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Corporate Governance Structure by bjp11375

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									    Corporate Governance Structure

                                                                          General Meeting of Shareholders



                                            Board of Directors             Board of Corporate Auditors             Independent Auditing Firm
                                               Directors: 5                         Auditors: 3                        KPMG AZSA & Co.
                                          (no external directors)         (including 2 external auditors)



                                                                               Representative Director
                          Committees

                     CRM Committees                                               Management Meetings
                                                                          Division Executive General Managers,
                  CRM Committee Chairman                                             Standing Auditor
                       ESH Committees                                      <Deliberation of important matters>

                                                                                                                             External Counsel
                Product Assurance Committee
                                                                                                                                (Law Firm)
                   Committee Responsible
                    for Safety Assurance
                      of Export Controls
                                                                                                              Compliance Hotline



              Internal Audit Department                                    Divisions, Group Companies                         Employees




Corporate Governance
The TOHO TENAX Group considers raising transparency, ensuring fairness and accelerating
decision-making to be an important management priority. As part of efforts to strengthen corporate
governance, especially concerning compliance and risk management, we have organized compliance and
risk management (CRM) committees to strengthen the compliance structure and corporate ethics and
compliance framework as well as clarify risks and formulate countermeasures and prevention strategies.
In addition, with regard to information management, documents and information, including
electromagnetic records related to business conduct, are being appropriately saved and managed in
accordance with internal regulations.




Contents
Profile/Financial Highlights                            1        Financial Statements 2007                                                 8
To Our Stakeholders                                     2           Consolidated Balance Sheets                                            8
Review of Operations                                    4           Consolidated Statements of Operations                                 10
   Carbon Fibers                                        4           Consolidated Statement of Shareholders’ Equity
   Textiles/Machinery and Engineering                   5           and Consolidated Statement of Changes in Net Assets                   11
   Service                                              6           Consolidated Statements of Cash Flows                                 12
Research and Development                                6           Notes to Consolidated Financial Statements                            13
Board of Directors and Auditors/                                    Independent Auditors’ Report                                          21
Corporate Data/Consolidated Subsidiaries                7


This annual report contains forward-looking statements that reflect management's current views with respect to certain future events and
financial performance. Such statements are provided solely for the reference of the reader and are not promises, commitments, or
guarantees to achieve such results. Actual results could differ materially from those projected or implied in any forward-looking statements.
Forward to the Top
To secure a foothold for profitable growth, TOHO                                           employees to speak out on issues that arise within the
TENAX launched a Groupwide reform movement                                                 Group without preconceptions. The first step for
unified under the common theme of “Forward to the                                          achieving progress necessitates that a mindset oriented
Top” from July 2004. The Group is seeking to undertake                                     toward reform take root in each employee, and the
these reforms with confidence by raising its sensitivity                                   corporate climate and structure of the Group be
to such improvement measures, being more proactive                                         transformed into an environment conducive to readily
in handling reform proposals and encouraging                                               adapting to change and continuously promoting reform.




Profile
Since our establishment in 1934, TOHO TENAX CO., LTD. (formerly TOHO RAYON CO., LTD.) has produced a diverse
range of epoch-defining fiber products based on our proprietary technologies, including TOVIS® rayon staple fibers,
BESLON® acrylic fibers and GRANMARFIL® high-quality, combed cotton yarn.
   In 1975, the Company began commercial production of BESFIGHT® (currently TENAX®) carbon fibers, developed
utilizing our acrylic fiber production technology, to establish our current position as the leading global manufacturer of
carbon fibers. Carbon fiber is a state-of-the-art material possessing significant high-growth potential for the future,
with applications spanning specialized fields such as aeronautics and aerospace, sports and recreation, and the
general industrial sector.
   In 1998, we entered a rebirth after shifting from an emphasis on textiles to becoming a specialized producer in the
carbon fiber field. We are working to further expand our core business in carbon fiber, while bolstering overall
performance of our Group through the development of high value-added products for our textile business.
   In February 2000, TEIJIN LIMITED acquired a majority stake in the Company, forming an alliance through which we
aimed to realize the highly competitive strength and growth potential inherent in a corporate group. Following the
change of our corporate name to TOHO TENAX CO., LTD. in July 2001, the Company continued efforts to concentrate
our management resources in the carbon fiber business to further enhance profitability.
    Effective September 2007, TOHO TENAX has become a wholly owned subsidiary of TEIJIN. We will subsequently
aim to further expand our business by means of integrating business operations with the TEIJIN Group.
   Further, the Company has decided to transfer its offices to Tokyo’s Kasumigaseki district in November 2007. Stronger
measures against earthquakes, a high level of security and the latest IT technology will enable us to transform our work
style. This will lead to greater efficiency in our business operations as well as creativity and productivity, and in turn will
promote the expansion of operations as well as the creation of a dynamic and free and open corporate culture.




