1,016.0 34.1% billion, up ¥16.1 billion from the end of fi scal 2006. This 32.1% was due to higher inventories—owing to the increasingly 15 30 diverse nature of Teijin’s businesses and rising raw materi- als prices and fuel costs—and fi xed assets, which offset the impact of a decline in investments in securities attribut- 10 20 able to falling stock prices. Fixed assets rose ¥16.1 billion, 7.9 despite impairment of ¥32.2 billion arising from, among 6.1 5 10 others, the application of impairment accounting to the 3.1 fi xed assets of our U.S. fi lms joint venture, and refl ected, 3.8 4.0 in part, an increase in goodwill, a result of the purchase of 0 0 shares in subsidiaries—notably Toho Tenax—and assertive 2004 2005 2006 2007 2008 capital investment aimed at expanding business, especially in growth SBUs. Debt payback period (left scale) Equity ratio (right scale)

Total liabilities, at ¥604.7 billion, were up ¥12.6 billion from the fi scal 2006 year-end. This result was despite declines in trade notes and accounts payable and an increase in long- term loans.

Total net assets were ¥411.2 billion, up ¥3.5 billion from the fi scal 2006 year-end. Shareholders’ equity, together with valuation and translation adjustments and others, accounted for ¥391.0 billion of this total, an increase of ¥24.3 billion from the same point a year earlier. This refl ected increases in net income and capital surplus. The latter was due the conversion of Toho Tenax into a wholly owned subsidiary via a stock swap. As a consequence, the equity ratio was 38.5%.

58 Teijin Limited Cash Flows Net cash and cash equivalents provided by operating fi bers in the Netherlands, and in the construction of the activities in fi scal 2007 amounted to ¥53.7 billion, as higher Teijin Technology Innovation Center, which will focus on contributions from net income and depreciation and amor- developing new businesses. tization offset the impact of negative factors, including a Operating and investing activities during the period thus decrease in payables and increases in inventories and used a net total of ¥25.5 billion in cash and cash equivalents. income taxes paid. Income taxes paid increased by ¥10.1 Net cash and cash equivalents provided by fi nancing billion, most of which was accounted for by transient activities amounted to ¥16.1 billion. This result refl ected the payments by a subsidiary in the Netherlands. issue and redemption of corporate bonds and commercial The application of ¥78.8 billion to the purchase of prop- paper, borrowing and repayment of bank loans and long- erty, plant and equipment and other factors contributed to term debt, and the payment of dividends. net cash and cash equivalents used in investing activities Owing to the Company’s operating, investing and of ¥79.2 billion. During the period, we invested primarily in fi nancing activities during the period, cash and cash high-growth businesses to, among others, expand produc- equivalents as of March 31, 2008, after factoring in the tion facilities for carbon fi bers in Japan and para-aramid impact of exchange rates, declined ¥9.3 billion.

(Years ended March 31) (Billions of yen) 2004 2005 2006 2007 2008

Cash fl ows from operating activities ¥45.0 ¥73.3 ¥75.5 ¥96.5 ¥53.7

Cash fl ows from investing activities (16.7) 12.7 (74.1) (87.1) (79.2)

Total 28.3 86.0 1.4 9.4 (25.5)

Cash fl ows from fi nancing activities (32.3) (79.6) 1.5 (19.1) 16.1

Net increase (decrease) in cash and cash equivalents (4.5) 6.2 4.7 (9.3) (9.3)

Outlook for Fiscal 2008

Outlook for Operating Results in Fiscal 2008 while the decline in operating income is a consequence of At the beginning of fi scal 2008, the trend toward decelerat- an expected decrease in operating income in the plastics ing economic growth is gradually spreading to Asia and business. These forecasts assume exchange rates of ¥100 Europe as deteriorating business conditions—a result of to US$1.00 and ¥155 yen to €1.00, and a Dubai crude oil the subprime mortgage loans crisis—are exacerbated by price of US$100 per barrel. rising crude oil prices. With forecasts warning of a global recession, the Japanese economy is also expected to be bearish in tone. Operating Conditions and Strategies for Business In this harsh environment, taking a medium-term outlook, Groups we will focus on realizing the results of strategic invest- ments in growth SBUs up to and including fi scal 2007, the Growth SBUs objective of which was to ensure sustainable growth. At the Invest resources decisively and with a long-term outlook same time, we will continue to invest resources decisively with the aim of creating new businesses. In the Films and In the high-performance fi bers business—part of the Plastics segment, which has seen a weakening of operat- Synthetic Fibers segment—we continue to see sustained ing results, we will take prompt action to restructure our growth in the market for para-aramid fi bers, particularly for European and U.S. fi lms joint ventures and our plastics automotive and safety-related applications. The market for business. In addition, with the goal of ensuring sustainable carbon fi bers also continues to grow, notably for aircraft growth in corporate value, we have earmarked ¥85.0 billion and general industrial applications. As a consequence, we for capital investment, which is ¥17.0 billion higher than the are taking determined steps to cultivate new applications ¥68.0 billion allotted to cover depreciation. We will also for Twaron® para-aramid fi bers, including Sulfron®, devel- allocate ¥38.0 billion to R&D, primarily in pharmaceuticals oped for use in tire reinforcements, and are proceeding and home health care, and in promising new businesses, steadily with the construction of new production facilities, including bioplastics. which we aim to bring on line gradually beginning in the As a consequence of these and other factors, we cur- second half of 2008. In the area of Tenax® carbon fi bers, rently forecast consolidated net sales of ¥1,050.0 billion, we are striving to reinforce our position in the market, while operating income of ¥53.0 billion, ordinary income of ¥41.0 at the same time remaining mindful of market movements billion and net income of ¥18.0 billion. The increase in net in terms of supply and demand. We are working to achieve Financial Section sales from fi scal 2007 primarily refl ects expected strong capacity operation at a new plant in Japan that began sales results, particularly in the Synthetic Fibers segment, operations in April 2008, as well as proceeding with construction of a new line in Germany.

Teijin Limited 59 In the area of Panlite® polycarbonate resin—part of the well as to reinforce competitiveness by improving produc- Films and Plastics segment—we are taking steps, including tivity and lowering costs, in an effort to restore profi tability. maximizing our compounding capabilities, with the aim of In Japan and elsewhere in Asia, we are stepping up efforts realizing a shift toward products for general industrial appli- to reduce costs and strengthen product development and cations. We are also promoting a reorganization of this marketing capabilities with the aim of bolstering our stable business by reinforcing downstream products. Demand is profi t base. We are also endeavoring to raise operating expected to continue expanding in Asia, particularly for use rates at our new production facility for clear, thick PET fi lm, in industrial materials in the PRC. We are endeavoring to which came on line in January 2007. augment our operating foundation in this area by, among others, making full use of the new facilities, completed in In the textiles and apparel business—part of the Trading December 2007, at our compounding plant in Shanghai. and Retail segment—we will continue to take steps to In response to further increases in raw materials prices and achieve further cost reductions, including, for example, fuel costs, we will strive to ensure profi tability by improving shifting production in the PRC to Vietnam, in a drive to our product mix, expanding marketing efforts and achiev- enhance profi tability in our struggling OEM business. ing cost reductions. As part of our effort to reinforce down- We will also strive to reinforce sales of OEM fi nished stream products, including polycarbonate sheet, fi lm and products by expanding our business in the Greater Tokyo molded products, we are expanding production facilities for Metropolitan Area. In industrial textiles and materials—also clear electroconductive fi lm, which are expected to come part of the Trading and Retail segment—we will focus on line in October 2008. on business development in global markets, as well as on increasing the scope of our business in such areas In the area of PEN products (fi lm, resin and fi bers) sold as functional materials, environmental products and under the Teonex® name, which are accounted for in both emergency-use items. the Films and Plastics and the Synthetic Fibers segments, we will take decisive steps to expand sales to manufactur- In the IT business, which is accounted for in the IT and ers of high-density data backup tapes, currently the princi- New Products, etc., segment, we will endeavor to promote pal customers for these products, as well as sales for thoroughgoing management of profi tability and progress automotive and other industrial applications. for each project we undertake. In the Services business, we will work to expand our data center management and In pharmaceuticals and home health care, despite a revi- e-commerce businesses. sion of drug reimbursement prices, that is—the prices paid by insurers to medical institutions under Japan’s National Restructuring SBUs Health Insurance (NHI) scheme—in April 2008, we continue Overhaul according to fundamental policies to promote strategic marketing efforts in an endeavor to expand sales of key pharmaceuticals. Efforts will focus par- In polyester fi bers—part of the Synthetic Fibers segment— ticularly on Bonalon® 35mg tablet, a once-weekly formula- we will continue to thoroughly reengineer our business tion of osteoporosis treatment Bonalon® that became structure. We will also implement concrete measures available for long-term prescription in October 2007, and aimed at restoring this business to profi tability in fi scal Alvesco®, an inhaled steroid agent for the treatment of 2008 and at increasing profi ts in subsequent years. These asthma in adults, which was launched in June 2007. In measures include fortifying sales of superior-quality, highly home health care, we will step up efforts to expand the functional products—such as those produced through our scale of our business, including establishing operations ECO CIRCLE™ closed-loop recycling system; BEWELL®, overseas. In R&D, we will proceed with development efforts an ultrafi ne fi ber with durable antistatic properties; and for new drugs in line with themes developed in-house, as nanofi bers—as well as revising sales prices in response well as themes introduced from outside sources. to rising raw materials prices and fuel costs, continuing Partner Beaufour Ipsen S.A., of France, to which we have to shifting away from products that are less commercially licensed out gout and hyperuricemia treatment TMX-67, viable, improving product quality and decisively reduc- obtained approval from the European Commission for sales ing costs, as well as enhancing cooperation with our of the drug on April 21, 2008, and is preparing for its launch subsidiaries in Thailand and Indonesia. in Europe. In the United States, license partner TAP Pharmaceutical Products Inc. is striving to secure approval from the U.S. authorities at the earliest possible date. Outlook for Financial Position in Fiscal 2008 In fi scal 2008, we will continue to invest extensively and Stable-Profi t SBUs with a medium-term perspective. At the same time, we will Secure stable profi ts and cash fl ows seek to maintain a sound fi nancial base by shrinking work- ing capital and implementing Companywide programs In the area of PET fi lm—part of the Films and Plastics seg- aimed at lowering costs, thereby enabling us to secure a ment—we are addressing two key tasks by investing inten- stable cash fl ow. Through these and other efforts, we are sively in Asia, a major growth market, and by implementing targeting ROA of 5%, ROE of 5% and a debt-to-equity a drastic reorganization of our U.S. fi lms joint venture. Also ratio of 0.8 times. in the United States, we are working to expand sales, as

60 Teijin Limited Risk Factors

The Teijin Group has implemented organizational and systematic responses to various risks inherent in its opera- tions. As of the date of this document, the Group recog- nized the following risks as having the potential to affect its operating results and/or fi nancial position and thus to impact investment decisions.

