Annual Report 2010

http://www.teijin.co.jp

Annual Report 2010 Year ended March 31, 2010

Printed in Japan using soy ink and waterless printing. Covers and pages 1–46 are printed on FSC mixed-source paper. Issued 2010.7 Proﬁ le Corporate Data (As of March 31, 2010)

Teijin Limited is the holding company for the Teijin Group, a multinational corporate enterprise that provides innovative Established June 17, 1918 solutions worldwide in eight distinct businesses, notably in the areas of high-performance materials and health care. Head Offices Osaka Head Office 6-7, Minami Hommachi 1-chome, Chuo-ku, Osaka 541-8587, Japan Established in 1918, Teijin has a long history of turning challenges into opportunities and has evolved into a leading name Tel: +81-6-6268-2132 in many of its core businesses. In high-performance materials, for example, the Company is currently one of the top global Tokyo Head Office Kasumigaseki Common Gate West Tower, manufacturers of aramid fibers and carbon fibers, while in the health care field, Teijin is recognized as Japan’s market 2-1, Kasumigaseki 3-chome, Chiyoda-ku, Tokyo 100-8585, Japan leader in both home oxygen therapy (HOT) and continuous positive airway pressure (CPAP) devices. Tel: +81-3-3506-4529 Fiscal Year-End March 31 Since 1999, Teijin has implemented a series of groundbreaking measures that have earned it a reputation as a pioneer Common Stock Authorized 3,000,000,000 shares Issued 984,758,665 shares in corporate governance in Japan. These include establishing its Advisory Board in 1999 and restructuring its Board of Paid-in capital ¥70,817 million Directors to enhance the effectiveness of management. Today, the Company is pursuing an approach based on the Shareholders 124,769 integration of business strategies, corporate governance and corporate social responsibility (CSR). Number of Teijin Group Companies Japan 76 Overseas 80 Total 156 Number of Teijin Group Employees Japan 10,197 (Consolidated) Overseas 8,581 Corporate Philosophy Total 18,778 Stock Exchange Listings Tokyo, Osaka Stock Code 3401 Quality of Life Stock Transfer Agent Mitsubishi UFJ Trust and Banking Corporation We are committed to Dividends Dividends are usually declared in May and November. In Harmony with enhancing the quality of life Empowering Dividends are usually paid in or about May and November. of people everywhere Reports Available to Shareholders and Investors Corporate Brochure Society through a deep insight into Our People Annual Report human nature and Fact Book Kessan Tanshin (Japanese summary financial report) the application of The Teijin Group CSR Report our creative abilities. Annual Meeting of Shareholders The annual meeting of shareholders is held before the end of June. Independent Public Accountants KPMG AZSA & Co. 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, financial 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, Brand Statement Public Relations & Investor Relations Office, Kasumigaseki Common Gate West Tower, 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] The promise of the Teijin brand is summed up in the resonant statement: “Human Chemistry, Human Solutions.”

Our promise is to keep delivering real value through the development of chemical technologies that are friendly to both people and the global environment, and through the provision of solutions that society and our customers expect.

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 exchange 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 ● Product names and service names denoted with TM or ® are trademarks or registered trademarks of the Teijin Group in Japan and/or other competitive in terms of both price and technology, pertinent to the industry to which the Company primarily belongs. 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.

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2 Financial Highlights 12 The Teijin Group at a Glance Change from the previous fi scal year Fiscal 2009 Net Sales Net sales and Net sales -18.8 % Year ended March 31, 2010 operating income 205.2 Synthetic Fibers (Billions of yen) were down Operating income -25.2 % Operating Income (Loss) 177.8 Films and Plastics Total assets 8.0 Films and Plastics Pharmaceuticals and shrank Total assets -5.8 % 131.7 Home Health Care 24.2 Pharmaceuticals and Cash fl ows Home Health Care 205.3 Trading and Retail Free cash fl ow ¥47.0 billion Trading and Retail improved 3.4 Compared with a negative free cash fl ow of 45.9 IT and New Products, etc.3.0 IT and New Products, etc. ¥75.9 billion (15.1) Synthetic Fibers 4 Message from the CEO Business Group Review We aim to accomplish a return to profitability Aramid Fibers Business Group at the net income level in fiscal 2010 and 14 to reposition Teijin on a growth trajectory Synthetic Carbon Fibers Business Group 16 Fibers in fiscal 2011 18 Polyester Fibers Business Group Net sales 950.0 20 Plastics Business Group Operating income Films and 765.8 60.0 Plastics 22 Films Business Group 30.0 Pharmaceuticals Medical and Pharmaceuticals 13.4 24 and Home Health Care Business Group 27 Trading and Fiber Products Marketing Retail Business Group (35.7)

Net income (loss) 28 IT Business Group IT and New 2008 2009 2010 2011 2012 Products, etc. Outlook Forecast 29 New Business Development Group

8 Special Feature 31 Management System

32 Corporate Governance 38 Research and Development TMX-67 42 Intellectual Property 44 Corporate Social Responsibility 46 Human Resources TMX-67:TMX-67:X67 Bringingi thee firsfirstrst major newew drug ffor gout andndd 47 Financial Section hyperuricemiay ric in 40 yearssto ttoo 48 Consolidated 11-Year Summary patientspa arouaroundn the world 50 Management’s Discussion and Analysis 60 Consolidated Financial Statements

Teijin Limited 1 Financial Highlights

Years ended March 31 Operating Margin Net Sales Operating Income Billions of yen Billions of yen % 1,200 120 12 1,010 1,037 923 938 943 1,000 890 875 908 100 10 8.2% 761 7.4% 766 8 800 77 6.3% 80 5.7% 75 65 5.7% 600 4.4% 60 6 44 4.0% 52 3.2% 400 35 39 40 4 29 1.9% 1.8% 200 18 13 20 2

0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 0 0

Net Income (Loss) ROE Billions of yen % 45 15 34 25 9.7% 30 10 16 7.9% 5.2% 8 9 13 15 5 1 3.1% 3.3% 0.3% 3.0% 0 0

-15 -7.1% -5 (21) -30 -12.3% -12.4% -10 (43) (36) -45 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 -15

Total Assets Interest-Bearing Debt Debt-to-Equity Ratio ROA Billions of yen Times % 1,200 1,105 12 12 1,059 1,037 1,000 1,016 944 1,000 915 10 10 852 8.5% 874 7.7% 823 800 8 8 6.5% 600 4.2% 5.9% 6 6 429 444 379 4.0% 361 3.3% 325 320 400 2.7% 357 277 298 296 4 4 1.9% 200 1.21 times 0.95 times 0.88 times 0.81 times 0.83 times 1.6% 2 2 1.38 times 1.59 times 1.18 times 1.18 times 1.18 times 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 0 0

Cash Flows from Operating Activities Cash Flows from Investing Activities Free Cash Flow Billions of yen

120 96 86 79 80 73 75 80 52 58 54 45 40 47 29 40 28 13 9 1 1 0 (8) (17) (26) (33) -40 (51) (51) (66) (74) (76) -80 (87) (79) (116) -120 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

2 Teijin Limited Percentage Millions of U.S. Billions of yen change dollars Years ended/as of March 31 2006 2007 2008 2009 2010 2010/2009 2010 Operating Results Net sales ¥ 938 ¥1,010 ¥1,037 ¥ 943 ¥ 766 -18.8% $ 8,231 Operating income 77 75 65 18 13 -25.2% 144 Net income (loss) 25 34 13 (43) (36) ̶ (384) R&D expenses 31 35 36 38 33 -11.4% 359

Financial Position Total assets 944 1,000 1,016 874 823 -5.8% 8,846 Interest-bearing debt 298 296 325 361 320 -11.4% 3,442 Shareholders’ equity 339 367 391 306 271 -11.2% 2,916

Cash Flows Cash fl ows from operating activities 75 96 54 40 80 864 Cash fl ows from investing activities (74) (87) (79) (116) (33) (359) Free cash fl ow 1 9 (26) (76) 47 505 Cash fl ows from fi nancing activities 2 (19) 16 79 (43) (462)

Yen U.S. dollars Per Share Data Net income (loss) ¥ 26.6 ¥ 36.8 ¥ 13.2 ¥(43.7) ¥(36.3) $(0.390) Shareholders’ equity 364.8 395.2 397.3 310.5 276.2 2.969 Cash dividends 7.5 10.0 8.0 5.0 2.0 0.021

Percent, Times Ratios Return on assets (ROA) 8.5% 7.7% 6.5% 1.9% 1.6% Return on equity (ROE) 7.9% 9.7% 3.3% -12.3% -12.4% Debt-to-equity ratio 0.88 times 0.81 times 0.83 times 1.18 times 1.18 times

Notes: 1. The U.S. dollar amounts represent translations of Japanese yen, for convenience only, at the rate of ¥93.04 to U.S.$1.00, the prevailing exchange rate at March 31, 2010. 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. 3. The debt-to-equity ratio is calculated as interest-bearing debt at year-end divided by shareholders’ equity at year-end.

Quarterly Net Sales Quarterly Operating Income (Loss) Billions of yen Years ended March 31 Billions of yen Years ended March 31

300 261.3 264.9 262.0 20 16.5 16.5 248.5 2008 19.0 13.2 250 253.2 247.9 205.6 15 2008 236.6 2009 8.6 200 200.1 205.6 2010 10 6.4 194.2 8.6 7.2 166.0 150 5 2.1 4.3 2010 100 0 (1.5) 2009 50 -5 (4.3)

0 1Q 2Q 3Q 4Q -10 1Q 2Q 3Q 4Q

Teijin Limited 3 4 Teijin Limited Message from the CEO

To Our Stakeholders Measures in the period under review included lowering capital investment, reducing costs and Urgent measures and structural inventories, implementing a partial return of remuneration for directors and curtailing labor costs, reforms proceeded apace; however, namely by revamping our personnel system and net loss reported due to fi rst-half placing limits on overtime. Structural reforms demand decline enabled us to pare fi xed costs by approximately ¥34.0 billion from fi scal 2008 and reduce capital In fi scal 2009, ended March 31, 2010, sluggish investment by ¥39.5 billion. We also succeeded results in the fi rst half led to declines in consoli- in shrinking inventories by ¥28.8 billion, to ¥106.3 dated net sales and operating income of 18.8%, billion at the fi scal 2009 year-end, bettering our to ¥765.8 billion, and 25.2%, to ¥13.4 billion, target of ¥110.0 billion by ¥3.7 billion. In addition, respectively. Our net loss shrank by ¥7.3 billion, to we pressed forward with structural reforms in ¥35.7 billion, ameliorated by an upturn in demand our materials businesses, particularly polyester and the positive impact of urgent measures and fi bers, where steps included shifting production of structural reforms in the second half, which par- polyester fi laments from Japan to subsidiaries in tially countered the impact of an increase in Thailand and divesting our subsidiary in Indonesia. restructuring costs. Thanks to these and other achievements, we made substantial progress in our drive to secure a positive free cash fl ow—that is, net cash and cash Transforming Teijin back into an entity equivalents from operating and investing activi- capable of yielding profi ts ties—which we recognize as a key strategic priority. In fi scal 2009, we reported a positive free cash Against a backdrop of harsh economic conditions fl ow of ¥47.0 billion, compared with a negative worldwide, in the latter half of fi scal 2008 we free cash fl ow of ¥75.9 billion in fi scal 2008. We began executing a variety of urgent measures and also moved signifi cantly closer to our goal of an structural reforms aimed at repositioning the Teijin operating structure that enables us to be profi table Group on a growth trajectory. In fi scal 2009, we at the net income level, even with facility operating focused on building an operating structure that rates at 70%. ensures profi tability, even if facility operating rates are as low as 70%. We also took practical steps toward securing a positive free cash fl ow, a key Repositioning Teijin on a growth strategic priority. trajectory

In tandem with the progress of urgent measures Free Cash Flow and structural reforms, we moved closer to restor- Billions of yen Years ended March 31 100 ing our materials businesses as a whole to proﬁ t- 86.0 ability. Additionally, in our Pharmaceuticals and 75 Home Health Care segment, results remained +122.9 47.0 robust. Sales of gout and hyperuricemia treatment 50 TMX-67—a highly promising new drug with global currency—advanced steadily in the United States, 25 9.4 1.4 where it is sold under license. We also began 0 marketing the drug in Europe. We aim to complete restructuring efforts and -25 (25.5) accomplish a return to proﬁ tability at the net

-50 income level in fi scal 2010 and to reposition Teijin on a growth trajectory in fi scal 2011. To these -75 (75.9) ends, we will focus on realizing the planned benefi ts of structural reforms in our materials -100 2005 2006 20072008 2009 2010

Teijin Limited 5 businesses and take advantage of intensifying The fi rst three profi t drivers will support growth, demand in the People’s Republic of China (PRC) while the fourth will facilitate the elimination of and the Association of Southeast Asian Nations losses and restore the relevant businesses to (ASEAN). We will also work to expand our phar- profi tability. maceuticals and home health care businesses, both of which enjoy a highly stable income structure. Given these expectations, we have set a num- Strategies for sustainable growth: ber of concrete performance targets for fi scal Technology-driven innovation in green 2011, our fi rst year back on the road to growth, chemistry and health care specifi cally operating income of ¥60.0 billion, net income of ¥30.0 billion, a return on assets (ROA)— We have also formulated a long-term outlook that calculated using operating income—in excess of calls for annual consolidated net sales of ¥2,000 6%, a return on equity (ROE) of more than 7% and billion, operating income of ¥200 billion and net a debt-to-equity ratio of less than 1.0 times. We income of ¥100 billion by around fi scal 2020. have also identifi ed four profi t drivers as crucial to Through technology-driven innovation, we will the attainment of these targets: continue working to achieve sustainable growth • Expanding our pharmaceuticals and home health by revamping our business portfolio and providing care businesses; sophisticated solutions in two key areas—green • Augmenting our aramid fi bers and plastics chemistry and health care—and in domains that businesses; overlap these areas. In green chemistry, we are • Revitalizing our carbon fi bers business; and, emphasizing high-performance materials, as well • Further restructuring our polyester fi bers as green businesses and energy, while in health and polyethylene terephthalate (PET) fi lms care our focus is on pharmaceuticals and home businesses. health care services. Overlapping domains center on advanced medical materials and highly heat- Repositioning Teijin on a Growth Trajectory resistant bioplastics. We will accelerate implementation of our geographic strategy, focusing mainly Operating Income on key emerging economies and on Asia, which Net Sales Net Income (Loss) together accounted for approximately 20% of Billions of yen Years ended/ending March 31 consolidated net sales in fi scal 2009. We expect 1,200 1,036.6 to increase this share to 35%. As a result, sales 950.0 1,000 in Japan will shrink to 40% of the total, from the 943.4 800.0 current 60%. 800 800 65.2 765.8 We will also endeavor to attain a balance 60.0 between our services businesses, such as home 600 600 health care, and our materials businesses, which

400 32.0 30.0 400 have different business cycles. In the latter, we will concentrate on adding value by expanding mid- 18.0 200 12.6 13.4 10.0 200 and downstream processed products businesses and on building a stable and highly proﬁ table 0 0 organization.

-200 Over the long term, we aim to shift the weight- ing of our business portfolio. We intend to halve (35.7) (43.0) -400 the proportion of commoditized materials—including polyester ﬁ bers and polycarbonate resin—to 2008 2009 2010 2011 2012 -600 Outlook Forecast about 25% of consolidated net sales. Concur- rently, we will increase high-performance materials, new businesses and pharmaceuticals and We aim to accomplish a return to home health care to 50% of net sales, with high- profitability at the net income level performance materials and new businesses in fiscal 2010 and to reposition Teijin on tripling, to 30% of the total, and pharmaceuticals a growth trajectory in fiscal 2011 and home health care rising to 20%, from the current 15%. We also aspire to achieve an

6 Teijin Limited operating margin of between 5% and 6% for com- long term and our efforts to respond to the moditized materials and between 10% and 20% expectations of stakeholders. for high-performance materials, while we expect In closing, allow me to express my apprecia- that for pharmaceuticals and home health care to tion to stakeholders for your guidance and input. remain steady at approximately 20%. I look forward to your ongoing support in the years As we press forward with strategies designed ahead. to ensure sustainable growth, we remain mindful of our corporate philosophy, which afﬁ rms our July 2010 commitment to enhancing the quality of life of people everywhere through a deep insight into human nature and the application of our creative abilities, as well as our commitment to growing in harmony with society and by empowering our people. This philosophy will continue to anchor ShigeoShi Ohyagi Oh i both our approach to management over the President and CEO

Providing Sophisticated Solutions in Two Key Areas

High-performance materials Basic technologies ● Carbon fiber–based composite materials Includes polymerization, spinning, film forming, Green engineering and drug discovery technologies Chemistry Green businesses and energy ● Groundbreaking technologies in the electrical and electronics fields

OlOverlapping i Bioplastics Businessusiness DomainsDomain Advanced medical materials and regenerative medicine

Core technologies (growth drivers) Pharmaceuticals and home health care Includes technologies used in the production of ﬁbers, Health Care ● Global marketing of TMX-67 plastics, ﬁlms and pharmaceuticals, as well as ● Global expansion of home health care business next-generation fuel cell material technologies

Sales in Key Businesses Years ended/ending March 31

Expansion centered on high-performance materials and health care

High-performance materials and new businesses 35% 15% 10% 25% 30% Pharmaceuticals and home health care 25% Commoditized materials 15% Trading and retail, IT 1999 2009 2021 High-performance materials: (Appprox.) Aramid fibers, carbon fibers, other high-performance materials 50% 50% 25% Commoditized materials: 20% Polyester fibers, PET film, polycarbonate resin

Sales by Region Sales expanding in emerging economies and Asia

Japan 10% 25% Emerging economies/Asia 20% North America and Europe 15% 40% 1999 2009 2021 (Approrox.) 20% 60% 75% 35%

Teijin Limited 7 Special Feature

Gout and Hyperuricemia Patients with abnormally elevated serum uric acid levels (hyperuricemia) may go on to Serum uric acid level

develop gout—depending on levels, this may be within two to three years, but more mg/dL commonly it is within fi ve to 10 years. While chronic hyperuricemia may indicate a pre- disposition to gout, the relationship between the two is not entirely clear. Some indi- 9 Risk of gout increases significantly viduals with hyperuricemia never develop gout. For this reason, in Europe and North America treatment aimed at controlling serum uric acid levels in individuals with Hyperuricemia 8 asymptomatic hyperuricemia has traditionally been considered neither benefi cial nor cost-effective and physicians tend to recommend treatment only after gout has been confi rmed. 7 Uric acid begins to crystallize However, this approach ignores the increased risk to hyperuricemia sufferers of such complications as impaired renal function and stones in the urinary tract. Evidence 6 Serum uric acid level targeted by treatment also indicates that a serum uric acid level in excess of 9 milligrams per deciliter (mg/dL) signifi cantly increases an individual’s risk of developing gout. In addition, in patients Healthy uric acid level for adult male who concurrently suffer from such lifestyle-related diseases as hypertension, hyperlipi- 5 Health uric acid level for adult female demia or type II diabetes, hyperuricemia may be associated with arteriosclerosis. As a consequence, physicians in Japan usually recommend treating chronic hyperuricemia. 4

8 Teijin Limited TMX-67, discovered and developed by Teijin, represents the ﬁ rst new viable treatment for gout and hyperuricemia in 40 years. Having launched TMX-67 in several countries already, Teijin is continuing to bring this exciting new treatment option to gout and hyperuricemia sufferers around the world.

Distinguishing Features of TMX-67 Q How is TMX-67 positioned within The culmination of exensive R&D by Teijin pharmaceuticals and home health care? Pharma Limited, TMX-67 (febuxostat) is a A Our pharmaceuticals business was launched novel, potent treatment for hyperuricemia and in 1973, while home health care started a bit later, gout. In clinical testing, TMX-67 taken once in 1982. Both have evolved steadily in the years per day proved highly effective in reducing the since to become core Teijin Group businesses. patient’s serum uric acid to the target level of Recognizing the need to take steps to ensure less than 6 mg/dL and keeping it low. The pre- further growth, we are currently focusing on expanding both our pharmaceuticals and our vious gold standard gout treatment could only home health care operations in global markets. be tolerated in small amounts by people with TMX-67 has demonstrated superior effi cacy in the impaired renal function, thus necessitating care- treatment of gout and chronic hyperuricemia, as ful dose adjustment. In contrast, with TMX-67, well as excellent safety. We have already obtained hepatic metabolism yields a non-activated regulatory approval in the United States and metabolite and excretion is not exclusively Europe. From these perspectives, and because through the kidneys, meaning it can be used target markets overseas are considerably larger safely by individuals with mild to moderate than the market in Japan, we have positioned renal impairment, with no dose adjustment TMX-67 as a strategic global product in the necessary. As a result, TMX-67 offers hope pharmaceuticals business. to a signifi cantly broader group of patients. Q So TMX-67 is already on the market in TMX-67 the United States and Europe? A Yes. In the United States, TMX-67 became available to physicians and their patients in March Metabolizes in liver 2009—where it is marketed under the name ULORIC® by licensee Takeda Pharmaceuticals Febuxostat North America, Inc.—following its approval by the U.S. Food and Drug Administration (FDA). In Metabolite (non-activated) Europe, we have licensed out TMX-67 to Beaufour Ipsen S.A. of France, which in late 2009 signed a Excreted in feces Excreted through kidneys sublicensing agreement with the Menarini Group, an Italian fi rm known for its capabilities in market- TMX-67 (febuxostat) metabolizes in the liver and is excreted ing to general practitioners and for its signifi cant through multiple channels, including the bile duct and the kidneys. pan-European presence. The two companies are currently working together to cultivate markets Generic name: Febuxostat throughout Europe and in Russia. In March 2010, Trade name: ULORIC® (United States) Menarini began sales of TMX-67 under the name ® ADENURIC (Europe) ADENURIC® in several countries, including France, the United Kingdom, Germany and Ireland, all of which have

Osamu Nishikawa General Manager, Medical and Pharmaceuticals Business Group ULORIC® ADENURIC®

Teijin Limited 9 yielded sales largely in line with our projections. Eastern Europe and Russia). Accordingly, we proj- Additional launches in other European countries ect peak annual sales worldwide, including Japan, are planned for the near future. to be well in excess of ¥100 billion. Estimates put the number of gout patients in the United States at between 2.3 million and 2.6 Q What does the next chapter hold? million, while in Europe the number is said to be A We have broadened our focus to include East around 2.4 million. We estimate peak annual Asia. Licensee SK Chemicals Co., Ltd., in the licensee sales will be between ¥40 billion and ¥60 Republic of Korea (ROK) obtained approval to billion, in both North America and in Europe (the EU, begin marketing TMX-67 in June 2009 and is

TMX-67 in Global Markets Launch/ projected Estimated number Status of filing launch of gout patients Progress United Approved in February 2009 March 2009 2.3–2.6 million • Off to a smooth start States • Fiscal 2010: Sales expected to double from fiscal 2009 • Taking steps to promote awareness of gout and reinforce sales capabilities Europe Approved in April 2008 March 2010 2.4 million Commenced sales in France, Germany, the UK and Ireland in March 2010 ROK Approved in June 2009 Fiscal 2010 150–850 thousand Scheduled to be included in the ROK’S NHI drug reimbursement price list in December 2010 Japan Filed in December 2009 Fiscal 2011 870,000+ (7 million)* Application for approval under examination Hong Signed distribution agreement Fiscal 2011 10,000 Scheduled to file in 2Q/3Q of fiscal 2010 Kong in April 2010 Taiwan Signed distribution agreement Fiscal 2012 250,000 Scheduled to file in 3Q of fiscal 2010 in May 2009 PRC Signed distribution agreement Fiscal 2014 3.5 million Clinical trial application submitted in November 2009 in April 2010 Figure in parenthesis represents estimated number of hyperuricemia patients, exclusive of gout patients.

Shiro Kondo, Teijin Group Fellow TMX-67: The Road to Success Researchers around the world fi rst started to look at the development of drugs other than allopurinol that would inhibit xanthine oxidase (XO), an enzyme that catalyzes the production of uric acid, in the 1970s. However, most of these efforts ended in failure and interest gradually died down. This was the situation in 1988 when, recognizing signifi cant unmet needs and a dearth of effective treatment options in this fi eld, I began my own research. The problem that killed off most of the other XO inhibitors that had made it to the testing stage was the fact that while most demonstrated superiority to allopurinol—the previous gold standard—in inhibiting XO, in clinical trials, none were able to outperform allopurinol in lowering serum uric acid levels during testing in vivo. In endeavoring to illuminate the reasons for this, my team and I discovered a major previously undetected aspect of allopurinol’s mechanism of action, which is that XO metabolizes allopurinol into activated oxypurinol—which is nearly 1,000 times more effective than allopurinol in inhibiting XO and which stays active in the body. Focusing on this mechanism, we concentrated our efforts on synthesizing a non-purine compound that was more effective than oxypurinol in inhibiting XO. The reason for focusing on non-purine compounds was that allopurinol is a purine analog and structural similarity to purines is thought to be one of the main causes of the side effects that commonly result from allopurinol use. We spent the fi rst two years focusing on compounds, without a great deal of success. Many people thought it was a wild goose chase, but we kept at it, carefully evaluating the structure of each potential compound and analyzing the results, while formulating and testing hypotheses. Finally in 1991, we succeeded in developing a compound that, when activated, is between 1,000 and 10,000 times more effective than allopurinol in inhibiting XO.

10 Teijin Limited currently preparing for launch there. The previous the PRC and Hong Kong. Plans are also in place month, we signed an exclusive distribution agree- to expand into other Asian markets, as well as into ment for Taiwan with Astellas Pharma Taiwan, Inc. Central and South America and the Middle East. In Japan, we reﬁ led for regulatory approval last By gradually expanding the availability of TMX- December. In April of this year, we signed exclu- 67, we hope to make a real difference to the effec- sive distribution agreements with Astellas Pharma tiveness of treatment for the estimated 15 million China, Inc., and Astellas Pharma Hong Kong Co., hyperuricemia and gout sufferers worldwide. Ltd., for the marketing of TMX-67 in, respectively,

Projected Peak Sales by Region

EUU/EasternU/EU/Easasternsterrn Europe/RusEu pe/Russia North AmeAmericamerica ¥40–¥60¥¥4¥40400¥0–¥¥6060 billioon ¥40–¥60 billionllionn

Japan ¥15–¥25 billion MiddleMidddle East/AfricEast/AE st/A/AAfrica ¥1–¥2¥¥1––¥2¥2 bil billion Asia/Oceaniaia/a/O/ ¥2–¥8¥¥2–¥8 billionl Laaunched in/scheduled for launch 2009–2010

Sccheduled for launch 2011–2012 CentralCentrCenntratral and South AAmerica ¥2–¥5–¥55 billionb Sccheduled for launch 2013–2014

Targeting Further Growth for the Pharmaceuticals Business

Our pharmaceuticals business has grown steadily over the years, but as a growth business it will be expected to achieve new levels of expansion in the years ahead. Accordingly, strengthening our development pipeline and increasing our success rate—the number of candidates that actually make it to market—are crucial objectives of R&D. We are assertively licensing in viable candidates from outside, but it is our ability to develop promising Hiroshi Uno candidates in-house that is really vital to strengthening our pipeline. We have narrowed our focus to three key General Manager, therapeutic areas—bone and joint disease, respiratory disease and cardiovascular and metabolic disease— Pharmaceutical Development Division, Teijin Pharma and are collaborating with other R&D teams within the Teijin Group to enhance the effi ciency and increase the competitiveness of our efforts. The key to increasing our success rate is to do our job and to do it well. This sounds fairly straightforward, but of course it is easier said than done. We have developed a system that incorporates the PDCA (Plan-Do- Check-Action) cycle to reinforce project management capabilities. We have high expectations for the next major candidate in the pipeline, NTC-801, which is a treatment for atrial fi brillation and fl utter, and are confi dent that well- organized project management will enable us to bring this drug successfully through clinical trials and to market. Although we are only a medium-sized business, we have evolved through ongoing efforts to strengthen our pipeline and increase our success rate. These efforts are rooted in a strong desire to help people suffering with health issues. Looking ahead, this desire will continue to drive our efforts to grow our pharmaceuticals business by developing drugs which respond to patient needs that have not been satisfactorily fulfi lled.