Financial Highlights
(TOHO TENAX CO., LTD. and Consolidated Subsidiaries, years ended March 31)

                                                                                                                                                          Thousands of
                                                                                              Millions of Yen                                             U.S. Dollars 1
                                                                                    2007                           2006                                           2007
Net sales                                                                       ¥ 48,517                       ¥ 44,002                                      $ 410,848
Operating income                                                                   5,980                          4,163                                         50,639
Net profit (loss)                                                                  2,851                         (3,517)                                        24,143
Total net assets/Total shareholders’ equity 2                                     16,338                          3,166                                        138,352

Per share:                                                                                           Yen                                                    U.S. Dollars
Net profit (loss)                                                                ¥    19.44                    ¥ (24.83)                                     $           0.2
Total net assets/Total shareholders’ equity 2                                         104.9                        22.4                                                  0.9

 Notes: 1. The United States dollar amounts in this report are given for convenience only and represent translations of Japanese yen at the rate of ¥118.09 =US$1.00.
           See Note 1 of Notes to Consolidated Financial Statements.
        2. Figures represent total shareholders’ equity and total shareholders’ equity per share in 2006.
           See Note 1 of Notes to Consolidated Financial Statements.


                                                                                                                                                   TOHO TENAX Annual Report 2007   1
    To Our Stakeholders
    Achieved Favorable Results in Carbon                           opportunities in midstream and downstream fields.
    Fiber Business along with Growth in                               In the textile business, we endeavored to improve
    Sales and Income                                               profitability by shifting toward high value-added fields and
                                                                   reducing costs. In the machinery and engineering, and
    In fiscal 2006, ended March 31, 2007, despite such             service businesses, we worked to secure stable profits via
    destabilizing factors as soaring crude oil prices, mild        efforts to expand sales in our fields of expertise, including
    expansion of the Japanese economy continued, bolstered         environmental-related areas and polyurethane foaming
    by increases in capital investment and consumer spending       machines.
    on the back of improved corporate earnings.                       As a result, both sales and income posted continued
        In the carbon fiber industry, overall demand in            growth from the previous term. Consolidated net sales
    respective fields has further intensified and the improved     increased ¥4,515 million to ¥48,517 million (US$410,848
    balance in supply and demand has seen market prices            thousand), while consolidated operating income reached
    remain firm. The severe business environment of the            ¥5,980 million (US$50,639 thousand), up ¥1,817 million.
    textile industry has persisted due to rising operational       Consolidated net income improved ¥6,368 million to
    costs, which is a direct result of ever-increasing prices of   ¥2,851 million (US$24,143 thousand). Overseas net sales
    raw materials and fuel. The penetration of cheap imported      were ¥24,423 million (US$206,817 thousand), representing
    products also has contributed to the overall negative          50.3% of total net sales, or a 4.0 percentage point increase
    conditions.                                                    from the previous term.
        Amid this environment, the TOHO TENAX Group                   Total assets at fiscal year-end were ¥56,984 million
    pursued the measures outlined below in accordance with         (US$482,547 thousand), net assets totaled ¥16,338 million
    STEP FORWARD 2008, our medium-term management                  (US$138,352 thousand) and the equity ratio stood at 28.7%,
    plan for April 2006 through March 2009.                        up 21.2 percentage points from the previous fiscal term.
        In the carbon fiber business, we have undertaken              On the cash flow side, net cash provided by operating
    efforts to strengthen competitiveness and enhance trust        activities amounted to ¥4,965 million (US$42,044 thousand)
    among our customers by focusing on raising                     as a result of such factors as profit before income taxes of
    productivity along with realizing further improvements         ¥2,958 million (US$25,049 thousand) and depreciation and
    in terms of quality, cost and development. Additionally,       amortization in the amount of ¥2,870 million (US$24,303
    we have promoted global operations through a tri-polar         thousand). Net cash used in investing activities was ¥9,634
    supply system encompassing Japan, America and                  million (US$81,582 thousand) arising from payment for
    Europe, and have worked to fortify our global marketing        purchases of property, plant and equipment of ¥9,021
    capabilities.                                                  million (US$76,388 thousand). Net cash provided by
        In an effort to respond to increasing demand, we           financing activities totaled ¥4,580 million (US$38,784
    commenced construction of a large-scale manufacturing          thousand) owing to such factors as repayment of short-term
    facility in Japan in April 2006, and completed construction    debt and issuance of new shares via third-party allocation
    of a new production facility at TOHO TENAX EUROPE              totaling ¥9,790 million (US$82,903 thousand) implemented
    GmbH in Germany in September of the same year. We also         for capital investment to boost capacity of carbon fiber
    newly established the Advanced Composite Business              production facilities. In aggregate, cash and cash
    Division in an effort to further meet diversified needs and    equivalents at end of year totaled ¥142 million (US$1,202
    increase added value, as well as continued to cultivate        thousand), down ¥83 million from the previous fiscal year.
    business in new domains and expand business