Market-Related Risk The Teijin Group manufactures and sells products, the sales of which may be affected by market conditions and competition with other companies, and by price fl uctua- tions arising thereof, as well as by such market factors as fl uctuations in foreign exchange and interest rates. The Group’s materials businesses—notably the polyester fi bers business of its Synthetic Fibers segment and the polyester fi lm and polycarbonate resin businesses of its Films and Plastics segment—are particularly vulnerable to fl uctuations in selling prices and procurement costs for raw materials and fuel related to market conditions and competition with other companies. Fluctuations in the price of crude oil may have a signifi cant impact on the Group’s income performance. The Teijin Group’s Pharmaceuticals and Home Health Care segment is vulnerable to changes in drug reimburse- ment prices under Japan’s National Health Insurance (NHI) scheme, as well as to increasingly intense competition, both of which may have a negative impact on selling prices. Fluctuations in foreign exchange and interest rates also have the potential to affect the Group’s operating results and fi nancial position.

Product Quality Risk Teijin Pharma, the principal subsidiary in the Teijin Group’s Pharmaceuticals and Home Health Care segment, has established its own product reliability assurance function in the form of a compliance division. This division, which func- tions independently of other Group businesses, is charged with quality assurance in all aspects of the pharmaceuticals and home health care business. The Group maintains insurance coverage against product liability. Nonetheless, as the pharmaceuticals business involves products that may affect the lives of users, quality issues have the potential to negatively affect, among others, the Group’s operating results, fi nancial position and public reputation.

R&D-Related Risk in the Pharmaceuticals Business R&D in the pharmaceuticals business is characterized by signifi cant investments of funds and time. Pharmaceuticals discovery research has a high incidence of failure. In the initial stages, there is a high risk that researchers will fail to discover a promising drug. Even if a promising drug is discovered, clinical trials may prove it not to be as effective as anticipated, or to have unexpected adverse side effects, thereby forcing the abandonment of plans to apply for approval. There is also a risk that a new drug candidate may not receive regulatory approval as a result Financial Section of the examination process that follows application, or that approval may be rescinded as a result of research conducted subsequent to launch.

Teijin Limited 61 Consolidated Balance Sheets TEIJIN LIMITED As of March 31, 2007 and 2008

Thousands of Millions of yen U.S. dollars (Note 1) 2007 2008 2008

ASSETS Current assets: Cash and time deposits (Note 3) ¥ 28,375 ¥ 19,096 $ 190,594 Receivables: Trade notes and accounts: Unconsolidated subsidiaries and affi liates 4,997 4,486 44,780 Other 203,416 200,431 2,000,506 Loans to: Unconsolidated subsidiaries and affi liates 2,382 2,707 27,015 Other 422 282 2,818 Other 20,105 22,094 220,521 Inventories (Note 6) 141,096 151,503 1,512,154 Deferred income taxes (Note 13) 11,289 9,864 98,451 Other current assets 6,790 9,267 92,499 Allowance for doubtful receivables (1,463) (2,335) (23,303) Total current assets 417,409 417,395 4,166,035

Investments and other assets: Investments in (Notes 4 and 7): Unconsolidated subsidiaries and affi liates 18,303 28,179 281,260 Other 96,566 68,988 688,568 Loans to: Unconsolidated subsidiaries and affi liates 2,501 2,423 24,180 Other 597 1,108 11,061 Prepaid pension expenses (Note 8) 13,645 15,793 157,635 Deferred income taxes (Note 13) 2,080 10,691 106,712 Other 19,125 17,185 171,523 Allowance for doubtful receivables (3,695) (3,039) (30,334) 149,122 141,328 1,410,605

Property, plant and equipment (Note 7): Land 47,764 47,666 475,761 Buildings and structures 187,073 196,424 1,960,518 Machinery, equipment and vehicles 594,270 618,727 6,175,533 Tools 66,713 70,515 703,811 Construction in progress 22,743 38,229 381,565 918,563 971,561 9,697,188 Accumulated depreciation (538,931) (588,993) (5,878,767) 379,632 382,568 3,818,421 Intangible assets 22,705 16,076 160,454 Goodwill 31,049 58,624 585,123 ¥ 999,917 ¥1,015,991 $10,140,638 See accompanying notes to consolidated fi nancial statements.

62 Teijin Limited Thousands of Millions of yen U.S. dollars (Note 1) 2007 2008 2008

LIABILITIES AND NET ASSETS Current liabilities: Bank loans (Note 7) ¥ 65,101 ¥ 71,976 $ 718,390 Long-term debt due within one year (Note 7) 53,274 37,069 369,988 Commercial paper 75,000 99,000 988,123 Payables: Trade notes and accounts (Note 7): Unconsolidated subsidiaries and affi liates 2,166 1,439 14,359 Other 137,240 122,301 1,220,690 Other 43,495 45,178 450,921 Income taxes payable 17,313 5,672 56,614 Accrued expenses 23,907 22,498 224,556 Deferred income taxes (Note 13) 2 — — Other current liabilities 9,250 12,401 123,778 Total current liabilities 426,748 417,534 4,167,419

Long-term debt due after one year (Note 7) 102,105 117,200 1,169,777

Employees’ retirement benefi ts (Note 8) 17,852 18,278 182,435

Directors’ and statutory auditors’ retirement benefi ts 1,654 1,960 19,561

Deferred income taxes (Note 13) 33,113 25,488 254,394

Liabilities in accordance with the application of the equity method 864 5,675 56,642

Other non-current liabilities 9,845 18,607 185,714

Contingent liabilities (Note 18)

Net assets (Note 9)

Shareholders’ equity: Common stock Authorized—3,000,000,000 shares in 2007 and 2008 Issued—928,298,872 shares in 2007 984,753,665 shares in 2008 70,788 70,816 706,814 Capital surplus 63,138 101,325 1,011,327 Retained earnings 196,899 199,953 1,995,734 Treasury stock, at cost; 240,371 shares in 2007 517,837 shares in 2008 (87) (245) (2,440) Total shareholders’ equity 330,738 371,849 3,711,435 Valuation and translation adjustments and others: Net unrealized holding gains on securities 40,269 24,062 240,167 Deferred income (losses) on hedges 36 (341) (3,400) Foreign currency translation adjustments (4,290) (4,560) (45,513) Total valuation and translation adjustment and others 36,015 19,161 191,254 Stock acquisition rights 96 221 2,211 Minority interest in consolidated subsidiaries 40,887 20,018 199,796 Total net assets 407,736 411,249 4,104,696 ¥999,917 ¥1,015,991 $10,140,638 Financial Section

Teijin Limited 63 Consolidated Statements of Income TEIJIN LIMITED Years ended March 31, 2007 and 2008

Thousands of Millions of yen U.S. dollars (Note 1) 2007 2008 2008

Net sales ¥1,009,586 ¥1,036,624 $10,346,579 Costs and expenses: Cost of sales 750,849 780,195 7,787,158 Selling, general and administrative expenses 148,579 154,985 1,546,906 Research and development expenses 35,097 36,282 362,132 Operating income 75,061 65,162 650,383 Other income (expenses): Interest and dividend income 1,723 1,849 18,453 Interest expense (9,481) (10,844) (108,238) Foreign exchange gain (loss) 998 (76) (758) Gain (loss) on sales of investment securities (154) 5,321 53,105 Gain on sales of property, plant and equipment 5,615 1,607 16,040 Gain on compensation for compulsory expropriation 2,550 — — Gain on compensation for transfer of property — 980 9,784 Gain on insurance settlement 1,469 — — Loss on disposal of property, plant and equipment (2,868) (2,024) (20,206) Write-down of investment securities (235) (341) (3,400) Impairment loss (Note 10) (1,123) (32,199) (321,377) Special provision for allowance for doubtful receivables (511) (617) (6,155) Restructuring costs (3,114) — — Special factory operating loss (Note 11) (1,709) (3,191) (31,854) Environmental protection costs (Note 12) (366) (1,392) (13,890) Equity in losses of unconsolidated subsidiaries and affi liates (3,973) (4,647) (46,380) Other, net (5,407) (7,305) (72,910) (16,586) (52,879) (527,786) Income before income taxes 58,475 12,283 122,597 Income taxes (Note 13): Current 15,527 14,691 146,630 Reversal of prior year’s income taxes (2,917) — — Deferred 8,198 (4,196) (41,876) 20,808 10,495 104,754 Minority interest in net (income) losses of consolidated subsidiaries (3,542) 10,825 108,047 Net income ¥ 34,125 ¥ 12,613 ¥ 125,890 Yen U.S. dollars (Note 1) Net income per share ¥36.78 ¥13.16 ¥0.131 Net income per share—diluted 36.76 13.16 0.131 Cash dividends applicable to the year 10.00 8.00 0.080 See accompanying notes to consolidated fi nancial statements.