Teijin Limited 11 The Teijin Group at a Glance

Synthetic Fibers FilmsanandPlastics

Years ended March 31 Billions of yen 317.6

293.3 287.9 293.8 273.2 261.0 264.5 258.0 15.5% Net sales 205.2 11.8% Net sales 177.8 41.0

33.9 7.7% 5.9% 6.9% 5.6% 24.4 20.2 Operating 17.3 margin 14.5 4.5% Operating 0.1% income 0.2 8.0 2006 2007 2008 2009 2010 -1.0% (2.8) Operating income (loss) (15.1) 2006 2007 2008 2009 2010

-7.4% Operating margin

page page Aramid Fibers Plastics Business Group 14Business Group 20 Growing its aramid ﬁ bers business, Capitalizing on its position as the top a market it dominates in terms of name in polycarbonate resin in the global market share Asian market

Principal Products Principal Products • Aramid fi bers • Polycarbonate resin • PET resin page Carbon Fibers Business Group 16 Films page Reinforcing its presence in carbon 22 fi bers, in which it enjoys a leading Business Group market share worldwide Expanding its global industry-leading PET and proprietary PEN fi lms businesses Principal Products • Carbon fi bers Principal Products • PET fi lm • PEN fi lm Polyester Fibers page Business Group 18 Maximizing technologies that are among the most advanced in the industry to offer high-value-added products

Principal Products • Polyester ﬁ bers • PEN ﬁ bers

12 Teijin Limited Pharmaceuticals and Home Health Care Trading and Retail IT and New Products, etc.

19.5% 18.7% 19.0% 18.4% 18.3% Operating margin 259.8 266.5 265.9 239.2 Net sales 205.3

Net sales 8.8% 131.7 8.0% 7.8% 127.1 Operating 7.8% Operating margin 113.1 114.4 105.6 income 6.4% 24.8 24.2 21.2 21.7 19.3 Net sales Operating margin 47.2 48.8 44.8 45.9 45.9 2.0% 2.0% 2.0% 1.6% 1.7% Operating Operating 3.8 4.3 3.5 3.6 3.0 income 5.3 5.4 5.3 3.9 3.4 income 2006 2007 2008 2009 2010 2006 2007 2008 2009 2010 2006 2007 2008 2009 2010

page page page Medical and Fiber Products IT 24 27 28 Pharmaceuticals Marketing Business Group Business Group Business Group Promoting the development of Pharmaceuticals Leveraging its position as one of Japan’s total IT solutions and Services, Developing ethical pharmaceuticals in leading trading companies specializing including systems management three key therapeutic areas in ﬁ bers products to expand operations and the provision of content Principal Products overseas Principal Products • Treatment for bone and joint disease Principal Products • IT solutions and content • Treatment for respiratory disease • Sales, import and export of textiles and • Treatment for cardiovascular industrial materials and metabolic disease • Retail sales of men’s and ladies’ fashion

Home Health Care A pioneer in Japan’s home health care market and a domestic market leader New Business page Development Group Principal Products 29 • HOT devices Advancing the incubation of new • Ventilators for treating SAS businesses, investigative research and Groupwide cross-business R&D

Teijin Limited 13 Business Group Review

Aramid Fibers Business Group

Q How did the aramid fi bers business sales, while at the same time we will focus on perform in fi scal 2009? further reducing costs and inventories. Over the long term, we will endeavor to ensure A Both sales and operating income were down growth and competitiveness by continuing to invest from fi scal 2008, largely because of declines in assertively in R&D, as well as by strengthening production volume and shipments. Results for relationships with customers. Twaron® and Technora® para-aramid fi bers fell abruptly toward the end of fi scal 2008. This situa- Q How do you evaluate the growth prospects tion persisted through to the fi scal 2009 interim, for para-aramid fi bers? but sales revived in the second half, particularly for use in automotive-related materials, as production A I am confi dent that the outstanding performance in the automotive industry turned the corner. characteristics of para-aramid fi bers will continue to Demand for Teijinconex® meta-aramid fi bers support the expansion of demand, particularly for also picked up for use in industrial materials for, safety- and environment-related applications—the among others, steel production. latter refl ecting an increased need for materials that contribute to weight reduction and lower energy Q What will be your principal challenges in and resource consumption. Global demand is fi scal 2010 and how do you intend to respond? expected to rise by about 7% annually for the foreseeable future. A Demand for aramid fi bers for automotive appli- To capitalize on demand growth, we are work- cations has been on an upswing since the second ing to cultivate new applications for Sulfron®, our half of fi scal 2009 and we expect it to remain fi rm newly developed rubber reinforcements for tires, as throughout fi scal 2010. We will respond by pro- well as for new products for use in, among others, moting the development of new products and reinforcements for optical fi bers and for hoses used applications, cultivating demand and expanding in unmanned offshore oil drilling equipment.

Characteristics of Principal Products Twaron® Light, with excellent thermal, chemical and impact resistance and six times Eiso W.A. Alberda van Ekenstein as strong as steel General Manager, Aramid Fibers Business Group

Teijinconex® Outstanding thermal resistance, allowing it to withstand long-term exposure Technora® to temperatures up to 200°C Boasts superb chemical resistance and even greater strength than Twaron®

For more information, please visit the following web sites: Teijin Techno Products Limited: http://www.teijin-technoproducts.co.jp/top/etop.html Teijin Aramid BV: http://www.teijinaramid.com/

14 Teijin Limited Global Market View

The global market for aramid fi bers is essentially dominated by Teijin and E.I. du Pont de Nemours and Company (DuPont) of the United States, with signifi cant technological barriers to new market entrants. Demand for aramid fi bers was down 20% for the year from the 2008 peak, but actually bottomed out from April to June 2009, after which it rallied strongly. In 2009, demand for automotive applications accounted for approximately half of total global demand—of which demand for use in brake pads and other friction materials came to 30% and demand for use in tires 10%—while demand for safety applications, including protective clothing, represented 30% and Para-Aramid Fibers Market reinforcements for optical fi bers 15%. by Application (2009) Global demand for aramid fi bers is Rubber Other 5% expected to rise by about 7% annually for reinforcements Friction materials the foreseeable future, refl ecting the need for 10% 30% Tires materials that contribute to weight reduction 10% and lower energy and resource consumption, as well as that signifi cantly enhance the 15% performance of fi nished products. Optical 30% fibers Principal Products Safety applications Outlook for Global Demand for Para-Aramid Fibers (protective clothing) Para-aramid fibers Thousand tons Brand Names Twaron®, Technora® 60 Annual growth 7%+ Applications Brake pads, gaskets, rubber reinforcements 48,000 tons (hoses, belts), tires, protective clothing, 47,000 tons plastic reinforcements, civil engineering materials, optical fiber reinforcements 45 38,000 tons Meta-aramid fibers Brand Name Teijinconex® 30 Applications Fireproof clothing, heat-resistant filters, rubber reinforcements, plastic reinforcements

Artificial leather 15 Brand Name Cordley® Applications Sporting goods (shoes, balls)

0 20052006 200720082009 2010 2011 2012 Source: Teijin estimate

Teijin Limited 15 Carbon Fibers Business Group

Q How did the carbon fi bers business pate particularly robust demand for use in aircraft perform in fi scal 2009? and for general industrial applications and so will focus on expanding our share of these markets. In A Demand for general industrial applications and the latter area—where we anticipate a 20%-plus sports and leisure equipment remained sluggish. annual increase in demand—our emphasis will be on Production adjustments by aircraft manufacturers products used to reinforce wind turbine blades and also became an issue, prompting us to make simi- pressure vessels, as well as for automotive appli- lar adjustments for carbon fi bers for aircraft applications, which are also expected to benefi t from a cations, which had performed comparatively well sharp increase in demand over the medium term. until recently. As a consequence, overall ship- On another front, we will promote the develop- ments were down sharply. We sought to counter ment of high-performance prepreg for use in aircraft these trends with decisive measures to reduce and work in cooperation with the Teijin Composites costs and inventories, but were unable to avoid Innovation Center to reinforce our capabilities in posting a substantial operating loss. midstream and downstream businesses, with the aim of reorganizing our product mix so that, in the Q What will be your principal challenges in future, sales center on prepreg and composite fi scal 2010 and how do you intend to respond? materials, rather than on simple fi bers, which are currently the mainstay. Finally, we will work with A Demand actually bottomed out between Janu- corporate research groups to further technological ary and March 2009 and has continued to recover innovation, develop new high-performance carbon gradually since then, but I don’t expect to see a fi bers and achieve signifi cant cost reductions, all of real improvement in the supply–demand balance which will position us better to provide products for for some time yet. In the meantime, we will focus automotive applications. on strengthening our sales capabilities, positioning Q Can you give us any specifi c strategies? Takashi Mishima us well to cultivate demand and bolster sales. We will also work to decisively pare fi xed costs and General Manager, A In the commercial aircraft sector, we will seek to Carbon Fibers create an effi cient production system that ensures Business Group profi tability even with facility operating rates at 70%. expand our market share by concluding contracts directly with aircraft manufacturers and at the same Q What are your medium- to long-term time will work to develop high-performance carbon strategies? fi bers and prepreg for next-generation aircraft. We will also increase our share of the market for carbon A Over the medium to long term, global demand fi bers for applications related to wind power genera- for carbon fi bers is expected to rise by about 15% tion by leveraging our superior product quality, as annually for applications requiring materials that well as by securing demand in emerging markets, contribute to weight reduction, lower energy con- including India and the PRC. Additionally, we will sumption and enhanced performance. We antici- develop carbon fi ber compound materials for a wide range of new applications. To bolster sales of carbon fi bers for pressure vessels worldwide, we will focus on cultivating new customers. We Carbon fi ber–reinforced plastic (CFRP), adopted for use in Toyota Motor will also reinforce our position as a supplier of Corporation’s new Lexus LFA materials for automotive applications by extending our presence in the market for products used in luxury cars.

For more information, please visit the following web sites: Toho Tenax Co., Ltd.: http://www.tohotenax.com/tenax/en/index.php Toho Tenax Europe GmbH: http://www.tohotenax-eu.com/en/home.html Toho Tenax America, Inc.: http://www.tohotenaxamerica.com/

16 Teijin Limited Global Market View

The world’s top three manufacturers of carbon fi bers—Teijin, Toray Industries, Inc., and Mitsubishi Rayon Co., Ltd.—currently account for approximately 60% of global production capacity for carbon fi bers. Tech- nological barriers to new market entrants are signifi cant. Despite having fallen approximately 30% since its peak in 2007, demand for carbon fi bers bottomed out between January and March 2009 and has shown signs of improvement since. Nonetheless, the supply–demand situation remains tight and is not expected to improve for some time. In 2009, general industrial applications accounted for 50% of global sales of carbon fi bers, while aircraft and sports and leisure equipment represented 30% and 20%, respectively. In fi scal 2010, Teijin expects demand for its carbon fi bers worldwide to rise by 20%. Looking further ahead, global demand for carbon fi bers is expected to rise by about 15% annually, as their ability to reduce weight, lower energy consumption and signifi cantly enhance the performance of fi n- ished products attracts increased interest for both aircraft and general industrial applications.

Outlook for Global Demand for Carbon Fibers Thousand tons

63,000 tons 60 Annual growth 15%

40 31,000 tons 23,000 tons Principal Products 20 Carbon fibers Brand Name Tenax® Applications Aircraft (structural components, 0 2003 20042005 2006 200720082009 2010 2011 2012 2013 2014 2015 interior components), industrial Source: Teijin estimate applications (wind turbine blades, pressure vessels), sporting goods (golf club shafts, fishing rods, tennis racquets, yacht bodies)

Teijin Limited 17 Polyester Fibers Business Group

Q How did the polyester fi bers business States, dissolving our polytrimethylene terephthalate perform in fi scal 2009? (PTT) fi ber joint venture and pulling out of the textile yarns dyeing business in Japan. In terms of creating A Since fi scal 2008, we have taken steps to optimal global production confi gurations, we have revise sales prices in Japan and overseas, shift resolved to relocate production of polyester fi la- our focus to highly profi table products and actively ments and polymerization of polyester fi ber raw reduce costs. In fi scal 2009, these efforts began materials from Japan to Thailand and plan to com- to yield positive results, enabling us to narrow our plete this undertaking by the end of fi scal 2010. operating loss substantially. Further, in the area of polyester fi bers for industrial During the period, harsh market conditions applications, we are scaling back production of continued to constrain sales of textiles for apparel. unprofi table products and working with domestic However, sales for use in industrial materials and Thai Group companies to optimize our product appeared to be on the road to recovery, particu- mix. With the aim of restructuring the value chain, larly for automotive applications. With the aim of we have established an automotive seat fabrics joint lifting the polyester fi bers business out of the red venture with Suminoe Textile Co., Ltd., of Japan, and building a business framework that will ensure which has been operating since December 2009. stable profi tability, as well as creating profi table new business models, we concentrated on a num- Q What are your medium- to long-term ber of initiatives whereby we took action to drasti- strategies? cally reorganize loss-making businesses, create optimal global production confi gurations and A We have identifi ed three key strategies for build- restructure the value chain. ing a business framework that will ensure stable profi tability in the future. The fi rst is to prioritize high- Q What will be your principal challenges in performance and environment-friendly businesses, fi scal 2010 and how do you intend to respond? with the intention of expanding sales of high- Norio Kamei value-added products, thus positioning us to take A General Manager, The biggest challenge facing us is to ensure advantage of new opportunities to achieve growth Polyester Fibers the success of our restructuring plans for this busi- worldwide. The second is to restructure the value Business Group ness. To this end, we will proceed with two spe- chain. To do this, we are looking beyond the confi nes cifi c reforms designed to create an optimal global of traditional retail channels and are promoting alli- production confi guration, thereby facilitating a ances directed at, among others, vertical and hori- decisive reduction of costs. The fi rst of these is zontal integration and collaboration with companies to relocate production of polyester fi laments from in other industries. We will also enhance our Japan to Thailand, while the second is to establish responsiveness to market needs. These efforts will the best possible production system for polyester enable us to capitalize on new opportunities for fi bers for industrial applications, comprising plants growth. We have already launched a number of in Thailand and Japan. At the same time, we will initiatives in line with this strategy, including our strive to return the polyester fi bers business to automotive seat fabrics joint venture with Suminoe profi tability by developing new products and Textile and the purchase of an equity stake in a expanding mid- and downstream businesses. specialty retailer of private label apparel—a new retail format—established by Japanese apparel Q How are the current structural manufacturer Flandre Co., Ltd. The third strategy reforms progressing? is to create new supply chains that increase our responsiveness in key markets and to principal cus- A Major initiatives successfully tomers, as well as to promote the effi cient develop- undertaken to reorganize loss-making ment of products in collaboration with customers. businesses included the transfer of To these ends, we will maximize our integrated shares in our Indonesian subsidiary to global production network and enhance our focus a third party, withdrawing from mono- on strategic markets and customers in the growing fi lament production in the United Asian market, including Japan.

For more information, please visit the following web site: Teijin Fibers Limited: http://www.teijinﬁ ber.com/english/index.html

18 Teijin Limited Global Market View

From 2000 through 2007, production of synthetic fi bers worldwide rose steadily, outpacing growth in total production of fi bers. Production of synthetic fi bers dipped 4% in 2008, a consequence of the global economic downturn, but rebounded in 2009 to rise 5%, despite the fact that nylon fi bers were level and acrylic fi bers down, owing to a robust increase in production of polyester fi bers. Although global production of polyester fi bers climbed 9% in 2009, recovering from a 2% decline in 2008, spreads remained on a protracted downtrend. The principal factor infl uencing market trends at present is production in the PRC, which accounted for close to 70% of global production in 2009, up from just over 30% in 2000.

Global Production of Synthetic Fibers Million tons

40 Nylon Acrylic Principal Products 30 Polyester fibers Brand Name Teijin®Tetoron® Applications Apparel 20 Polyester Men’s and ladies’ fashions, sportswear, work and school uniforms, inner wear, garment lining fabrics 10 Interior decorating and household products Curtains, upholstery, bedding, office fabrics, Other paper diapers, wiping cloths, wet tissues, 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 air purifier filters, mattress filling Source: Japan Chemical Fibers Association Industrial products and materials Note: Data for 2009 is preliminary. Automobile, train and aircraft seats, tire cords, rubber reinforcements, seat belts, mats, cushions, filters

PEN fibers Brand Name Teonex® Applications Industrial products and materials Tire cords, transmission belts, high-pressure hoses, speaker cones

Teijin Limited 19 Plastics Business Group

Q How did the plastics business perform in also succeeded in securing a share of the global fi scal 2009? market in excess of 60% for such fi lm used in 3D glasses for movie theaters. A Shipments rallied briskly from the second quar- Toward the end of 2009, Panlite® was selected ter, although sales prices declined sharply in tan- for the glazing of rear quarter and partition win- dem with falling raw materials prices, pushing dows for domestically manufactured vehicles, sales down. However, we achieved a compelling becoming the fi rst polycarbonate resin to be return to profi tability, bolstered by resolute cost- chosen for this application. cutting measures and the reduction of inventories. For mainstay Panlite® polycarbonate resin, Q What will be your principal challenges in shipments improved steadily from April 2009, fi scal 2010 and how do you intend to respond? underpinned by a rapid recovery in domestic demand in the PRC. We responded by gradually A Results are improving steadily, but we recog- raising operating rates, restoring the facilities at our nize the need to further strengthen our business plants in the PRC and Singapore to full-capacity by optimizing our product mix with an emphasis operation in April and June, respectively. on profi tability and a cost structure that supports In the area of processed polycarbonate resin this, even with facility operating rates at 70%, by products, we saw an increase in shipments of decisively lowering administrative expenses and ELECLEAR® transparent electroconductive fi lm for achieving additional fi xed cost reductions. At the use as the base fi lm for touch panels used in, for same time, we will pursue strategies aimed at ELECLEAR® example, smartphones. securing growth. Of particular note, we will further Shipments of PURE-ACE ® reinforce our operating foundations in promising polycarbonate retardation markets, particularly the PRC and ASEAN. We fi lm were also up for use will also step up efforts to add value by shifting our as antirefl ective fi lm for focus to customized high-performance products, liquid crystal displays including compounds and processed plastics. (LCDs) in mobile phones. During the period, we Q What are your medium- to long-term strategies?

A With the escalation of market globalization, we are under increasing pressure to respond to the seemingly incompatible demands of customers for Kazuyuki Sakai both enhanced product performance and lower General Manager, costs. In response, we will reinforce our ability to Plastics Business Group propose attractive solutions based on close collaboration with customers. We will also promote ambitious R&D efforts in promising ﬁ elds with the objective of increasing the share of new product sales accounted for by plastics products to 20% over the medium term. On the cost front, we will take steps to optimize our global production system, capitalizing on the advantage we enjoy as one of the ﬁ rst companies in this business to set up operations in parts of Asia, and improve the effectiveness of raw materials procurement.

For more information, please visit the following web site: Teijin Chemicals Ltd.: http://www.teijinkasei.co.jp/english/index.html

20 Teijin Limited Global Market View

The world’s top five manufacturers of polycarbonate resin are Bayer AG, Saudi Basic Industries Corporation (SABIC), Teijin, the Dow Chemical Company and the Mitsubishi Group. Together, these companies account for approximately 85% of global production capacity. Worldwide, demand—which fell approximately 10% after peaking in 2008, before bottoming out in the first three months of 2009—is now back on an upswing. With manufacturers likely to continue increasing production capacity, mounting demand in emerging markets is expected to continue supporting stable annual market growth of between 5% and 6% for the foreseeable future, while operating rates are forecast to recover to 80% within two to three years. Principal Products Outlook for Global Demand for Global Production Capacity Polycarbonate resin Polycarbonate Resin Million tons Million tons Brand Name Panlite® Applications Electrical and electronics components, 5 Operating rate Operating rate 5 79 audiovisual (AV) and office automation (OA) 71％％ 4.33 equipment, personal computer casings, optical 3.95 discs (Blu-ray discs, DVDs and CDs), precision 4 4 instrument components, automotive components Operating rate 3.44 (headlamps, door handles, bumpers) 85％ Brand Names Panlite® sheet, ELECLEAR®, PURE-ACE® 2.81 2.82 3 3 Sheet 2.40 Applications LCD TV backlight diffusion plates, automotive instrument panels, nameplates, helmet shields 2 2 Film LCDs for mobile phones, personal digital assistants (PDAs) and other handheld electronics 1 1 equipment, touch panels (OA and FA equipment, handheld video game machines)

PET resin 0 20042005 2006 200720082009 2010 2011 2012 2013 0 Applications PET bottles Source: Teijin estimate PEN resin Brand Name Teonex® Applications Cosmetics containers, school lunch dishware, pharmaceuticals containers

Teijin Limited 21 Films Business Group

Q How did the fi lms business perform in In Europe, at our plant in Luxembourg we fi scal 2009? revamped one production line in March 2009 to accommodate thick polyester fi lms and sus- A The transformation of our U.S. fi lms joint ven- pended production on another in June 2009. The ture into an equity-method affi liate prompted a thick fi lms line has been operating at full capacity sharp decline in net sales in fi scal 2009, while fall- and selling out production since autumn 2009. ing shipments in the domestic market pushed Similarly, in the fi scal year prior to this, we had operating income down. However, demand rallied, stepped up the conversion of capacity in the particularly in Asia, spurring quarterly increases in United Kingdom from thin to high-value-added sales and operating income. thick fi lms for general industrial purposes, a move In Japan, demand for polyester fi lms for optical that bolstered the performance of our U.K. joint applications picked up. Demand for mainstay PET venture. fi lm for use as refl ective fi lm in fl at panel displays (FPDs) outpaced the previous fi scal year, while Q What will be your principal challenges in demand for use in solar cell back sheets recov- fi scal 2010 and how do you intend to respond? ered to the fi scal 2008 level. Production lines at our polyester fi lms joint ventures in Indonesia and A We will respond to increasing demand for thick the PRC, both of which produce general-purpose fi lms by expanding the capacity of relevant profi lms, have been operating at full capacity since duction facilities. At the same time, we will press April 2009. In Europe and the United States, ahead with the shift of production to promising however, we proceeded with structural reforms markets in Asia and the restructuring of our plants to counter a persistently arduous operating in the United States and Luxembourg, with the environment. goal of creating a business structure capable of yielding profi ts. Q What is the status of structural reforms in Europe and the United States? Q What are your medium- to long-term strategies? A Efforts are proceeding apace and we are see- ing improvements in the profi tability of our oper- A In the area of PET fi lm, our basic medium- to ations in both regions. In the United States, we long-term strategies are to accelerate the transfer have shifted to a production confi guration com- of production to promising Asian markets and to prising two facilities, namely, our raw materials and strengthen our lineup of high-performance prod- fi lm membrane production facility in Hopewell and ucts. Hastening the shift of production to Asia will our fi lm processing base in Spruance, both in the allow us to create an optimal production confi gu- state of Virginia. To this end, we have closed down ration, as well as enhance our marketing network. our plant for general-purpose fi lms in Circleville, Among high-performance products, we will step Ohio, and are phasing out production at our plant up our capabilities in such high-value-added prod- in Florence, South Carolina, with full closure slated ucts as PET fi lm for use as FPD refl ective fi lm and for the end of 2010. fi lms for solar cell back sheets, two areas in which we already enjoy a signifi cant global market share. In polyethylene naphthalate (PEN) fi lm, we will continue to emphasize products for high-density data backup tapes, for which PEN fi lm has become the de facto standard. We have also identifi ed the promising automotive electronics, information electronics and energy fi elds as strategically Takashi Takahashi important for this business and will take steps over General Manager, Films Business Group the next two to three years to double our PEN fi lm shipments.

For more information, please visit the following web sites: Teijin DuPont Films Japan Limited: http://www.teijindupontﬁ lms.jp/english/index.html DuPont Teijin Films: http://www.dupontteijinﬁ lms.com/

22 Teijin Limited Global Market View

Demand for PET film grew by an average of more than 5% annually from 2001 through 2008, before declining, owing to recessionary conditions worldwide. This trend bottomed out in the first quarter of 2009 and by the end of the year demand had recovered to the 2008 year-end level.

Global Demand for PET Film by Application Million tons Principal Products 1.8 PET film Brand Names Teijin ®Tetoron®, Mylar®, Melinex®, Teflex® 1.6 Applications Industrial applications Materials for LCDs and plasma and organic 1.4 electroluminescent displays (OELDs), cards Packaging (integrated circuit [IC] cards, ID cards, 1.2 radio frequency identification [RFID] chips), automotive products (interior and exterior materials and electronic components) 1.0 Packaging materials Magnetics Laminating film for beverage and food cans, 0.8 shrink wrap, retort pouches, environment- Industrial friendly plastic trays 0.6 PEN film Brand Name Teonex ® 0.4 Imaging Applications Digital videocassettes (DVCs), high-density data backup tapes, electronics materials, electronic 0.2 Electrical circuit materials, high-performance materials for automotive applications (seat sensors and hybrid motor materials), advanced photo 0 2000 20012002 2003 200420052006 2007 2008 2009 system (APS) film Source: The Association of Manufacturers of Polyester Film Processed film Brand Name Purex® Applications Materials for LCDs, electronics materials, films for semiconductor materials, medical materials, photocatalysts, moisturizing facial masks

Brand Name CurrentFine® Applications Flexible panel displays, touch panels, membrane switch materials

Teijin Limited 23 Medical and Pharmaceuticals Business Group

Q How did the pharmaceuticals and home prescription drug prices) under Japan’s health care businesses perform in fi scal 2009? National Health Insurance (NHI) scheme, we will endeavor to secure profi tability by stepping up A Shipments rose, but fees collected on sales of osteoporosis treatments and other key licensed-out technologies declined. As a conse- pharmaceuticals and rentals of home health care quence, net sales rose, while operating income equipment. We will also seek to rapidly expand dipped. In pharmaceuticals, shipments of Bonalon® sales of gout and hyperuricemia treatment TMX-67 35mg* tablet, a once-weekly formulation of osteo- where it is currently on the market, as well as to porosis treatment Bonalon®, were up favorably, launch the drug in promising markets other than ® the United States and Europe, notably the PRC, while shipments of Onealfa , an active vitamin D3 preparation, remained fi rm. Thanks to these two in due course. In the home health care business, products, Teijin enjoys a leading share of the mar- we will take active measures to strengthen the ket for osteoporosis treatments in Japan. During profi tability of our overseas operations. the period, we commenced sales in Europe of Q TMX-67, an exciting and highly promising new How are sales of TMX-67 in the United treatment for gout and hyperuricemia. This is the States and Europe? second major market for TMX-67, which is also A sold in the United States. In home health care, Licensee Takeda Pharmaceuticals North rental volume for mainstay home oxygen therapy America began selling TMX-67 in the United ® (HOT) equipment remained robust, while rentals of States under the name ULORIC in March 2009 continuous positive airway pressure (CPAP) venti- and has enjoyed steady sales since. In Europe, lators and SAFHS® (Sonic Accelerated Fracture marketing efforts for the drug are directed by Healing System) also continued to climb. partner Beaufour Ipsen of France, with whom we have a licensing agreement, as well as Ipsen subli- ® * Bonalon is the registered trademark of Merck & Co., Inc., censee, the Menarini Group of Italy, an organization Whitehouse Station, NJ, U.S.A. well known for its prowess in marketing drugs to general practitioners. In March 2010, the Menarini Q What will be your principal challenges in Group began marketing TMX-67, under the name fi scal 2010 and how do you intend to respond? ADENURIC®, in several countries, including France, the United Kingdom, Germany and Ireland. Initial A Despite the negative impact of the April 2010 sales have been largely in line with projections. revision of drug reimbursement prices (offi cial Working with Ipsen and the Menarini Group, we plan to gradually expand marketing of TMX-67 to other countries in Europe. Osamu Nishikawa We are also preparing to launch TMX-67 in General Manager, other key markets, including the ROK, Taiwan and Medical and Pharmaceuticals the PRC. Looking ahead, we will also broaden our Business Group focus to include additional countries in Asia, as well as countries in Central and South America and the Middle East.

Q What is the status of drug candidates currently in the R&D pipeline?