2   TOHO TENAX Annual Report 2007
A Critical Year for the Medium-term
Management Plan

Fiscal 2007 will be the second year of the STEP FORWARD
2008 medium-term management plan, and as such, will be
a year in which we seek to accelerate execution in realizing
a steady flow of achievements for the plan’s success. In the
carbon fiber business, we are working to establish a
structure capable of appropriately responding to increased
demand. Together with expectations for full-fledged
production to get underway at TOHO TENAX EUROPE’s
expanded facilities completed in September 2006, we are
steadily executing the expansion of facilities in Japan,
which are scheduled to be operational in April 2008.
Further, the Advanced Composite Business Division is                expanding demand as well as survive amid
aiming to expand business and earnings by cultivating new           mega-competition, it is crucial that we make our
demand in aircraft parts, automobile components, industrial         production and sales structures and our technology
robot related components and other growth fields.                   development capabilities even stronger. The TOHO TENAX
   In the textile business, operating conditions are                Group is not able to respond to such challenges alone, but
expected to remain severe. We will nevertheless continue            rather, we have determined that the best course of action
concerted efforts to improve profitability by promoting the         for expanding the business of the TOHO TENAX Group is
development of differentiating materials as well as further         via the joint development of business, exploiting the
cost reductions.                                                    TEIJIN Group’s technologies and expertise. We sincerely
   Accordingly, with regard to consolidated results for fiscal      appreciate the tremendous understanding and support of
2007, we are forecasting a 11.3% increase in net sales to ¥54,000   our shareholders and other stakeholders given to our
million, a 15.4% increase in operating income to ¥6,900             management over many years.
million and a 47.3% jump in net income to ¥4,200 million.              As we look to the future, integrating business operations
                                                                    with the TEIJIN Group will provide the impetus for
                                                                    achieving higher profitability and enhancing corporate
Aiming to Take a Significant Leap Forward                           value of the TOHO TENAX Group, while also contributing to
as a Member of the TEIJIN Group                                     raising the corporate value of the TEIJIN Group as a whole.
                                                                      Your continued support and cooperation as we move
Effective September 1, 2007, TOHO TENAX CO., LTD.                   forward in these endeavors is truly appreciated.
became a wholly owned subsidiary of TEIJIN through a                                                               September 2007

stock swap and started anew as a core business of the
TEIJIN Group. In accordance with this change, TOHO
TENAX’s shares were delisted on August 28, 2007.
   Continued high growth is anticipated in the carbon
                                                                             Yoshikuni Utsunomiya
fiber market, and to ensure that we are able to respond to                   President




                                                                                                            TOHO TENAX Annual Report 2007   3
    Review of Operations

    Carbon Fibers                                              TOHO TENAX Group to Airbus and other aircraft
                                                               manufacturers were favorable, thereby realizing a
    In the Carbon Fiber segment, TOHO TENAX is chiefly         growth in sales.
    responsible for the manufacture and marketing of
    carbon fibers. Overseas, manufacturing and
    marketing is conducted by U.S.-based TOHO TENAX            Sports and Recreation
    AMERICA, INC. and by TOHO TENAX EUROPE in
    Germany.                                                   In Asian and U.S. markets, our mainstay applications
       Sales and income continued to achieve significant       of tennis rackets, golf clubs and fishing rods
    increases over the previous fiscal term. Net sales rose    contributed to a steady improvement in demand and
    17.7% to ¥34,074 million (US$288,543 thousand) and         product prices.
    operating income surged 40.0% to ¥5,903 million
    (US$49,988 thousand). This segment accounted for
    70.2% of total consolidated net sales, up 4.4              Industrial-use Materials
    percentage points from the previous fiscal year.
       Demand in the carbon fiber market continues to          In the European and U.S. markets, higher demand
    escalate centered on the industrial materials and          for blades used in wind power generators was
    commercial aircraft fields. Despite the adverse effects    accompanied by strong demand in existing
    of a decline in profitability due to steep increases in    application areas such as for pressure tanks and
    prices of raw materials and fuel, the TOHO TENAX           industrial-use rollers.
    Group has focused on expanding earnings in                 Particularly with regard to
    respective carbon fiber fields through establishing        blades used in wind power
    production and sales in optimal locations for              generators, expanded demand
    maximum efficiency in                                      for carbon fibers in this field is
    cooperation with TOHO                                      expected in line with the
    TENAX AMERICA and                                          increasing size of blades used in
    TOHO TENAX EUROPE.                                         wind power generators as well
                                                               as demand taking off in China
                                    TOHO TENAX AMERICA, INC.
                                                               and the United States.