64 Teijin Limited Consolidated Statements of Changes in Net Assets TEIJIN LIMITED Years ended March 31, 2007 and 2008

Millions of yen Shareholders’ equity Number of Shareholders’ shares of Common Capital Retained Treasury equity common stock stock surplus earnings stock, at cost total Balance at March 31, 2006 928,298,872 ¥70,788 ¥ 63,132 ¥167,050 ¥(237) ¥300,733 Changes of items during the period Cash dividends paid (7,887) (7,887) Bonuses to directors and statutory auditors (199) (199) Net income 34,125 34,125 Change owing to prior year’s tax effect accounting adjustment by overseas subsidiaries 2,971 2,971 Others 839 839 Treasury stock purchased (133) (133) Disposal of treasury stock 6 283 289 Net changes of items other than shareholders’ equity Total 6 29,849 150 30,005 Balance at March 31, 2007 928,298,872 ¥70,788 ¥ 63,138 ¥196,899 ¥ (87) ¥330,738 Changes of items during the period Cash dividends paid (9,535) (9,535) Net income 12,613 12,613 Others (24) (24) Treasury stock purchased (235) (235) Disposal of treasury stock (19) 77 58 Shares issued upon stock options exercised 129,000 28 28 56 Shares issued upon stock swap with consolidated subsidiary (Note 16) 56,325,793 38,178 38,178 Net changes of items other than shareholders’ equity Total 56,454,793 28 38,187 3,054 (158) 41,111 Balance at March 31, 2008 (Note 19) 984,753,665 ¥70,816 ¥101,325 ¥199,953 ¥(245) ¥371,849 Thousands of U.S. dollars (Note 1) Shareholders’ equity Shareholders’ Common Capital Retained Treasury equity stock surplus earnings stock, at cost total Balance at March 31, 2007 $706,533 $ 630,180 $1,965,257 $ (871) $3,301,099 Changes of items during the period Cash dividends paid (95,173) (95,173) Net income 125,890 125,890 Others (240) (240) Treasury stock purchased (2,337) (2,337) Disposal of treasury stock (186) 768 582 Shares issued upon stock options exercised 281 281 562 Shares issued upon stock swap with consolidated subsidiary (Note 16) 381,052 381,052 Net changes of items other than shareholders’ equity Total 281 381,147 30,477 (1,569) 410,336 Balance at March 31, 2008 (Note 19) $706,814 $1,011,327 $1,995,734 $(2,440) $3,711,435 (Continued) Millions of yen Valuation and translation adjustment and others Net unrealized Deferred Foreign currency Stock Minority interest holding gains income (losses) translation Total acquisition in consolidated Net assets on securities on hedges adjustments rights subsidiaries total Balance at March 31, 2006 ¥ 46,922 ¥ — ¥(9,046) ¥ 37,876 ¥ — ¥ 37,042 ¥375,651 Changes of items during the period Cash dividends paid (7,887) Bonuses to directors and statutory auditors (199) Net income 34,125 Change owing to prior year’s tax effect accounting adjustment by overseas subsidiaries 2,971 Others 839 Treasury stock purchased (133) Disposal of treasury stock 289 Net changes of items other than shareholders’ equity (6,653) 36 4,756 (1,861) 96 3,845 2,080 Total (6,653) 36 4,756 (1,861) 96 3,845 32,085 Balance at March 31, 2007 ¥ 40,269 ¥ 36 ¥(4,290) ¥ 36,015 ¥ 96 ¥ 40,887 ¥407,736 Changes of items during the period Cash dividends paid (9,535) Net income 12,613 Others (25) Treasury stock purchased (234) Disposal of treasury stock 58 Shares issued upon stock options exercised 56 Shares issued upon stock swap with consolidated subsidiary (Note 16) 38,178 Net changes of items other than shareholders’ equity (16,207) (377) (270) (16,854) 125 (20,869) (37,598) Total (16,207) (377) (270) (16,854) 125 (20,869) 3,513 Balance at March 31, 2008 (Note 19) ¥ 24,062 ¥(341) ¥(4,560) ¥ 19,161 ¥221 ¥ 20,018 ¥411,249 Thousands of U.S. dollars (Note 1) Valuation and translation adjustment and others Net unrealized Deferred Foreign currency Stock Minority interest holding gains income (losses) translation Total acquisition in consolidated Net assets on securities on hedges adjustments rights subsidiaries total Balance at March 31, 2007 $ 401,924 $ 360 $(42,815) $ 359,469 $ 966 $ 408,093 $4,069,627 Changes of items during the period Cash dividends paid (95,173) Net income 125,890 Others (240) Treasury stock purchased (2,337) Financial Section Disposal of treasury stock 582 Shares issued upon stock options exercised 562 Shares issued upon stock swap with consolidated subsidiary (Note 16) 381,052 Net changes of items other than shareholders’ equity (161,757) (3,760) (2,698) (168,215) 1,245 (208,297) (375,267) Total (161,757) (3,760) (2,698) (168,215) 1,245 (208,297) 35,069 Balance at March 31, 2008 (Note 19) $ 240,167 $(3,400) $(45,513) $ 191,254 $2,211 $ 199,796 $4,104,696 See accompanying notes to consolidated fi nancial statements.

Teijin Limited 65 Consolidated Statements of Cash Flows TEIJIN LIMITED Years ended March 31, 2007 and 2008

Thousands of Millions of yen U.S. dollars (Note 1) 2007 2008 2008

Cash fl ows from operating activities: Income before income taxes ¥ 58,475 ¥ 12,283 $ 122,597 Depreciation and amortization 54,009 62,668 625,487 Impairment loss 1,123 32,199 321,377 Increase in retirement benefi ts 8 261 2,608 Increase in allowance for doubtful receivables 116 196 1,955 Interest and dividend income (1,723) (1,849) (18,453) Interest expense 9,481 10,844 108,238 Equity in losses of unconsolidated subsidiaries and affi liates 3,973 4,647 46,380 (Gain) loss on sales or disposal of property, plant and equipment (2,747) 417 4,166 Gain on compensation for compulsory expropriation (2,550) — — (Gain) loss on sales of investment securities 154 (5,321) (53,105) Write-down of investment securities 235 341 3,400 (Increase) decrease in receivables (10,900) 3,706 36,990 Increase in inventories (7,704) (9,493) (94,750) Increase (decrease) in payables 25,145 (15,973) (159,429) Other, net (8,223) (5,856) (58,454) Subtotal 118,872 89,070 889,007 Interest and dividends received 2,839 3,546 35,398 Interest paid (8,401) (11,918) (118,953) Income taxes paid (16,854) (26,958) (269,072) Net cash and cash equivalents provided by operating activities 96,456 53,740 536,380

Cash fl ows from investing activities: Purchase of property, plant and equipment (69,996) (78,821) (786,715) Proceeds from sales of property, plant and equipment 8,032 2,501 24,958 Purchase of investment securities (6,835) (2,011) (20,073) Proceeds from sales and redemption of investment securities 1,263 6,196 61,847 Purchase of additional shares in subsidiaries (10,854) — — Increase in short-term loans receivable (1,089) (1,105) (11,031) Long-term loans advanced (1,275) (1,553) (15,503) Collections on long-term loans receivable 304 518 5,172 Other, net (6,615) (4,943) (49,332) Net cash and cash equivalents used in investing activities (87,065) (79,218) (790,677)

Cash fl ows from fi nancing activities: Increase (decrease) in short-term bank loans, net (18,966) 7,564 75,500 Increase in commercial paper, net 31,000 24,000 239,545 Proceeds from issuance of bonds 51,733 51,021 509,244 Redemption of bonds (57,014) (90,698) (905,258) Proceeds from long-term debt 15,455 51,788 516,893 Repayment of long-term debt (32,160) (16,862) (168,299) Cash dividends paid (7,887) (9,535) (95,173) Cash dividends paid to minority shareholders (1,487) (1,204) (12,018) Other, net 252 6 62 Net cash and cash equivalents provided by (used in) fi nancing activities (19,074) 16,080 160,496

Effect of exchange rate changes on cash and cash equivalents 374 127 1,263 Net decrease in cash and cash equivalents (9,309) (9,271) (92,538) Cash and cash equivalents at beginning of year 37,585 28,365 283,114 Increase of cash and cash equivalents due to change in scope of consolidation 89 — — Cash and cash equivalents at end of year (Note 3) ¥ 28,365 ¥ 19,094 $ 190,576 See accompanying notes to consolidated fi nancial statements.

66 Teijin Limited Notes to Consolidated Financial Statements TEIJIN LIMITED

Note 1. Basis of presenting consolidated fi nancial statements

The accompanying consolidated fi nancial statements have been pre- Company prepared in accordance with Japanese GAAP and fi led pared in accordance with the provisions set forth in the Japanese with the appropriate Local Finance Bureau of the Ministry of Finance Securities and Exchange Law in 2007 and in the Financial as required by the Laws. Some supplementary information included Instruments and Exchange Law in 2008 (the “Laws”) and the related in the statutory Japanese-language consolidated fi nancial statements, accounting regulations, and in conformity with accounting principles but not required for fair presentation, is not presented in the accom- generally accepted in Japan (“Japanese GAAP”), which are different panying consolidated fi nancial statements. in certain respects as to application and disclosure requirements of The translation of the Japanese yen amounts into U.S. dollars International Financial Reporting Standards. are included solely for the convenience of readers outside Japan, The accounts of overseas subsidiaries are based on their using the prevailing exchange rate at March 31, 2008, which was accounting records maintained in conformity with generally accepted ¥100.19 to U.S.$1.00. The convenience translations should not be accounting principles prevailing in the respective countries of domi- construed as representations that the Japanese yen amounts have cile. The accompanying consolidated fi nancial statements have been been, could have been or could in the future be converted into U.S. restructured and translated into English with some expanded dollars at this or any other rate of exchange. descriptions from the consolidated fi nancial statements of the

Note 2. Summary of signifi cant accounting policies

Consolidation Statements of cash fl ows The consolidated fi nancial statements include the accounts of the In preparing the consolidated statements of cash fl ows, cash on Company and 83 signifi cant subsidiaries for the year ended March hand, readily-available deposits and short-term highly liquid invest- 31, 2008. For 2007, 82 signifi cant subsidiaries are included in the ments with maturities not exceeding three months at the time of pur- consolidated fi nancial statements. Investments in 78 (74 in 2007) chase are considered to be cash and cash equivalents. unconsolidated subsidiaries and affi liates are, with minor exceptions, stated at cost, adjusted for equity in undistributed earnings and Allowance for doubtful receivables losses since acquisition. The allowance for doubtful receivables is provided in amounts suffi - Companies, which are owned 40% or more and substantially cient to cover possible losses on collection. It is determined by add- controlled by the Parent, are considered subsidiaries for inclusion in ing the individually estimated uncollectible amounts to an amount the consolidation. Equity method accounting is applied to unconsoli- calculated using the provision rate based on past experience. dated subsidiaries and affi liates, which are substantially controlled or whose operating and fi nancial policies are signifi cantly infl uenced by Securities the Parent. Under the Japanese accounting standard for fi nancial instruments, all In the elimination of investments in subsidiaries, the assets companies are required to classify securities as (a) securities held for and liabilities of the subsidiaries, including the portion attributable to trading purposes (hereafter, “trading securities”), (b) debt securities minority shareholders, are evaluated using the fair value at the time intended to be held to maturity (hereafter, “held-to-maturity debt the Company acquired control of the respective subsidiaries. securities”), (c) equity securities issued by subsidiaries and affi liated Goodwill is usually being amortized over fi ve years, with companies, and (d) all other securities that are not classifi ed in any of exceptions of being amortized over 10 years or 20 years for a few the above categories (hereafter, “available-for-sale securities”). certain subsidiaries. The Company and its consolidated subsidiaries (the The accounts of 40 (40 in 2007) consolidated subsidiaries are “Companies”) do not hold trading securities. Held-to-maturity debt included on the basis of their fi scal years, which end on December securities are stated at amortized cost. 31 (January 31 for 2 (2 in 2007) and February 29 for 2 (2 in 2007) Equity securities issued by subsidiaries and affi liated compa- other subsidiaries). These subsidiaries do not prepare, for consolida- nies, which are not consolidated or accounted for using the equity tion purposes, statements for the period, which corresponds with the method, are stated at moving-average cost. Available-for-sale securi- fi scal year of the Company. ties with available fair market values are stated at fair market value. For these 44 (44 in 2007) consolidated subsidiaries, when Unrealized gains and losses on these securities are reported, net of there are signifi cant transactions between their respective fi scal year- applicable income taxes, as a separate component of net assets. ends and the Company’s year-end, necessary adjustments are made Realized gains and losses on sales of such securities are computed to refl ect such transactions properly in the accompanying consoli- using moving-average cost. dated fi nancial statements. Debt securities with no available fair market value are stated at amortized cost, net of the amount considered not collectible. Other securities with no available fair market value are stated at moving-