A We continue to emphasize three key therapeutic areas, namely, bone and joint disease, respiratory disease and cardiovascular and metabolic disease. To enhance our R&D pipeline, we are conducting research in-house and in collaboration

For more information, please visit the following web site: Teijin Pharma Limited: http://www.teijin-pharma.co.jp/english/index.html

24 Teijin Limited Teijin’s Market Position

Principal Products Pharmaceuticals Respiratory disease Teijin continues to emphasize three key therapeutic areas—bone and joint Pharmaceuticals disease, respiratory disease and cardiovascular and metabolic disease— Mucosolvan® in which it offers a variety of highly competitive products. In Japan, Teijin Expectorant Spiropent® commands a leading share of the markets for pharmaceuticals for treating Bronchodilator ® respiratory, cardiovascular and metabolic disease. Atrovent Prophylaxis for bronchial constriction Rhinocort® Treatment for allergic rhinitis Alvesco® Inhaled corticosteroid agent for adult asthma % Home Health Care Bonalon® 17 Hi-Sanso™ series Onealfa® 9 Therapeutic oxygen concentrator Mildsanso® Therapeutic oxygen concentrator Mucosolvan® 25 ® NIP NASAL Noninvasive positive pressure ventilator (NPPV) for sufferers of sleep apnea syndrome (SAS) Venilon® 30 SLEEPMATE® Bonalon® 35mg tablet Positive pressure ventilator for sufferers of SAS Laxoberon® 17 AutoSet™ Positive pressure ventilator for sufferers of SAS GoodKnight® Positive pressure ventilator for sufferers of SAS Copyright 2010 IMS JAPAN K.K. Bonalfa® 21 Source: IMS Pharmaceuticals market SleepWatcher® High-performance sleep disorder diagnostic statistics, March 2010 system Unauthorized reproduction is prohibited. Notes: 1. Markets for osteoporosis drugs, topical vitamin D and transdermally adsorbed steroids are as defined by Teijin. Bone and joint disease 2. Market share for Venilon® and Bonalfa® are total shares for brands. Pharmaceuticals Bonalon® Treatment for osteoporosis Home Oxygen Therapy Onealfa® Treatment for osteoporosis HOT was developed in the United States in the late 1960s. In 1982, Home Health Care Teijin became the first company to commercialize HOT services in Japan. SAFHS® Sonic Accelerated Fracture Healing System Believing that home health care should provide patients with peace of

mind, Teijin has worked constantly to provide carefully tailored, attentive Cardiovascular and metabolic disease services, as well as to advance the quality thereof, an approach that Tricor® Treatment for hyperlipidemia has enabled us to establish a solid relationship with patients and health care professionals. At present, an estimated 150,000 patients in Japan are undergoing treatment that involves HOT. Teijin’s share of the Other domestic HOT market is approximately 60%. Venilon® Treatment for severe infectious diseases Laxoberon® Laxative Number of HOT Patients in Japan Teijin’s Share of the Bonalfa® Treatment for psoriasis Thousands of people Domestic Market for HOT (Teijin Estimate) 180

60% 120

0 19821990 2000 2009 (Estimate) Note: Data for 2008 is for the ﬁrst ten months of the year. Data for 2009 is an estimate for the whole calendar year. Source: Gas Medicina, Vol.13, 2008, Japan

Teijin Limited 25 R&D Pipeline (As of March 31, 2010) Medical Properties/ Phase of Clinical Trials Approved/ Area Code No. Target Disease Characteristics Phase I Phase II Phase III Filed New Launch Bone and joint GTH-42V Osteoporosis Alendronate disease ITM-058 Osteoporosis Human PTHrP analog Respiratory disease BTR-15K Asthma (children) Inhaled steroid Mar 2010 Dec 2009 TMX-67 Gout and hyperuricemia XOD inhibitor (Reﬁ led in Japan) Sustained-release formulation of Cardiovascular ITM-014 Acromegaly somatostatin analog Sep 2009 and metabolic Human glucagon-like peptide-1 disease ITM-077 Type II diabetes analog Apr 2009

NTC-801 Atrial fibrillation and flutter Selective antiarrythmia agent Apr 2009 GGS Churg-Strauss syndrome Human immunoglobulin Other Jan 2010 GGS Multiple sclerosis Human immunoglobulin

with universities, research institutes and other its books. From Spain, we intend to expand into pharmaceuticals manufacturers in Japan and abroad. other countries in Western and Eastern Europe. In April 2009, we commenced phase II clinical In the ROK, we are helping to cultivate the trials for ITM-077, a treatment for type II diabetes local market for HOT services through our joint that we are developing with Chugai Pharmaceuti- venture with YUYU, Inc. We are also looking to cal Co., Ltd., of Japan, and NTC-801, a treatment set up operations elsewhere in Asia, but because for atrial fi brillation and fl utter under development many countries in the region lack a well-organized with Nissan Chemical Industries, Ltd. In December health insurance system, the market potential for 2009, we fi led an application with the Japanese HOT is uncertain. Nevertheless, we have set our Ministry of Health, Labour and Welfare to manu- sights on spearheading the expansion of home facture and market gout and hyperuricemia health care to Asian markets and are working with treatment TMX-67 in Japan. hospitals and other health care–related organiza- tions to promote recognition of the importance of Q Are efforts to accelerate the global health care systems that encompass home health expansion of the home health care business care, as we have done in the ROK. progressing well?

A Our global expansion efforts currently focus on the United States, Europe and Asia and we expect operations in overseas markets to make a greater contribution to income in the years ahead. In the United States, we already have 120 patient service centers. In fi scal 2009, the performance of our U.S. operations was hindered by the impact of health care reforms, but in fi scal 2010 we expect to return to profi tability. In addition, as a result of changes to the U.S. health insurance system, the number of insured individuals is expected to increase signifi cantly. In Europe, our HOT services joint venture with Laboratorios del Dr. Esteve S.A., a major Spanish pharmaceuticals company, made a strong start and now has approximately 20,000 patients on

26 Teijin Limited Fiber Products Marketing Business Group

Q How did the businesses in this group perform in ﬁ scal 2009?

A Despite signs of a gradual improvement in results over the year, sales dropped sharply, owing to the continuing effects of the global economic downturn on retail markets, evidenced by the hesitant pace of recovery, particularly in Europe and the United States. Operating income also fell, as interior applications, active efforts ongoing efforts to review our business spheres, to expand commercial rights sup- reduce logistics costs and increase administrative ported brisk sales of wall and efﬁ ciency failed to counter the impact of the slump ﬂ oor coverings, curtains and in sales, although the operating margin rose. lifestyle-related products.

Q Can you give us a breakdown of results? Q What will be your principal challenges in fi scal 2010 and A We reported substantial declines in sales in how do you intend to respond? both the textiles and apparel and the industrial textiles and materials categories. In the former, stag- A With consumption sluggish and consumers nant conditions in the European and U.S. markets, increasingly gravitating toward low-priced prod- coupled with a strong yen and the withdrawal of ucts, we expect the operating environment for tex- several domestic raw yarn manufacturers from tiles and apparel to remain challenging for the time production in Japan, drove down sales of raw yarn being. In contrast, demand for industrial materials and fabrics. In industrial textiles and materials, appears to be fi rmly back on the road to recovery, sales for automobile tires and airbags recovered although a few uncertainties remain. In response, to between 70% and 80% of the fi scal 2008 level, we will continue to take decisive steps to improve but sales of materials for conveyor belts and profi tability by increasing administrative effi ciency, rubber hoses fl agged, owing to a temporary reviewing our business spheres and reducing suspension of capital investment. In materials for logistics costs. We will also maximize our global network to better respond to customer needs and actively seek to cultivate commercial rights in promising sectors.

Q What are your medium- to long-term strategies?

A The Fiber Products Marketing Business Hiroshi Kitano Group’s vision for achieving sustainable growth is General Manager, to respond to the increasingly diverse needs of our Fiber Products Marketing Business Group markets and customers by reinforcing our position as Japan’s leading specialized ﬁ ber products trading company, as well as by addressing the demands of globalization. To these ends, we will promote the strategic expansion of our overseas businesses, expand our industrial materials business, adapt to changes in consumer markets and sales channels and actively promote supply chain management in cooperation with principal customers.

For more information, please visit the following web site: N.I. Teijin Shoji Co., Ltd.: http://www2.ni-teijinshoji.co.jp/english/index.html

Teijin Limited 27 ITBusiness Group

Q How did the IT business perform in ﬁ scal 2009?

A Despite a harsh operating environment, a result of constraints on corporate investment in IT, we worked to enhance profi tability by ensuring effective project-specifi c budget and progress Infocom Corporation, which spearheads Teijin’s management, while implementing sweeping cost- IT business, and the companies of the Infocom cutting measures. These efforts helped boost Group, will continue to implement measures in line operating income. By promoting targeted invest- with its current medium-term management plan, ment and levelizing the acceptance of inspected with the aim of achieving sturdy growth. At the goods from vendors, we also succeeded in same time, Infocom will execute strategies devised improving cash fl ows. to bolster profi tability, enabling it to establish a In IT solutions, intense competition for orders stable business structure that is not easily swayed pushed sales down. Nonetheless, efforts to lower by market fl uctuations. costs and fortify project management capabilities Q supported a signifi cant improvement in operating What are your medium- to long-term income. In Services, we sought to further expand strategies? our content distribution and e-commerce site A management business, as well as to reinforce the We will work to achieve positive growth by competitiveness of our data center management implementing measures in line with our basic man- business, efforts that spurred an increase in sales agement policy, which calls for increasing profi t- and operating income in this category. ability, shifting the investment of management resources to key businesses and pressing ahead Q What will be your principal challenges in with efforts to strengthen our operating founda- fi scal 2010 and how do you intend to respond? tion. Management resources will be allocated to efforts that accelerate the growth of new, as A Although the market for Internet businesses is well as existing, businesses in the Internet and forecast to continue expanding, severe conditions health care fi elds, as well as to efforts to promote ® persist in the operating environment as companies GRANDIT , an enterprise resource planning (ERP) continue to limit IT-related spending, hampering software package, and to speed up the expansion sales to corporate customers. Looking ahead, of our Software as a Service (SaaS)* business. In line with our commitment to continuously strengthening our operating foundation, we will increase job mobility and enhance employee training, reinforce management systems and technologies for ensuring continuous quality improvement and minimize latent risk throughout the group. Takashi Yoshino We have identifi ed fi ve key challenges for the General Manager, Infocom Group, which are to strengthen our oper- IT Business Group ating foundation, enhance competitiveness in core businesses, develop growth businesses, promote effi cient group management and secure, foster and reinforce talented human resources. We will continue to address these challenges from a medium- to long-term perspective.

* A model of software delivery whereby a provider licenses an application to customers for use as a service on demand.

For more information, please visit the following web site: Infocom Corporation: http://www.infocom.co.jp/index_e.html

28 Teijin Limited New Business Development Groupp

Q What can you tell us about the New Q YouYh have commenced d operations i at a Business Development Group? new demonstration plant for BIOFRONT®. What lies ahead for this product? A We have three basic missions. The fi rst is to leverage our incubation capabilities to facilitate the A Until quite recently, we were producing swift creation of new businesses. The second is BIOFRONT® at a small pilot plant with an annual to conduct investigative research aimed at devel- capacity of 200 tons. In September 2009, we oping basic technologies that will enable new commenced production at a demonstration plant businesses to germinate. Our third mission is to capable of outputting 1,000 tons annually. The promote research with a long-term perspective pilot plant used lactide as a raw material, whereas in areas that straddle Group businesses. the demonstration plant, which has enabled us to We place a particularly high priority on our role verify the cost structure of the business, allows us in incubating new businesses. At present, we are to produce BIOFRONT® directly from lactic acid, working toward the early commercialization of a which is one stage before lactide. The use of lactic wide range of promising products. These include acid will enable us to reduce process costs. Look- BIOFRONT®, a heat-resistant bioplastic, and ing forward, we will focus on enhancing product Raheama®, a highly thermoconductive carbon fi ber performance and culti- material, as well an aramid fi ber lithium-ion battery vating markets. We (LiB) separator and a variety of composite aim to increase annual materials. capacity for BIOFRONT® further, to 5,000 tons, in fi scal 2011, when we plan to launch Raheama® commercial production.

Demonstration plant

Kenji Kubo BIOFRONT® : Surmounting Barriers to Commercialization and General Manager, New Business Expanding Potential Applications Development Group Until very recently, the commercial viability of bioplastics had been hampered by low resistance to heat and moisture. We have succeeded not only in surmounting these two issues, but also in developing a product that is highly suitable for molding and processing and—in a complete departure from conventional bioplastics—is in the form of ﬁ bers. BIOFRONT® is resistant to temperatures of up to 210ºC, more than 40ºC hotter than polylactide, currently the most widely used bioplastic, and on a par with polybutylene terephthalate (PBT), a leading engineering plastic. As a result, BIOFRONT® can be dyed and pressed under high-temperature, high-pressure conditions, just like polyester ﬁ bers. By applying a proprietary technology we have also made BIOFRONT® as resistant to moisture as petroleum-derived plastics. In addition, the moldability of BIOFRONT® is superior to that of conventional polylactide, which is slow to crystallize, making it unsuitable for molding into large and/or complex shapes—a problem that has greatly hindered its widespread use. BIOFRONT® crystallizes considerably more quickly, meaning it is comparatively easy to use for molding such shapes. Currently, we are promoting joint development of BIOFRONT® for automotive seat fabrics and molded instrument panels for vehicles, as well as for eyeglass frames and fabric for Japanese kimono. We look forward to cultivating a wider range of applications for BIOFRONT® in the years ahead. Automotive seat fabric made from BIOFRONT®

Teijin Limited 29 Q Have you made progress in your efforts to Q What exactly do your investigative strengthen the New Business Development research initiatives involve? Group’s R&D confi guration? A We particularly emphasize efforts in three A As set forth in the Basic Management Policy areas. The fi rst of these is bioplastics, the second for the Teijin Group, announced in April 2009, our energy and electronics and the third pharmaceuti- focus as a Group is to provide solutions in the cals and advanced medical materials. One of the areas of green chemistry and health care through most exciting results of our research in bioplastics technology-driven innovation. The New Business is of course BIOFRONT®. One of the challenges Development Group is responsible for spear- we face now is to use inedible vegetation— heading this effort. Fostering new businesses is materials that don’t threaten food security for anything but an easy task and reinforcing organi- people anywhere. In the area of energy and elec- zational capabilities was absolutely necessary to tronics, we are conducting research in the area of enabling us to fulfi ll this responsibility. To this end, nanomaterials and new nanodevice technologies, we have made several valuable additions to our with the ultimate goal of developing printable elec- R&D network over the past two years. In April tronics, a new fi eld in which printing technologies 2008, we opened the Teijin Technology Innovation are used to produce advanced electronics com- Center, which incorporates new business incuba- ponents. In advanced medical materials, we are tion functions, followed in July 2008 by the Teijin looking at ways to make use of biopolymers. Composites Innovation Center. In July 2009, we established the Integrative Technology Research Institute, which conducts investigative research in diverse fi elds.

R&D Facilities Administered by the New Business Development Group

Teijin Technology Innovation Center Opened in April 2008, the Teijin Technology Innovation Center is charged with transforming R&D achievements into new products. Designed with an open laboratory, the facility also incorporates Groupwide new business incubation functions.

Teijin Composites Innovation Center Established in July 2008, the Teijin Composites Innovation Center integrates principal R&D and marketing functions for composite materials. The center also houses a laboratory that facilitates collaborative efforts with customers to develop proposals, technologies and products.

Integrative Technology Research Institute Inaugurated in July 2009, the Integrative Technology Research Institute engages in investigative research aimed at developing new technologies for biopolymers, advanced medical materials and electronics materials, as well as for fields that integrate such technologies, with the aim of expediting our responsiveness to market needs and shortening development lead times.

30 Teijin Limited Management System

Teijin Limited 31 Corporate Governance

Basic Corporate Mission Separating and Reinforcing Decision Making, Frontline Management and Any company that secures capital from sharehold- Monitoring/Auditing Functions ers is expected to create profi table and consistent growth through its business activities and to Reasoning Behind Current Corporate steadily increase returns to shareholders on their Governance System investments over the medium to long term. The We believe in the timely adoption and modifi cation fi rst duty of management is to respond to this of corporate governance mechanisms that we expectation. Management must also fulfi ll its view as being optimally suited to our efforts to responsibilities to other stakeholders, including achieve our corporate objectives. Accordingly, employees, customers, creditors, suppliers, con- we continue to review existing mechanisms in sumers and local residents and communities. response to changes in the social and legislative Conducting business in a manner that ensures environments. these obligations are met requires an effective sys- Under our current corporate governance system of corporate governance. To this end, and to tem, the internal directors are responsible for front- facilitate the selection of directors, determine fair line management, while the independent outside compensation, monitor management and guaran- directors monitor and supervise management and tee compliance, we have implemented key reforms the auditors and Board of Auditors oversee audit- aimed at enhancing transparency, assuring fair- ing functions. This confi guration is in compliance ness and objectivity and accelerating decision with Japan’s Companies Act and in our view suc- making, thereby creating a superior management cessfully confi rms the Board of Directors’ ability to system. function both as a decision-making and a supervisory body. In light of recent legislation aimed at Corporate Governance Milestones strengthening the functions of corporate auditors, 1993 Establishes corporate philosophy, Standards of we have resolved to maintain our Company with Conduct and Corporate Code of Conduct Board of Auditors model. This decision refl ects our 1998 Establishes Corporate Ethics Committee and belief that our current corporate governance sys- formulates Corporate Standards of Conduct tem—i.e., the Advisory Board; Board of Auditors, 1999 Installs Advisory Board and introduces corporate including independent outside corporate auditors; offi cer system Board of Directors, which includes independent 2003 Adopts holding company system and issues outside directors; and corporate offi cers—has Teijin Group Corporate Governance Guide enabled us to achieve a level of corporate governance that is essentially equal to that sought by companies opting to adopt the Company with Percentage of Independent Outside Members on Teijin’s Boards Committees model as a means of reinforcing (As of July 2010) management monitoring and supervisory capabilities. Board of Board of Advisory Directors Auditors Board Total number of individuals 10 5 7 Board of Directors and Corporate Offi cers To expedite decision making and clarify responsi- Number of independent outside individuals 335 bility for frontline management, we have set the Percentage of independent outside individuals 30% 60% 70% number of directors on Teijin’s Board of Directors Note: Teijin has formulated its own requirements concerning the independence of outside directors at a maximum of 10. We have also established a and corporate auditors that are comparable with those mandated by U.S. stock exchanges. corporate offi cer system and have delegated con- Under Teijin’s regulations, persons to whom the following fi ve descriptions do not apply are recognized as independent. siderable authority and responsibility to these offi - 1. Internal offi cers or employees and former internal offi cers or employees of the Teijin Group. cers. The president and the chairman are both 2. Providers of specialized services to the Teijin Group. appointed from among internal directors. In princi- 3. Persons having customer or business partner relations with the Teijin Group. ple, other internal directors serve concurrently as 4. Persons having interdirectorship relations with the Teijin Group. 5. Persons having other special interests in the Teijin Group. chief offi cers. Three of the directors on the Board are independent and appointed from outside the For more information, please visit Teijin’s web site: http://www.teijin.co.jp/english/about/governance/requirements.html

32 Teijin Limited Company. As stipulated in Teijin’s Articles of bring to the position to advise on management- Incorporation, the term of offi ce for all directors is related issues, thereby helping to increase the one year. To ensure the appropriate separation transparency and accountability of the Board of responsibility for frontline management and of Directors. Specifi cally, these individuals are monitoring/supervising, the Board of Directors is expected to offer opinions to the Board of Direc- directly responsible to the chairman, who does not tors that convey the views of shareholders and participate in internal, operations-level decision their own perspectives as outsiders and refl ect making and, unless deemed necessary, does not their own particular skills and experience. They have the right of representation. also participate in the appointment of, and the Responsibility for supervising the internal direc- assessment of performance and determination of tors is vested with the independent outside direc- compensation for, the CEO by serving on Teijin’s tors, who also draw on the exceptional insight they independent consultative body, the Advisory

Message from Kunio Suzuki, Independent Outside Director

Japanese companies only really began considering the idea of a system that includes independent outside directors less than a decade ago and today opinions are still divided. Every system has its merits and demerits, so in a sense it is natural that this one has polarized attitudes. To evaluate any system properly, one must look not only at the system’s validity but also at whether it is appropriately administered. Under Teijin’s current system, the chairman of the Board of Directors oversees the progress of proceedings, while those inside directors responsible for implementing initiatives that gain approval, who are answerable to the CEO, explain proposals and disclose pertinent information. Independent outside directors actively provide input, a process that reinforces transparency and objectivity. Accordingly, I see this system as having great merit. Independent outside directors have four key responsibilities, which are to: • Contribute to the creation of a legitimate management system; • Enhance management effi ciency; • Oversee management from the shareholders’ perspective; and, • Provide an outsider’s viewpoint, thereby broadening the scope of discussion and ensuring lively debate. Having served as president and later chairman of Mitsui O.S.K. Lines, Ltd., I know what it is like to be on the other side of this relationship. I am well aware of my responsibilities as an independent outside director on the Board at Teijin and will continue to do whatever I can to support sound growth for the Company and its operations. KunioKunio SSuzukiuzuki

Teijin Limited 33 Board (currently all three are part of the Advisory corporate auditors, consideration is given to can- Board’s Japanese contingent), thus ensuring that didates’ specialties and to making sure the Board these processes incorporate shareholders’ views of Auditors is well balanced, with the provision that and outside perspectives. at least one of the three individuals selected must In addition, independent outside directors be a certifi ed public accountant. serve on the independent committee responsible To augment the functions of the Board of for examining proposed acquisitions and, where Auditors, we have introduced a system of auditor necessary, make recommendations that trigger assistants, whereby two individuals are appointed Teijin’s defense measures against large-scale to assist corporate auditors in the performance of acquisitions (hostile takeover defense measures), their duties. We have also installed a Group Board thus bringing an outside perspective to emergency of Auditors comprising auditors from Teijin Group efforts to evaluate investment proposals. companies, which is charged with monitoring/ Responsibility for discussing and resolving auditing the Group with respect to consolidated issues pertaining to frontline management has management, thereby improving the effectiveness been delegated to the CEO Corporate Strategic and enhancing the transparency of audits. Full- Committee, which meets weekly, and the time corporate auditors may also serve concur- Management Committee, which meets monthly. rently as outside corporate auditors for core Group companies. Audit System and Board of Auditors We have established a three-pronged auditing Teijin’s Board of Auditors comprises fi ve mem- framework that includes an internal auditing body, bers, three of whom are independent outside cor- in addition to the Board of Auditors and the inde- porate auditors, thereby ensuring transparency pendent public accountants, which are mandated and the effective monitoring/auditing of all aspects by Japan’s Corporate Law and Financial Instru- of management, including Total Risk Management ments and Exchange Act. We are working to (TRM). To further enhance the effi cacy of monitor- enhance corporate governance by promoting col- ing/auditing, full-time corporate auditors attend laboration among these three bodies. The Board meetings of the CEO Corporate Strategic Commit- of Auditors plays a leading role in selecting inde- tee and the Management Committee, to which the pendent public accountants for the Teijin Group Board of Directors has delegated responsibility for and is also responsible for internal coordination, decision making on important matters pertaining particularly with the Business Auditing Offi ce, to to frontline management for both Teijin and the facilitate regular and comprehensive access to Teijin Group. In appointing independent outside internal audit information.

Corporate Governance System The Teijin Group’s Corporate Governance System Majority of members are external (As of July 2010) Advisory Board Aramid Fibers Nomination and Remuneration Holding Company Carbon Fibers

System Nine Business Groups Polyester Fibers

Board of Directors Plastics Shareholders’ Ten members (of whom three are external) Meeting CEO Films TRM Committee (CEO, CSRO, CTO, CFO, CHO) CEO Corporate Medical and Pharmaceuticals Strategic Committee (Chief Ofﬁcers*) *Chief Officers Fiber Products Marketing Management Committee CEO: Chief Executive Officer Board of Auditors (Heads of Business Groups IT Business and Chief Ofﬁcers) CFO: Chief Financial Officer Five members (of whom three are external) CMO: Chief Marketing Officer New Business Development CTO: Chief Technology Officer CSRO: Chief Social Responsibility Officer Group Board of Auditors CIO: Chief Information Officer CENO: Chief Engineering Officer CHO: Chief Human Resources Officer

34 Teijin Limited Our internal auditing body, the Business Audit- Advisory Board Members ing Offi ce, reports directly to the CEO. This offi ce is (As of July 2010) responsible for assessing the appropriateness and Toru Nagashima effi cacy of internal controls across the global Teijin Chairman of Teijin Group, as well as for coordinating the activities of the corporate auditors. In addition, certain Teijin John W. Himes One focus of the management reforms Group companies, including publicly listed entities, Former senior vice-president of DuPont implemented since 1999 was the creation of have their own internal auditing bodies, indepen- a fi rst-class corporate governance system, dent of the Group system. As a consequence, as Lord Leon Brittan a move designed to bring Teijin in line with of March 31, 2010, the Teijin Group had 20 inter- Chairman of UBS Limited other top global players. Our Advisory Board nal auditors, excluding those of certain Group Vice-chairman of UBS Investment performed a key role in this effort. In addition companies, some of which are listed entities. Bank to leading experts from Japan, the Advisory Katsunari Suzuki Board’s original members included John A. Advisory Board Director-General of the Krol, former chairman of global chemicals The Advisory Board serves in a consultative capac- Japan–Brazil Central Association giant DuPont, and Sir Ronald Hampel, previ- ity and is tasked with advising on all aspects of Kunio Suzuki ously chairman of ICI and of the Hampel management and evaluating the performance Counselor of Mitsui O.S.K. Lines, Committee, which established certain key of top executives. The Board comprises fi ve or six Ltd. principles of corporate governance in the leading experts from outside the Company—of Hajime Sawabe United Kingdom, both of whom were noted whom three are Japanese, and two or three non- Chairman of TDK Corporation for their active participation in Advisory Japanese—as well as Teijin’s chairman plus the Board discussions. Individuals serving on the president (who also serves as CEO). Teijin’s chair- Shigeo Ohyagi Advisory Board since have also made valu- man presides over the Advisory Board, which has President and CEO of Teijin able contributions that have consistently two ordinary meetings annually. The Advisory enhanced Teijin’s corporate governance Board also functions as a nomination and remu- system and corporate value. neration committee and is charged with proposing the replacement of the CEO and/or putting forward successors, deliberating the selection of the chairman and reviewing remuneration systems and standards for directors and corporate offi cers, pensation for directors is based on consolidated as well as evaluating the performance of the CEO ROA, calculated using operating income; consoli- and representative directors. Deliberations pertain- dated ROE; and consolidated operating income— ing to the CEO or the chairman are conducted i.e., on an examination of whether targets have without the participation of the relevant individual. been met and/or improvements seen—as well as a qualitative assessment of each individual direc- Nomination and Remuneration System tor’s execution of his or her duties. Compensation for corporate offi cers is also based on consolidated ROA, calculated using operating income, Nomination of Directors and consolidated operating income, as well as a Candidates for the position of director are selected qualitative assessment of each individual corporate by the Board of Directors on the basis of their offi cer’s execution of his or her duties. Compensa- anticipated worth as a member of Teijin’s manage- tion for directors, as well as for corporate auditors, ment team, taking into account individual charac- in fi scal 2009 is shown in the table below. ter, acumen, ability and past record. Names of the nominees are then submitted in the form of a pro- Compensation for Directors Compensation for Corporate Auditors posal to shareholders at the annual meeting of Number of Amount Number of Amount shareholders. individuals (Millions of yen) individuals (Millions of yen) Internal directors 8 ¥212 Internal auditors 2 ¥ 28 Compensation for Directors Outside directors 3 ¥ 39 Outside auditors 4 ¥ 28 Compensation and bonuses for Teijin Group direc- Total 11 ¥252 Total 6 ¥ 56 tors are determined by the Advisory Board. Com- Note: Actual compensation in fi scal 2009

Teijin Limited 35 Compliance and Total Risk Committee put under the direct control of the Management CEO. With strategic risk—which includes risk to fi nancial soundness—being given increasingly The Teijin Group operates on the principal that greater weight, the TRM Committee was strength- effective corporate governance depends on strict ened through the expansion of its membership to compliance and comprehensive risk management. include the Chief Financial Offi cer (CFO). As a consequence, today the TRM Committee comprises Compliance chief offi cers appointed by the CEO and CSRO, Directors, offi cers and employees of the Teijin who oversee its activities. As of the date of this Group are required not only to comply with rele- report, committee members are the CEO, CSRO, vant laws and regulations, but also to act with CTO, CFO, CHO and the general manager of the good faith as a businessperson and as a member Corporate Strategy Division. The Board of Direc- of society in accordance with ethical and social tors is responsible for deliberating and voting on norms. Recognizing this, and also acknowledging TRM policies and annual plans formulated by the that such compliance is crucial to enhancing cor- TRM Committee. porate value, we formulated specifi c guidelines through our Corporate Code of Conduct and Cor- Disclosure and Accountability porate Standards of Conduct to ensure consis- We recognize accountability as vital to prosperity tency throughout the global Teijin Group and we and shareholder value. We have a duty to demon- seek to reinforce awareness among management strate our corporate mission and vision clearly and and employees. to articulate our corporate governance mechanisms as relevant. We must work to instill ever- Total Risk Management greater awareness of our compliance and total risk As a countermeasure to the various risks and management policies Groupwide. We are commit- uncertainties we face as a corporate entity, in April ted at all times to raising the level of accountability 2003 we established the TRM Committee, which by providing information in a manner that takes was answerable to the Board of Directors. The into consideration the requirements of our share- TRM Committee is charged with managing strate- holders and society at large. Our accountability gic risk, that is, risk related to management strate- policy consists of three key points: gies, and operational risk, which is risk related • Disclose consistent information concurrently in to the execution of business. For six years, the Japan and overseas; committee—comprising the CEO, Chief Social • In addition to disclosing fi nancial information that Responsibility Offi cer (CSRO), Chief Strategy Offi - is legally required, take an active approach to cer (CSO), Chief Technology Offi cer (CTO) and disclosing corporate information from the per- Chief Human Resources Offi cer (CHO)—sought to spective of corporate social responsibility (CSR); avoid risk through this comprehensive approach. and, In April 2009, with the express purpose of • Ensure our general meetings of shareholders accelerating the formulation of management strat- are open and accessible, with an emphasis on egies and the management of strategic risk, the communication. position of CSO was eliminated and the TRM