    Aeronautics/Aerospace
    In the European and U.S. commercial aircraft markets,
    demand for carbon fiber continues to expand in
    conjunction with a strong increase in orders.
    Consequently, shipments of carbon fibers of the




    Photo: Airbus                                              Photo: Vestas Wind System




4   TOHO TENAX Annual Report 2007
   Domestically, amid a climate of vigorous capital       Machinery and Engineering
investment by Japanese manufacturers, demand is
increasing for printer rollers and other industrial-use   In the Machinery and Engineering segment, TOHO
components along with demand for chopped fiber            CHEMICAL ENGINEERING & CONSTRUCTION CO.,
showing steady expansion.                                 LTD. carries out environmental analysis and
   Southeast Asian markets are similarly                  environmental consulting as well as such engineering
demonstrating strong demand for chopped fiber             as production of pollution prevention and
with market prices continuing to escalate.                environmental preservation equipment, design,
   Stable demand was also recorded for Pyromex®           supervision and construction of facilities in addition to
flame-resistant fiber.                                    construction of TOHO TENAX factories and
                                                          equipment. TOHO MACHINERY CO., LTD. designs,
                                                          manufactures and sells various machinery and
                                                          equipment.
Textiles                                                     The companies in this segment promoted
                                                          expansion of sales in environmental-related business
TOHO TEXTILE CO., LTD. plays a central role in the        as well as sales of machines with salient features,
operation of this segment. TOHO TENAX produces            such as polyurethane machines for automotive
acrylic fibers on a consignment basis for TOHO            interior equipment and dialyzer potting systems.
TEXTILE. TOHO DYRAC CO., LTD. is responsible for             Net sales rose 7.1% to ¥7,872 million (US$66,661
dyeing and finishing operations.                          thousand), representing 16.2% of consolidated net
  Net sales dropped 3.9% to ¥6,433 million                sales, or a 0.5 percentage point decline from the
(US$54,476 thousand), representing 13.3% of total net     previous term. Operating income increased 23.7% to
sales, or a 1.9 percentage point decline from the         ¥428 million (US$3,624 thousand).
previous term. The segment’s operating loss
improved by ¥43 million to ¥457 million (US$3,870
thousand).
  The textile industry continued to face harsh
operating conditions due to higher costs induced by a
steep rise in raw material and fuel prices and
intensified pressure from imports. Despite efforts to
scale down costs by shifting to high value-added
materials and passing along fuel costs to product
prices, sales volume dropped, causing an unavoidable
decline in sales and income.




                                                                                                 TOHO TENAX Annual Report 2007   5
    Review of Operations



    Service                                                      Net sales for this segment fell 10.7% to ¥1,686
                                                               million (US$14,277 thousand), representing 3.5% of
    In the Service segment, TOHO SALES CO., LTD. is            consolidated net sales, or
    engaged in the supply of linen products and purchase       a 0.8 percentage point
    and sales of nursing care and other products.              decrease from the
       Contracts from hotels and hospitals in the linen        previous term. Operating
    supply business, this segment’s core operation, were       income was roughly the
    roughly on par with the previous term. However, the        same as in the previous
    petroleum product business recorded a decrease in          term at ¥92 million
    income in line with the closing of gasoline stations.      (US$779 thousand).