average cost. Financial Section

Teijin Limited 67 If the market value of held-to-maturity debt securities, equity Retirement benefi ts securities issued by unconsolidated subsidiaries and affi liated com- (1) Employees panies, and available-for-sale securities declines signifi cantly, such The Company has an unfunded lump-sum benefi t plan and a funded securities are stated at fair market value and the difference between contributory pension plan, generally covering all employees. Certain fair market value and the carrying amount is recognized as a loss in consolidated subsidiaries have unfunded lump-sum benefi t plans and the period of the decline. If the fair market value of equity securities non-contributory pension plans. Most foreign subsidiaries do not issued by unconsolidated subsidiaries and affi liated companies not have pension plans. on the equity method is not readily available, such securities should Under the terms of the lump-sum benefi t plans, eligible be written down to net asset value with a corresponding charge in employees are entitled under most circumstances, upon mandatory the consolidated statements of income in the event net asset value retirement at age 60 or earlier voluntary termination, to a lump-sum declines signifi cantly. In these cases, such fair market value or the net payment based on compensation at the time of severance and years asset value will be the carrying amount of the securities at the begin- of service. ning of the next year. The liabilities and expenses for severance and retirement ben- efi ts are determined based on the amounts actuarially calculated Inventories using certain assumptions. The Company and its consolidated sub- Inventories are stated at the lower of average cost or market value, sidiaries provided for employees’ severance and retirement benefi ts except for certain subsidiaries that state inventories at cost. at March 31, 2007 and 2008 based on the estimated amounts of projected benefi t obligation and the fair value of the pension assets Property, plant and equipment at those dates. Property, plant and equipment are stated at cost. Depreciation is Prior service costs and actuarial gains and losses are recog- determined over estimated useful lives principally by the declining nized in expenses using the straight-line method over mainly 12 balance method for domestic companies and by the straight-line years, which is within the average of the estimated remaining service method for overseas subsidiaries. For domestic companies, lives of the employees, commencing with the current and the follow- buildings acquired after March 31, 1998, are depreciated using ing period, respectively. the straight-line method. (2) Directors and statutory auditors Change in accounting procedures The Company and its domestic consolidated subsidiaries provide Teijin and its domestic consolidated subsidiaries have changed the for lump-sum retirement payments for directors and statutory method used to depreciate fi xed assets acquired on and after April 1, auditors in amounts that would be required if they retired at the 2007, in conformance with a revision of the Corporate Tax Law. As a balance sheet dates. result of this change, operating income was ¥1,187 million ($11,852 thousand) less, ordinary income ¥1,194 million ($11,922 thousand) Liabilities in accordance with the application of the equity method less and income before income taxes ¥1,204 million ($12,014 thou- Liabilities in accordance with the application of the equity method sand) less than they would have been under the previous method. have been provided with respect to losses that may arise from the Company’s portion of the capital defi cits of unconsolidated subsidiar- Additional information ies and affi liates which are accounted for by the equity method, after In conformance with the revised Corporate Tax Law, Teijin and its giving consideration to the Company’s investments in, and guaran- domestic consolidated subsidiaries have used the depreciation tees for, such companies. method applicable for the fi xed assets acquired on or before March 31, 2007, whereby when the residual value of a fi xed asset after Accounting for leases depreciation reaches 5% of the asset’s acquisition cost, the remain- Finance leases, which do not transfer ownership, are accounted for ing 5% is depreciated by equal amounts over fi ve years beginning in in the same manner as operating leases under Japanese GAAP. the subsequent fi scal year and is reported as an amortization and depreciation expense. As a result of this change, operating income Derivatives and hedge accounting was ¥969 million ($9,673 thousand) less, ordinary income ¥984 mil- The Companies state derivative fi nancial instruments at fair value and lion ($9,816 thousand) less and income before income taxes ¥985 recognize changes in the fair value as gains or losses unless deriva- million ($9,831 thousand) less than they would have been under the tive fi nancial instruments are used for hedging purposes. previous method. If derivative fi nancial instruments are used as hedges and meet certain hedging criteria, the Company and its domestic consoli- Intangible assets dated subsidiaries defer recognition of gains or losses resulting from Goodwill, patents, trademarks and other intangible assets are amor- changes in fair value of derivative fi nancial instruments until the tized by using the straight-line method over the estimated useful lives. related losses or gains on the hedged items are recognized. Software for internal use is amortized by using the straight-line However, in cases where forward foreign exchange contracts method over the estimated useful lives (5 years). are used as hedges and meet certain hedging criteria, forward foreign exchange contracts and hedged items are accounted for in the Research and development expenses following manner: The Company charges research and development expenses to income as incurred.

68 Teijin Limited (1) If a forward foreign exchange contract is executed to hedge an Net income per share existing foreign currency receivable or payable, Computations of net income per share of common stock are (a) the difference, if any, between the Japanese yen amount of based on the weighted-average number of shares outstanding the hedged foreign currency receivable or payable translated during each period. using the spot rate at the inception date of the contract and Diluted net income per share is calculated based on the the book value of the receivable or payable is recognized in assumption that all dilutive convertible debentures and stock war- the consolidated statement of income in the period which rants were converted or exercised at the beginning of the year or at includes the inception date, and the time of issue. (b) the discount or premium on the contract (that is, the difference Net income per share for the years ended March 31, 2007 between the Japanese yen amount of the contract translated and 2008 is calculated based on the following factors: using the contracted forward rate and that translated using the spot rate at the inception date of the contract) is recog- The year ended March 31, 2007 nized over the term of the contract. (a) Net income: ¥34,125 million ($289,069 thousand) (b) Amount not attributable to common shareholders: ¥ — million ($ — thousand) (2) If a forward foreign exchange contract is executed to hedge a (c) Bonuses to directors and future transaction denominated in a foreign currency, the future statutory auditors included in (b): ¥ — million ($ — thousand) transaction will be recorded using the contracted forward rate, (d) Net income allocated to common stock: ¥34,125 million ($289,069 thousand) and no gains or losses on the forward foreign exchange contract (e) Average number of shares are recognized. outstanding during the period: 927,888 thousand shares Also, if interest rate swap contracts are used as hedges (f) Increase in number of shares: 00,0497 thousand shares and meet certain hedging criteria, the net amount to be paid or (g) Increase in number of stock acquisition rights included in (f): 00,0497 thousand shares received under the interest rate swap contract is added to or (h) Summary of outstanding — deducted from the interest on the assets or liabilities for which potential shares which the swap contract was executed. are excluded from the computation of diluted EPS, if calculated for the period, Income taxes since such potential stocks do not have a dilutive effect: The provision for income taxes is based on income for fi nancial state- ment purposes. Income taxes comprise corporation tax, enterprise The year ended March 31, 2008 tax, and prefectural and municipal inhabitants taxes. The assets and (a) Net income: ¥12,613 million ($125,890 thousand) liabilities approach is used to recognize deferred tax assets and liabili- (b) Amount not attributable to common shareholders: ¥ — million ($ — thousand) ties for the expected future tax consequences of temporary differ- (c) Bonuses to directors and ences between carrying amounts of assets and liabilities for fi nancial statutory auditors included in (b): ¥ — million ($ — thousand) reporting purposes and the amounts used for income tax purposes. (d) Net income allocated to common stock: ¥12,613 million ($125,890 thousand) The Company and its wholly owned domestic consoli- (e) Average number of shares dated subsidiaries have adopted the consolidated tax return fil- outstanding during the period: 958,336 thousand shares ing under Japanese tax regulations for the year ended March (f) Increase in number of shares: 408 thousand shares 31, 2006 and thereafter. (g) Increase in number of stock acquisition rights included in (f): 408 thousand shares (h) Summary of outstanding — Translation of foreign currency potential shares which Cash, receivables and payables denominated in foreign currencies are excluded from the computation of diluted EPS, are translated into Japanese yen at year-end exchange rates. if calculated for the period, All revenues and expenses in foreign currencies are translated since such potential stocks do not have a dilutive effect: at the exchange rates prevailing when such transactions are made. The resulting exchange losses and gains are charged or credited to income. The balance sheet accounts of the foreign consolidated sub- sidiaries and foreign investments accounted for by the equity method are translated at the rates of exchange in effect at the balance sheet date except for capital accounts and assets and liabilities due to/from the Company that are translated at historical rates. Income statement accounts are translated at the average rates of exchange for the year. Differences arising from translations are presented as “Foreign cur- rency translation adjustments” in the accompanying consolidated fi nancial statements. Financial Section The Company and its domestic consolidated subsidiaries report foreign currency translation adjustments in net assets.

Teijin Limited 69 Changes in accounting procedures for the year ended December 27, 2005), (collectively, the “Additional New Accounting March 31, 2007 Standards”). (1) Accounting standard for presentation of net assets in the balance sheet Accordingly, the Company prepared the statements of changes Effective for the year ended March 31, 2007, the Company and in net assets for the year ended March 31, 2007 in accordance its domestic consolidated subsidiaries have newly adopted the with the Additional New Accounting Standards. Also, the “Accounting Standard for Presentation of Net Assets in the Company voluntarily prepared the consolidated statement of Balance Sheet” (“Statement No. 5” issued by the Accounting changes in net assets for 2006 in accordance with the Additional Standards Board of Japan on December 9, 2005) and the New Accounting Standards. Previously, consolidated statements “Implementation Guidance for the Accounting Standard for of shareholders’ equity were prepared for the purpose of inclusion Presentation of Net Assets in the Balance Sheet” (“Financial in the consolidated fi nancial statements although such statements Accounting Standard Implementation Guidance No. 8” issued by were not required under Japanese GAAP. the Accounting Standards Board of Japan on December 9, 2005). (3) Accounting standard for share-based payment The previously presented shareholders’ equity and certain other Effective for the year ended March 31, 2007, the Company has balance sheet items for 2006 have been restated to conform to newly adopted the “Accounting Standard for Share-based the 2007 presentation. As a result, minority interests in consoli- Payment” (“Statement No. 8” issued by the Accounting Standards dated subsidiaries amounting to ¥37,042 million are included in Board of Japan on December 27, 2005) and the “Implementation the net assets section as of March 31, 2006. Guidance for the Accounting Standard for Share-based Payment” If the New Accounting Standards had not been adopted and (“Financial Accounting Standard Implementation Guidance No. the previous presentation method for the shareholders’ equity had 11” issued by the Accounting Standards Board of Japan on May been applied, shareholders’ equity at March 31, 2007 would have 31, 2006). been ¥366,717 million. Due to this adoption, operating income and income before (2) Accounting standard for statement of changes in net assets income taxes respectively decreased ¥96 million in the year ended Effective for the year ended March 31, 2007, the Company and its March 31, 2007. The effect of this adoption on segment information domestic consolidated subsidiaries have newly adopted the is immaterial. “Accounting Standard for Statement of Changes in Net Assets” (“Statement No. 6” issued by the Accounting Standards Board of Reclassifi cations and restatement Japan on December 27, 2005) and the “Implementation Guidance Certain prior year amounts have been reclassifi ed to conform to the for the Accounting Standard for Statement of Changes in Net current year presentation. These reclassifi cations and restatement Assets” (“Financial Accounting Standard Implementation Guidance had no impact on previously reported results of operations or No. 9” issued by the Accounting Standards Board of Japan on retained earnings.