Teijin Group Hotlines

Corporate Ethics Opinion Box (Overseas)

Group Company Corporate Ethics Opinion Box, Intranet, E-mails CSRO and Executives and General Manager, Employees Compliance Hotline (External Law Firms) CSR Ofﬁce

Sexual Harassment Hotline (Outsourcing Firm)

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

36 Teijin Limited Management Team

Board of Directors, Corporate Auditors, Advisory Board, Chief Ofﬁ cers and Business Group General Managers (As of July 2010)

Board of Directors

Chairman of the Board President and CEO, Executive Vice President, Senior Executive Officer, Senior Executive Officer, Representative Director Representative Director Representative Director Member of the Board of the Board of the Board of the Board Toru Nagashima Shigeo Ohyagi Takayuki Katayama Junji Morita Norio Kamei

Executive Officer, Corporate Officer, Independent Outside Director Independent Outside Director Independent Outside Director Member of the Board Member of the Board Toshiaki Yatabe Yoshio Fukuda Katsunari Suzuki Kunio Suzuki Hajime Sawabe

Corporate Auditors Full-Time Hiroshi Furukawa Advisory Board Toru Nagashima (Chairman) Full-Time Kihachiro Sano John W. Himes Independent Outside Ryozo Hayashi Lord Leon Brittan Independent Outside Toshiharu Moriya Katsunari Suzuki Independent Outside Noriko Hayashi Kunio Suzuki Hajime Sawabe Shigeo Ohyagi

Chief Ofﬁ cers CEO Shigeo Ohyagi Business Group Aramid Fibers Eiso W.A. Alberda van Ekenstein CFO Takayuki Katayama General Managers Carbon Fibers Takashi Mishima CMO Junji Morita Polyester Fibers Norio Kamei CTO Toshiaki Yatabe Plastics Kazuyuki Sakai CSRO Giichi Morita Films Takashi Takahashi CIO Osamu Nishikawa Medical and Pharmaceuticals Osamu Nishikawa CENO Yo Goto Fiber Products Marketing Hiroshi Kitano CHO Yasumichi Takesue IT Takashi Yoshino New Business Development Kenji Kubo

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

Teijin Limited 37 Research and Development

Sustainable Growth Founded on Technology-Driven Innovation

Recognizing technological innovation as the Promoting Solutions-Oriented R&D source of sustainable growth, we continue Strategies to promote ambitious yet effi cient investment in R&D with the aim of cultivating new busi- To ensure our efforts yield technologies guaran- nesses. At present, we have nine major teed to support sustainable growth, we have for strategic purposes grouped highly promising mar- research sites in Japan and seven overseas, kets into four key fi elds—automobiles and aircraft, which together employ more than 1,600 information and electronics, health care and envi- researchers. Guided by the chief technology ronment and energy—within which we strive to offi cers in each business group, and with the develop innovative solutions that respond to aim of reinforcing collaboration among Teijin changes in the operating environment, including Group companies, we endeavor to conduct the increasing emphasis on environmental protec- R&D that embodies our brand statement— tion, the trend toward lighter and more energy- effi cient products, the advance of the BRICs “Human Chemistry, Human Solutions”—and to economies (Brazil, Russia, India and the PRC) and advance the development of original business demand for high-performance products. To this models. We also work to expedite the trans- end, we have singled out three core technological formation of technological achievements into areas, namely, high-performance materials, green commercially viable products. businesses and energy and life sciences. Having identifi ed a number of core technologies that will be necessary for restructuring our business portfolio, we are working to accelerate product develop- Core Technological Areas ment by establishing and promoting the effective management of development pipelines. Accord- ingly, we are enhancing core technologies and Green Chemistry creating new value by fusing basic technologies— including polymerization, catalyzing and other High-performance materials Green businesses and energy chemical technologies, and technologies used ● Composite materials ● Materials for solar/fuel cells (for automobiles, aircraft, in pharmaceuticals, home health care and IT— ● Thermal interface materials wind power generation) with nanotechnology, biotechnology and other ● Display materials ● Aramid fibers next-generation technologies. ● High-density recording materials ● Carbon fibers Research in the fi eld of high-performance ● Materials for lighting equipment ● High-density recording materials, which includes polyester fi bers, poly- ● Biopolymers materials (PEN) carbonate resin, aramid fi bers and carbon fi bers, ● Water treatment focuses on balancing performance and price, as ● Recycling technologies well as on adding value by making products more environment-friendly. Building on our success in developing a special polycarbonate resin that was used for the Series N700 Shinkansen bullet train windows that has helped lighten train bodies, we are currently promoting the development of Health Care technologies for a product to be used in vehicle Life sciences windows, with a view to early commercialization.

● Pharmaceuticals

● Health care equipment

● Advanced medical materials

38 Teijin Limited We are also developing technologies for the nologies in such areas as environment-friendly production of carbon fi ber composite materials biotechnology-based wastewater treatment sys- that will make vehicles both lighter and more tems, thermally conductive materials made from environment-friendly. By expanding into midstream heat-dissipating carbon fi bers, battery materials and downstream processing for, among others, made from heat-resistant aramid fi bers and materials for automotive parts and electrical and high-performance nanofi bers. electronics equipment, we are determined to In life sciences, notable achievements in recent earn greater customer and market confi dence years include the successful development of gout and to enhance product value. We are also and hyperuricemia treatment TMX-67—a highly working to broaden the scope of our pioneering promising new drug with global currency. TMX-67 ECO CIRCLE™ closed-loop chemical recycling is now available in several markets around the system for polyester fi bers. world and we are proceeding with efforts to gain In the green businesses and energy fi eld, authorization and launch the drug in other mar- recent accomplishments include the start of kets. We have also extended our global home production of BIOFRONT®, a high-performance health care operations, previously limited to the bioplastic derived from inedible vegetation, rather United States, by commencing operations in than petroleum, at a newly built demonstration Europe and other parts of Asia, thereby reinforcing plant, in preparation for full-scale production. the operating foundation of this business overseas. We are also working to develop advanced tech-

Teijin’s Product Development Pipelines in Core Technological Areas

22010 2020

HigH h- perpe formamance ● ● matm erialsls Carbonn ﬁbers for wind Prepreg for wind powwer geng erators power generators

● ● ● Prepreg for aircraft Structural materials Structural materials for aircraft for automobiles ● ● ● ● ● Aramid materialals SULFRON Aramid pulp New materials Compound materials for protective (for rubru ber reinforcements) for protective for protective and applications applications safety applications Grereeene bussinessess s ● ● ● ● ● ● PETP ﬁlm for Thermal interface LiB Materials for Materialss for Materials for and energe y sosolar cells materials for LED lighting separators LiB electrodes thin-ﬁlm solar cells alternative energies

● ● ● ● ● ● Films for Film substrates Multilayered Films for Materials for Coatable touch panels for optical ﬁlms HEV/EV motors organic electronic devices electronion c paper semiconductuc ors ● ● ● PLAP Heat-rt esistat nt Bioplastics derived PLLA from inedible vegetation ● ● ● Biological Recycling systems Bioprocess wastewater water treatment deviccese forf waw stewater treatment systems Life ● ● ● ● ● ● ● sciencess TMX-67 (Gout) TMXX-67 (Gout) ITMIT -077 ITM-058 NTTTC-801 New drug for Biopharmaceuticals (Europe/USA)SA (Japan) (Di(D abetes) (Osteoporosis) (Atriaal ﬁbrillation) hyperuricemia

● ● ● ● ● Home rehabilitatioti n HOT devices DW1350 New home health Advanced (Rehaeh bilitation robots) for glg obao l markets (Osteopporosis) care services medical materials (Home hemodialysis)

LEDD: Lighig t-emittinggd diode LiB: Lithium-ion battery HEV/EV V: Hybrid electric vehicle/electric vehicle PLA: Polylactic acid HOT: Home oxygen therapy

Teijin Limited 39 R&D Activities in Fiscal 2009 Synthetic Fibers High-Performance Fibers In fi scal 2009, develop- Corporate Research ment efforts for Teijinconex® meta-aramid fi bers, Corporate research encompasses basic research spearheaded by Teijin Techno Products Limited, designed to fortify our Groupwide foundation in emphasized new applications, notably next- chemical synthesis and polymer science and R&D generation, high-performance fi reproof clothing, as aimed at cultivating new products and businesses. well as technologies for enhancing productivity. We Para-aramid pulp Based on product development pipelines in core also focused on developing technologies to bolster technological areas, which were set forth in our productivity for Technora® para-aramid fi bers, as Basic Management Policy, announced in April 2009, well as on a new application as a reinforcement our medium- to long-term R&D efforts focus on cul- material for plastics. Ongoing efforts include tivating new technologies for the production of poly- research in the use of nanotechnology to enhance mers, advanced medical materials and electronics fi ber functions and performance. Teijin Aramid BV materials, among others. In the area of basic tech- pressed ahead with the development of a novel nology, the Integrative Technology Research Insti- application for Twaron® para-aramid fi bers in the tute, established in July 2009, is charged with production of new types of para-aramid pulp that organically integrating Group technologies, as well offer a variety of high-level performance features. as combining in-house technologies with those We endeavored to develop technologies that introduced from outside the Group. Efforts to maximize the superb strength and elasticity of Automotive parts made develop new businesses and products in fi scal 2009 Tenax® carbon fi bers, as well as to cultivate appli- with carbon fi ber ® cations in materials requiring electroconductivity composite materials included the start of production of BIOFRONT , a heat-resistant bioplastic developed in-house, on a and corrosion-resistance. In addition, we continued new demonstration plant at our Matsuyama Plant to work with the Teijin Composites Innovation Cen- built with the goal of accelerating the cultivation ter in the development of production technologies of markets for this innovative product. In the area for composite materials used in automotive parts. of water treatment, we signed an agreement to codevelop wastewater treatment systems for rural Polyester Fibers R&D in this business focuses on communities, as part of a joint project between the development of environment-friendly technolo- Osaka Prefecture in Japan and Jiangsu Province gies, materials and high-performance products. In in the PRC. This effort is part of a program to the area of environment-friendly products, fi scal promote cooperation between Osaka and Jiangsu 2009 brought the development of V4, a cationic- on a variety of fronts. dyeable polyester polymer material that can be Corporate research in the automobile and air- dyed at a normal ambient temperature of 100°C or craft fi eld currently focuses on R&D and market less and a normal ambient pressure using a dyeing development for advanced composite materials, process that requires 30% less power than conven- which are the responsibility of the Teijin Composites tional processes. We also pressed forward with Innovation Center. In the information and electron- efforts to broaden the scope of our pioneering ics fi eld, we are promoting the development of fi lm ECO CIRCLE™ closed-loop chemical recycling substrates for fl exible displays. system for polyester fi bers by developing new recyclable products, including curtains, bedding and marine wear. In high-performance products, we completed development and commenced full- scale commercial production and sales of V-LAP®, a vertically lapped, nonwoven cushioning material that boasts high resilience and form stability, along with outstanding breathability. Underscoring the high marks given this new product, V-LAP® received a New Frontier Design award in the 2009 Senken Awards, which recognize signifi cant contributions to the fi ber, textile, apparel and fashion industries.

40 Teijin Limited Films and Plastics In the area of data storage media, in spring Plastics A key focus of R&D in this business is 2010 we launched a new base fi lm for LTO-5, improving and modifying the physical properties of the fi fth generation linear tape-open (LTO) format, Panlite® polycarbonate resin, developing molding which had been under development for some technologies and new polymers and conducing years. We also continued to promote the develop- research in the area of extrusion technologies for ment of applications for Teonex® PEN fi lm in polycarbonate fi lm and sheet. Amid rising demand next-generation solar cells and lighting and in the for greater fuel effi ciency and more environment- automotive sector; for Tefl ex® formable fi lm in the Polycarbonate resin friendly, lighter vehicles, we continue to advocate automotive, ornamental and design sectors; and for used in vehicle quarter windows polycarbonate resin as an alternative to glass for multilayered fi lms for use in ornamental and design automobile windows and to devote efforts to the applications and in the prevention of forgery. development of related materials, as well as molding and processing technologies that leverage our Pharmaceuticals and Home Health Care proprietary large-scale injection-compression mold- Pharmaceuticals R&D in pharmaceuticals empha- ing machine. In fi scal 2009, these efforts yielded a sizes three key therapeutic areas—bone and joint polycarbonate resin for automobile window glazing disease, respiratory disease and cardiovascular and that became the fi rst such product selected in metabolic disease—and encompasses both inde- Japan for the quarter and partition windows of pendent efforts and collaboration with universities, domestically manufactured vehicles. This new resin research institutes and other pharmaceuticals com- enables the production of windows that are 40% panies in Japan and overseas. In the area of cardio- lighter than conventional glass windows. vascular and metabolic disease, in April 2009 we Transparent We also launched the industry’s fi rst environment- commenced phase II clinical trials for ITM-077, a electroconductive fi lm friendly bromine- and phosphate-free, transparent treatment for type II diabetes currently under devel- fl ame-retardant grade of resin (thickness: 1.5 mm; opment with Chugai Pharmaceutical. The same in compliance with U.S. safety standard UL 94V-0). month, we also began phase II clinical trials for Looking ahead, we intend to build up a full line-up NTC-801, a novel drug for the treatment and pre- of injection- and extrusion-molded resins with the vention of atrial fi brillation and fl utter that we are aim of entering the promising market for materials developing jointly with Nissan Chemical Industries. used in LED lighting. In basic research, in April 2009 In September 2009, we began phase III clinical we established a course of lectures on basic poly- trials for ITM-014, a treatment for acromegaly mer nanostructure control engineering in the Faculty licensed in from Beaufour Ipsen, while in December of Engineering at Yamagata University. The course 2009 we fi led an application in Japan to manufac- is conducted by visiting professor Dr. Takashi Inoue, ture and market gout and hyperuricemia treatment Venilon® a renowned expert on polymer alloys. The intention TMX-67 in Japan. Efforts in the area of pharmaceu- of the course is to develop high-performance poly- ticals for respiratory disease included the fi ling of mers using nano-order dispersion technologies Alvesco®, an inhaled steroid bronchial asthma treat- and to advance polymer engineering technologies ment, for treating asthma in children—a new indica- through theoretical approaches. tion—in March 2010. In January 2010, S-sulfonated human immunoglobulin Venilon® was approved for Films In this business, we continue to focus on the treatment of Churg-Strauss syndrome.* development efforts for high-performance products, notably PET, PEN and polycarbonate fi lms. In fi lms Home Health Care We continue to promote the for FPDs and touch panels, we are developing development and launch of new home health care high-performance fi lms and processed fi lm prod- equipment offering improved safety and ease of ucts, particularly for LCDs. We are also emphasiz- operation, as well as to cultivate new home health ing the development of fi lms for solar cells and care markets. In fi scal 2009, we completed prepa- next-generation lighting to accommodate soaring rations for manufacturing and resolved to launch global demand, as well of industrial-use, decorative Hi-Sanso™ 5Fx, a new oxygen concentrator under and specialty packaging fi lms with reduced development with NGK Spark Plug Co., Ltd., of Hi-Sanso™ 5Fx environmental impact. Japan.

* A condition that affects asthma sufferers, Churg-Strauss syndrome is marked by an excessive number of eosinophils (a type of leukocyte) and eventually leads to vasculitis (vascular lesions causing inﬂ ammation of the small blood vessels). Churg-Strauss syndrome has been designated for study under the Research on Measures for Intractable Diseases project being undertaken by Japan’s Ministry of Health, Labour and Welfare.

Teijin Limited 41 Intellectual Property

Enhancing Corporate Value through Effective Intellectual Property Management

The Teijin Group strives to create, protect and core strategic businesses and markets and are make effective use of its intellectual property, working to expand our patent portfolios and which includes patents and expertise, demon- extend patent terms in crucial areas of research. strating its commitment to technological innova- Accordingly, we are taking active steps to promote the invention and discovery of technologies, prod- tion from both Group and global perspectives. ucts and processes; apply for patents; secure Teijin Intellectual Property Center Limited, an intellectual property rights; and analyze competi- independent entity, spearheads the Group’s tors’ patent information. Through such efforts, we intellectual property strategy, which is forged aim to enhance the value of our intellectual property in close alliance—and implemented in an and, by so doing, to increase corporate value. integrated manner—with its management and technology strategies. Recognizing the Teijin Patent Applications Our ambitious patent application strategy focuses brand as an important intellectual asset that on gaining superior patent protection for achieve- is essential to increasing corporate value, the ments related to key Groupwide technological Group, led by the Public Relations and Investor themes.* In fi scal 2009, such achievements Relations Offi ce, promotes measures aimed accounted for 39% of patent applications† submit- at enhancing brand value. ted in Japan, up from 32% in fi scal 2008 and 26% in fi scal 2007, and 13% of applications submitted Basic Strategy overseas, compared with 17% in fi scal 2008. To maintain a highly competitive position in core In terms of our four key strategic fi elds, patent businesses and accelerate our business develop- applications in the automotive and aircraft fi eld ment efforts, we have designated a number of increased in Europe and North America, as well as in other international markets, while in information and electronics, submissions refl ected efforts to develop new applications that are expected to Patent Applications in Fiscal 2009 (Japan) spur demand, as well as to capitalize on growth in the markets for fi lms and plastics in the PRC, ROK Synthetic Fibers 288 and other Asian countries. In the environment and Films and Plastics 217 energy fi eld, we once again placed a priority on Pharmaceuticals and Home Health Care 34 creating a patent portfolio for bioplastics. In health New Products, etc. 170 care, we applied for patents in various countries, Total 709 notably the PRC and the ROK, in our three key therapeutic areas—bone and joint disease,

New Products, etc. * Major technological themes underpinning Groupwide R&D efforts. 24% † Patent applications pertaining to Groupwide R&D themes, divided by total patent applications. 40% Synthetic Fibers Pharmaceuticals and Home Health Care 5%

Films and Plastics 31%

42 Teijin Limited respiratory disease and cardiovascular and Fostering Inventions metabolic disease. The Teijin Group has instituted the Teijin Invention Award to recognize employees responsible for Utilizing Intellectual Property patented inventions that sustain or advance the Individual business groups strive to make effective Group’s businesses. This award acknowledges use of intellectual property. The Medical and Phar- and substantially compensates individuals whose maceuticals Business Group continues to seek patented inventions have played a prominent role licensing (fee-based) and cross-licensing agree- in the inception of new Group businesses, or in ments. For gout and hyperuricemia treatment the cultivation of new technologies in existing TMX-67, for example, we signed a sublicensing businesses, and that have contributed signifi cantly agreement with the aim of reinforcing marketing in to sales. Europe (including Eastern Europe and Russia), and concluded an exclusive distributorship agreement The Teijin Brand in Taiwan. Ahead of our expansion into the fi eld Having established “Quality of Life,” “In Harmony of regenerative medicine, we signed an exclusive with Society” and “Empowering Our People” as agreement with SanBio, Inc., of the United States, the Teijin Group’s corporate philosophies in 1993, to license in SB623, which holds promise as a rev- in 2003 we declared “Human Chemistry, Human olutionary drug for stroke therapy. Under the terms Solutions” to be our brand statement, representing of this agreement, we will develop and sell the our commitment to advancing chemical technolo- drug in the Japanese market. gies that are friendly to both people and the global environment, as well as to keep providing solu- Intellectual Property Management tions that resonate with our customers and society Confi guration at large. Moving forward, we will continue through The Teijin Intellectual Property Center works our businesses and activities as a corporate citizen closely with Group companies and relevant to fulfi ll the promise of the Teijin brand and achieve departments to ensure intellectual property strate- sustainable growth in corporate value. gies are proposed and implemented in an integrated manner with management and technology strategies. In addition to establishing an intellectual property strategy offi ce, which is charged with reinforcing planning capabilities with respect to intellectual property strategies, the center has assigned intellectual property specialists to core Group companies. By making full use of comprehensive intellectual property management and information systems, the center ensures that pertinent information is shared throughout the Group. The Teijin Intellectual Property Center also formulates Groupwide intellectual property training programs; provides relevant training for employees; and strives to reinforce the Group’s competitiveness by encouraging new discoveries and transforming research achievements into intellectual property rights. Additionally, the center works to maximize the practical benefi ts of intellectual property and minimize related risk in each of the Group’s businesses.

Teijin Limited 43 Corporate Social Responsibility

CSR Management society. We have also developed various policies, targets and strategies and continue to conduct To realize the goals implied in its corporate philos- diverse activities. ophy—articulated by the phrases “Quality of Life,” Specifi c actions have included categorizing “In Harmony with Society” and “Empowering Our our various CSR initiatives as addressing either People”—Teijin has formulated a basic policy for “basic,” “advanced” or “selective” issues. Basic CSR and is promoting systematic, well-planned CSR issues include those related to corporate activities. Additionally, in April 2005 we inaugu- ethics, ESH, environmental contribution, and prod- rated the role of Chief Social Responsibility Offi cer uct liability and quality assurance, while advanced (CSRO) and created an internal organization CSR issues are those that arise in the process of to coordinate all aspects of our CSR program, refl ecting CSR in policies governing personnel and including corporate ethics, compliance, risk man- labor, as well as purchasing and logistics. Selec- agement, environment, safety and health (ESH), tive CSR issues encompass issues related to and related activities and efforts to contribute 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 Teijin’s CSR Framework targets and enhance effectiveness. The Teijin Group’s commitment to CSR man- Selective CSR Social agement is underscored by its inclusion in key issues contribution global socially responsible investment indexes, including the Dow Jones Sustainability Indexes, FTSE4Good Index Series and the Ethibel Sustain- Personnel and Advanced CSR occupational issues, ability Index, all of which evaluate companies for issues Purchasing and logistics socially responsible investment (SRI).

Corporate ethics and compliance, Risk management, ESH, Environmental Preservation Basic CSR Environment, Disaster relief, issues Safety, Health, Product liability issues and quality assurance Teijin’s Sustainable Environment Declaration The Teijin Group formulated the Teijin Group Global Environmental Charter and the Teijin Global Environmental Activity Goals in 1992 and has long been committed to protecting the global environ- Socially Responsible Investment ment. In light of the increasing severity of environ- The Teijin Group is included in the Dow Jones mental problems and in a bid to accelerate our Sustainability Indexes (criteria for inclusion: economic, efforts, in July 2007 we published our Sustainable environmental and social performance); the Environment Declaration. This declaration outlines FTSE4Good Index Series, which measures the three core elements: Environmental preservation, performance of companies that meet globally environment-friendly design and environmental recognized CSR standards (criteria for inclusion: business. In line with these elements, we are efforts to ensure environmental sustainability, implementing a variety of advanced initiatives. development of positive relationships with In the area of environmental preservation, stakeholders and support for universal human rights); and the Ethibel Sustainability Index (criteria for we engage in a wide range of activities aimed inclusion: internal social policy, environmental policy, at reducing the environmental impact of our daily external social policy and ethical economic policy). business processes. In particular, we have set (As of July 2010) medium- to long-term targets for lowering emissions of CO2 and harmful chemicals, as well as for reducing the amount of waste disposed of as landﬁ ll, and are taking systematic steps to ensure these targets are met. In the area of environment-friendly design, we have formulated our own environment-friendly

44 Teijin Limited Principal Environmental Targets of the Teijin Group for 2020 Item Scope Minimum Target

CO2 emissions Japan 20% reduction from the fi scal 1990 level Chemical substance emissions Global 80% reduction from the fi scal 1998 level Disposal of unusable industrial waste Global 85% reduction from the fi scal 1998 level design guidelines, which encompass all products, throughout their life cycles, as well as all business CO2 Emissions from Teijin Manufacturing Operations Worldwide processes, with a view to lowering overall environmental impact. We have also established our own Million tons Years ended March 31 system of accreditation for environment-friendly 4 products—dubbed “Earth Symphony” since 3 fi scal 2008—and continue to work to advance its Overseas application. Long-term target (domestic) In the area of environmental business, we 2 are working to advance such innovations as the 1 ECO CIRCLE™ closed-loop recycling system and Domestic BIOFRONT®, a heat-resistant bioplastic, among 0 others. Moving forward, we will actively promote 1991 2005 2006 20072008 2009 2010 the development of products and businesses that contribute to environmental conservation. Chemical Substance Discharge from Teijin Sites Worldwide We are also promoting ambitious initiatives Thousand tons Years ended March 31 aimed at enhancing awareness of the importance 10.0 of biodiversity, which is one of the categories for evaluation in our Earth Symphony system for 7.5 accrediting environment-friendly products. 5.0 Social Responsibility 2.5 Overseas Domestic Long-term target (global) Relationships Built on Mutual Trust 0 1999 2005 2006 20072008 2009 2010 The Teijin Group recognizes that, as a corporate citizen, it is a member of the communities in which it operates, as well as of the wider global community. We believe that working with people outside the Group to cultivate positive relationships based launched in fi scal 2006. The program places on mutual trust is one of the most important roles particular emphasis on three areas—environment, of any corporate entity. Accordingly, our current international exchanges and social education— target for expenditures for related activities is more and centers on employee volunteer programs that than 1% of annual ordinary income. Despite a contribute to the community, while at the same challenging operating environment and ongoing time raising employee awareness of social issues. structural reforms, we are resolved to continue To support the efforts of employees participating fulfi lling this responsibility. in community activities, Teijin has implemented a Individual factories and Group companies take system that allows employees to take days off and the initiative in developing corporate citizenship extended leave for volunteer activities, as well as activities in their own communities. Complement- support systems designed to enable employees ing these measures is a common Groupwide to become, for example, registered bone marrow social contribution program formulated and donors or volunteer fi refi ghters.

Cicada study Book Dream Project Nature Observation Leader Workshop

Teijin Limited 45 Human Resources

In line with our philosophy of growing with our Promoting Personnel Initiatives that Respect employees, we are committed to creating a Diversity work environment that supports personal We continue to implement measures that enhance growth and skill enhancement and encourages our personnel system and corporate culture to employees to bring their capabilities into full ensure that all Teijin Group employees—regard- play. To this end, we have created a human less of age, gender, experience, physical health, resources development scheme to manage nationality or ethnicity—enjoy a work environment that empowers them to bring their capabilities personnel in a way that respects individual into full play, as well as enabling them to maintain lifestyles and values. Recognizing our basic a healthy work–life balance. These efforts have responsibility as an employer as being to received critical acclaim from various quarters and secure, train and foster the talents of human have earned Teijin a reputation as a company that resources, in fi scal 2010 we will continue to actively encourages the advancement of female promote measures aimed at achieving ongoing employees. In 2009, we improvements in productivity, while at the same were honored at the Diver- time improving the quality of life of employees. sity Management Awards, sponsored by Toyo Keizai Enhancing the Capabilities of Tomorrow’s Inc., for actively promoting Frontline Leaders the advancement of women We are taking steps Groupwide to upgrade the in executive positions. Our capabilities of tomorrow’s frontline leaders in an work-at-home system, intro- effort to enhance workplace—and thus produc- duced in 2008, has also tion—capabilities. These include the establishment proven a success. in 2007 of Teijin Techno College and in 2008 of Training at Teijin Techno College Our annual publication on diversity in the work- the college’s Plant Manager Training program. place for Teijin Group At Teijin Techno College, former employees who employees in Japan have retired from management-level positions and are experts in their fi elds provide instruction. Train- ing focuses on passing on proprietary workplace skills and technologies, as well as on improving Percentage of Women in Management Positions in the Teijin Group profi ciency in problem identifi cation and resolution. % Years ended March 31 4 Efforts to Ensure Effective Group and Global 2.85 2.87 3.01 Management 3 2.50 2.12 2.25 Securing sustainable growth in an increasingly 1.62 2 competitive global market demands effective, 1.23 1.28 coordinated management of the more-than 150 0.71 0.53 0.55 companies and 18,778 employees of the Teijin 1 Group worldwide. We have therefore established 0 19992000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 a program whereby we select candidates who show excellent aptitude for future management positions and provide specialized training and job Women in Career-Track Positions as a Percentage of the Teijin Group’s Total Labor Force assignments to develop necessary management % Years ended March 31 16 expertise. In fi scal 2006, we expanded the pro- 12.90 15.25 15.74 14.19 gram to embrace employees in their 30s and 11.11 11.28 12 introduced important new early-career growth 8.78 9.46 opportunities, including participation in Groupwide 6.90 8 5.92 projects and overseas assignments. In April 2009, 4.47 4.82

we established an international human resources 4 department, with the aim of promoting global per-

sonnel strategies and enhancing communications 0 19992000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 within the Teijin Group worldwide. Note: Data for fi scal 1998–fi scal 2002 is for the parent company, Teijin Limited. Owing to Teijin’s adoption of a holding company system, data from fi scal 2003 forward is for the parent company, Teijin Limited, and the 12 main subsidiaries of the Teijin Group.