    Research and Development
    The TOHO TENAX Group's fundamental philosophy is           were ¥1,701 million (US$14,404
    to provide value and develop unique technologies           thousand) and represented 3.5%
    that constantly contribute to the betterment of society.   of consolidated net sales.
    With regard to our mainstay carbon fiber business, in         In the Carbon Fiber segment,
    order to win out against global competition and            R&D is focused on responding to
    become a leading company, we must strengthen our           expanded demand for carbon
    core technologies, bolster global R&D based upon our       fiber over both the medium and
    STEP FORWARD 2008 medium-term management                   long term. Domestically, to meet
    plan and tackle issues of process innovation by            rising demand, including general
    developing new applications and technologies.              industrial applications, we are
      With regard to the carbon fiber business, R&D is         moving ahead with a large-scale carbon fiber
    carried out mainly by TOHO TENAX’s R&D Institute as        production facility incorporating new technologies
    well as by the respective divisions in charge of           based on the development of manufacturing tech-
    development for Germany-based TOHO TENAX                   nologies to date. This facility is scheduled to go
    EUROPE and TOHO TENAX AMERICA in the United                online in April 2008.
    States. Additionally, the development divisions of            With a view toward the future, we are also
    domestic affiliates are responsible for the textile and    concentrating on the development of advanced
    environmental and engineering related businesses. In       manufacturing technologies, as well as technologies
    this way, TOHO TENAX is promoting R&D activities in        with superb mechanical attributes such as high
    cooperation with related external research institutes      tensile strength and high modulus properties;
    to seek synergies and efficiently pursue R&D.              materials that employ electrical conduction and
      Research and development costs for fiscal 2006           corrosive resistance; as well as such resin and
                                                               composite technologies and applications as aircraft
                                                               parts, automobile components, robotic components
                                                               and general industrial applications.
                                                                  In the Textile segment, TOHO TEXTILE is focusing
                                                               development on high value-added products and
                                                               commercialization is moving full speed ahead.
                                                                  In the Machinery and Engineering segment,
                                                               TOHO MACHINERY is engaged in development of
                                                               polyurethane machinery.
    TOHO TENAX EUROPE GmbH



6   TOHO TENAX Annual Report 2007
Board of Directors and Auditors                                  Consolidated Subsidiaries
(As of June 28, 2007)                                            (As of March 31, 2007)




President                  Yoshikuni Utsunomiya*                TOHO TENAX AMERICA, INC.

Managing Director          Takashi Mishima                      TOHO TENAX EUROPE GmbH

                                                                TOHO TEXTILE CO., LTD.
Directors                  Shinichiro Uotani
                           Shinichiro Toyama                    TOHO DYRAC CO., LTD.
                           Ryuzo Nakamura
                                                                TOHO CHEMICAL ENGINEERING
                                                                & CONSTRUCTION CO., LTD.
Standing Statutory Auditor Kazuhiko Ogino
                                                                TOHO MACHINERY CO., LTD.
Auditors                   Masaaki Isobe
                           Hiroshi Furukawa                     TOHO SALES CO., LTD.

*Representative Director




Corporate Data
(As of March 31, 2007)




Corporate Name              TOHO TENAX CO., LTD.            Osaka Office          2-2-7, Kawara-machi, Chuo-ku,
                                                                                  Osaka 541-0048
                                                                                  Tel: +81-6-6204-6701
Founded                     June 15, 1934
                                                            Mishima Factory       234, Kamitogari,
Employees                                                                         Nagaizumi-cho, Sunto-gun,
                                                                                  Shizuoka-ken 411-8720
   Parent Company              513
                                                                                  Tel: +81-55-986-1200
   Consolidated Subsidiaries   815
   Total                     1,328                          Tokushima Factory     37-19, Tadatsu, Yoshinari-aza,
                                                                                  Oujin-cho, Tokushima-shi,
                                                                                  Tokushima-ken 771-1153
Independent Auditor         KPMG AZSA & Co., Tokyo, Japan
                                                                                  Tel: +81-88-641-1131

Head Office                 Hongo TS Building, 2-38-16,     Ibigawa Factory       1801, Godo, Godo-cho,
                            Hongo, Bunkyo-ku,                                     Anpachi-gun, Gifu-ken 503-2305
                            Tokyo 113-8404                                        Tel: +81-584-27-3151
                            Tel: +81-3-5842-3700
                            Fax: +81-3-5842-3701            R&D INSTITUTE         234 Takaishi, Kamitogari-aza,
                                                                                  Nagaizumi-cho, Shunto-Gun,
*As of November 12, 2007, the Company will relocate
                                                                                  Shizuoka-ken 411-8720
 its Head Office to the following address:
                                                                                  Tel: +81-55-986-1240
 29F Kasumigaseki Common Gate West Building,
 2-1, Kasumigaseki 3-chome, Chiyoda-ku, Tokyo 100-8585
                                                            Shanghai office       R.m.1005 Shanghai International Trade Centre,
 Tel: +81-3-3506-6800
                                                                                  NO. 2201, Yanan Road(w.), Shanghai,
                                                                                  China 200336
                                                                                  Tel: +86-21-5257-0020

                                                            Singapore office      510 Thomson Road, #17-01 SLF Building,
                                                                                  Singapore 298135
                                                                                  Tel: +65-6354-0612




                                                                                                     TOHO TENAX Annual Report 2007   7
    Financial Statements 2007
    TOHO TENAX CO., LTD.