Note 3. Statements of cash fl ows

The reconciliation of cash and time deposits in the consolidated balance sheets and cash and cash equivalents in the consolidated statements of cash fl ows as of March 31, 2007 and 2008 is as follows:

Thousands of Millions of yen U.S. dollars 2007 2008 2008

Cash and time deposits in the consolidated balance sheets ¥28,375 ¥19,096 $190,594 Time deposits with maturities exceeding 3 months (10) (2) (18) Cash and cash equivalents in the consolidated statements of cash fl ows ¥28,365 ¥19,094 $190,576

70 Teijin Limited Note 4. Securities

(1) Information on securities of the Companies at March 31, 2007 is shown below. a) For the year ended March 31, 2007, there were no held-to-maturity debt securities with available fair values. b) The following table summarizes acquisition costs and book values (fair values) of available-for-sale securities with available fair values as of March 31, 2007:

Millions of yen 2007 Acquisition Book cost value Difference

Securities with book values exceeding acquisition costs: Corporate stocks ¥23,571 ¥91,562 ¥67,991

Securities with book values not exceeding acquisition costs: Corporate stocks 596 391 (205) Totals ¥24,167 ¥91,953 ¥67,786

c) Total sales of available-for-sale securities sold in the year ended d) Available-for-sale securities with no available fair values as of March 31, 2007 and the related gains and losses amounted to March 31, 2007 consist mostly of non-listed equity securities, ¥1,097 million, ¥782 million and ¥24 million, respectively. bonds and others amounting to ¥3,106 million, ¥316 million and ¥645 million, respectively.

(2) Information on securities of the Companies at March 31, 2008 is shown below. a) For the year ended March 31, 2008, there were no held-to-maturity debt securities with available fair values. b) The following table summarizes acquisition costs and book values (fair values) of available-for-sale securities with available fair values as of March 31, 2008:

Thousands of Millions of yen U.S. dollars 2008 2008 Acquisition Book cost value Difference Difference

Securities with book values exceeding acquisition costs: Corporate stocks ¥19,605 ¥61,258 ¥41,653 $415,742

Securities with book values not exceeding acquisition costs: Corporate stocks 4,336 3,258 (1,078) (10,762) Totals ¥23,941 ¥64,516 ¥40,575 $404,980

c) Total sales of available-for-sale securities sold in the year ended d) Available-for-sale securities with no available fair values as of March 31, 2008 and the related gains and losses amounted to March 31, 2008 consist mostly of non-listed equity securities, ¥5,722 million ($57,115 thousand), ¥5,168 million ($51,578 bonds and others amounting to ¥2,874 million ($28,682 thou- thousand) and ¥0 million ($3 thousand), respectively. sand), ¥337 million ($3,362 thousand) and ¥1,262 million ($12,591 thousand), respectively. Note 5. Derivative transactions

The Companies enter into forward currency exchange, currency The Companies principally use derivative transactions in swap, currency option, interest rate swap and commodity swap connection with managing their market risk and not for speculation transactions to control risks related to foreign currencies, interest or dealing purposes. Forward currency exchange, currency swap and rates and commodity prices of fuel. Forward currency exchange, currency option transactions are subject to risks of foreign exchange currency swap and currency option transactions are used to hedge rate changes, while interest rate swap transactions are subject to the risk of fl uctuations in foreign currency exchange rates with risks of interest rate changes and commodity swap transactions are respect to monetary receivables and payables denominated in foreign subject to risks of commodity price changes. currencies resulting from import and export transactions and The Companies deal with highly rated international fi nancial investments denominated in foreign currencies, the interest rate swap institutions as counterparts to these transactions to minimize credit

transactions are used to hedge the risk of fl uctuations in interest risk exposure. Financial Section rates, and the commodity swap transactions are used to hedge The Companies report periodically to the Chief Financial the risk of fl uctuations in commodity prices of fuel. The Companies Offi cer and the Accounting and Treasury Offi ce on the actual results evaluate hedge effectiveness by comparing the cumulative changes of derivative transactions. The actual results of derivative transac- in cash fl ows from or the changes in fair value of hedged items with tions, for which hedge accounting cannot be applied, are reported the corresponding changes in the hedging derivative instruments. to the Board of Directors after the end of each year.

Teijin Limited 71 The following tables summarize market value information as of March 31, 2007 and 2008 of outstanding derivative transactions for which hedge accounting has not been applied:

(1) Outstanding positions, for which gains and losses were recognized in the fi nancial statements, as of March 31, 2007 were as follows: Currency-related derivatives

Millions of yen 2007 Amount of Contracted principal due Recognized amount over one year Fair value gain (loss)

Foreign currency Future contract transactions: Sell: Japanese yen ¥ 3,633 ¥— ¥ 3,346 ¥287 Sell: U.S. dollars ¥16,021 ¥— ¥15,222 ¥799

Foreign currency swap transactions: Singapore dollars received for Euros ¥ 239 ¥— ¥ (18) ¥ (18) Japanese yen received for U.S. dollars ¥ 4,633 ¥— ¥ (11) ¥ (11)

Foreign currency option transactions: Sell: U.S. dollars (call) ¥ 4,707 ¥— ¥ (3) ¥ (3) Buy: U.S. dollars (put) ¥ 4,334 ¥— ¥ 134 ¥134

Interest-rate-related derivatives

Millions of yen 2007 Amount of Contracted principal due Recognized amount over one year Fair value gain

Interest rate swap transactions: Variable rate received for fi xed rate ¥2,382 ¥596 ¥61 ¥61

(2) Outstanding positions, for which gains and losses were recognized in the fi nancial statements, as of March 31, 2008 were as follows: Currency-related derivatives

Thousands of Millions of yen U.S. dollars 2008 2008 Amount of Contracted principal due Recognized Recognized amount over one year Fair value gain (loss) gain (loss)

Foreign currency Future contract transactions: Sell: Japanese yen ¥ 5,094 ¥— ¥ 4,898 ¥196 $1,955 Sell: U.S. dollars ¥15,853 ¥— ¥14,999 ¥854 $8,522 Buy: U. S. dollars ¥ 216 ¥— ¥ 205 ¥ (11) $ (105)

Foreign currency swap transactions: Japanese yen received for U.S. dollars ¥ 4,913 ¥— ¥ (9) ¥ (9) $ (95)

72 Teijin Limited Interest-rate-related derivatives

Thousands of Millions of yen U.S. dollars 2008 2008 Amount of Contracted principal due Recognized Recognized amount over one year Fair value gain gain

Interest rate swap transactions: Variable rate received for fi xed rate ¥571 ¥571 ¥2 ¥2 $19

(3) The fair value of foreign currency future contract transactions for which the hedge accounting are applied, are excluded from is based on the year-end forward rate. The fair value of foreign the above schedule. currency swap transactions, interest rate swap transactions (4) The principal amounts of contracts or transactions represent the and foreign currency option transactions is based on the prices principal of the forward, swap and option transactions and are not presented by the counterparts fi nancial institutions. Forward appropriate to be used for the measurement of market and credit currency exchange transactions, currency swap transactions, risks. The recognized gains and losses are estimated by the coun- interest rate swap transactions and currency option transactions terparts fi nancial institutions.

Note 6. Inventories

Inventories at March 31, 2007 and 2008 consisted of the following:

Thousands of Millions of yen U.S. dollars 2007 2008 2008

Finished goods ¥ 93,000 ¥ 97,765 $ 975,796 Work in process 15,777 17,192 171,595 Raw materials 24,785 28,175 281,215 Supplies 7,534 8,371 83,548 ¥141,096 ¥151,503 $1,512,154

Note 7. Bank loans and long-term debt

Bank loans were represented by bank overdrafts and short-term notes with interest at average annual rates of approximately 5.3% and 4.6% in 2007 and 2008, respectively. Long-term debt at March 31, 2007 and 2008 consisted of the following:

Thousands of Millions of yen U.S. dollars 2007 2008 2008

Unsecured: Banks and insurance companies 0.4%–4.5%, maturing serially through 2013 ¥ 27,150 ¥ 69,529 $ 693,972 0.8% bonds, due 2007 20,000 — — 2.3% bonds, due 2008 10,000 10,000 99,810 1.3% bonds, due 2009 10,000 10,000 99,810 3.9% medium-term notes, due 2007 1,017 — — 0.6% medium-term notes, due 2007–2008 3,005 — — 0.2%–1.0% medium-term notes, due 2007–2011 38,967 — — 0.4% medium-term notes, due 2008 1,187 — — 5.5% medium-term notes, due 2008 2,491 — — 0.6% medium-term notes, due 2008 — 1,280 12,775 0.4% medium-term notes, due 2008 — 1,071 10,691 0.7%–1.0% medium-term notes, due 2008–2011 — 13,741 137,147 5.4% medium-term notes, due 2008 — 2,653 26,482 0.9%–1.0% medium-term notes, due 2008–2010 — 10,919 108,987 Loans denominated in foreign currencies (principally U.S. dollars), Financial Section 3.6%–6.6% maturing serially through 2012 41,562 35,076 350,091 155,379 154,269 1,539,765 Less amounts due within one year 53,274 37,069 369,988 ¥102,105 ¥117,200 $1,169,777

Teijin Limited 73 At March 31, 2008, assets pledged as collateral for secured other liabilities of ¥53 million ($528 thousand) were as follows:

Thousands of Millions of yen U.S. dollars

Property, plant and equipment−net of accumulated depreciation ¥489 $4,881 Investment securities 41 412 Other assets 5 50

The aggregate annual maturities of long-term debt at March 31, 2008, were as follows:

Thousands of Year ending March 31 Millions of yen U.S. dollars

2009 ¥37,069 $369,988 2010 32,481 324,192 2011 12,127 121,039 2012 15,023 149,945 2013 and thereafter 57,569 574,601

Note 8. Employees’ retirement benefi ts

Information on employees’ retirement benefi ts at March 31, 2007 and 2008 is shown below. (1) The liabilities for severance and retirement benefi ts included in the liability section of the consolidated balance sheets as of March 31, 2007 and 2008 consist of the following:

Thousands of Millions of yen U.S. dollars 2007 2008 2008

Projected benefi t obligation ¥ 144,118 ¥ 144,762 $ 1,444,878 Unrecognized prior service costs 6,026 5,374 53,634 Less unrecognized actuarial differences 9,977 (15,124) (150,952) Less fair value of pension assets (157,639) (136,384) (1,361,250) Prepaid pension expense 15,370 19,650 196,125 Liability for severance and retirement benefi ts ¥ 17,852 ¥ 18,278 $ 182,435

(2) The expenses for severance and retirement benefi ts included in the consolidated statements of income for the years ended March 31, 2007 and 2008 are comprised of the following:

Thousands of Millions of yen U.S. dollars 2007 2008 2008

Service costs—benefi ts earned during the year ¥ 5,184 ¥ 5,464 $ 54,538 Interest cost on projected benefi t obligation 3,257 3,401 33,942 Expected return on pension assets (3,352) (3,798) (37,907) Amortization of actuarial differences 82 1,633 16,300 Amortization of prior service costs (2,060) (1,621) (16,178) Severance and retirement benefi t expenses ¥ 3,111 ¥ 5,079 $ 50,695

(3) The discount rate and the rate of expected return on plan using the estimated number of total service years. Prior service assets used by the Companies are mainly 2.0% and 3.2% for costs and actuarial gains and losses are recognized in the year ended March 31, 2007 and mainly 2.0% and 3.0% for expenses using the straight-line method over mainly 12 years, the year ended March 31, 2008. which is within the average of the estimated remaining service (4) The estimated amount of all retirement benefi ts to be paid at lives of the employees, commencing with the current and the future retirement dates is allocated equally to each service year following period, respectively.