46 Teijin Limited Financial Section

Consolidated 11-Year Summary 48

Management’s Discussion and Analysis 50 Summary 50 Results of Operations 51 Business Segment Results 53 Financial Position 56 Outlook for Fiscal 2010 57 Risk Factors 59

Consolidated Financial Statements 60 Consolidated Balance Sheets 60 Consolidated Statements of Operations 62 Consolidated Statements of Changes in Net Assets 63 Consolidated Statements of Cash Flows 65 Notes to Consolidated Financial Statements 66 Independent Auditors’ Report 88

Teijin Limited 47 Consolidated 11-Year Summary

Years ended March 31 2000 2001 2002 2003 Operating Results Net sales ¥ 604,173 ¥ 761,410 ¥ 923,446 ¥ 890,434 Gross profi t 169,188 205,404 211,660 209,491 Percentage of net sales 28.0% 27.0% 22.9% 23.5% Operating income 26,285 43,713 29,497 35,298 Percentage of net sales 4.4% 5.7% 3.2% 4.0% Net income (loss) 7,079 15,950 975 (20,977) Percentage of net sales 1.2% 2.1% 0.1% –2.4% Segment Information Net sales: Fibers and Textiles 317,544 343,911 509,891 489,485 Synthetic Fibers — — — — Films and Plastics 112,921 210,997 192,426 182,398 Pharmaceuticals and Home Health Care 87,217 88,643 94,542 92,464 Trading and Retail — — — — Machinery and Engineering 38,990 71,538 74,481 72,784 IT and New Products, etc.(1) 47,501 46,321 52,106 53,303 Total ¥ 604,173 ¥ 761,410 ¥ 923,446 ¥ 890,434 Operating income (loss): Fibers and Textiles (1,953) 430 7,435 8,221 Synthetic Fibers — — — — Films and Plastics 7,779 17,560 (3,158) 3,734 Pharmaceuticals and Home Health Care 16,570 15,809 16,916 16,192 Trading and Retail — — — — Machinery and Engineering (313) 4,744 2,568 3,723 IT and New Products, etc.(1) 3,552 4,684 4,919 3,528 Elimination and corporate(2) 650 486 817 (100) Total ¥ 26,285 ¥ 43,713 ¥ 29,497 ¥ 35,298 Financial Position Total assets ¥1,015,857 ¥1,058,514 ¥1,104,633 ¥1,036,518 Total current assets 437,876 416,784 459,334 435,187 Property, plant and equipment, net 369,819 391,383 433,022 432,999 Total current liabilities 354,680 386,477 495,591 444,140 Long-term debt due after one year 220,564 189,121 159,661 207,774 Shareholders’ equity 294,643 320,769 311,469 278,527 Cash Flows Cash fl ows from operating activities 61,061 79,446 52,394 58,316 Depreciation and amortization 36,824 48,777 51,185 53,028 Cash fl ows from investing activities (39,852) (50,511) (51,284) (65,919) Purchase of property, plant and equipment (36,484) (41,520) (50,862) (66,936) Cash fl ows from fi nancing activities (22,925) (55,842) (6,197) 10,842 Net increase (decrease) in cash and cash equivalents (4,601) (26,267) (3,957) 2,762 Per Share Data (Yen) Net income (loss): Primary ¥ 7.8 ¥ 17.6 ¥ 1.1 ¥ (22.7) Fully diluted — 17.3 1.1 (22.7) Shareholders’ equity 325.2 354.1 335.5 300.3 Cash dividends 6.0 6.5 6.5 6.5 Ratios Net income to shareholders’ equity (ROE)(3) 2.4% 5.2% 0.3% –7.1% Operating income to total assets (ROA)(3) 2.8 4.2 2.7 3.3 Shareholders’ equity to total assets 29.0 30.3 28.2 26.9 Dividend payout ratio 77 37 607 — Other Data R&D expenses (Millions of yen) ¥ 28,452 ¥ 30,275 ¥ 31,864 ¥ 29,880 Number of shares outstanding (Thousands) 905,993 905,993 928,299 928,299 Number of employees 21,971 22,256 24,026 23,265 Notes: 1. Up to fi scal 2003, this segment was called “New Products and Other Businesses.” 2. In fi scal 2003, ended March 31, 2004, the allocation method for corporate expenses was changed. 3. 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.

48 Teijin Limited Millions of yen 2004 2005 2006 2007 2008 2009 2010

¥874,569 ¥908,389 ¥938,082 ¥1,009,586 ¥1,036,624 ¥943,410 ¥765,840 212,682 222,607 250,365 258,737 256,428 218,636 191,901 24.3% 24.5% 26.7% 25.6% 24.7% 23.2% 25.1% 38,745 51,865 76,757 75,061 65,162 17,966 13,436 4.4% 5.7% 8.2% 7.4% 6.3% 1.9% 1.8% 8,455 9,159 24,853 34,125 12,613 (42,963) (35,684) 1.0% 1.0% 2.6% 3.4% 1.2% — —

——————— 247,530 278,846 260,967 293,280 317,612 273,208 205,154 186,504 216,432 264,511 287,902 293,834 258,004 177,791 93,104 97,104 105,589 113,093 114,403 127,146 131,711 256,295 261,199 259,828 266,492 265,931 239,163 205,314 43,290 — — — — — — 47,846 54,808 47,187 48,819 44,844 45,889 45,870 ¥874,569 ¥908,389 ¥938,082 ¥1,009,586 ¥1,036,624 ¥943,410 ¥765,840

——————— 9,144 10,520 14,549 17,342 24,448 (2,780) (15,111) 4,020 19,145 40,950 33,900 20,247 226 7,997 17,252 18,148 19,318 21,192 21,691 24,838 24,201 5,320 6,145 5,316 5,395 5,255 3,873 3,441 3,861 — — — — — — 5,456 3,758 3,760 4,320 3,516 3,589 2,954 (6,308) (5,851) (7,136) (7,088) (9,995) (11,780) (10,046) ¥ 38,745 ¥ 51,865 ¥ 76,757 ¥ 75,061 ¥ 65,162 ¥ 17,966 ¥ 13,436

¥914,502 ¥852,029 ¥943,991 ¥ 999,917 ¥1,015,991 ¥874,157 ¥823,071 342,127 369,860 399,002 417,409 417,395 351,120 332,746 393,820 322,652 346,498 379,632 382,568 339,704 316,901 330,862 320,828 397,919 426,748 417,534 325,074 293,848 199,298 158,959 108,715 102,105 117,200 177,081 188,480 293,898 290,586 338,609 366,753 391,010 305,577 271,306

44,973 73,313 75,491 96,456 53,740 40,392 80,433 52,794 52,287 50,389 54,009 62,668 67,364 61,879 (16,715) 12,708 (74,062) (87,065) (79,218) (116,304) (33,437) (47,569) (43,900) (66,620) (69,996) (78,821) (75,845) (34,119) (32,325) (79,643) 1,511 (19,074) 16,080 79,178 (42,949) (4,451) 6,249 4,689 (9,309) (9,271) 1,274 4,128

¥ 9.0 ¥ 9.7 ¥0 26.6 ¥ 36.8 ¥ 13.2 ¥ (43.7) ¥ (36.3) 9.0 9.7 26.6 36.8 13.2 — — 316.8 313.3 364.8 395.2 397.3 310.5 276.2 6.5 6.5 7.5 10.0 8.0 5.0 2.0

3.0% 3.1% 7.9% 9.7% 3.3% –12.3% –12.4% 4.0 5.9 8.5 7.7 6.5 1.9 1.6 32.1 34.1 35.9 36.7 38.5 35.0 33.0 72 67 28 27 61 — —

¥ 32,830 ¥ 30,024 ¥ 31,196 ¥ 35,097 ¥ 36,282 ¥ 37,630 ¥ 33,356 928,299 928,299 928,299 928,299 984,754 984,759 984,759 20,551 18,960 18,819 19,053 19,125 19,453 18,778

Teijin Limited 49 Management’s Discussion and Analysis

Summary Billions of yen Years ended March 31 2009 2010 Change Operating Environment Net Loss ¥(43.0) ¥(35.7) — In fiscal 2009, the fiscal year ended March 31, 2010, a steady The net loss reflected the special factory operating loss prompted improvement was evident in the global economy, reflecting such by a decline in facility operating rates, restructuring costs and a loss factors as the success of economic stimulus measures initiated by arising from an additional contribution to the reserve to cover losses various countries. Domestic demand continued to drive recovery on the disposal of securities with market value held in money trusts. in the PRC. Economic conditions also revived gradually in the rest The net loss narrowed from fiscal 2008 as the impact of these of Asia, with the exception of Japan, where, despite encouraging factors was alleviated somewhat by a reduction in income taxes. signs, the pace of growth remained frail, owing to a persistently strong yen and lingering deflation. The United States and Europe Billions of yen succeeded in stemming the downturn, but fell short of a full Years ended March 31 2009 2010 Change economic recuperation, despite a brighter underlying tone. Total Assets ¥874.2 ¥823.1 –5.8% Strategies in Action Total assets declined, owing to such factors as the reduction of During the period under review, we continued to press ahead with inventories and property, plant and equipment, net—the latter due to restructuring efforts—primarily in our materials businesses—with the a freeze on major capital investment and the advance of depreciation aim of realizing an operating structure that ensures profitability at the and amortization. net income level, even with facility operating rates at 70%. We also placed a high priority on securing a positive free cash flow. Billions of yen In polyester fibers and other poorly performing businesses, Years ended March 31 2009 2010 we continued to make progress in the implementation of structural Free Cash Flow ¥(75.9) ¥47.0 reforms. We also achieved a noteworthy reduction in fixed costs and capital investment and succeeded in shrinking inventories. As a Free cash flow turned decisively positive, reflecting an increase consequence, we moved significantly closer to our goal of realizing in net cash and cash equivalents provided by operating activities, an operating structure that ensures profitability at the net income together with a sharp decline in cash and cash equivalents used level, even with facility operating rates at 70%. We also achieved a in investing activities, owing to a moratorium on major capital positive free cash flow of ¥47.0 billion, compared with a negative investment. free cash flow of ¥75.9 in fiscal 2008. Key Indicators Operating Results Years ended March 31 2009 2010 Billions of yen ROA 1.9 % 1.6 % Years ended March 31 2009 2010 Change ROE –12.3 % –12.4 % Net Sales ¥765.8 –18.8% ¥943.4 Debt-to-equity ratio 1.18 times 1.18 times In our materials businesses, the benefits of an upturn in demand in the second half were overshadowed by sluggish results in the first Return on assets (ROA)—calculated using operating income—was half. As a consequence, net sales fell steeply despite an increase in down, owing primarily to unfavorable income results. Despite prog- sales in the Pharmaceuticals and Home Health Care segment. ress in the reduction of interest-bearing debt, the debt-to-equity ratio remained level, as the net loss pushed down shareholders’ equity. Billions of yen Years ended March 31 2009 2010 Change Tasks Ahead Operating Income ¥18.0 ¥13.4 –25.2% We have designated fiscal 2010 as the year in which we will con- The principal factor behind the decline in operating income was clude structural reforms and achieve a return to profitability. During a widening of the net loss in our Synthetic Fibers segment, which the period, we expect urgent measures and structural reforms negated a sharp increase in operating income in the Films and implemented in our materials businesses since the second half of Plastics segment. fiscal 2008 to begin yielding results, as projected. To achieve a return to profitability at the net income level, we will build on these benefits, as well as on a recovery in demand—buttressed by improving economic conditions worldwide, led by the PRC and ASEAN—and the highly stable income structure of our pharmaceuticals and home health care businesses.

50 Teijin Limited Results of Operations sales dipped 1.9 percentage points, to 74.9%, largely attributable to curbed costs in the materials businesses. Selling, general and administrative (SG&A) expenses fell 11.0%, or ¥17.9 billion, to Net Sales ¥145.1 billion, as the successful implementation of urgent measures Consolidated net sales declined 18.8%, or ¥177.6 billion, to ¥765.8 Years ended March 31 billion, as the benefits of an upturn in demand and the positive Cost of Sales as a SG&A Expenses as a impact of urgent measures and structural reforms in the second half Percentage of Net Sales Percentage of Net Sales of fiscal 2009 were overshadowed by sluggish results in the first % % half. The steep decline in net sales occurred despite an increase in 100 40 76.8% sales in the Pharmaceuticals and Home Health Care segment and 73.3% 74.4% 75.3% 74.9% was largely attributable to deteriorating sales in our materials busi- 75 30 nesses, notably in the Synthetic Fibers and the Films and Plastics segments and in the Trading and Retail segment. 50 20 18.9% Sales in the Synthetic Fibers segment in fiscal 2009 plummeted 17.3% for the full term, despite having appeared to bottom out in the first 15.2% 14.7% 15.0% quarter of the period. Declines were reported in polyester fibers, 25 10 aramid fibers and carbon fibers, although signs of improvement have since emerged for aramid fibers and polyester fibers, particu- 0 2006 2007 2008 2009 2010 0 larly for use in automotive applications. Carbon fibers also faced a harsh operating environment throughout the period, but there have since been indications of an upturn. Sales were also down substan- Research and Development tially in the Films and Plastics segment, despite suggestions of a rally after the first quarter. Demand for plastics was robust, under- Years ended March 31 Percentage of R&D Expenses pinned by a rapid recovery in demand in the PRC, while demand for R&D Expenses Accounted for by Corporate Research films rebounded, led by the Asian market. In the Pharmaceuticals Billions of yen % 40 37.6 40 and Home Health Care segment, sales for the full term were up, as 35.1 36.3 33.4 both businesses reported solid sales increases. Highlights of the 31.2 period included the start of sales in Europe of gout and hyperurice- 30 30 mia treatment TMX-67, a highly promising major drug that is already 21.0% 19.1% on the market in United States. Sales in the Trading and Retail seg- 20 20 ment also fell, despite signs of an improvement in sales of industrial 14.3% 11.7% 10.8% textiles and materials, as sales of textiles and apparel slumped. In the IT and New Products, etc., segment, sales remained level, 10 10 owing to firm results in the IT solutions and Services businesses. 0 2006 2007 2008 2009 2010 0

Years ended March 31 2006 2007 2008 2009 2010 Analysis of Net Sales Synthetic Fibers ¥ 7.4 ¥ 9.8 ¥10.4 ¥10.4 ¥8.8 Billions of yen Films and Plastics 6.1 6.6 6.8 6.8 4.8 1,000 Synthetic Fibers -68.1 Pharmaceuticals and Net sales Home Health Care 13.6 14.4 13.5 12.8 12.6 ¥943.4 Films and Plastics -80.2 Trading and Retail 0.2 0.2 0.2 0.2 0.2 900 Pharmaceuticals and IT and New Products, etc. 0.3 0.3 0.2 0.1 0.0 Home Health Care +4.6 Corporate research 3.7 3.8 5.2 7.2 7.0 800 Net sales Recognizing technological innovation as the cornerstone of future Trading and Retail ¥765.8 -33.8 corporate growth, we have grouped promising markets into four 700 IT and key fields, which we have termed automobiles and aircraft, infor- New Products, etc. mation and electronics, health care and environment and energy. -0.0 We continue striving to conduct decisive and efficient R&D in all 0 2009 2010 four of these fields. Corporate research, in particular, focuses on technological innovation and the cultivation of new businesses. In fiscal 2009, Costs and Expenses investments in corporate research accounted for 21.0% of total Cost of sales contracted 20.8%, or ¥150.8 billion, to ¥574.0 billion, R&D expenses, an increase of 1.9 percentage points from the previous fiscal year. a consequence of the decline in net sales, but also thanks to cost- cutting initiatives. As a percentage of consolidated net sales, cost of For more information on our R&D activities, see pages 38–41.

Teijin Limited 51 reduced fixed costs. As a percentage of net sales, however, SG&A spurred by efforts to reduce costs, the operating loss in the expenses rose 1.6 percentage points, to 18.9%, owing primarily to Synthetic Fibers segment widened substantially, a consequence of the drop in net sales. major operating income declines in the aramid fibers and carbon Despite ongoing investments in core technological areas and fibers businesses. The Films and Plastics segment reported a sharp in corporate research aimed at cultivating new businesses, R&D increase in operating income, as results for plastics were robust— expenses slipped 11.4%, or ¥4.3 billion, to ¥33.4 billion. This bolstered by the restoration of polycarbonate resin production facili- was attributable to the decisive application of concentration and ties to full capacity operation in the second quarter—and the films selectivity to the approval of investments. business appeared to be regaining ground. Operating income in the Pharmaceuticals and Home Health Care segment edged down, Operating Income despite solid results, reflecting a decrease in technology licensing Operating income fell 25.2%, or ¥4.5 billion, to ¥13.4 billion, while fees collected. In the Trading and Retail segment, operating income the operating margin edged down 0.1 percentage point, to 1.8%. faltered, constrained by falling shipments. Operating income was Although the operating loss in the polyester fibers business shrank, also down in the IT and New Products, etc., segment. Additionally, while lower prices for fuel and raw materials and cost-cutting measures contributed ¥76.0 billion to operating Years ended March 31 income, this was offset by the negative impact—estimated at Analysis of Operating Income ¥81.0 billion—of falling shipments and sales prices, among others, Billions of yen resulting in the net fall in operating income. 100 Cost-cutting +¥34.0 Sales volume down -¥37.0 Other Income (Expenses) 75 Raw materials prices and Other expenses, a net figure comprising nonoperating expenses fuel costs down Sales prices down* +¥42.0 -¥41.0 and extraordinary expenses, amounted to ¥50.0 billion, down ¥1.8

50 billion from fiscal 2008. Contributing factors included a ¥17.3 billion Other† -¥3.0 increase in restructuring costs attributable to the transfer of shares Operating in our Indonesian polyester fibers subsidiary and an additional con- 25 income Operating income ¥18.0 tribution to cover losses on disposal of securities with market value ¥13.4 held in money trusts of ¥7.2 billion. These expenses were partially 0 2009 2010 offset by a ¥4.7 billion decline in interest expense, owing to reduced * Net change resulting from decline in sales prices, improvement in interest rates; a ¥4.7 decline in equity in losses of unconsolidated product mix and revision of drug reimbursement prices. subsidiaries and affiliates, due to the absence of equity in losses † Includes increase in amortization of goodwill. of NatureWorks LLC, which was divested in the previous period; a ¥7.2 decline in impairment loss; and a ¥7.0 billion increase in gain Years ended March 31 on sales of investment securities. Operating Income (Loss) Operating Margin Billions of yen % Net Loss 100 12 Owing to the aforementioned erosion of consolidated net sales and 76.8 75.1 65.2 operating income, the loss before income taxes and minority inter- 75 8.2% 9 ests widened. Nonetheless, the net loss narrowed ¥7.3 billion, to 7.4% ¥35.7 billion. ROE fell 0.1 percentage point, to -12.4%. 6.3% 50 13.4 6 18.0

25 Years ended March 31 1.9% 1.8% 3 Net Income (Loss) ROE Billions of yen % 0 0 50 16 34.1 24.9 -25 2006 2007 2008 2009 2010 -3 9.7% 25 7.9% 12.6 8 2006 2007 2008 2009 2010 3.3% Synthetic Fibers ¥14.5 ¥17.3 ¥ 24.4 ¥ (2.8) ¥(15.1) 0 0 Films and Plastics 41.0 33.9 20.2 0.2 8.0 Pharmaceuticals and Home Health Care 19.3 21.2 21.7 24.8 24.2 -25 (35.7) –8 Trading and Retail 5.3 5.4 5.3 3.9 3.4 (43.0) IT and New Products, etc. 3.8 4.3 3.5 3.6 3.0 –12.3% –12.4% Elimination and corporate (7.1) (7.1) (10.0) (11.8) (10.0) -50 2006 2007 2008 2009 2010 –16

52 Teijin Limited Business Segment Results applications. Our subsidiaries in Thailand and Indonesia continued to operate in a harsh environment. In line with the plan for restructuring our polyester fibers operations, we pressed ahead with a variety of reforms. As part of this Synthetic Fibers effort, on December 18, 2009, we resolved to transfer our entire Sales in the Synthetic Fibers segment declined stake in our Indonesian polyester fibers subsidiary. The transfer was 24.9%, compared with the previous fiscal year, to completed on April 15, 2010. ¥205.2 billion. The operating loss widened by ¥12.3 billion, to ¥15.1 billion. Years ended March 31 Operating Margin Net Sales Operating Income (Loss) Aramid Fibers Billions of yen Billions of yen % 45 12 Demand continued to recover steadily. 450 ® ® 317.6 Demand for Twaron and Technora para-aramid fibers revived, 293.3 7.7% 273.2 particularly for use in automotive-related materials, as production 300 261.0 5.9% 30 8 5.6% 24.4 205.2 in the automotive industry turned the corner. Results for Twaron® 17.3 14.5 were further aided by firm markets for use in protective clothing 150 15 4 and materials, as well as in optical fibers and cables. Demand for Teijinconex® meta-aramid fibers also picked up, particularly for 0 (2.8) 0 0 steelmaking-related applications, augmented by indications of a -1.0% recovery in steel production. In this environment, we pushed ahead -15 -4 with efforts to develop new applications and with measures aimed (15.1) at reducing fixed costs. -7.4% 2006 2007 2008 2009 2010 -30 -8 Carbon Fibers Efforts to shrink inventories and cost-cutting measures were implemented to counter a slump in demand. Demand now looks likely to pick up. Films and Plastics ® Tenax carbon fibers faced a harsh operating environment through- The Films and Plastics segment generated sales out the period. Demand for general industrial applications and sports and leisure equipment deflated in the first half, while the sec- of ¥177.8 billion, down 31.1%. Segment operating ond half brought production adjustments by aircraft manufacturers, income amounted to ¥8.0 billion, an increase of which had performed comparatively well until that point. ¥7.8 billion. In response to operating conditions, we sought to reinforce our sales organization, as well as to shrink inventories at our production Plastics facilities in Japan, Europe and the United States. We also sought to Demand for polycarbonate resin picked up, while demand for optimize personnel assignments and implemented decisive cost- processed polycarbonate resin products advanced favorably. cutting measures. With the advance of inventory adjustments for Shipments of mainstay Panlite® polycarbonate resin recovered all applications, demand now looks likely to pick up, prompting steadily from April 2009 forward, underpinned by a rapid recovery hopes of a solid recovery. However, a full-scale improvement in in demand in the PRC. In response, we began gradually to increase the supply–demand balance is expected to take some time. operating rates at our polymer plants in the PRC and Singapore, restoring these facilities to full capacity operation in late April and Polyester Fibers mid-June, respectively. The operating loss shrank, thanks to the progress of In the area of processed polycarbonate resin products, ship- restructuring efforts. ments of ELECLEAR® transparent electroconductive film increased The polyester fibers business continued to face a severe operating for use as the base film for touch panels used in smartphones, environment, a consequence of the global economic slump. among others. Shipments of PURE-ACE® polycarbonate retardation Nonetheless, we succeeded in narrowing the operating loss sub- film also expanded, bolstered by rising sales for use as antireflective stantially by shifting our focus to high-profit products and imple- film for mobile phone LCDs, and by a global market share in excess menting decisive cost-cutting measures. In Japan, subsidiary Teijin of 60% for use in 3D glasses for movie theaters. Late in the period, Fibers Limited saw sales of textiles for apparel constrained by sag- Panlite® became the first polycarbonate resin to be selected for ging market conditions, although sales for use in industrial materials the glazing of rear quarter and partition windows for domestically appeared to be on an upswing, particularly for automotive manufactured vehicles.

Teijin Limited 53 Films In the area of osteoporosis treatments, shipments of Bonalon® Demand for PET film rallied in the Asian market. In Europe 35mg tablet, a once-weekly form of Bonalon®, increased favorably, ® and the United States, we pressed forward with restructuring while shipments of Onealfa , an active vitamin D3 preparation, measures. remained firm. Together, these products give Teijin a leading share We currently have polyester films joint ventures with E.I. du Pont of this market in Japan. de Nemours and Company (DuPont) of the United States in six In R&D, in April 2009 we commenced phase II clinical trials for countries. The impact of the global economic downturn persisted ITM-077, a treatment for type II diabetes currently under develop- through March 2009, after which demand for polyester films rallied, ment in collaboration with Chugai Pharmaceutical, and NTC-801, a particularly in Asia. treatment for atrial fibrillation and flutter being developed with Nissan In Japan, overall demand for polyester films for optical applica- Chemical Industries. In December 2009, we filed an application with tions strengthened from March 2009 forward. Of particular note, the Japanese Ministry of Health, Labour and Welfare to manufacture from the second quarter of fiscal 2009, demand for mainstay PET and market gout and hyperuricemia treatment TMX-67 in Japan. film for use as FPD reflective film outpaced the previous fiscal In Europe, partner Beaufour Ipsen of France, to whom we have year, while demand for use in solar cell back sheets recovered to licensed out TMX-67 (febuxostat), signed an exclusive sublicensing the fiscal 2008 level. agreement for the drug with the Menarini Group of Italy. In March Production lines at our polyester films joint ventures in both the 2010, the Menarini Group began marketing TMX-67, under the PRC and Indonesia have been operating at full capacity since April brand name ADENURIC®, in several countries, including France. 2009. In Europe and the United States, however, the operating envi- In the United States, licensee Takeda Pharmaceuticals North ronment remained harsh. Against this background, we proceeded America reported steadily increasing sales of TMX-67, which it with crucial structural reforms aimed at restoring profitability. These markets under the name ULORIC®. included ceasing production at our Circleville plant, in the United States, in February 2009; suspending production on one line at our Home Health Care plant in Luxembourg in June 2009; and phasing out production Rental volume remained favorable for both HOT equipment and at the Florence plant, in the United States. Profitability improved, CPAP ventilators. owing to signs of a resurgence in demand for PET film beginning in Rental volume for mainstay HOT equipment remained robust. autumn 2009 and the positive impact of restructuring measures. Rentals of CPAP ventilators also continued to climb and we maintained our focus on expanding the market for these devices. In September 2009 we opened a dedicated home health care techni- Years ended March 31 Operating Margin cal services center staffed by highly trained personnel, enabling us Net Sales Operating Income Billions of yen Billions of yen % to respond swiftly to inquiries from health care facilities and users. 360 80 20 15.5% 287.9 293.8 * Bonalon® is the registered trademark of Merck & Co., Inc., Whitehouse Station, NJ, U.S.A. 264.5 258.0 270 60 15 11.8% 41.0 177.8 Years ended March 31 Operating Margin 180 33.9 40 10 Net Sales Operating Income 6.9% Billions of yen Billions of yen % 20.2 4.5% 160 18.4% 60 20 90 19.0% 19.5% 20 5 18.3% 18.7% 131.7 0.2 8.0 127.1 0.1% 113.1 114.4 120 105.6 45 15 0 2006 2007 2008 2009 2010 0 0

80 24.8 24.2 30 10 21.7 19.3 21.2 Pharmaceuticals and Home Health Care 40 15 5 0 2006 2007 2008 2009 2010 0 0 Sales in the Pharmaceuticals and Home Health Care segment rose 3.6%, to ¥131.7 billion, although operating income slipped 2.6%, to ¥24.2 billion.

Pharmaceuticals Shipments of Bonalon®* rose steadily. Marketing of TMX-67, a new treatment for gout and hyperuricemia, expanded.