    CONSOLIDATED BALANCE SHEETS
    As of March 31, 2007 and 2006




                                                                                                                                            March 31,                        March 31,

    ASSETS                                                                                                                          2007                      2006               2007
                                                                                                                                                                            (Thousands)
                                                                                                                                             (Millions)
    CURRENT ASSETS:                                                                                                                                                           (Note 1)

        Cash and cash equivalents....................................................................                           ¥      142            ¥              225     $      1,202


        Notes and accounts receivable, trade ...............................................                                        11,857                     10,753             100,406
        Less allowance for doubtful accounts ................................................                                          (34)                          (38)            (288)
    .........................................................................................................................       11,823                     10,715             100,118
    .........................................................................................................................
        Inventories (Note 2) ................................................................................                       12,147                      9,209             102,862
        Deferred tax assets (Note 10) ...............................................................                                1,065                           709            9,019
        Other .........................................................................................................              1,500                           947           12,702
                     TOTAL CURRENT ASSETS ........................................................                                  26,677                     21,805             225,903
    .........................................................................................................................
    PROPERTY, PLANT AND EQUIPMENT (Note 3): .....................................
        Land ...........................................................................................................             1,702                      1,696              14,413
        Buildings and structures........................................................................                             7,629                      5,240              64,603
        Machinery and equipment.....................................................................                                13,949                      7,658             118,122
        Construction in progress........................................................................                             4,700                      4,740              39,800
        Other..........................................................................................................                690                           524            5,843
                     PROPERTY, PLANT AND EQUIPMENT....................................                                              28,670                     19,858             242,781
    .........................................................................................................................
    INVESTMENTS AND OTHER ASSETS:......................................................
        Investments in securities (Note 7)........................................................                                     453                           470            3,836
        Other..........................................................................................................                722                           187            6,114
        Less allowance for doubtful accounts ................................................                                              (1)                       (14)                (8)
    .........................................................................................................................          721                           173            6,106
    .........................................................................................................................
    Deferred tax assets (Note 10) ....................................................................                                 463                           144            3,921
                     TOTAL INVESTMENTS AND OTHER ASSETS .......................                                                      1,637                           787           13,863
    .........................................................................................................................
                     Total..............................................................................................        ¥   56,984                ¥    42,450        $ 482,547



    The accompanying notes to consolidated financial statements are an integral part of these statements.




8   TOHO TENAX Annual Report 2007
                                                                                                                                        March 31,                            March 31,

LIABILITIES AND SHAREHOLDERS’ EQUITY/NET ASSETS                                                                                 2007                     2006                    2007
                                                                                                                                                                          (Thousands)
                                                                                                                                        (Millions)
CURRENT LIABILITIES:................................................................................                                                                        (Note 1)
     Short-term bank loans (Note 4) ...........................................................                             ¥    5,921               ¥      3,980            $     50,140
     Short-term loan from the parent company (Note 11) ........................                                                 10,743                     18,118                  90,973
     Notes and accounts payable, trade ....................................................                                      8,760                      6,519                  74,181
     Income taxes payable ............................................................................                             338                        380                   2,862
     Accrued employees’ bonuses...............................................................                                     642                        531                   5,436
     Accrued expenses ..................................................................................                         1,495                      1,450                  12,660
     Other (Note 11).........................................................................................                    7,100                      3,732                  60,124
                  TOTAL CURRENT LIABILITIES..................................................                                   34,999                     34,710                 296,376
.........................................................................................................................
LONG-TERM LIABILITIES:...........................................................................
     Long-term loan from the parent company (Note 11) .........................                                                     —                       1,300                       —
     Long-term loan (Note 4) .........................................................................                           2,986                      1,007                   25,286
     Severance and retirement benefits .....................................................
                  Employees (Note 5) ....................................................................                        2,146                      1,811                  18,172
                  Directors and corporate statutory auditors...........................                                             78                         65                     661
     Deferred tax liabilities (Note 10) ..........................................................                                 148                         —                    1,253
     Other .........................................................................................................               289                        391                   2,447
                  TOTAL LIABILITIES ....................................................................                        40,646                     39,284                 344,195
.........................................................................................................................
CONTINGENT LIABILITIES (Note 13) ........................................................
.........................................................................................................................
SHAREHOLDERS’ EQUITY :.........................................................................
     Common stock (Note 11) ........................................................................
                  Authorized- 200,000,000 shares
                  Issued-141,786,738 shares in 2006...........................................                                      —                      13,065                        —
     Capital surplus (Note 11)........................................................................                              —                       5,229                        —
     Accumulated deficit................................................................................                            —                     (15,135)                       —
     Net unrealized holding gains/losses on investment securities, net of tax.                                                      —                         (21)                       —
     Foreign currency translation adjustments..........................................                                             —                          84                        —
     Treasury stock, at cost...........................................................................                             —                         (56)                       —
                  TOTAL SHAREHOLDERS’ EQUITY ............................................                                           —                       3,166                        —