74 Teijin Limited Note 9. Net assets

Under Japanese laws and regulations, the entire amount of the issue Legal earnings reserve and additional paid-in-capital may price of shares is required to be accounted for as common stock, be used to eliminate or reduce a defi cit or may be capitalized by although a company may, by resolution of its Board of Directors, a resolution of the shareholders’ meeting. account for an amount not exceeding one-half of the issue price of All additional paid-in-capital and all legal earnings reserve the new shares as capital surplus. may be transferred to other capital surplus and retained earnings, Under the Japanese Corporate Law, in cases where dividend respectively, which are potentially available for dividends. distribution of surplus is made, the smaller of an amount equal to The maximum amount that the Company can distribute 10% of the dividend and excess, if any, of 25% of common stock as dividends is calculated based on the unconsolidated fi nancial over the total of additional paid-in-capital and legal earnings reserve statements of the Company in accordance with Japanese laws must be set aside as additional paid-in-capital or legal earnings and regulations. reserve. Additional paid-in-capital is included in capital surplus and legal earnings reserve is included in retained earnings in the accompanying consolidated balance sheets.

At the Board of Directors’ meeting held on May 7, 2008, appropriations of retained earnings for the year ended March 31, 2008 were duly approved as follows:

Thousands of Millions of yen U.S. dollars

Cash dividends: ¥3.50 ($0.035) per share ¥3,445 $34,387

Note 10. Impairment loss

Some consolidated subsidiaries accounted for impairment losses as follows: Impairment loss

Thousands of Location Usage purpose Type of assets Millions of yen U.S. dollars

Virginia, U.S.A., etc. Films production facilities Buildings and machinery, etc. ¥24,435 $243,885 Shunan City in Yamaguchi Prefecture, etc. Plastics production facilities Buildings and machinery, etc. 4,715 47,061 Mihara City in Hiroshima Prefecture, etc. Power supply facilities Buildings and machinery, etc. 2,847 28,417 Chiyoda-ku in Tokyo IT production facilities Software, etc. 109 1,085 Godo Town in Gifu Prefecture Idle asset Buildings, etc. 89 893 Nachikatsuura Town in Wakayama Prefecture Idle asset Land 4 36 Totals ¥32,199 $321,377

The Companies set asset groups by the business unit on are calculated by discounting the future cash fl ows with 5%–10% which the profi t or loss is continually controlled. Idle assets, which discount rates. are not used for businesses, are separately treated. The book values of idle assets with no utilization plan were Among the assets used for business purposes, certain written down to recoverable value by ¥93 million ($929 thousand). production facilities were devalued to the recoverable value by The recoverable values are measured by the net salvage values, ¥32,106 million ($320,448 thousand) as “Impairment loss,” due to based on real-estate appraisals or similar methods. If an idle asset sluggish demand and rising of raw materials prices and fuel costs, cannot be sold or diverted to other usage, such asset is valued etc. The recoverable values are measured as usage values, which at zero.

Note 11. Special factory operating loss

Special factory operating loss included in other income (expenses) was incurred due to a decline in the capacity utilization ratio.

Note 12. Environmental protection costs

Environmental protection costs represents soil cleanup costs and costs for asbestos exposure prevention. Financial Section

Teijin Limited 75 Note 13. Income taxes

The Company is subject to a number of taxes based on income, following table summarizes the signifi cant differences between the which, in the aggregate, indicate a statutory rate in Japan of approxi- statutory tax rate and the Company’s effective tax rate for fi nancial mately 40.6% for the years ended March 31, 2007 and 2008. The statement purposes for the years ended March 31, 2007 and 2008:

2007 2008 Statutory tax rate 40.6% 40.6% Non-deductible expenses 2.6 10.5 Difference of tax rate between the Company and foreign consolidated subsidiaries (10.2) (23.3) Equity in losses of unconsolidated subsidiaries and affi liates 2.8 15.3 Amortization of goodwill 1.6 13.0 Changes in valuation allowance — (20.0) Effect of tax settlement (2.8) — Minority interest of limited partnership in the United States — 47.5 Other 1.0 1.8 Effective tax rate 35.6% 85.4%

Signifi cant components of the Companies’ deferred tax assets and liabilities as of March 31, 2007 and 2008 are as follows:

(1) Current:

Thousands of Millions of yen U.S. dollars 2007 2008 2008

Deferred tax assets: Excess bonuses accrued ¥ 4,278 ¥ 4,234 $ 42,258 Accrued enterprise tax 677 791 7,898 Valuation loss on fi nished goods 472 469 4,683 Allowance for doubtful receivables 826 587 5,858 Net operating losses 3,359 1,522 15,187 Elimination of unrealized gains on inventories 1,758 1,517 15,144 Other 1,130 2,217 22,132 Total 12,500 11,337 113,160 Valuation allowance (1,036) (1,449) (14,466) Total deferred tax assets 11,464 9,888 98,694 Offset with deferred tax liabilities (175) (24) (243) Net deferred tax assets ¥11,289 ¥ 9,864 $ 98,451

Deferred tax liabilities: Adjustments of allowance for doubtful accounts in the consolidation elimination of receivables and payables ¥ (40) ¥ (10) $ (99) Other (137) (14) (144) Total deferred tax liabilities (177) (24) (243) Offset with deferred tax assets 175 24 243 Net deferred tax liabilities ¥ (2) ¥ — $ —

76 Teijin Limited (2) Non-Current:

Thousands of Millions of yen U.S. dollars 2007 2008 2008

Deferred tax assets: Excess depreciation and amortization ¥ 1,378 ¥ 1,245 $ 12,431 Write-down of investment securities 5,476 2,796 27,905 Allowance for doubtful receivables 2,939 2,731 27,261 Retirement benefi ts 5,828 4,665 46,559 Directors’ and statutory auditors’ retirement benefi ts 705 819 8,173 Accrued benefi ts for retirement of directors and statutory auditors 861 824 8,220 Impairment losses 1,690 5,993 59,821 Elimination of unrealized gains on property, plant and equipment 1,512 1,613 16,103 Elimination of unrealized gains on securities 254 — — Net operating losses 25,012 26,519 264,689 Net unrealized holding gains on securities 17 — — Capital losses — 4,481 44,723 Other 1,717 2,911 29,058 Total 47,389 54,597 544,944 Valuation allowance (26,838) (29,161) (291,058) Total deferred tax assets 20,551 25,436 253,886 Offset with deferred tax liabilities (18,471) (14,745) (147,174) Net deferred tax assets ¥ 2,080 ¥ 10,691 $ 106,712

Deferred tax liabilities: Adjustments to fi xed assets based on corporate tax law ¥ (8,085) ¥ (8,860) $ (88,427) Accelerated depreciation of foreign subsidiaries’ fi xed assets (6,990) (4,569) (45,606) Tax effect of foreign subsidiaries’ undistributed earnings (1,729) (2,639) (26,344) Valuation differences of newly acquired subsidiaries (5,957) (5,958) (59,462) Net unrealized holding gains on securities (27,510) (16,451) (164,201) Other (1,313) (1,756) (17,528) Total deferred tax liabilities (51,584) (40,233) (401,568) Offset with deferred tax assets 18,471 14,745 147,174 Net deferred tax liabilities ¥(33,113) ¥(25,488) $(254,394)

Note 14. Leases

(1) Finance leases as lessee The original lease obligations, payments to date and the payments remaining for assets, which were leased from other parties under non- capitalized fi nance leases as of March 31, 2007 and 2008, were as follows:

Millions of yen Original lease Payments Payments Year ended March 31, 2007 obligation to date remaining

Machinery, equipment and vehicles ¥2,237 ¥ 918 ¥1,319 Other fi xed assets 3,734 1,655 2,079 Intangible assets 177 88 89 Total ¥6,148 ¥2,661 ¥3,487

Millions of yen Original lease Payments Payments Year ended March 31, 2008 obligation to date remaining

Machinery, equipment and vehicles ¥2,421 ¥1,241 ¥1,180 Other fi xed assets 3,465 1,948 1,517 Intangible assets 132 64 68 Financial Section Total ¥6,018 ¥3,253 ¥2,765

Teijin Limited 77 Thousands of U.S. dollars Original lease Payments Payments Year ended March 31, 2008 obligation to date remaining

Machinery, equipment and vehicles $24,169 $12,389 $11,780 Other fi xed assets 34,587 19,441 15,146 Intangible assets 1,315 643 672 Total $60,071 $32,473 $27,598

Future minimum lease payments for the remaining lease periods, as of March 31, 2007 and 2008, including interest, were as follows:

Thousands of Millions of yen U.S. dollars 2007 2008 2008

Due within one year ¥1,346 ¥1,135 $11,332 Due over one year 2,121 1,661 16,579 Total ¥3,467 ¥2,796 $27,911

Lease payments for fi nance leases which do not transfer ownership were ¥1,408 million and ¥1,158 million ($11,559 thousand) for the years ended March 31, 2007 and 2008, respectively.

(2) Operating leases as lessee Future minimum lease payments for the remaining lease periods, as of March 31, 2007 and 2008, were as follows:

Thousands of Millions of yen U.S. dollars 2007 2008 2008

Due within one year ¥ 965 ¥1,154 $11,512 Due over one year 2,682 2,159 21,552 Total ¥3,647 ¥3,313 $33,064

Note 15. Stock option plans

(1) Information on stock option plans at March 31, 2007 is shown below.

The account title and the amount related to stock options in the year ended March 31, 2007 are as follows: Account title Selling, general and administrative expenses Amount ¥96 million ($820 thousand)

The following tables summarize contents of stock options as of March 31, 2007. Company name Teijin Limited Position and number of grantee Directors and Employees: 58 Class and number of stock Common Stock 535,000 Date of issue July 1, 2002 Condition of settlement of rights No provisions Period grantees provide service in return for stock options No provisions Period subscription rights are to be exercised From July 2, 2004 to July 1, 2007 Company name Teijin Limited Position and number of grantee Directors, Employees and Directors of affi liates: 60 Class and number of stock Common Stock 535,000 Date of issue July 1, 2003 Condition of settlement of rights No provisions Period grantees provide service in return for stock options No provisions Period subscription rights are to be exercised From July 2, 2005 to July 1, 2008 Company name Teijin Limited Position and number of grantee Directors, Employees and Directors of affi liates: 53 Class and number of stock Common Stock 460,000 Date of issue July 2, 2004 Condition of settlement of rights No provisions Period grantees provide service in return for stock options No provisions Period subscription rights are to be exercised From July 3, 2006 to July 2, 2009

78 Teijin Limited Company name Teijin Limited Position and number of grantee Directors, Employees and Directors of affi liates: 55 Class and number of stock Common Stock 430,000 Date of issue July 4, 2005 Condition of settlement of rights No provisions Period grantees provide service in return for stock options No provisions Period subscription rights are to be exercised From July 5, 2007 to July 4, 2010 Company name Teijin Limited Position and number of grantee Directors and Corporate Offi cers: 54 Class and number of stock Common Stock 146,000 Date of issue July 10, 2006 Condition of settlement of rights No provisions Period grantees provide service in return for stock options No provisions Period subscription rights are to be exercised From July 10, 2006 to July 9, 2026

The following tables summarize scale and movement of stock options as of March 31, 2007.