54 Teijin Limited Trading and Retail ITand New Products, etc. In the Trading and Retail segment, sales declined IT and New Products, etc., segment sales remained 14.2%, to ¥205.3 billion, while operating income fell level at ¥45.9 billion. Operating income declined 11.2%, to ¥3.4 billion. In textiles and apparel, sales 17.7%, to ¥3.0 billion. of textiles slumped, but we proceeded with efforts IT to grow our apparel business. In industrial textiles Results for both IT solutions and Services were firm. and materials, sales of materials for automotive The IT business is divided into IT solutions and Services. During the applications rebounded. period, we promoted stringent efforts to enhance profitability by ensuring effective project-specific budget and progress manage- Textiles and Apparel ment, as well as measures to reduce costs. Results in this business Sales of both raw yarn and fabrics fell steeply, owing to stagnant remained firm, reflecting ongoing efforts to expand our content dis- conditions in the European and U.S. markets, coupled with a strong tribution and e-commerce site management businesses, as well as yen and the withdrawal of several domestic raw yarn manufacturers steps to reinforce the competitiveness of our data center manage- from production in Japan. Nonetheless, we promoted efforts to fur- ment business. On November 30, 2009, we increased our stake ther foster our apparel business, including reinforcing sales in the in subsidiary Infocom Corporation by 5%, to 55.14%, through the PRC by launching a television shopping service and boosting oper- acquisition of 7,200 additional shares in the company. ations in metropolitan Tokyo by expanding our office in the city’s trendy Harajuku district and opening a new store operated by New Products, etc. I.T.’S International Co., Ltd., a joint venture specialty retailer of We continued to promote ambitious R&D efforts with the aim of private-label apparel. promptly commercializing achievements in five key areas, namely, bioplastics, composite materials, high-performance electronics Industrial Textiles and Materials materials, highly thermally conductive materials and water Sales of materials for automobile tires and airbags recovered to treatment. between 70% and 80% of the fiscal 2008 level, although sales of In bioplastics, we developed a new antihydrolysis technology materials for conveyor belts and rubber hoses flagged. In the area for BIOFRONT® plant-based heat-resistant bioplastic that substan- of materials for interior applications, the success of active efforts to tially improves the product’s durability. We also completed con- expand commercial rights supported brisk sales of wall and floor struction of a new demonstration plant for BIOFRONT® at the coverings, curtains and lifestyle-related products. Matsuyama Plant on schedule and in September 2009 brought the new facility on line. We expect both achievements to help accelerate development efforts. Years ended March 31 Operating Margin In the area of basic R&D, we inaugurated the Integrative Net Sales Operating Income Billions of yen Billions of yen % Technology Research Institute, within the Tokyo Research Center, 400 20 4 in July 2009. The new facility conducts R&D aimed at developing new technologies for biopolymers, advanced medical materials and electronics materials, as well as in fields that integrate such 300 259.8 266.5 265.9 15 3 239.2 technologies. 2.0% 2.0% 2.0% 205.3 200 1.6% 1.7% 10 2 Years ended March 31 Operating Margin 5.35.4 5.3 3.9 Net Sales Operating Income 100 3.4 5 1 Billions of yen Billions of yen % 80 8.8% 12 10.0 8.0% 0 2006 2007 2008 2009 2010 0 0 7.8% 7.8%

60 6.4% 9 7.5 48.8 47.2 44.8 45.9 45.9

40 6 5.0 4.3 3.8 3.5 3.6 3.0 20 3 2.5

0 2006 2007 2008 2009 2010 0 0

Teijin Limited 55 Financial Position Years ended March 31 Total Assets Interest-Bearing Debt Debt-to-Equity Ratio Billions of yen Times Analysis of Assets, Liabilities, Net Assets and Cash 1,200 2.0 999.9 1,016.0 Flows 944.0 874.2 Despite a ¥41.1 billion reduction in interest-bearing debt, to ¥320.3 900 823.1 1.5 billion, the debt-to-equity ratio remained level at 1.18 times, while 1.18 1.18 the equity ratio slipped 2.0 percentage points, to 33.0%, as share- 0.88 600 0.81 1.0 holders’ equity and valuation and translation adjustments and others 0.83 361.3 fell ¥34.3 billion, to ¥271.3 billion. 298.3 295.5 325.2 320.3 Regardless of a slight worsening of key indicators of financial 300 0.5 soundness, our long-term debt ratings remained level with fiscal 2008. Owing to successful efforts to secure a positive free cash 0 2006 2007 2008 2009 2010 0 flow, we saw a significant improvement in key indicators of liquidity. The interest coverage ratio more than tripled, to 13.1 times, while Years ended March 31 the debt payback period declined to 4.0 years, from 8.9 years in the Debt Payback Period Equity Ratio previous fiscal year. Years % 20 40 36.7% 38.5% As of March 31, 2010 35.9% 35.0% 33.0% Moody’s Rating and Investment Information, Inc. 15 30 Rating A3 A 8.9 Outlook Negative Stable 10 20 6.1 4.0 4.0 Assets, Liabilities and Net Assets 5 3.1 10 Total assets as of March 31, 2010, amounted to ¥823.1 billion, a decrease of 5.8%, or ¥51.1 billion from the end of fiscal 2008. 0 2006 2007 2008 2009 2010 0 This result reflected declines in inventories and property, plant and equipment, net—the latter due to a freeze on major capital Cash Flows investment and the advance of depreciation and amortization. Net cash and cash equivalents provided by operating activities in Total liabilities, at ¥527.8 billion, were down ¥16.4 billion from fiscal 2009 amounted to ¥80.4 billion. This result was attributable the fiscal 2008 year-end. Interest-bearing debt, which includes bank to a decrease in inventories and an increase in payables, as well as loans, long-term loans and commercial paper, declined ¥41.1 bil- depreciation and amortization and other write-offs, which combined lion, and accounted for ¥320.3 billion of the total. The decrease in to offset the impact of a sizeable loss before income taxes, an interest-bearing debt was attributable to restraints on capital invest- increase in receivables and income taxes paid. ment and the reduction of inventories, which bolstered free cash Despite a decrease in cash applied to capital expenditure, to flow, thus facilitating the repayment of debt. ¥36.3 billion, from ¥75.8 billion in fiscal 2008, and proceeds from Total net assets were ¥295.3 billion, a decline of ¥34.7 billion. sales and redemption of investment securities, net cash and cash Shareholders’ equity and valuation and translation adjustments and equivalents used in investing activities came to ¥33.4 billion. others together represented ¥271.3 billion of the total, down ¥34.3 Operating and investing activities in fiscal 2009 thus provided a billion. This decline was due to a net loss of ¥35.7 billion for the net total of ¥47.0 billion. period under review. Net cash and cash equivalents used in financing activities amounted to ¥42.9 billion. This result reflected the issue and redemption of bonds, net proceeds from short-term bank loans and long-term debt, and the repayment thereof, and the payment of dividends, among others. After factoring in the impact of exchange rate fluctuations, operating, investing and financing activities in the period under review resulted in a ¥4.1 billion increase in net cash and cash equivalents as of March 31, 2010.

56 Teijin Limited Billions of yen

Years ended March 31 2006 2007 2008 2009 2010 Cash fl ows from operating activities ¥ 75.5 ¥ 96.5 ¥ 53.7 ¥ 40.4 ¥ 80.4 Cash fl ows from investing activities (74.1) (87.1) (79.2) (116.3) (33.4) Free cash fl ow 1.4 9.4 (25.5) (75.9) 47.0 Cash fl ows from fi nancing activities 1.5 (19.1) 16.1 79.2 (42.9) Net increase (decrease) in cash and cash equivalents 4.7 (9.3) (9.3) 1.3 4.1

Outlook for Fiscal 2010 Through technology-driven innovation, we aim to achieve sustainable growth by providing solutions in two key areas—green chemistry and health care—and in domains that overlap these Medium-Term Outlook areas, notably advanced medical materials and bioplastics. Green In fiscal 2010, we anticipate an improvement in operating results in chemistry encompasses high-performance materials, as well our materials businesses. We also expect to start reaping the bene- as green businesses and energy, while health care includes fits of urgent measures and structural reforms in these businesses. pharmaceuticals and health care services. As a consequence, we foresee a return to profitability at the net In existing businesses, one focus will be environment-friendly income level in fiscal 2010 and the repositioning of the Teijin Group materials, including: on a growth trajectory in fiscal 2011. • Materials that help reduce the weight and energy requirements In fiscal 2011, we aim to achieve ROA in excess of 6%, ROE of of finished products, such as aramid fibers used to strengthen higher than 7% and a debt-to-equity ratio below 1.0 times. cables, as well as hoses used in drilling offshore oil fields, carbon fiber composite materials for aircraft and automotive Major Challenges applications and polycarbonate resin for vehicle windows. Groupwide Challenges • Materials that contribute to the reduction of carbon dioxide We have designated fiscal 2010 as the year in which we will con- emissions, notably PET film for use in solar cells and chemically clude urgent measures and structural reforms and achieve a return recycled PET fibers. to profitability. In our pharmaceuticals business, efforts in the field of cardiovas- In fiscal 2010, we foresee the yielding of results brought about cular and metabolic disease—one of three key therapeutic areas— by urgent measures and structural reforms implemented in our will focus on expanding sales of gout and hyperuricemia treatment materials businesses since the second half of fiscal 2008. To TMX-67 in global markets. In our home health care business, we are achieve a return to profitability at the net income level, we will build steadily expanding operations in the United States and Spain. on these benefits, as well as on a recovery in demand—buttressed New business development will center on reinforcing R&D by improving economic conditions worldwide, led by the PRC efforts with the aim of promptly commercializing achievements in and ASEAN—and the highly stable income structure of our five key areas—bioplastics, composite materials, high-performance pharmaceuticals and home health care businesses. electronics materials, highly thermally conductive materials and In our materials businesses, strategies will emphasize the cre- water treatment. In the area of bioplastics, we will nurture markets ation of an optimal global production configuration and the expan- for a product that boasts high heat resistance and suitability for sion of midstream and downstream businesses, including through molding and processing; we also aim to increase our annual pro- collaboration with third parties. In service-related businesses, we duction capacity for this product to 5,000 tons in 2011 with the will focus on building a highly profitable organization by stepping up expansion of our demonstration plant. In composite materials, we the establishment of innovative business models. Groupwide efforts will collaborate with customers in the development of new technolo- will highlight reinforcing sales capabilities, thereby positioning us to gies and applications, concentrating predominantly on carbon fiber respond effectively to rapid market fluctuations, as well as fortifying composite materials, for the automotive and aircraft markets. In our technological prowess, cultivating and growing new businesses high-performance electronics materials, we will emphasize heat- and expanding our operations in key fields and growth markets resistant LiB separators, while in highly thermally conductive materi- worldwide. With the aim of improving financial soundness, we will als we will accelerate the development of heat-dissipating materials. work to secure a positive free cash flow by maintaining our freeze In the area of water treatment, we will step up the expansion of on major capital investment and taking steps to increase the operations in the PRC. efficiency of working capital.

Teijin Limited 57 Challenges in Individual Business Segments Trading and Retail Effective from fiscal 2010, Teijin will divide its Synthetic Fibers In response to increasingly diverse market needs, we will maximize segment into the High-Performance Fibers and the Polyester Fibers our global network and actively seek to cultivate commercial rights segments. Teijin will also rename its IT and New Products, etc., in promising sectors. segment IT and Others. IT and Others High-Performance Fibers In the IT business, efforts will focus on establishing a profitable We will strive to reinforce the structure of our aramid fibers business business structure that is not easily swayed by market fluctuations. by promoting decisive efforts to develop new products and applications, cultivate demand, expand sales and reduce costs and Outlook for Financial Position in Fiscal 2010 inventories. We will endeavor to shrink losses in our carbon fibers Outlook for Operating Results business by strengthening sales capabilities, positioning us well to In fiscal 2010, brisk economic recovery is expected to continue cultivate demand and bolster sales. At the same time, we will radi- in the PRC and other Asian countries. The economies of Japan, cally pare fixed costs and create an efficient global production sys- Europe and the United States are also expected to continue improv- tem that ensures profitability even with facility operating rates at ing, although at a more hesitant pace. However, our operating envi- 70% of capacity. In the area of composite materials, efforts will ronment remains unpredictable, owing to risks associated with the focus on the expansion of sales. possibility of increases in prices for raw materials and fuel—particu- Polyester Fibers larly crude oil—and with political unrest and economic fluctuations in We are currently in the process of implementing two key reforms, Southeast Asia and Europe. approved in fiscal 2009, in line with the restructuring plan for this In this environment, we expect demand to increase gradually business, which are to shift production of polyester filaments from in our materials businesses, prompted by a continued recovery in Japan to our subsidiary in Thailand and to establish the best possi- sales for automotive and electrical and electronics applications, ble production system, comprising plants in Thailand and Japan, among others. Underscoring this projection, operating rates at perti- for polyester fibers for industrial applications. Through such efforts, nent production facilities have continued to rise since bottoming out we will strive to create an optimal global production configuration in the fourth quarter of fiscal 2008. Our pharmaceuticals and home for polyester fibers, thereby facilitating a decisive reduction of costs. health care businesses also continue benefiting from market growth. We will also implement measures to achieve a return to profitability We are particularly positive about prospects for the expansion of by promoting the development of new products and expanding sales of gout and hyperuricemia treatment TMX-67, which is now on midstream and downstream businesses. the market in Europe and the United States. As a consequence, we Films and Plastics forecast a steady improvement in operating results in our materials In the plastics business, we will further reinforce our operating businesses and our Pharmaceuticals and Home Health Care seg- foundations in promising markets, particularly the PRC and ASEAN. ment, despite the likelihood of increases in raw materials and fuel We will also take steps to optimize our global production system prices and the April 2010 revision of drug reimbursement prices and improve the effectiveness of raw materials procurement. We (official prescription drug prices) under Japan’s NHI scheme. will shift our focus to customized high-performance products, For fiscal 2010, we currently forecast consolidated net sales of including compounds and processed plastics. In films, we will ¥800.0 billion, operating income of ¥32.0 billion and net income of respond to increasing demand for thick films by expanding the ¥10.0 billion. Net sales and operating income forecasts reflect pro- capacity of our production facilities. With the aim of restoring our jected increases in sales and income in our materials businesses. films business to profitability, we will press ahead with the shift of These forecasts assume exchange rates of ¥90 to US$1.00 and production to promising Asian markets and the restructuring of ¥130 to €1.00 and a Dubai crude oil price of US$80 per barrel. our plants in the United States and Luxembourg. Pharmaceuticals and Home Health Care Outlook for Financial Position To secure profitability, we will work to increase sales of key pharma- For the foreseeable future, we will continue to place a high priority ceuticals, including osteoporosis treatments, and rentals of home on ensuring a positive free cash flow. To this end, we will maintain health care equipment. We will seek to rapidly expand sales of gout the current freeze on major capital investment, focusing instead on and hyperuricemia treatment TMX-67 in European markets and in maximizing the benefits of investments made to date. We will also the United States, as well as to launch the product in other promis- strive to enhance the efficiency of working capital, particularly ing markets, notably the PRC, in due course. In addition, we will through the reduction of inventories. Through these and other step up efforts to develop new drugs. In home health care, we will efforts, we aim to achieve ROA—calculated using operating seek to strengthen the profitability of our overseas operations. income—of 4.0%, ROE of 3.6% and a debt-to-equity ratio of 1.1 times in fiscal 2010.

58 Teijin Limited Risk Factors Product Quality Risk Teijin Pharma Limited, the principal subsidiary in the Teijin Group’s Pharmaceuticals and Home Health Care segment, has established The Teijin Group has implemented organizational and systematic its own product reliability assurance function in the form of a compli- responses to various risks inherent in its operations. As of the date ance division. This division, which functions independently of other of this document, these risks included, but were not limited to, the Group businesses, is charged with quality assurance in all aspects risks listed below. The upheaval that has characterized the global of the pharmaceuticals and home health care businesses. The financial markets of late appears to have settled to some degree Group maintains insurance coverage against product liability. and the Teijin Group faces very little risk of difficulty in procuring Nonetheless, as the pharmaceuticals business involves prod- necessary funds. ucts that may affect the lives of users, quality issues have the potential to negatively affect, among others, the Group’s operating Market-Related Risk results, financial position and public reputation. The Teijin Group manufactures and sells products, the sales of which may be affected by market conditions and competition with R&D-Related Risk in the Pharmaceuticals Business other companies, and by market price fluctuations arising thereof. R&D in the pharmaceuticals business is characterized by significant Businesses involving commoditized materials—notably the polyester investments of funds and time. Pharmaceuticals discovery research fibers business of the Synthetic Fibers segment and the polyester has a high incidence of failure. In the initial stages, there is a high films and polycarbonate fibers businesses of the Films and Plastics risk that researchers will fail to discover a promising drug. Even if a segment—are particularly vulnerable to fluctuations in shipments, promising drug is discovered, clinical trials may prove it not to be as sales prices and procurement costs for raw materials and fuel effective as anticipated, or to have unexpected adverse side effects, related to market conditions and competition with other companies. thereby forcing the abandonment of plans to apply for approval. Because the cost of raw materials and fuel accounts for a major There is also a risk that a new drug candidate may not receive portion of production costs in these businesses, fluctuations in the regulatory approval as a result of the examination process that price of crude oil may have a significant impact on the Group’s follows application, or that approval may be rescinded based on income performance. the outcome of research conducted subsequent to launch. The majority of products in the Teijin Group’s materials businesses are intermediates. Owing to inventory adjustments at each Risks Related to Overseas Operations stage of production and sales, the rate of expansion or contraction The Teijin Group has operations—particularly in the Synthetic Fibers, of end-user demand for such products may exceed that of the real Films and Plastics, Pharmaceuticals and Home Health Care and economy. Trading and Retail segments—in the PRC, Southeast Asia (including The Teijin Group’s Pharmaceuticals and Home Health Care seg- Thailand and Singapore), Europe (including Germany and the ment is vulnerable to changes in drug reimbursement prices under Netherlands) and the United States. These operations are vulnerable Japan’s NHI scheme, as well as to increasingly intense competition, to the impact of fluctuations in foreign exchange and interest rates. both of which may have a negative impact on sales prices. Our operations in the PRC and Southeast Asia, in particular, may Fluctuations in foreign exchange and interest rates also have also be affected by such factors as the enforcement of new—or the potential to affect the Teijin Group’s operating results and/or unexpected changes to existing—laws, regulations or tax systems financial position. that exert an adverse impact on the Group, or by social unrest trig- gered by, among others, economic fluctuations, changes of government or acts of terror or war. The manifestation of such risks has the potential to adversely affect the Group’s operating results and/or financial position.

Teijin Limited 59 Consolidated Balance Sheets TEIJIN LIMITED As of March 31, 2009 and 2010 Thousands of U.S. dollars Millions of yen (Note 1) 2009 2010 2010 ASSETS Current assets: Cash and time deposits (Note 3) ¥ 18,956 ¥ 23,122 $ 248,517 Receivables: Trade notes and accounts receivable: Unconsolidated subsidiaries and affiliates 2,230 3,056 32,846 Other 149,693 155,895 1,675,570 Loans to: Unconsolidated subsidiaries and affiliates 5,078 2,873 30,879 Other 528 627 6,739 Other 19,584 13,036 140,112 Inventories (Note 7) 135,065 106,315 1,142,681 Deferred income taxes (Note 14) 9,170 19,783 212,629 Other current assets 12,873 10,710 115,111 Allowance for doubtful receivables (2,057) (2,671) (28,708) Total current assets 351,120 332,746 3,576,376

Investments and other assets: Investments in (Notes 5 and 8): Unconsolidated subsidiaries and affiliates 16,393 19,087 205,148 Other 46,215 43,289 465,273 Loans to: Unconsolidated subsidiaries and affiliates 1,872 1,665 17,896 Other 1,152 2,514 27,021 Prepaid pension expenses (Note 9) 16,746 16,208 174,205 Other 18,741 12,794 137,510 Allowance for doubtful receivables (2,643) (2,005) (21,550) 98,476 93,552 1,005,503

Property, plant and equipment (Note 8): Land 46,180 45,636 490,499 Buildings and structures 184,567 187,267 2,012,758 Machinery, equipment and vehicles 554,892 575,159 6,181,847 Tools 71,694 72,467 778,880 Construction in progress 26,477 9,258 99,506 Other 1,256 2,369 25,461 885,066 892,156 9,588,951 Accumulated depreciation (545,362) (575,255) (6,182,878) 339,704 316,901 3,406,073

Intangible assets 15,623 17,614 189,316 Deferred income taxes (Note 14) 2,891 2,438 26,204 Goodwill 66,343 59,820 642,949 84,857 79,872 858,469

¥874,157 ¥823,071 $8,846,421

See accompanying Notes to Consolidated Financial Statements.

60 Teijin Limited Thousands of U.S. dollars Millions of yen (Note 1) 2009 2010 2010 LIABILITIES AND NET ASSETS Current liabilities: Bank loans (Note 8) ¥ 72,432 ¥ 54,137 $ 581,868 Long-term debt due within one year (Note 8) 34,561 24,319 261,382 Commercial paper 76,000 51,000 548,151 Payables: Trade notes and accounts payable (Note 8): Unconsolidated subsidiaries and affiliates 1,234 1,274 13,693 Other 68,211 82,982 891,896 Other 33,222 30,916 332,287 Income taxes payable 2,743 5,025 54,009 Accrued expenses 19,402 17,118 183,985 Deferred income taxes (Note 14) 363 157 1,687 Other current liabilities 16,906 8,791 94,488 Provision for business structure improvement — 18,129 194,852 Total current liabilities 325,074 293,848 3,158,298

Long-term debt due after one year (Note 8) 177,081 188,480 2,025,795 Employees’ retirement benefits (Note 9) 19,241 18,474 198,560 Directors’ and statutory auditors’ retirement benefits 1,838 1,801 19,357 Deferred income taxes (Note 14) 8,914 10,577 113,682 Liabilities in accordance with the application of the equity method 23 19 204 Other non-current liabilities 12,001 14,590 156,815

Contingent liabilities (Note 19)

Net assets (Note 10) Shareholders’ equity: Common stock Authorized—3,000,000,000 shares in 2009 and 2010 Issued—984,758,665 shares in 2009 984,758,665 shares in 2010 70,817 70,817 761,145 Capital surplus 101,325 101,328 1,089,080 Retained earnings 150,886 112,983 1,214,349 Treasury stock, at cost: 587,193 shares in 2009 2,616,343 shares in 2010 (226) (773) (8,308) Total shareholders’ equity 322,802 284,355 3,056,266 Valuation and translation adjustments and others: Net unrealized holding gains on securities 12,744 13,025 139,994 Deferred gains (losses) on hedges (1,321) 299 3,214 Foreign currency translation adjustments (28,648) (26,373) (283,460) Total valuation and translation adjustment and others (17,225) (13,049) (140,252) Stock acquisition rights 320 401 4,310 Minority interest in consolidated subsidiaries 24,088 23,575 253,386 Total net assets 329,985 295,282 3,173,710

¥874,157 ¥823,071 $8,846,421

Teijin Limited 61 Consolidated Statements of Operations TEIJIN LIMITED Years ended March 31, 2009 and 2010 Thousands of U.S. dollars Millions of yen (Note 1) 2009 2010 2010 Net sales ¥943,410 ¥765,840 $8,231,298 Costs and expenses: Cost of sales 724,774 573,939 6,168,734 Selling, general and administrative expenses 163,040 145,109 1,559,641 Research and development expenses 37,630 33,356 358,512 Operating income 17,966 13,436 144,411 Other income/(expenses): Interest and dividend income 1,790 1,591 17,100 Interest expenses (10,495) (5,785) (62,178) Gain on sales of investment securities 198 7,165 77,010 Gain on sales of property, plant and equipment 1,273 1,022 10,985 Gain on compensation for transfer of property 71 120 1,290 Loss on disposal of property, plant and equipment (2,379) (1,509) (16,219) Write-down of investment securities (2,701) (1,221) (13,123) Impairment loss (Note 11) (11,588) (4,387) (47,152) Special provision for allowance for doubtful receivables (295) (525) (5,643) Restructuring costs (3,320) (20,621) (221,636) Special factory operating loss (Note 12) (10,185) (10,713) (115,144) Environmental protection costs (Note 13) (17) (408) (4,385) Equity in losses of unconsolidated subsidiaries and affiliates (8,046) (3,389) (36,425) Additional contribution to cover losses on disposal of securities with market value held in money trusts (Note 20) — (7,199) (77,375) Other, net (6,177) (4,173) (44,852) (51,871) (50,032) (537,747) Loss before income taxes and minority interests (33,905) (36,596) (393,336) Income taxes (Note 14): Current 7,330 7,766 83,469 Deferred 2,911 (9,288) (99,828) 10,241 (1,522) (16,359) Minority interests in net (income)/losses of consolidated subsidiaries 1,183 (610) (6,557) Net loss ¥ (42,963) ¥ (35,684) $ (383,534)

U.S. dollars Yen (Note 1) Net loss per share (Note 2) ¥(43.65) ¥(36.26) $(0.390) Net loss per share—diluted — —— Cash dividends applicable to the year 5.00 2.00 0.021

See accompanying Notes to Consolidated Financial Statements.

62 Teijin Limited Consolidated Statements of Changes in Net Assets TEIJIN LIMITED Years ended March 31, 2009 and 2010 Thousands of U.S. dollars Millions of yen (Note 1) 2009 2010 2010 Shareholders’ equity Common stock Balance at end of previous fiscal year ¥ 70,816 ¥ 70,817 $ 761,145 Changes in items during the period: New issue of stock 1 —— Total 1 —— Balance at end of current fiscal year 70,817 70,817 761,145 Capital surplus Balance at end of previous fiscal year 101,325 101,325 1,089,048 Changes in items during the period: New issue of stock 1 —— Disposal of treasury stock (42) 332 Transfer of loss on disposal of treasury stock 41 —— Total (0) 332 Balance at end of current fiscal year 101,325 101,328 1,089,080 Retained earnings Balance at end of previous fiscal year 199,953 150,886 1,621,733 Change owing to application of accounting policies for overseas consolidated subsidiaries 1,342 —— Changes in items during the period: Cash dividends paid (6,398) (1,969) (21,163) Net loss (42,963) (35,684) (383,534) Others* (1,007) (250) (2,687) Transfer of loss on disposal of treasury stock (41) —— Total (50,409) (37,903) (407,384) Balance at end of current fiscal year 150,886 112,983 1,214,349 Treasury stock at cost Balance at end of previous fiscal year (245) (226) (2,429) Changes in items during the period: Treasury stock purchased (77) (580) (6,234) Disposal of treasury stock 96 33 355 Total 19 (547) (5,879) Balance at end of current fiscal year (226) (773) (8,308) Shareholders’ equity, total Balance at end of previous fiscal year 371,849 322,802 3,469,497 Change owing to application of accounting policies for overseas consolidated subsidiaries 1,342 —— Changes in items during the period: New issue of stock 2 —— Cash dividends paid (6,398) (1,969) (21,163) Net loss (42,963) (35,684) (383,534) Others* (1,007) (250) (2,687) Treasury stock purchased (77) (580) (6,234) Disposal of treasury stock 54 36 387 Total (50,389) (38,447) (413,231) Balance at end of current fiscal year ¥322,802 ¥284,355 $3,056,266

* Changes in surpluses owing to actuarial differences in retirement benefit obligations calculated based on U.K. accounting standards. See accompanying Notes to Consolidated Financial Statements. (continued on page 64)

Teijin Limited 63 Thousands of (continued from page 63) U.S. dollars Millions of yen (Note 1) Consolidated Statements of Changes in Net Assets 2009 2010 2010 Valuation and translation adjustments and others Net unrealized holding gains on securities Balance at end of previous fiscal year ¥ 24,062 ¥ 12,744 $ 136,973 Changes in items during the period: Net changes in items other than shareholders’ equity (11,318) 281 3,021 Total (11,318) 281 3,021 Balance at end of current fiscal year 12,744 13,025 139,994 Deferred gains (losses) on hedges Balance at end of previous fiscal year (341) (1,321) (14,198) Changes in items during the period: Net changes in items other than shareholders’ equity (980) 1,620 17,412 Total (980) 1,620 17,412 Balance at end of current fiscal year (1,321) 299 3,214 Foreign currency translation adjustments Balance at end of previous fiscal year (4,560) (28,648) (307,911) Changes in items during the period: Net changes in items other than shareholders’ equity (24,088) 2,275 24,451 Total (24,088) 2,275 24,451 Balance at end of current fiscal year (28,648) (26,373) (283,460) Valuation and translation adjustments and others, total Balance at end of previous fiscal year 19,161 (17,225) (185,135) Changes in items during the period: Net changes in items other than shareholders’ equity (36,386) 4,176 44,883 Total (36,386) 4,176 44,883 Balance at end of current fiscal year (17,225) (13,049) (140,252) Stock acquisition rights Balance at end of previous fiscal year 221 320 3,439 Changes in items during the period: Net changes in items other than shareholders’ equity 99 81 871 Total 99 81 871 Balance at end of current fiscal year 320 401 4,310 Minority interests in consolidated subsidiaries Balance at end of previous fiscal year 20,018 24,088 258,900 Changes in items during the period: Net changes in items other than shareholders’ equity 4,070 (513) (5,514) Total 4,070 (513) (5,514) Balance at end of current fiscal year 24,088 23,575 253,386 Net assets, total Balance at end of previous fiscal year 411,249 329,985 3,546,700 Change owing to application of accounting policies for overseas consolidated subsidiaries 1,342 —— Changes in items during the period: New issue of stock 2 —— Cash dividends paid (6,398) (1,969) (21,163) Net loss (42,963) (35,684) (383,534) Others* (1,007) (250) (2,687) Treasury stock purchased (77) (580) (6,234) Disposal of treasury stock 54 36 387 Net changes in items other than shareholders’ equity (32,217) 3,744 40,241 Total (82,606) (34,703) (372,990) Balance at end of current fiscal year ¥329,985 ¥295,282 $3,173,710

* Changes in surpluses owing to actuarial differences in retirement benefit obligations calculated based on U.K. accounting standards.