Net Assets (Note 1):.....................................................................................
  Common stock (Note 11) ........................................................................                               17,992                          —                 152,358
         Authorized - 200,000,000 shares
         Issued - 155,964,738 shares in 2007
  Capital surplus (Note 11)........................................................................                              10,156                         —                  86,002
  Accumulated deficit................................................................................                           (12,284)                        —                (104,022)
  Treasury stock, at cost...........................................................................                                (87)                        —                    (737)

    Net unrealized holding gains/losses
     on investment securities, net of tax ...................................................                                       (13)                        —                       (110)
    Unrealized gains/losses
     on hedging derivatives, net of tax ......................................................                                         (3)                      —                        (25)
    Foreign currency
     translation adjustment..........................................................................                              577                          —                   4,886
           TOTAL NET ASSETS...................................................................                                  16,338                          —                 138,352

                Total...............................................................................................        ¥   56,984               ¥     42,450            $ 482,547




                                                                                                                                                                    TOHO TENAX Annual Report 2007   9
     TOHO TENAX CO., LTD.

     CONSOLIDATED STATEMENTS OF OPERATIONS
     Years ended March 31, 2007 and 2006




                                                                                                                                                                            Year ended
                                                                                                                                      Year ended March 31,
                                                                                                                                                                             March 31,
                                                                                                                                     2007                     2006            2007
                                                                                                                                                                            (Thousands)
                                                                                                                                             (Millions)
                                                                                                                                                                              (Note 1)

     NET SALES (Note 12) ...................................................................................                     ¥    48,517              ¥     44,002        $ 410,848
     COST OF SALES (Note 12)...........................................................................                               35,324                    33,111            299,128
                Gross profit........................................................................................                  13,193                    10,891            111,720
     SELLING, GENERAL AND
       ADMINISTRATIVE EXPENSES (Notes 8 and 12) ..................................                                                     7,213                     6,728             61,081
                Operating income ............................................................................                          5,980                     4,163             50,639
     .........................................................................................................................
     OTHER INCOME (EXPENSES):....................................................................
         Interest and dividend income................................................................                                       14                        28             119
         Interest expense (Note 11) ....................................................................                                (516)                     (352)            (4,370)
         Gain on sales of property, plant and equipment ................................                                                    1                        527                 8
         Loss on sales of property, plant and equipment ................................                                                 —                      (5,843)               —
         Loss on disposal of property, plant and equipment...........................                                                   (869)                     (487)            (7,359)
         Restructuring cost (Note 14) .................................................................                               (1,081)                   (1,135)            (9,154)
         Foreign currency exchange gain (loss), net .......................................                                             (344)                     (221)            (2,913)
         Impairment loss (Note 15)......................................................................                                 —                           (59)             —
         Environmental treatment expenses .....................................................                                          —                        (151)               —
         Investigation costs related to antitrust law ........................................                                           —                           (58)             —
         Other, net ..................................................................................................                  (227)                          1           (1,921)
     .........................................................................................................................        (3,022)                   (7,750)           (25,590)


                Profit (Loss) before income taxes..................................................                                    2,958                    (3,587)            25,049
     .........................................................................................................................
     INCOME TAXES (Note 10):..........................................................................
         Current ......................................................................................................                 619                          628            5,242
         Deferred....................................................................................................                   (512)                     (698)            (4,336)
     .........................................................................................................................          107                          (70)            906
     .........................................................................................................................
     Net profit (loss).............................................................................................              ¥     2,851              ¥     (3,517)       $ 24,143
     .........................................................................................................................
     .........................................................................................................................                   Yen                         U.S. Dollars
     .........................................................................................................................
     NET PROFIT ( LOSS) PER SHARE:..............................................................                                 ¥     19.44              ¥     (24.83)       $       0.2
     .........................................................................................................................
     The accompanying notes to consolidated financial statements are an integral part of these statements.