Not exercisable stock options

Stocks Company name Teijin Limited 2002 2003 2004 2005 2006

Stock options outstanding at April 1, 2006 — — — — — Stock options granted — — — — 146,000 Forfeitures — — — — — Conversion to exercisable stock options — — — — 146,000 Stock options outstanding at March 31, 2007 — — — — —

Exercisable stock options

Stocks Company name Teijin Limited 2002 2003 2004 2005 2006

Stock options outstanding at April 1, 2006 214,000 145,000 460,000 430,000 — Conversion from not exercisable stock options — — — — 146,000 Stock options exercised 148,000 85,000 200,000 — — Forfeitures — — — — — Stock options outstanding at March 31, 2007 66,000 60,000 260,000 430,000 146,000

The following tables summarize price information of stock options as of March 31, 2007.

Company name Teijin Limited 2002 2003 2004 2005 2006

Paid-in value ¥450 ¥304 ¥405 ¥515 ¥ 1 Average market price of the stock at the time of exercise ¥720 ¥730 ¥719 — — Fair value at the date of grant — — — — ¥663

The method of estimation for the fair value of stock options granted in the year ended March 31, 2007, is as follows: Method of valuation Black–Scholes Model Volatility 33% Expected remaining period 6.5 years Expected dividend ¥7.5 per share Interest rate without any risks 1.71% Financial Section

Teijin Limited 79 (2) Information on stock option plans at March 31, 2008 is shown below.

The account title and the amount related to stock options in the year ended March 31, 2008 are as follows: Account title Selling, general and administrative expenses Amount ¥126 million ($1,260 thousand)

The following tables summarize contents of stock options as of March 31, 2008. Company name Teijin Limited Position and number of grantee Directors and Employees: 58 Class and number of stock Common Stock 535,000 Date of issue July 1, 2002 Condition of settlement of rights No provisions Period grantees provide service in return for stock options No provisions Period subscription rights are to be exercised From July 2, 2004 to July 1, 2007 Company name Teijin Limited Position and number of grantee Directors, Employees and Directors of affi liates: 60 Class and number of stock Common Stock 535,000 Date of issue July 1, 2003 Condition of settlement of rights No provisions Period grantees provide service in return for stock options No provisions Period subscription rights are to be exercised From July 2, 2005 to July 1, 2008 Company name Teijin Limited Position and number of grantee Directors, Employees and Directors of affi liates: 53 Class and number of stock Common Stock 460,000 Date of issue July 2, 2004 Condition of settlement of rights No provisions Period grantees provide service in return for stock options No provisions Period subscription rights are to be exercised From July 3, 2006 to July 2, 2009 Company name Teijin Limited Position and number of grantee Directors, Employees and Directors of affi liates: 55 Class and number of stock Common Stock 430,000 Date of issue July 4, 2005 Condition of settlement of rights No provisions Period grantees provide service in return for stock options No provisions Period subscription rights are to be exercised From July 5, 2007 to July 4, 2010 Company name Teijin Limited Position and number of grantee Directors and Corporate Offi cers: 54 Class and number of stock Common Stock 146,000 Date of issue July 10, 2006 Condition of settlement of rights No provisions Period grantees provide service in return for stock options No provisions Period subscription rights are to be exercised From July 10, 2006 to July 9, 2026 Company name Teijin Limited Position and number of grantee Directors and Corporate Offi cers: 55 Class and number of stock Common Stock 207,000 Date of issue July 5, 2007 Condition of settlement of rights No provisions Period grantees provide service in return for stock options No provisions Period subscription rights are to be exercised From July 5, 2007 to July 4, 2027

80 Teijin Limited The following tables summarize scale and movement of stock options as of March 31, 2008.

Not exercisable stock options

Stocks Company name Teijin Limited 2002 2003 2004 2005 2006 2007

Stock options outstanding at April 1, 2007 — — — — — — Stock options granted — — — — — 207,000 Forfeitures — — — — — — Conversion to exercisable stock options — — — — — 207,000 Stock options outstanding at March 31, 2008 — — — — — —

Exercisable stock options

Stocks Company name Teijin Limited 2002 2003 2004 2005 2006 2007

Stock options outstanding at April 1, 2007 66,000 60,000 260,000 430,000 146,000 — Conversion from not exercisable stock options — — — — — 207,000 Stock options exercised 52,000 35,000 65,000 40,000 2,000 — Forfeitures 14,000 — — — — — Stock options outstanding at March 31, 2008 — 25,000 195,000 390,000 144,000 207,000

The following tables summarize price information of stock options as of March 31, 2008.

Company name Teijin Limited 2002 2003 2004 2005 2006 2007

Paid-in value ¥450 ¥304 ¥405 ¥515 ¥ 1 ¥ 1 Average market price of the stock at the time of exercise ¥659 ¥609 ¥647 ¥652 ¥645 — Fair value at the date of grant — — — — ¥663 ¥610

The method of estimation for the fair value of stock options granted in the year ended March 31, 2008, is as follows: Method of valuation Black–Scholes Model Volatility 29% Expected remaining period 6.0 years Expected dividend ¥10.0 per share Interest rate without any risks 1.62%

Note 16. Business combination

The Company executed a stock swap agreement with Toho Tenax Co., Ltd. (“Toho Tenax”), a consolidated subsidiary of the Company. Under the stock swap, Toho Tenax became a wholly owned subsidiary of the Company on September 1, 2007. As for the stock swap ratio, for each share of common stock in Toho Tenax, 1.15 shares of the Company’s common stock was delivered. As a result of the stock swap, the Company issued 56,325,793 shares of common stock. The stock swap was a transaction with minority shareholders.

The information about additional acquisition of subsidiary’s shares is as follows: Acquisition cost ¥38,249 million ($381,769 thousand) Consideration Common stock Delivered shares amount ¥38,178 million ($381,052 thousand) Goodwill Amount ¥29,149 million ($290,938 thousand) Amortization method Straight-line method Amortization term 10 years Financial Section

Teijin Limited 81 Note 17. Segment information

(1) Industry segment information The Company has fi ve industry segments.

Synthetic fi bers: —Production and sales of polyester fi laments and other fi bers for apparel and industrial applications, and artifi cial leather Films and plastics: —Production and sales of fi lms and resins for various industrial applications Pharmaceuticals and home health care: —Production and sales of prescription and non-prescription drugs and production, sales and rental of home health care devices Trading and retail: —Trading and retail of polyester fi laments and other fi bers IT and new products, etc.: —Serving software and other

Industry segment information for the years ended March 31, 2007 and 2008 was as follows: (a) Statements of income items

Millions of yen Net sales to Intersegment external net sales or Operating Operating Year ended March 31, 2007 customers transfer amounts Net sales expenses income

Synthetic fi bers ¥ 293,280 ¥ 71,908 ¥ 365,188 ¥ 347,846 ¥17,342 Films and plastics 287,902 15,487 303,389 269,489 33,900 Pharmaceuticals and home health care 113,093 87 113,180 91,988 21,192 Trading and retail 266,492 9,374 275,866 270,471 5,395 IT and new products, etc. 48,819 43,446 92,265 87,945 4,320 Total 1,009,586 140,302 1,149,888 1,067,739 82,149 Elimination and corporate — (140,302) (140,302) (133,214) (7,088) Consolidated total ¥1,009,586 ¥ — ¥1,009,586 ¥ 934,525 ¥75,061

Millions of yen Net sales to Intersegment external net sales or Operating Operating Year ended March 31, 2008 customers transfer amounts Net sales expenses income

Synthetic fi bers ¥ 317,612 ¥ 73,249 ¥ 390,861 ¥ 366,413 ¥24,448 Films and plastics 293,834 15,608 309,442 289,195 20,247 Pharmaceuticals and home health care 114,403 4 114,407 92,716 21,691 Trading and retail 265,931 9,343 275,274 270,019 5,255 IT and new products, etc. 44,844 54,432 99,276 95,760 3,516 Total 1,036,624 152,636 1,189,260 1,114,103 75,157 Elimination and corporate — (152,636) (152,636) (142,641) (9,995) Consolidated total ¥1,036,624 ¥ — ¥1,036,624 ¥ 971,462 ¥65,162

Thousands of U.S. dollars Net sales to Intersegment external net sales or Operating Operating Year ended March 31, 2008 customers transfer amounts Net sales expenses income

Synthetic fi bers $ 3,170,097 $ 731,103 $ 3,901,200 $ 3,657,186 $244,014 Films and plastics 2,932,763 155,788 3,088,551 2,886,466 202,085 Pharmaceuticals and home health care 1,141,860 42 1,141,902 925,400 216,503 Trading and retail 2,654,271 93,251 2,747,522 2,695,073 52,449 IT and new products, etc. 447,588 543,284 990,872 955,779 35,092 Total 10,346,579 1,523,468 11,870,047 11,119,904 750,143 Elimination and corporate — (1,523,468) (1,523,468) (1,423,708) (99,760) Consolidated total $10,346,579 $ — $10,346,579 $ 9,696,196 $650,383

82 Teijin Limited (b) Assets, depreciation and amortization, impairment loss and capital expenditure

Millions of yen Depreciation and Impairment Capital Year ended March 31, 2007 Assets amortization loss expenditure

Synthetic fi bers ¥406,473 ¥22,924 ¥1,123 ¥42,215 Films and plastics 284,172 16,612 — 19,915 Pharmaceuticals and home health care 78,973 7,800 — 7,909 Trading and retail 92,296 407 — 189 IT and new products, etc. 72,936 1,849 — 2,989 Total 934,850 49,592 1,123 73,217 Elimination and corporate 65,067 2,141 — 2,481 Consolidated total ¥999,917 ¥51,733 ¥1,123 ¥75,698

Millions of yen Depreciation and Impairment Capital Year ended March 31, 2008 Assets amortization loss expenditure

Synthetic fi bers ¥ 464,289 ¥27,015 ¥ 4,808 ¥53,507 Films and plastics 251,618 19,518 24,435 14,805 Pharmaceuticals and home health care 85,055 7,623 — 6,599 Trading and retail 93,661 394 — 277 IT and new products, etc. 67,219 1,940 2,956 3,920 Total 961,842 56,490 32,199 79,108 Elimination and corporate 54,149 2,251 — 5,533 Consolidated total ¥1,015,991 ¥58,741 ¥32,199 ¥84,641

Thousands of U.S. dollars Depreciation and Impairment Capital Year ended March 31, 2008 Assets amortization loss expenditure

Synthetic fi bers $ 4,634,088 $269,635 $ 47,990 $534,058 Films and plastics 2,511,404 194,811 243,885 147,764 Pharmaceuticals and home health care 848,933 76,089 — 65,860 Trading and retail 934,837 3,929 — 2,767 IT and new products, etc. 670,917 19,368 29,502 39,129 Total 9,600,179 563,832 321,377 789,578 Elimination and corporate 540,459 22,468 — 55,229 Consolidated total $10,140,638 $586,300 $321,377 $844,807

(2) Regional segment information Regional segment information for the years ended March 31, 2007 and 2008 was as follows:

Millions of yen Net sales to Intersegment external net sales or Operating Operating Year ended March 31, 2007 customers transfer amounts Net sales expenses income Assets