64 Teijin Limited Consolidated Statements of Cash Flows TEIJIN LIMITED Years ended March 31, 2009 and 2010 Thousands of U.S. dollars Millions of yen (Note 1) 2009 2010 2010 Cash flows from operating activities: Loss before income taxes ¥(33,905) ¥(36,596) $ (393,336) Depreciation and amortization 67,364 61,879 665,080 Impairment loss 11,588 4,387 47,152 Increase/(decrease) in retirement benefits 1,717 (551) (5,922) Increase in provision for business structure improvement — 18,129 194,852 Decrease in allowance for doubtful receivables (164) (68) (731) Interest and dividend income (1,790) (1,591) (17,100) Interest expenses 10,495 5,785 62,178 Equity in losses of unconsolidated subsidiaries and affiliates 8,046 3,389 36,425 Loss on sales or disposal of property, plant and equipment 1,106 487 5,234 Gain on sales of investment securities (198) (7,165) (77,010) Write-down of investment securities 2,701 1,221 13,123 (Increase)/decrease in receivables 33,989 (7,234) (77,752) (Increase)/decrease in inventories (4,401) 29,631 318,476 Increase/(decrease) in payables (35,110) 15,451 166,068 Other, net (3,152) 6,893 74,086 Subtotal 58,286 94,047 1,010,823 Interest and dividends received 3,527 3,774 40,563 Interest paid (10,142) (6,155) (66,154) Income taxes paid (11,279) (4,034) (43,358) Additional contribution to reserve for losses on securities held in money trusts (Note 20) — (7,199) (77,375) Net cash and cash equivalents provided by operating activities 40,392 80,433 864,499

Cash flows from investing activities: Purchase of property, plant and equipment (75,845) (34,119) (366,713) Proceeds from sales of property, plant and equipment 2,022 1,757 18,884 Purchase of investment securities (3,805) (1,183) (12,715) Purchase of shares of newly consolidated subsidiaries (24,537) —— Proceeds from sales and redemption of investment securities 693 10,242 110,082 Increase in short-term loans receivable (8,085) (2,502) (26,892) Long-term loans advanced (1,072) (1,805) (19,400) Collections on long-term loans receivable 673 260 2,794 Other, net (6,348) (6,087) (65,423) Net cash and cash equivalents used in investing activities (116,304) (33,437) (359,383)

Cash flows from financing activities: Increase/(decrease) in short-term bank loans, net 36,322 (20,488) (220,206) Decrease in commercial paper, net (23,000) (25,000) (268,702) Proceeds from issuance of bonds 50,321 15,226 163,650 Redemption of bonds (32,764) (28,436) (305,632) Proceeds from long-term debt 68,886 25,754 276,806 Repayment of long-term debt (13,302) (8,473) (91,068) Cash dividends paid (6,398) (1,969) (21,163) Cash dividends paid to minority shareholders (879) (169) (1,816) Other, net (8) 606 6,512 Net cash and cash equivalents provided by/(used in) financing activities 79,178 (42,949) (461,619)

Effect of exchange rate changes on cash and cash equivalents (1,992) 81 871 Net increase in cash and cash equivalents 1,274 4,128 44,368 Cash and cash equivalents at beginning of year 19,094 18,796 202,021 Increase/(decrease) of cash and cash equivalents due to change in scope of consolidation (1,572) 40 430 Cash and cash equivalents at end of year (Note 3) ¥ 18,796 ¥ 22,964 $ 246,819

See accompanying Notes to Consolidated Financial Statements.

Teijin Limited 65 Notes to Consolidated Financial Statements TEIJIN LIMITED

Note 1. Basis of presenting consolidated financial statements The accompanying consolidated financial statements of Teijin result of the adoption of PITF No. 18 on the consolidated financial Limited (the “Company”) have been prepared in accordance with statements for the years ended March 31, 2009 and 2010. the provisions set forth in the Financial Instruments and Exchange The accompanying consolidated financial statements have Law (the “Law”) and the related accounting regulations, and in been reformatted and translated into English with some expanded conformity with accounting principles generally accepted in Japan descriptions from the consolidated financial statements of the (“Japanese GAAP”), which are different in certain respects as to Company prepared in accordance with Japanese GAAP and filed application and disclosure requirements of International Financial with the appropriate Local Finance Bureau of the Ministry of Finance Reporting Standards. as required by the Law. Certain supplementary information included Prior to the year ended March 31, 2009, the accounts of over- in the statutory Japanese language consolidated financial state- seas subsidiaries are based on their accounting records maintained ments, but not required for fair presentation, is not presented in the in conformity with generally accepted accounting principles pre- accompanying consolidated financial statements. vailing in the respective countries of domicile. From the fiscal year The translation of the Japanese yen amounts into U.S. dollar ended March 31, 2009, the Company adopted “Practical Solution amounts is included solely for the convenience of readers outside on Unification of Accounting Policies Applied to Foreign Subsidiaries Japan, using the prevailing exchange rate at March 31, 2010, which for Consolidated Financial Statement” (Practical Issues Task Force was ¥93.04 to U.S.$1.00. The convenience translations should not (PITF) No. 18, issued by the Accounting Standards Board of be construed as representations that the Japanese yen amounts Japan (ASBJ) on May 17, 2006). In principle, the Company unified have been, could have been, or could in the future be, converted accounting standards for foreign subsidiaries and makes necessary into U.S. dollars at this or any other rate of exchange. adjustments upon consolidation. There were no material effects as a

Note 2. Summary of significant accounting policies Consolidation Statements of cash flows The consolidated financial statements include the accounts of the In preparing the consolidated statements of cash flows, cash Company and 81 significant subsidiaries for the year ended March on hand, readily-available deposits and short-term highly liquid 31, 2010. For 2009, 83 significant subsidiaries were included in the investments with maturities not exceeding three months at the time consolidated financial statements. Investments in 70 (81 in 2009) of purchase are considered to be cash and cash equivalents. unconsolidated subsidiaries and affiliates 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 Companies which are 40% or more owned and substantially sufficient to cover possible losses on collection. It is determined by controlled by the Company are considered subsidiaries for inclusion adding the individually estimated uncollectible amounts of certain in the consolidation. Equity method accounting is applied to uncon- receivables to an amount calculated using the provision rate based solidated subsidiaries and affiliates which are substantially controlled on past experience. or of which operating and financial policies are significantly influenced by the Company. Securities In the elimination of investments in subsidiaries, the assets and Under the Japanese accounting standard for financial instruments, liabilities of the subsidiaries, including the portion attributable to all companies are required to classify securities as (a) securities minority shareholders, are evaluated using the fair value at the time held for trading purposes (“trading securities”), (b) debt securities the Company acquired control of the respective subsidiary. intended to be held to maturity (“held-to-maturity debt securities”), Goodwill is usually amortized using the straight-line method over (c) equity securities issued by subsidiaries and affiliated companies, the estimated useful life from five years to 20 years. and (d) all other securities that are not classified in any of the above The accounts of 41 (41 in 2009) consolidated subsidiaries are categories (“available-for-sale securities”). included on the basis of their fiscal years ending December 31 The Company and its consolidated subsidiaries (the “Companies”) (January 31 for two (two in 2009) and February 28 for two (two do not hold trading securities. Held-to-maturity debt securities in 2009) other subsidiaries). These subsidiaries do not prepare, are stated at amortized cost. for consolidation purposes, statements for the period, which Equity securities issued by subsidiaries and affiliated companies, corresponds with the fiscal year of the Company. which are not consolidated or accounted for using the equity For these 45 (45 in 2009) consolidated subsidiaries, when there method, are stated at moving-average cost. Available-for-sale are significant transactions that occur between their respective fiscal securities with available fair market values are stated at fair market year-ends and the Company’s year-end, necessary adjustments are value. Unrealized gains and losses on these securities are reported, made to reflect the transactions in the accompanying consolidated net of applicable income taxes, as a separate component of net financial statements.

66 Teijin Limited assets. Realized gains and losses on sales of such securities are Research and development expenses computed using moving-average cost. The Company charges research and development expenses to Debt securities with no available fair market value are stated at income as incurred. amortized cost, net of the amount considered not collectible. Other securities with no available fair market value are stated at moving- Retirement benefits average cost. (1) Employees If the market value of held-to-maturity debt securities, equity The Company has an unfunded lump-sum benefit plan and a securities issued by unconsolidated subsidiaries and affiliated funded contributory pension plan, generally covering all employ- companies and available-for-sale securities declines significantly, ees. Certain consolidated subsidiaries have unfunded lump- such securities are stated at fair market value and the difference sum benefit plans and non-contributory pension plans. Most between fair market value and the carrying amount is recognized as foreign subsidiaries do not have pension plans. a loss in the period of the decline. If the fair market value of equity Under the terms of the lump-sum benefit plans, eligible securities issued by unconsolidated subsidiaries and affiliated com- employees are entitled under most circumstances, upon man- panies not on the equity method is not readily available, the securi- datory retirement at age 60 or earlier voluntary termination, to a ties should be written down to net asset value with a corresponding lump-sum payment based on their compensation at the time charge in the consolidated statements of operations in the event of severance and years of service. net asset value declines significantly. In these cases, the fair market The liabilities and expenses for severance and retirement value or the net asset value will be the carrying amount of the benefits are determined based on the amounts actuarially calcu- securities at the beginning of the next year. lated using certain assumptions. The Company and its consolidated subsidiaries provided for employees’ severance and Inventories retirement benefits at March 31, 2009 and 2010, based on the Inventories are stated at the lower of average cost or net realizable estimated amounts of projected benefit obligation and the fair value. value of the pension assets at those dates. (Change in accounting procedures) Prior service costs and actuarial gains and losses are recog- From the fiscal year ended March 31, 2009, the Company adopted nized in expenses using the straight-line method over mainly “Accounting Standards for Measurement of Inventories” (ASBJ 12 years, which is within the average of the estimated remaining Statement No. 9, issued on July 5, 2006). The effect of the adoption service years of the employees, commencing with the current on net income is insignificant. and the following period, respectively.

Property, plant and equipment (2) Directors and statutory auditors Property, plant and equipment are stated at cost. Depreciation is The Company and its domestic consolidated subsidiaries pro- determined over the estimated useful life of the asset principally by vide for lump-sum retirement payments for directors and statu- the declining balance method for domestic companies and by the tory auditors in amounts that would be required if they retired at straight-line method for overseas subsidiaries. For domestic com- the balance sheet dates. panies, buildings acquired after March 31, 1998, are depreciated using the straight-line method. Liabilities in accordance with the application of the (Additional information) equity method Effective from the year ended March 31, 2009, in conformance with Liabilities in accordance with the application of the equity method the revision of the Corporate Tax Law, the Company and its domes- have been provided with respect to losses that may arise from the tic consolidated subsidiaries revised the estimated useful life appli- Company’s portion of the capital deficits of unconsolidated subsid- cable for fixed assets. As a result of this change, operating income iaries and affiliates which are accounted for by the equity method, decreased by ¥605 million and income before income taxes and after giving consideration to the Company’s investments in, and minority interests decreased by ¥822 million for the year ended guarantees for, such companies. March 31, 2009. The effect of this change on segment information is explained in Note 18, “Segment information.” Provision for business structure improvement The provision is provided in amounts sufficient to cover possible Intangible assets losses for business structure improvement. Goodwill, patents, trademarks and other intangible assets are amortized using the straight-line method over the estimated useful life of Derivatives and hedge accounting the asset. The Companies state derivative financial instruments at fair value Software for internal use is amortized using the straight-line and recognize changes in the fair value as gain or loss unless the method over the estimated useful life (five years). derivative financial instruments are used for hedging purposes. If derivative financial instruments are used as hedges and meet certain hedging criteria, the Company and its domestic subsidiaries

Teijin Limited 67 defer recognition of the gain or loss resulting from a change in fair translated at the rates of exchange in effect at the balance sheet date, value of the derivative financial instrument until the related loss or except for capital accounts and assets and liabilities due to/from gain on the hedged item is recognized. the Company, which are translated at historical rates. Accounts in However, in cases where forward foreign exchange contracts the statements of operations are translated at the average rates are used as hedges and meet certain hedging criteria, forward of exchange for the year. Differences arising from translations are foreign exchange contracts and hedged items are accounted for presented as “Foreign currency translation adjustments” in the in the following manner: accompanying consolidated financial statements. The Companies (1) If a forward foreign exchange contract is executed to hedge an report foreign currency translation adjustments in net assets. existing foreign currency receivable or payable, (a) the difference, if any, between the Japanese yen amount of Net income (loss) per share the hedged foreign currency receivable or payable translated Computations of net loss per share of common stock are based on using the spot rate at the inception date of the contract and the weighted-average number of shares outstanding during each the book value of the receivable or payable is recognized period. Diluted net loss per share is calculated based on the in the consolidated statements of operations in the period assumption that all dilutive convertible debentures and stock which includes the inception date, and warrants were converted or exercised at the beginning of the year (b) the discount or premium on the contract (that is, the or at the time of issue. difference between the Japanese yen amount of the con- Net loss per share for the years ended March 31, 2009 and tract translated using the contracted forward rate and that 2010, is calculated based on the following factors: translated using the spot rate at the inception date of the contract) is recognized over the term of the contract. Year ended March 31, 2009 (a) Net loss: ¥ 42,963 million (2) If a forward foreign exchange contract is executed to hedge a (b) Amount not attributable to future transaction denominated in a foreign currency, the future common shareholders: ¥ — million ( c ) Bonuses to directors and transaction will be recorded using the contracted forward rate, statutory auditors included in (b): ¥ — million and no gain or loss on the forward foreign exchange contract (d) Net loss allocated to common will be recognized. stock: ¥ 42,963 million Also, if interest rate swap contracts are used as hedges (e) Average number of shares and meet certain hedging criteria, the net amount to be paid or outstanding during the period: 984,208 thousand shares received under the interest rate swap contract is added to or ( f ) Increase in number of shares: — thousand shares deducted from the interest on the assets or liabilities for which (g) Increase in number of stock acquisition rights included in (f): — thousand shares the swap contract was executed. (h) Summary of outstanding Common stock acquisition rights potential shares excluded from for the purpose of granting stock Income taxes the computation of diluted EPS, options (585 thousand shares of The provision for income taxes is based on income for financial if calculated for the period, common stock can be issued since such potential stocks do under the common stock statement purposes. Income taxes comprise corporation tax, enter- not have a dilutive effect: acquisition rights). prise tax, and prefectural and municipal inhabitants taxes. The assets and liabilities approach is used to recognize deferred tax Year ended March 31, 2010 assets and liabilities for the expected future tax consequences of (a) Net loss: ¥ 35,684 million ($383,534 thousand) temporary differences between the carrying amounts of assets and (b) Amount not attributable to liabilities for financial reporting purposes and the amounts used for common shareholders: ¥ — million ($ — thousand) income tax purposes. ( c ) Bonuses to directors and statutory auditors included in (b): ¥ — million ($ — thousand) The Company and its wholly owned domestic consolidated (d) Net loss allocated to common subsidiaries have adopted the consolidated tax return filing under stock: ¥ 35,684 million ($383,534 thousand) Japanese tax regulations for the year ended March 31, 2006 and (e) Average number of shares thereafter. outstanding during the period: 984,000 thousand shares ( f ) Increase in number of shares: — thousand shares Translation of foreign currency (g) Increase in number of stock acquisition rights included in (f): — thousand shares Cash, receivables and payables denominated in foreign currencies (h) Summary of outstanding Common stock acquisition rights are translated into Japanese yen at year-end exchange rates. All potential shares excluded from for the purpose of granting stock revenues and expenses in foreign currencies are translated at the the computation of diluted EPS, options (390 thousand shares of exchange rates prevailing when such transactions are made. The if calculated for the period, common stock can be issued resulting exchange loss or gain is charged or credited to income. since such potential stocks do under the common stock not have a dilutive effect: acquisition rights). The balance sheet accounts of the foreign consolidated subsidiaries and foreign investments accounted for by the equity method are

68 Teijin Limited (Change in accounting procedures) companies apply the percentage-of-completion method to work Recognition of revenues and costs on construction commencing in the year ended March 31, 2010, otherwise the contracts completed-contract method is applied. The percentage/stage of Prior to the year ended March 31, 2010, the Company and its completion at the end of the reporting period is measured by the consolidated domestic subsidiaries (the “domestic companies”) proportion of the cost incurred to the estimated total cost. The recognized revenues and costs of construction contracts using the change had no material impact on the consolidated financial completed-contract method. Effective from the year ended March statements. 31, 2010, the domestic companies adopted the “Accounting Standard for Construction Contracts” (ASBJ Statement No. 15, Reclassifications and restatement issued on December 27, 2007) and the “Guidance on Accounting Certain prior year amounts have been reclassified and restated to Standard for Construction Contracts” (ASBJ Guidance No. 18, conform to the current year presentation. These reclassifications issued on December 27, 2007). Accordingly, when the outcome and restatements had no impact on previously reported results of of individual contracts can be estimated reliably, the domestic operations or retained earnings.

Note 3. Statements of cash flows The reconciliation of cash and time deposits in the consolidated balance sheets and cash and cash equivalents in the consolidated statements of cash flows as of March 31, 2009 and 2010, is as follows: Thousands of Millions of yen U.S. dollars 2009 2010 2010 Cash and time deposits in the consolidated balance sheets ¥18,956 ¥23,122 $248,517 Time deposits with maturities exceeding 3 months (160) (158) (1,698) Cash and cash equivalents in the consolidated statements of cash flows ¥18,796 ¥22,964 $246,819

Note 4. Fair value of financial instruments (Additional information) which they have business relations and these are not for Effective from the year ended March 31, 2010, the Company speculation. adopted the revised “Accounting Standard for Financial The due date of trade notes and accounts payable are Instruments” (ASBJ Statement No. 10, revised on March 10, 2008) mainly within one year. and the “Guidance on Disclosures about Fair Value of Financial Commercial paper and short-term loans are used mainly Instruments” (ASBJ Guidance No. 19, revised on March 10, 2008). for operating purposes, and funding through corporate Information on financial instruments for the year ended March 31, bonds and long-term loans is mainly for capital investment. 2010, required pursuant to the revised accounting standards is Debts with a floating rate are exposed to interest rate fluctu- as follows: ation risk, but some long-term debt interest is converted to (1) Qualitative information on financial instruments a fixed rate through interest rate swap transactions. (a) Policies for using financial instruments The Companies use derivative transactions of, for exam- The Companies’ fund management policy is to put money ple, forward currency exchange and currency swaps that into short-term deposit only and to raise money through are used to hedge the risk of fluctuation in foreign currency bank loans, commercial paper and corporate bonds. exchange rates with respect to monetary receivables and The Companies principally enter into derivatives transac- payables denominated in foreign currencies resulting from tions in connection with managing their market risk and not import and export transactions. With respect to other deriva- for speculation or trading purposes. tive transactions, interest rate swap transactions are used to (b) Details of financial instruments used and the exposure to hedge the risk of fluctuation in interest rates and commodity risk and how it arises swap transactions are used to hedge the risk of fluctuation Trade notes and accounts receivable are exposed to in the commodity prices of fuel. The Companies evaluate customers’ credit risk. To manage that risk, the Companies hedge effectiveness by comparing the cumulative changes check the balance of the accounts and confirm the collec- in cash flows from, or the changes in fair value of, hedged tion of money at the due date. The Companies also review items with the corresponding changes in the hedging the credit risk of main customers every six months in accor- derivative instruments. dance with the Company’s credit management regulations. The Companies report periodically to the Chief Financial Securities are exposed to market price fluctuation risk, Officer and the Accounting and Treasury Office on the actual however, the Companies only hold shares in firms with results of derivative transactions. The actual results of

Teijin Limited 69 derivative transactions for which hedge accounting cannot quoted market price or, in cases where there is no market be applied are reported to the Board of Directors after the price, by making a reasonable estimation. Because the pre- end of each year. Furthermore the Companies enter into con- conditions applied include a floating element, estimations of tracts with highly rated international institutions as counter- fair value may vary. The contracted amounts, as presented parts to these transactions to minimize credit risk exposure. in Note 6, “Derivative transactions,” do not reflect market (c) Supplementary information on fair values risk. The fair value of financial instruments is calculated based on

(2) Fair values of financial instruments The following table summarizes fair value and book value of the financial instruments, and the difference between them, as of March 31, 2010. Items for which fair value is difficult to estimate are not included in the follwing table. Thousands of Millions of yen U.S. dollars 2010 2010 Book value Fair value Difference Difference (1) Cash and time deposits ¥ 23,122 ¥ 23,122 ¥ — $ — (2) Receivables 158,952 158,952 — — (3) Short-term loans 3,236 3,236 — — (4) Securities (other) 39,155 39,155 — — (5) Long-term loans 4,442 — — — Allowance for doubtful receivables (*1) (552) — — — 3,890 3,890 — — Total ¥228,355 ¥228,355 ¥ — $ — (1) Payables 84,257 84,257 — — (2) Short-term loans 54,137 54,137 — — (3) Commercial paper 51,000 51,000 — — (4) Bonds 47,270 48,658 1,388 14,918 (5) Long-term loans 165,529 166,671 1,142 12,274 Total ¥402,193 ¥404,723 ¥2,530 $27,192 Derivative transactions (*2) (1) For which hedge accounting is not applied (535) (535) — — (2) For which hedge accounting is applied (1,528) (1,528) — — Total ¥ (2,063) ¥ (2,063) ¥ — $ —

(*1) Allowance estimated individually is deducted from loans. (*2) Derivative transactions are presented net of receivables and liabilities, and figures within parenthesis indicate net liabilities.

(Footnote 1) The method of estimating the fair value for securities and derivative transactions is as follows: Assets (1) Cash and time deposits, (2) Receivables, (3) Short-term loans These terms are all short-term, and the fair value is nearly equal to book value, so the book value is used as fair value. (4) Securities (other) The fair value of shares is the market price. See Note 5, “Securities” for information on securities categorized by holding purposes. (5) Long-term loans The fair value of long-term loans, distinguished by the term, is discounted by the interest rate that is based on that of government bonds, to which a spread that reflects credit risk has been added. Moreover, the fair value of long-term loans that are doubtful is estimated in the same way or is provided in an amount sufficient to cover possible losses on collection.

Liabilities (1) Payables, (2) Short-term loans, (3) Commercial paper These terms are all short-term and the fair value is nearly equal to book value, so the book value is used as fair value.

70 Teijin Limited (4) Bonds The fair value of corporate bonds is calculated based on market price, or, in cases where there is no market price, by using the discounted cash flow, based on the sum of the principal and total interest of the remaining period and credit risk. (5) Long-term loans The fair value of long-term loans is the sum of the principal and total interest discounted by the rate that is applied if a new loan is made. Certain long-term loans with floating rates are tied to interest rate swap transactions and subject to special treatment. Derivative transactions See Note 6, “Derivative transactions.”

(Footnote 2) Financial instruments for which fair value is difficult to estimate Market prices for these shares are not available and the future cash flow cannot be estimated. Therefore, the fair value is difficult to estimate. Hence, these are not included in Note 5, “Securities,” below. Thousands of Millions of yen U.S. dollars Unlisted shares ¥ 3,959 $ 42,552 Shares in affiliated companies 15,302 164,467 Total ¥19,261 $207,019

(Footnote 3) Expected repayment of monetary assets and securities with maturity after the date of the accounting period is as follows: Millions of yen Thousands of U.S. dollars Within one year One year to five years Within one year One year to five years Cash and time deposits ¥ 23,122 ¥ — $ 248,517 $ — Receivables 158,952 — 1,708,426 — Short-term loans 3,236 — 34,781 — Securities — — — — Long-term loans ¥ 263 ¥4,179 $ 2,827 $44,916

(Footnote 4) Expected repayment of corporate bonds and long-term loans See Note 8, “Bank loans and long-term debt.”

Note 5. Securities (1) Information on securities held by the Companies at March 31, 2009, is as follows: a) There were no held-to-maturity debt securities with fair values at March 31, 2009. 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, 2009: Millions of yen 2009 Acquisition cost Book value Difference Securities with book values exceeding acquisition costs: Corporate shares ¥15,274 ¥35,939 ¥20,665

Securities with book values not exceeding acquisition costs: Corporate shares 8,013 5,853 (2,160) Total ¥23,287 ¥41,792 ¥18,505

c) Total sales of available-for-sale securities sold in the year ended March 31, 2009, and the related gains and losses amounted to ¥689 million, ¥22 million and ¥91 million, respectively. d) Available-for-sale securities with no fair values as of March 31, 2009, consisted mostly of non-listed equity securities and others amounting to ¥3,274 million and ¥1,149 million, respectively.

Teijin Limited 71 (2) Information on securities held by the Companies at March 31, 2010, is as follows: a) There were no held-to-maturity debt securities with fair values at March 31, 2010. b) The following table summarizes acquisition costs and book values (fair values) of available-for-sale securities with fair values as of March 31, 2010: Thousands of Millions of yen U.S. dollars 2010 2010 Acquisition cost Book value Difference Difference Securities with book values exceeding acquisition costs: Corporate shares ¥14,401 ¥34,892 ¥20,491 $220,239

Securities with book values not exceeding acquisition costs: Corporate shares 5,788 4,263 (1,525) (16,391) Total ¥20,189 ¥39,155 ¥18,966 $203,848

c) Total sales of available-for-sale securities in the year ended March 31, 2010, and the related gains and losses amounted to ¥10,205 million ($109,684 thousand), ¥7,237 million ($77,784 thousand) and ¥18 million ($193 thousand), respectively. d) Available-for-sale securities with no fair values as of March 31, 2010, consisted mostly of non-listed equity securities and others amounting to ¥3,652 million ($39,252 thousand) and ¥307 million ($3,300 thousand), respectively.

Note 6. Derivative transactions (1) The following tables summarize market value information as of March 31, 2009, of outstanding derivative transactions for which hedge accounting is not applied: Outstanding positions, for which gains and losses were recognized in the financial statements as of March 31, 2009, were as follows: Currency-related derivatives Millions of yen 2009 Amount of principal Contracted amount due over one year Fair value Recognized gain (loss) Foreign currency forward contract transactions: Sell: U.S. dollars ¥ 165 ¥— ¥ 164 ¥ 1 Buy: U.S. dollars ¥ 1,845 ¥— ¥ 1,639 ¥(206) Buy: Japanese yen ¥12,105 ¥— ¥12,895 ¥ 790 Foreign currency swap transactions: Japanese yen received for U.S. dollars ¥ 7,006 ¥— ¥ 2 ¥ 2

Interest-rate-related derivatives Millions of yen 2009 Amount of principal Contracted amount due over one year Fair value Recognized gain (loss) Interest rate swap transactions: Variable rate received for variable rate ¥14,715 ¥14,715 ¥(152) ¥(152)

72 Teijin Limited (2) The following tables summarize market value information as of March 31, 2010, of outstanding derivative transactions for which hedge accounting is not applied: Outstanding positions, for which gains and losses were recognized in the financial statements as of March 31, 2010, were as follows: Currency-related derivatives Thousands of Millions of yen U.S. dollars 2010 2010 Amount of principal Contracted amount due over one year Fair value Recognized gain (loss) Recognized gain (loss) Foreign currency swap transactions: Japanese yen received for U.S. dollars ¥ 8,381 ¥— ¥(114) ¥(114) $(1,225) Foreign currency forward contract transactions: Sell: U.S. dollars ¥ 2,476 ¥— ¥ 276 ¥ 276 $ 2,966 Sell: Japanese yen ¥ 855 ¥— ¥ 101 ¥ 101 $ 1,086 Buy: Japanese yen ¥13,172 ¥— ¥(796) ¥(796) $(8,555)

Interest-rate-related derivatives Thousands of Millions of yen U.S. dollars 2010 2010 Amount of principal Contracted amount due over one year Fair value Recognized gain (loss) Recognized gain (loss) Interest rate swap transactions: Variable rate received for fixed rate ¥92 ¥— ¥(3) ¥(3) $(32)

(3) The following tables summarize market value information as of March 31, 2010, of outstanding derivative transactions for which hedge accounting is applied: Currency-related derivatives: Principled method Thousands of Millions of yen U.S. dollars 2010 2010 Amount of principal Contracted amount due over one year Fair value Fair value Foreign currency swap transactions: Japanese yen received for Euro ¥34,678 ¥11,197 ¥(2,922) $(31,406) Foreign currency forward contract transactions: Sell: U.S. dollars ¥11,864 ¥ — ¥ 136 $ 1,462 Sell: Euro ¥ 37 ¥ — ¥ (2) $ (21) Sell: Japanese yen ¥ 9,098 ¥ 5,020 ¥ 1,146 $ 12,317 Buy: U.S. dollars ¥ 8,521 ¥ — ¥ 339 $ 3,644 Buy: Euro ¥ 36 ¥ — ¥ 0 $ 0

Currency-related derivatives: Conventional method Thousands of Millions of yen U.S. dollars 2010 2010 Amount of principal Contracted amount due over one year Fair value Fair value Foreign currency forward contract transactions: Sell: U.S. dollars ¥4,212 ¥— ¥— $— Sell: Euro ¥1,288 ¥— ¥— $— Buy: U.S. dollars ¥ 601 ¥— ¥— $— Buy: Euro ¥ 103 ¥— ¥— $—

Teijin Limited 73 Interest-rate-related derivatives: Principled method Thousands of Millions of yen U.S. dollars 2010 2010 Amount of principal Contracted amount due over one year Fair value Fair value Interest rate swap transactions: Variable rate received for fixed rate ¥25,740 ¥25,740 ¥(286) $(3,074)

Interest-rate-related derivatives: Conventional method Thousands of Millions of yen U.S. dollars 2010 2010 Amount of principal Contracted amount due over one year Fair value Fair value Interest rate swap transactions: Variable rate received for fixed rate ¥22,400 ¥ 22,400 ¥— $— Fixed rate received for variable ¥ 1,000 ¥ — ¥— $—

Commodity-related derivatives: Principled method Thousands of Millions of yen U.S. dollars 2010 2010 Amount of principal Contracted amount due over one year Fair value Fair value Commodity swap transactions: Oil ¥265 ¥— ¥61 $656

(4) The fair value of foreign currency forward contract transactions (5) The recognized gain or loss is estimated by the counterpart is based on the year-end forward rate. The fair value of foreign financial institutions. currency swap transactions, interest rate swap transactions and commodity swap transactions is based on the prices presented by the counterpart financial institutions.