Japan ¥ 652,247 ¥ 46,862 ¥ 699,109 ¥ 650,759 ¥48,350 ¥ 656,910 Asia 178,333 30,170 208,503 195,652 12,851 179,515 America 109,350 4,092 113,442 109,441 4,001 82,205 Europe 69,656 25,588 95,244 78,013 17,231 145,029 Total 1,009,586 106,712 1,116,298 1,033,865 82,433 1,063,659 Elimination and corporate — (106,712) (106,712) (99,340) (7,372) (63,742) Consolidated total ¥1,009,586 ¥ — ¥1,009,586 ¥ 934,525 ¥75,061 ¥ 999,917 Financial Section

Teijin Limited 83 Millions of yen Net sales to Intersegment external net sales or Operating Operating Year ended March 31, 2008 customers transfer amounts Net sales expenses income Assets

Japan ¥ 650,341 ¥ 53,167 ¥ 703,508 ¥ 660,688 ¥42,820 ¥ 715,112 Asia 190,881 41,132 232,013 222,724 9,289 182,810 America 111,708 4,652 116,360 114,498 1,862 76,672 Europe 83,694 30,355 114,049 94,425 19,624 174,582 Total 1,036,624 129,306 1,165,930 1,092,335 73,595 1,149,176 Elimination and corporate — (129,306) (129,306) (120,873) (8,433) (133,185) Consolidated total ¥1,036,624 ¥ — ¥1,036,624 ¥ 971,462 ¥65,162 ¥1,015,991

Thousands of U.S. dollars Net sales to Intersegment external net sales or Operating Operating Year ended March 31, 2008 customers transfer amounts Net sales expenses income Assets

Japan $ 6,491,072 $ 530,667 $ 7,021,739 $ 6,594,356 $427,383 $ 7,137,557 Asia 1,905,194 410,538 2,315,732 2,223,012 92,718 1,824,635 America 1,114,957 46,431 1,161,388 1,142,804 18,585 765,268 Europe 835,356 302,976 1,138,332 942,463 195,870 1,742,506 Total 10,346,579 1,290,612 11,637,191 10,902,635 734,556 11,469,966 Elimination and corporate — (1,290,612) (1,290,612) (1,206,439) (84,173) (1,329,328) Consolidated total $10,346,579 $ — $10,346,579 $ 9,696,196 $650,383 $10,140,638

The main countries included in Asia, America and Europe are as follows: Asia: Thailand, Indonesia, China and Singapore America: The United States of America Europe: The Netherlands and Germany

(3) Overseas sales for the years ended March 31, 2007 and 2008 were as follows:

Thousands of Millions of yen U.S. dollars 2007 2008 2008

Asia ¥227,240 ¥234,781 $2,343,361 America 112,629 113,173 1,129,581 Europe and other 81,000 94,970 947,894 Overseas sales ¥420,869 ¥442,924 $4,420,836

Overseas sales include overseas subsidiaries’ sales to overseas third parties as well as the Company’s and domestic subsidiaries’ export sales to third parties. The main countries included in Asia, America and Europe and other are as follows: Asia: Thailand, Indonesia and China America: The United States of America Europe and other: Italy, Germany and France

(4) “Elimination and corporate” in the “Operating expenses” column of (6) Change in accounting procedures the above schedules includes corporate expenses, amounting to Teijin and its domestic consolidated subsidiaries have changed ¥6,937 million and ¥9,453 million ($94,347 thousand) for the years the method used to depreciate fi xed assets acquired on and ended March 31, 2007 and 2008, respectively, which mainly con- after April 1, 2007, in conformance with a revision of the sist of basic research expenses and corporate administrative Corporate Tax Law. departments’ expenses in the holding company. As a result of this change, operating expenses were ¥587 million ($5,861 thousand) higher in Synthetic fi bers, ¥137 (5) “Elimination and corporate” in the “Assets” column of the above million ($1,366 thousand) higher in Films and plastics, ¥361 schedules includes corporate assets, amounting to ¥124,420 mil- million ($3,604 thousand) higher in Pharmaceuticals and home lion and ¥97,883 million ($976,977 thousand) for the years ended health care, ¥5 million ($47 thousand) higher in Trading and March 31, 2007 and 2008, respectively, which mainly consist of retail, ¥15 million ($155 thousand) higher in IT and new prod- cash, time deposits and investment in securities held by the ucts, etc., and ¥82 million ($819 thousand) higher in Elimination holding company. and corporate than would have been the case under the previ- ous method, while operating income in each segment was less by the same amounts.

84 Teijin Limited (7) Additional information As a result of this change, operating expenses were ¥502 In conformance with the revised Corporate Tax Law, Teijin and its million ($5,009 thousand) higher in Synthetic fi bers, ¥88 million domestic consolidated subsidiaries have used the depreciation ($874 thousand) higher in Films and plastics, ¥205 million ($2,050 method applicable for the fi xed assets acquired on or before thousand) higher in Pharmaceuticals and home health care, ¥0 March 31, 2007, whereby when the residual value of a fi xed asset million ($4 thousand) higher in Trading and retail, ¥43 million ($428 after depreciation reaches 5% of the asset’s acquisition cost, the thousand) higher in IT and new products, etc., and ¥131 million remaining 5% is depreciated by equal amounts over fi ve years ($1,308 thousand) higher in Elimination and corporate than would beginning in the subsequent fi scal year and is reported as an have been the case under the previous method, while operating amortization and depreciation expense. income in each segment was less by the same amounts.

Note 18. Contingent liabilities

At March 31, 2008, the Companies were contingently liable as follows:

Thousands of Millions of yen U.S. dollars

(a) As endorser of notes discounted or endorsed ¥ 00,87 $0 0868 (b) As guarantors of indebtedness of: Unconsolidated subsidiaries and affi liates ¥ 8,897 $ 88,804 Others 2,087 20,826 ¥10,984 $109,630 (c) As guarantor of accounts receivable negotiated to a third party ¥03,421 $034,141

(d) Based on debt assumption agreements with fi nancial institutions, the Company has transferred the debt repayment obligation for certain bonds to such fi nancial institutions. As of March 31, 2008, the Company had contingent obligations in respect to the following bonds:

Thousands of Millions of yen U.S. dollars

2.4% unsecured straight yen bonds, due 2009 ¥15,000 $149,716

Note 19. Subsequent events

(1) At the Board of Directors’ meeting held on May 7, 2008, appropriations of retained earnings for the year ended March 31, 2008 were duly approved as follows:

Thousands of Millions of yen U.S. dollars

Cash dividends: ¥3.50 ($0.035) per share ¥3,445 $34,387

(2) The Company concluded an agreement that Teijin Holdings USA of the Company held on May 30, 2008. Under the acquisition, Inc. acquire Braden Partners L.P., a provider of home oxygen and Braden Partners L.P. will become a wholly owned subsidiary of respiratory medications, equipment and services in the United the Company after June 13, 2008. States, based on the resolution of the Board of Directors’ meeting

Information about the acquisition of the subsidiary’s shares is as follows: Acquisition cost $114 million Scale of acquired company (year ended December 31, 2007) Total assets $106 million Net sales $132 million Financial Section

Teijin Limited 85 Independent Auditors’ Report

To the Shareholders and Board of Directors of Teijin Limited:

We have audited the accompanying consolidated balance sheets of Teijin Limited and consolidated subsidiaries as of March 31, 2007 and 2008, and the related consolidated statements of income, changes in net assets and cash fl ows for the years then ended, expressed in Japanese yen. These consolidated fi nancial statements are the responsibility of the Company’s management. Our responsibility is to independently express an opinion on these consolidated fi nancial 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 fi nancial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the fi nancial statements. An audit also includes assessing the accounting principles used and signifi cant estimates made by management, as well as evaluating the overall fi nancial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated fi nancial statements referred to above present fairly, in all material respects, the consolidated fi nancial position of Teijin Limited and subsidiaries as of March 31, 2007 and 2008, and the con- solidated results of their operations and their cash fl ows for the years then ended, in conformity with accounting principles generally accepted in Japan.

As discussed in Note 19 to the consolidated fi nancial statements, the Company concluded an agreement that Teijin Holdings USA Inc. acquire Braden Partners L.P., based on the resolution of the Board of Directors’ meeting of the Company held on May 30, 2008. Under the acquisition, Braden Partners L.P. will become a wholly owned subsidiary of the Company after June 13, 2008.

The U.S. dollar amounts in the accompanying consolidated fi nancial statements with respect to the year ended March 31, 2008 are presented solely for convenience. Our audit also included the translation of yen amounts into U.S. dollar amounts and, in our opinion, such translation has been made on the basis described in Note 1 to the consolidated fi nancial statements.

(KPMG AZSA & Co.) Osaka, Japan June 20, 2008

86 Teijin Limited Corporate Data (As of March 31, 2008)

Established June 17, 1918 Head Offi ces Osaka Head Offi ce 6-7, Minami Hommachi 1-chome, Chuo-ku, Osaka 541-8587, Japan Tel: +81-6-6268-2132 Tokyo Head Offi ce 2-1, Kasumigaseki 3-chome, Chiyoda-ku,Tokyo 100-8585, Japan Tel: +81-3-3506-4529 Fiscal Year-End March 31 Common Stock Authorized 3,000,000,000 shares Issued 984,753,665 shares Paid-in capital ¥70,815 million Shareholders 133,134 Number of Teijin Group Companies Japan 87 Overseas 75 Total 162 Number of Teijin Group Employees Japan 10,457 Overseas 8,668 Total 19,125 Stock Exchange Listings Tokyo, Osaka Stock Code 3401 Stock Transfer Agent Mitsubishi UFJ Trust and Banking Corporation Dividends Dividends are usually declared in May and November. Dividends are usually paid in or about May and November. Reports Available to Annual Report Shareholders and Fact Book Investors Kessan Tanshin (Japanese summary fi nancial report) The Teijin Group CSR Report Annual Meeting of Shareholders The annual meeting of shareholders is held before the end of June in Osaka. Independent Public Accountants KPMG AZSA & Co., Osaka, Japan Teijin on the Internet http://www.teijin.co.jp Teijin’s web site offers a wealth of corporate and product information, including the latest annual report, fi nancial results and corporate news. Investor Relations If you have any questions or would like copies of any of our reports, please contact: Junichi Ichida General Manager, Public Relations & Investor Relations Offi ce 2-1, Kasumigaseki 3-chome, Chiyoda-ku,Tokyo 100-8585, Japan Tel: +81-3-3506-4407 Fax: +81-3-3506-4150 E-mail: [email protected]

■ Product names and service names denoted with TM or ® are trademarks or registered trademarks of the Teijin Group in Japan and/ or other countries. Product names and service names used in this report are trademarks or registered trademarks of the Teijin Group. Other product names and service names used in this report may be protected as their trademarks and/or trade names.

©2008 Teijin Limited. All Rights Reserved. Annual Report 2008

Delivering Profitable Growth: The Teijin Challenge

http://www.teijin.co.jp

ANNUAL REPORT Cert no. SA-COC-001217 2008 Printed in Japan using soy ink and waterless printing. Covers and pages 1–48 are printed on FSC mixed-source paper. Issued 2008.7 Year ended March 31, 2008