Note 7. Inventories Inventories at March 31, 2009 and 2010, consisted of the following: Thousands of Millions of yen U.S. dollars 2009 2010 2010 Finished goods ¥ 95,419 ¥ 71,583 $ 769,379 Work in process 11,641 9,389 100,914 Raw materials 22,062 19,348 207,953 Supplies 5,943 5,995 64,435 ¥135,065 ¥106,315 $1,142,681

74 Teijin Limited Note 8. 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 2.7% and 1.2% in 2009 and 2010, respectively. Long-term debt at March 31, 2009 and 2010, consisted of the following: Thousands of Millions of yen U.S. dollars 2009 2010 2010 Unsecured: Banks and insurance companies at 0.3–1.7%, maturing serially through 2016 ¥ 96,255 ¥105,821 $1,137,371 1.3% bonds, due 2009 10,000 —— 1.6% bonds, due 2013 15,000 15,000 161,221 1.8% bonds, due 2015 15,000 15,000 161,221 0.7–1.1% medium-term notes, due 2009–2011 5,174 —— 0.9–1.0% medium-term notes, due 2009–2010 9,333 —— 1.1–1.3% medium-term notes, due 2009–2010 8,470 —— 1.0% medium-term notes, due 2011 — 991 10,651 1.1% medium-term notes, due 2010 — 1,586 17,047 1.1–1.3% medium-term notes, due 2010 — 3,965 42,616 0.3–1.3% medium-term notes, due 2010–2011 — 10,727 115,295 Loans denominated in foreign currencies (principally U.S. dollars), 0.7–5.7% maturing serially through 2014 52,409 59,708 641,745 Lease obligations, 8.2% maturing serially through 2024 1,268 2,349 25,247 212,909 215,147 2,312,414 Less amounts due within one year 34,625 24,506 263,392 ¥178,284 ¥190,641 $2,049,022

At March 31, 2010, assets pledged as collateral for secured other liabilities of ¥25 million ($269 thousand) were as follows: Thousands of Millions of yen U.S. dollars Property, plant and equipment, net of accumulated depreciation ¥151 $1,623 Other assets 554

The aggregate annual maturities of long-term debt at March 31, 2010, were as follows: Thousands of Year ending March 31 Millions of yen U.S. dollars 2011 ¥24,506 $263,392 2012 18,107 194,615 2013 59,366 638,070 2014 50,454 542,283 2015 and thereafter 62,713 674,043

Teijin Limited 75 Note 9. Employees’ retirement benefits (Change in accounting procedures) Statement No. 19, issued on July 31, 2008). This change had no Effective from the year ended March 31, 2010, the Company and material impact on the consolidated financial statements for the year its consolidated domestic subsidiaries adopted the “Partial Amendments ended March 31, 2010. to Accounting Standard for Retirement Benefits (Part 3)” (ASBJ

(1) The liabilities for severance and retirement benefits included in the liability section of the consolidated balance sheets as of March 31, 2009 and 2010, consisted of the following: Thousands of Millions of yen U.S. dollars 2009 2010 2010 Projected benefit obligation ¥ 139,177 ¥ 131,446 $ 1,412,791 Unrecognized prior service costs 4,725 4,034 43,358 Less unrecognized actuarial differences (32,560) (18,705) (201,043) Less fair value of pension assets (112,049) (117,662) (1,264,639) Prepaid pension expense 19,948 19,361 208,093 Liability for severance and retirement benefits ¥ 19,241 ¥ 18,474 $ 198,560

(2) The expenses for severance and retirement benefits included in the consolidated statements of operations for the years ended March 31, 2009 and 2010, comprised the following: Thousands of Millions of yen U.S. dollars 2009 2010 2010 Service costs—benefits earned during the year ¥ 5,842 ¥ 5,403 $ 58,071 Interest cost on projected benefit obligation 3,555 3,465 37,242 Expected return on pension assets (3,743) (3,369) (36,210) Amortization of actuarial differences 2,100 3,835 41,219 Amortization of prior service costs (656) (662) (7,115) Severance and retirement benefit expenses ¥ 7,098 ¥ 8,672 $ 93,207

(3) The discount rate and the rate of expected return on pension (4) The estimated amount of all retirement benefits to be paid at assets used by the Companies were mainly 2.0% and 3.0%, future retirement dates is allocated equally to each service year respectively, for the years ended March 31, 2009, and mainly using the estimated number of total service years. Prior service 2.0% and 3.3%, respectively, for the year ended March 31, costs and actuarial gains and losses are recognized in expenses 2010. using the straight-line method over mainly 12 years, which is within the average of the estimated remaining service years of the employees, commencing with the current and the following period, respectively.

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

76 Teijin Limited At the Board of Directors’ meeting held on May 10, 2010, appropriations of retained earnings for the year ended March 31, 2010, were duly approved as follows: Thousands of Millions of yen U.S. dollars Cash dividends: ¥2.00 ($0.02) per share ¥1,964 $21,109

Note 11. Impairment loss Certain consolidated subsidiaries accounted for impairment losses for the year ended March 31, 2010, as follows: Impairment loss Thousands of Location Usage purpose Type of assets Millions of yen U.S. dollars Bobingen, Germany Synthetic fiber production facilities Land and machinery, etc. ¥1,758 $18,895 Mihara City in Hiroshima Prefecture Synthetic fiber production facilities Machinery, etc. 1,278 13,736 South Carolina, U.S.A. Synthetic fiber production facilities Machinery and intangible assets, etc. 928 9,974 Matsuyama City in Ehime Prefecture Synthetic fiber production facilities, etc. Machinery, etc. 756 8,126 Nomi City in Ishikawa Prefecture, etc. Synthetic fiber production facilities, etc. Land and machinery, etc. 413 4,439 Matsuyama City in Ehime Prefecture Plastics production facilities Machinery 171 1,838 Chiyoda-ku in Tokyo Idle assets Software 148 1,591 Mihara City in Hiroshima Prefecture Power supply facilities Machinery, etc 140 1,505 Others — — 136 1,461 Totals ¥5,728 $61,565

The Companies set asset groups by the business unit on which which was calculated by discounting future cash flows with discount the profit or loss is continually controlled. Idle assets, which are not rates of 7%–10%. being used for business, are separately treated. The book values of idle assets with no utilization plan were writ- Among the assets used for business purposes, certain produc- ten down to recoverable values by ¥175 million ($1,881 thousand). tion facilities were devalued to the recoverable values by ¥5,553 Recoverable value was measured by the net salvage value, based million ($59,684 thousand) as “Impairment loss,” including ¥1,341 on real-estate appraisals or similar methods. If it is determined that million ($14,413 thousand) as “Restructuring costs,” due to sluggish an idle asset cannot be sold or diverted to another use, the asset is demand, etc. Recoverable value was measured by the usage value, valued at zero.

Note 12. 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 13. Environmental protection costs Environmental protection costs represent the soil cleanup costs and the costs for asbestos exposure prevention.

Teijin Limited 77 Note 14. Income taxes Significant components of the Companies’ deferred tax assets and liabilities as of March 31, 2009 and 2010, were as follows:

Thousands of Millions of yen U.S. dollars 2009 2010 2010 Deferred tax assets: Excess bonuses accrued ¥ 3,409 ¥ 3,244 $ 34,867 Provision for loss on guarantees 1,468 3,035 32,620 Loss on valuation of stocks of subsidiaries and affiliates — 9,145 98,291 Write-down of investment securities 1,457 3,817 41,025 Retirement benefits 5,106 3,805 40,896 Accumulated impairment loss 8,621 8,796 94,540 Provision for business structure improvement — 7,117 76,494 Net operating losses 47,390 56,773 610,200 Capital losses 3,552 3,593 38,618 Other 11,918 11,848 127,344 Total 82,921 111,173 1,194,895 Valuation allowance (48,286) (67,332) (723,689) Total deferred tax assets 34,635 43,841 471,206 Offset with deferred tax liabilities (22,574) (21,620) (232,373) Net deferred tax assets ¥ 12,061 ¥ 22,221 $ 238,833

Deferred tax liabilities: Adjustments to fixed assets based on Corporate Tax Law ¥ (7,985) ¥ (7,384) $ (79,364) Accelerated depreciation of foreign subsidiaries’ fixed assets (4,068) (3,779) (40,617) Tax effect of foreign subsidiaries’ undistributed earnings (4,427) (4,007) (43,067) Valuation differences of newly acquired subsidiaries (5,958) (5,958) (64,037) Net unrealized holding gains on securities (5,811) (5,845) (62,822) Other (3,602) (5,381) (57,835) Total deferred tax liabilities (31,851) (32,354) (347,742) Offset with deferred tax assets 22,574 21,620 232,373 Net deferred tax liabilities ¥ (9,277) ¥ (10,734) $ (115,369)

Note 15. Leases (Change in accounting procedures) sales/purchase transactions. The Company applies this standard On March 30, 2007, the Accounting Standards Board of Japan for finance lease transactions that commenced on and after April 1, issued “Accounting Standard for Lease Transactions” (ASBJ 2008. In compliance with the new standard, the Company accounts Statement No. 13) and “Guidance on Accounting Standard for for finance leases that commenced on and before March 31, 2008, Lease Transactions” (ASBJ Guidance No. 16). The new accounting and which did not transfer ownership, in the same manner as standard requires that finance lease transactions which do not operating leases. The effect on net income has been insignificant. transfer ownership are accounted for in the same manner as

78 Teijin Limited (1) Finance leases as lessee Finance lease transactions that commenced on and before March 31, 2009, and which did not transfer ownership, are accounted for in the same manner as operating leases. The original lease obligations, payments to date and payments remaining for assets leased from other parties under non-capitalized finance leases as of March 31, 2009 and 2010, are as follows: Millions of yen Year ended March 31, 2009 Original lease obligation Payments to date Payments remaining Machinery, equipment and vehicles ¥2,380 ¥1,551 ¥ 829 Other fixed assets 2,445 1,638 807 Intangible assets 124 83 41 Total ¥4,949 ¥3,272 ¥1,677

Millions of yen Year ended March 31, 2010 Original lease obligation Payments to date Payments remaining Machinery, equipment and vehicles ¥2,097 ¥1,601 ¥496 Other fixed assets 1,245 875 370 Intangible assets 81 56 25 Total ¥3,423 ¥2,532 ¥891

Thousands of U.S. dollars Year ended March 31, 2010 Original lease obligation Payments to date Payments remaining Machinery, equipment and vehicles $22,538 $17,207 $5,331 Other fixed assets 13,382 9,405 3,977 Intangible assets 871 602 269 Total $36,791 $27,214 $9,577

Future minimum lease payments for the remaining lease periods as of March 31, 2009 and 2010, including interest, are as follows: Thousands of Millions of yen U.S. dollars 2009 2010 2010 Due within one year ¥ 739 ¥455 $4,890 Due over one year 967 458 4,923 Total ¥1,706 ¥913 $9,813

Lease payments for finance leases which do not transfer ownership were ¥1,081 million and ¥667 million ($7,169 thousand) for the years ended March 31, 2009 and 2010, respectively.

(2) Operating leases as lessee Future minimum lease payments for the remaining lease periods, as of March 31, 2009 and 2010, are as follows: Thousands of Millions of yen U.S. dollars 2009 2010 2010 Due within one year ¥ 284 ¥ 272 $ 2,923 Due over one year 1,527 1,338 14,381 Total ¥1,811 ¥1,610 $17,304

Teijin Limited 79 Note 16. Stock option plans (1) Information on stock option plans at March 31, 2009, is shown below.

The account title and the amount related to stock options in the year ended March 31, 2009, are as follows:

Account title Selling, general and administrative expenses Amount ¥101 million

The following tables summarize contents of stock options as of March 31, 2009.

Company name Teijin Limited Position and number of grantee Directors, Employees and Directors of affiliates: 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 affiliates: 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 affiliates: 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 Officers: 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 Officers: 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 Company name Teijin Limited Position and number of grantee Directors and Corporate Officers: 57 Class and number of stock Common Stock 328,000 Date of issue July 7, 2008 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 7, 2008 to July 6, 2028

80 Teijin Limited The following tables summarize the scale and movement of stock options as of March 31, 2009. Non-exercisable stock options Stocks Company name Teijin Limited 2003 2004 2005 2006 2007 2008 Stock options outstanding at April 1, 2008 — — — — — — Stock options granted — — — — — 328,000 Forfeitures — — — — — — Conversion to exercisable stock options — — — — — 328,000 Stock options outstanding at March 31, 2009 — — — — — —

Exercisable stock options Stocks Company name Teijin Limited 2003 2004 2005 2006 2007 2008 Stock options outstanding at April 1, 2008 25,000 195,000 390,000 144,000 207,000 — Conversion from non-exercisable stock options — — — — — 328,000 Stock options exercised 25,000 — — 2,000 — — Forfeitures — — — — — — Stock options outstanding at March 31, 2009 — 195,000 390,000 142,000 207,000 328,000

The following table summarizes price information of stock options as of March 31, 2009.

Yen Company name Teijin Limited 2003 2004 2005 2006 2007 2008 Paid-in value ¥304 ¥405 ¥515 ¥ 1 ¥ 1 ¥ 1 Average market price of the stock at the time of exercise ¥408 — — ¥311 — — Fair value at the date of grant — — — ¥663 ¥610 ¥307

The method of estimation for the fair value of stock options granted in the year ended March 31, 2009, is as follows:

Method of valuation Black-Scholes Model Volatility 27% Expected remaining period 6.0 years Expected dividend ¥8.0 per share Interest rate without any risks 1.35%

Teijin Limited 81 (2) Information on stock option plans at March 31, 2010, is shown below.

The account title and the amount related to stock options in the year ended March 31, 2010, are as follows:

Account title Selling, general and administrative expenses Amount ¥106 million ($1,139 thousand)

The following tables summarize the contents of stock options as of March 31, 2010.

Company name Teijin Limited Position and number of grantee Directors, Employees and Directors of affiliates: 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 affiliates: 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 Officers: 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 Officers: 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 Company name Teijin Limited Position and number of grantee Directors and Corporate Officers: 57 Class and number of stock Common Stock 328,000 Date of issue July 7, 2008 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 7, 2008 to July 6, 2028 Company name Teijin Limited Position and number of grantee Directors and Corporate Officers: 57 Class and number of stock Common Stock 420,000 Date of issue July 9, 2009 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 9, 2009 to July 8, 2029

82 Teijin Limited The following tables summarize the scale and movement of stock options as of March 31, 2010.

Non-exercisable stock options Stocks Company name Teijin Limited 2004 2005 2006 2007 2008 2009 Stock options outstanding at April 1, 2009 — — — — — — Stock options granted — — — — — 420,000 Forfeitures — — — — — — Conversion to exercisable stock options — — — — — 420,000 Stock options outstanding at March 31, 2010 — — — — — —

Exercisable stock options Stocks Company name Teijin Limited 2004 2005 2006 2007 2008 2009 Stock options outstanding at April 1, 2009 195,000 390,000 142,000 207,000 328,000 — Conversion from non-exercisable stock options — — — — — 420,000 Stock options exercised — — 15,000 23,000 6,000 — Forfeitures 195,000 — — — — — Stock options outstanding at March 31, 2010 — 390,000 127,000 184,000 322,000 420,000

The following table summarizes price information of stock options as of March 31, 2010.

Yen Company name Teijin Limited 2004 2005 2006 2007 2008 2009 Paid-in value ¥405 ¥515 ¥ 1 ¥ 1 ¥ 1 ¥ 1 Average market price of the stock at the time of exercise — — ¥275 ¥275 ¥282 — Fair value at the date of grant — — ¥663 ¥610 ¥307 ¥253

The method of estimation for the fair value of stock options granted in the year ended March 31, 2010, is as follows:

Method of valuation Black-Scholes Model Volatility 31% Expected remaining period 5.5 years Expected dividend ¥5.0 per share Interest rate without any risks 0.73%

Note 17. Business combination Teijin Holdings USA Inc. acquired Braden Partners L.P., a provider acquisition was to build our operating base in the U.S. market in of home oxygen and respiratory medications, equipment and ser- the home health care business. Teijin Holdings USA Inc. will make vices in the United States. All of the purchase was paid in cash. additional payments if certain predefined milestones are achieved. Under the acquisition, Braden Partners L.P. became a wholly These contingent payments will be recognized as goodwill upon owned subsidiary of the Company after June 13, 2008. The payment.

Teijin Limited 83 Note 18. Segment information (1) Industry segment information Pharmaceuticals and home health care: The Company has five industry segments. — Production and sales of prescription and non-prescription Synthetic fibers: drugs and production, sales and rental of home health care — Production and sales of polyester filaments and other fibers devices for apparel and industrial applications, and artificial leather Trading and retail: Films and plastics: —Trading and retail of polyester filaments and other fibers — Production and sales of films and resins for various industrial IT and new products, etc.: applications —Serving software and other

Industry segment information for the years ended March 31, 2009 and 2010, is as follows:

(a) Statements of operations items Millions of yen Net sales to external Intersegment net sales Operating Year ended March 31, 2009 customers and transfer amounts Net sales Operating expenses income (loss) Synthetic fibers ¥273,208 ¥ 61,574 ¥ 334,782 ¥ 337,562 ¥ (2,780) Films and plastics 258,004 9,742 267,746 267,520 226 Pharmaceuticals and home health care 127,146 1 127,147 102,309 24,838 Trading and retail 239,163 7,871 247,034 243,161 3,873 IT and new products, etc. 45,889 41,224 87,113 83,524 3,589 Total 943,410 120,412 1,063,822 1,034,076 29,746 Elimination and corporate — (120,412) (120,412) (108,632) (11,780) Consolidated total ¥943,410 ¥ — ¥ 943,410 ¥ 925,444 ¥ 17,966

Millions of yen Net sales to external Intersegment net sales Operating Year ended March 31, 2010 customers and transfer amounts Net sales Operating expenses income (loss) Synthetic fibers ¥205,154 ¥ 47,482 ¥252,636 ¥267,747 ¥ (15,111) Films and plastics 177,791 6,978 184,769 176,772 7,997 Pharmaceuticals and home health care 131,711 1 131,712 107,511 24,201 Trading and retail 205,314 4,787 210,101 206,660 3,441 IT and new products, etc. 45,870 31,351 77,221 74,267 2,954 Total 765,840 90,599 856,439 832,957 23,482 Elimination and corporate — (90,599) (90,599) (80,553) (10,046) Consolidated total ¥765,840 ¥ — ¥765,840 ¥752,404 ¥ 13,436

Thousands of U.S. dollars Net sales to external Intersegment net sales Operating Year ended March 31, 2010 customers and transfer amounts Net sales Operating expenses income (loss) Synthetic fibers $2,205,009 $ 510,339 $2,715,348 $2,877,763 $ (162,415) Films and plastics 1,910,909 75,000 1,985,909 1,899,957 85,952 Pharmaceuticals and home health care 1,415,638 11 1,415,649 1,155,535 260,114 Trading and retail 2,206,728 51,451 2,258,179 2,221,195 36,984 IT and new products, etc. 493,014 336,963 829,977 798,226 31,751 Total 8,231,298 973,764 9,205,062 8,952,676 252,386 Elimination and corporate — (973,764) (973,764) (865,789) (107,975) Consolidated total $8,231,298 $ — $8,231,298 $8,086,887 $ 144,411

84 Teijin Limited (b) Assets, depreciation and amortization, impairment loss and capital expenditure Millions of yen Year ended March 31, 2009 Assets Depreciation and amortization Impairment loss Capital expenditure Synthetic fibers ¥396,937 ¥30,997 ¥ 8,886 ¥47,531 Films and plastics 188,288 15,892 2,049 10,509 Pharmaceuticals and home health care 107,846 9,080 — 7,369 Trading and retail 82,847 280 — 392 IT and new products, etc. 52,749 2,089 299 3,664 Total 828,667 58,338 11,234 69,465 Elimination and corporate 45,490 2,514 354 6,341 Consolidated total ¥874,157 ¥60,852 ¥11,588 ¥75,806

Millions of yen Year ended March 31, 2010 Assets Depreciation and amortization Impairment loss Capital expenditure Synthetic fibers ¥357,206 ¥27,438 ¥5,201 ¥14,184 Films and plastics 182,000 12,567 171 5,797 Pharmaceuticals and home health care 108,913 8,920 — 8,444 Trading and retail 78,212 271 40 159 IT and new products, etc. 51,255 2,205 141 2,263 Total 777,586 51,401 5,553 30,847 Elimination and corporate 45,485 3,140 174 5,467 Consolidated total ¥823,071 ¥54,541 ¥5,727 ¥36,314

Thousands of U.S. dollars Year ended March 31, 2010 Assets Depreciation and amortization Impairment loss Capital expenditure Synthetic fibers $3,839,273 $294,905 $55,901 $152,451 Films and plastics 1,956,148 135,071 1,838 62,307 Pharmaceuticals and home health care 1,170,604 95,873 — 90,757 Trading and retail 840,628 2,913 430 1,709 IT and new products, etc. 550,892 23,699 1,515 24,322 Total 8,357,545 552,461 59,684 331,546 Elimination and corporate 488,876 33,749 1,870 58,759 Consolidated total $8,846,421 $586,210 $61,554 $390,305

(2) Regional segment information Regional segment information for the years ended March 31, 2009 and 2010, is as follows: Millions of yen Net sales to Intersegment net sales Operating Year ended March 31, 2009 external customers or transfer amounts Net sales Operating expenses income (loss) Assets Japan ¥599,088 ¥ 42,599 ¥ 641,687 ¥ 621,247 ¥20,440 ¥ 660,792 Asia 159,893 33,575 193,468 197,436 (3,968) 135,899 America 104,781 3,351 108,132 107,436 696 61,740 Europe 79,648 28,038 107,686 97,000 10,686 162,997 Total 943,410 107,563 1,050,973 1,023,119 27,854 1,021,428 Elimination and corporate — (107,563) (107,563) (97,675) (9,888) (147,271) Consolidated total ¥943,410 ¥ — ¥ 943,410 ¥ 925,444 ¥17,966 ¥ 874,157

Teijin Limited 85 Millions of yen Net sales to Intersegment net sales Operating Year ended March 31, 2010 external customers or transfer amounts Net sales Operating expenses income (loss) Assets Japan ¥535,214 ¥ 26,431 ¥561,645 ¥534,310 ¥27,335 ¥ 615,160 Asia 132,747 19,000 151,747 150,142 1,605 130,345 America 51,914 419 52,333 54,925 (2,592) 42,934 Europe 45,965 21,789 67,754 71,546 (3,792) 156,975 Total 765,840 67,639 833,479 810,923 22,556 945,414 Elimination and corporate — (67,639) (67,639) (58,519) (9,120) (122,343) Consolidated total ¥765,840 ¥ — ¥765,840 ¥752,404 ¥13,436 ¥ 823,071

Thousands of U.S. dollars Net sales to Intersegment net sales Operating Year ended March 31, 2010 external customers or transfer amounts Net sales Operating expenses income (loss) Assets Japan $5,752,515 $ 284,082 $6,036,597 $5,742,799 $293,798 $ 6,611,780 Asia 1,426,773 204,214 1,630,987 1,613,736 17,251 1,400,957 America 557,975 4,504 562,479 590,338 (27,859) 461,457 Europe 494,035 234,188 728,223 768,980 (40,757) 1,687,177 Total 8,231,298 726,988 8,958,286 8,715,853 242,433 10,161,371 Elimination and corporate — (726,988) (726,988) (628,966) (98,022) (1,314,950) Consolidated total $8,231,298 $ — $8,231,298 $8,086,887 $144,411 $ 8,846,421

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, 2009 and 2010, were as follows: Thousands of Millions of yen U.S. dollars 2009 2010 2010 Asia ¥198,114 ¥165,208 $1,775,666 America 107,859 59,939 644,228 Europe and other 89,382 52,459 563,833 Overseas sales ¥395,355 ¥277,606 $2,983,727

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 consist of cash, time deposits and investments in securities held of the above schedules includes corporate expenses amounting by the Company. to ¥11,883 million and ¥10,324 million ($110,973 thousand) for the years ended March 31, 2009 and 2010, respectively, (6) Additional information which mainly consist of basic research expenses and corporate In the fiscal year ended March 31, 2009, as discussed in Note administrative departments’ expenses in the Company. 2, the Company and its domestic consolidated subsidiaries revised the estimated useful life applicable for fixed assets (5) “Elimination and corporate” in the “Assets” column of the above due to a revision of the Corporate Tax Law. The effect of this schedules includes corporate assets amounting to ¥92,827 change was to increase operating expenses in “Synthetic fibers” million and ¥112,483 million ($1,208,977 thousand) for the years by ¥589 million, “Films and plastics” by ¥45 million, “Trading ended March 31, 2009 and 2010, respectively, which mainly and retail” by ¥0 million and “IT and new products, etc.” by

86 Teijin Limited ¥3 million, and to decrease operating expenses in “Pharmaceuticals amounts that would have been recorded under the and home health care” by ¥33 million, and decrease or increase previous method. operating income by the same amount respectively, compared with

Note 19. Contingent liabilities At March 31, 2010, the Companies were contingently liable as follows: Thousands of Millions of yen U.S. dollars (a) As endorser of notes discounted or endorsed ¥ 102 $ 1,096 (b) As guarantors of indebtedness of: Unconsolidated subsidiaries and affiliates ¥ 9,436 $101,419 Others 2,530 27,192 ¥11,966 $128,611 (c) As guarantor of accounts receivable negotiated to third parties ¥ 2,394 $ 25,731

Note 20. Subsequent events (1) At the Board of Directors’ meeting held on May 10, 2010, appropriations of retained earnings for the year ended March 31, 2010, were duly approved as follows: Thousands of Millions of yen U.S. dollars Cash dividends: ¥2.00 ($0.02) per share ¥1,964 $21,109

(2) The Company entrusted cash for the payment of straight bonds not be redeemed in full, the Company made an additional (fourth series of unsecured straight bonds due September 29, contribution to the trust of ¥7,199 million on June 1, 2009, 2009; issue amount: ¥15 billion) based on a debt assumption to revise the contents of the investment held by the trust. agreement concluded with a financial institution on November 29, The contribution is recorded as other loss in the fiscal year 2005. These bonds are derecognized in the Company’s consoli- ended March 31, 2010. Since the debt assumption agreement dated balance sheets. Based on the judgment that the current continues in force, the off-balance-sheet accounting of the financial market conditions increased the possibility that the bonds is continuing. principal of the securities invested and held by the trust could

Teijin Limited 87 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, 2009 and 2010, and the related consolidated statements of operations, changes in net assets and cash flows for the years then ended, expressed in Japanese yen. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to independently express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in Japan. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Teijin Limited and consolidated subsidiaries as of March 31, 2009 and 2010, and the consolidated results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in Japan.

As discussed in Note 20 (2) to the consolidated financial statements, on June 1, 2009, the Company made an additional contribution to the trust of approximately ¥7,199 million in relation to a debt assumption agreement of fourth series of unsecured straight bonds. The contribution is recorded as other loss in the fiscal year ended March 31, 2010.

The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the year ended March 31, 2010, 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 financial statements.

(KPMG AZSA & Co.)

Osaka, Japan June 23, 2010

88 Teijin Limited Proﬁ le Corporate Data (As of March 31, 2010)

http://www.teijin.co.jp

Annual Report 2010 Year ended March 31, 2010

Printed in Japan using soy ink and waterless printing. Covers and pages 1–46 are printed on FSC mixed-source paper. Issued 2010.7