10     TOHO TENAX Annual Report 2007
TOHO TENAX CO., LTD.

CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
Year ended March 31, 2006


                                                       Thousands                                              Millions of yen
                                                      Number of       Common         Capital   Accumulated       Treasury       Net unrealized Foreign currency  Total
                                                      shares of        stock         surplus      deficit          stock        holding losses   translation shareholders’
                                                    common stock                                                                on investment adjustments       equity
                                                                                                                                  securities

Balance at March 31, 2005.........141,787                            ¥13,065         ¥ 5,229     ¥ (11,618)       ¥ (29)           ¥ (29)          ¥ 131            ¥ 6,749

   Net loss...................................................                                      (3,517)                                                          (3,517)
   Net changes in foreign currency
    translation adjustments.............................                                                                                             (47)               (47)
   Changes in unrealized gains
     on securities, net of taxes ....................                                                                                  8                                  8
   Acquisition of treasury stock.................                                                                    (27)                                               (27)

Balance at March 31, 2006.........141,787                            ¥13,065         ¥ 5,229     ¥ (15,135)       ¥ (56)           ¥ (21)          ¥ 84             ¥ 3,166




TOHO TENAX CO., LTD.

CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS
Year ended March 31, 2007

                                               Thousands                                                  Millions of yen
                                              Number of          Common    Capital   Accumulated Treasury     Net unrealized     Unrealized Foreign currency
                                              shares of           stock    surplus      deficit    stock      holding losses      losses on    translation           Total
                                            common stock                                                      on investment        hedging    adjustments
                                                                                                                securities       derivatives,
                                                                                                                                 net of taxes

Shareholders’ equity at....................
March 31, 2006......................141,787                      ¥13,065 ¥ 5,229      ¥ (15,135)    ¥ (56)         ¥ (21)             —           ¥ 84              ¥ 3,166
..............................................................
    Net income .....................................                                      2,851                                                                       2,851
    Acquisition of treasury stock.................                                                    (31)                                                              (31)
    Issuance of new common stock ....14,178                        4,927    4,927                                                                                     9,854
    Net changes during the year ...............                                                                        8              (3)           493                 498

Balance at March 31, 2007 ...155,965                             ¥17,992 ¥10,156      ¥ (12,284)    ¥ (87)         ¥ (13)           ¥ (3)         ¥ 577             ¥16,338


                                               Thousands
                                                                                                         Thousands of dollar
                                              Number of          Common    Capital Accumulated     Treasury Net unrealized       Unrealized     Foreign currency
                                              shares of           stock    surplus    deficit        stock    holding losses      losses on        translation        Total
                                            common stock                                                      on investment        hedging        adjustments
                                                                                                                securities       derivatives,
                                                                                                                                 net of taxes

Shareholders’ equity at....................
March 31, 2006......................141,787 $110,636 $44,280 $ (128,165) $ (474)                                 $ (178)              —         $ 711              $ 26,810
..............................................................
    Net income .....................................                         24,143                                                                                  24,143
    Acquisition of treasury stock ..............                                    (263)                                                                              (263)
    Issuance of new common stock .14,178                       41,722 41,722                                                                                         83,444
    Net changes during the year ..............                                                                        68             (25)         4,175               4,218

Balance at March 31, 2007 ...155,965 $152,358 $86,002 $ (104,022) $ (737)                                        $ (110)          $ (25)        $4,886             $138,352
The accompanying notes to consolidated financial statements are an integral part of these statements.




                                                                                                                                                TOHO TENAX Annual Report 2007   11
     TOHO TENAX CO., LTD.

     CONSOLIDATED STATEMENTS OF CASH FLOWS
     Years ended March 31, 2007 and 2006




                                                                                                                                                              Year ended
                                                                                                                           Year ended March 31,
                                                                                                                                                               March 31,
                                                                                                                          2007                    2006             2007
                                                                                                                                                              (Thousands)
                                                                                                                                 (Millions)
                                                                                                                                                                (Note 1)
     CASH FLOWS FROM OPERATING ACTIVITIES:....................................................
        Profit (Loss) before income taxes ......................................................                      ¥    2,958              ¥     (3,587)    $     25,049
        Depreciation and amortization ............................................................                         2,870                     2,177           24,303
        Provision of allowance for doubtful accounts..................................                                       (16)                       17             (135)
        Increase (decrease) in severance and retirement benefits...........                                                 (135)                       93           (1,143)
        Interest and dividend income ..............................................................                          (14)                      (28)            (119)
        Interest expense ....................................................................................                516                       352            4,370
        Gain on sales of property, plant and equipment...............................                                         (1)                     (527)              (8)
        Loss on disposal of property, plant and equipment .........................                                          869                       487            7,359
        Loss on sales of property, plant and equipment ..............................                                         —                      5,843               —
        Restructuring cost .................................................................................               1,081                     1,135            9,154
        Stock issuance costs ............................................................................                     64                        —               542
        Investigation costs related to antitrust law.......................................                                   —                         58               —
        Impairment loss......................................................................................                 —                         59               —
        Environmental treatment expenses....................................................                                  —                        151               —
        Change in operating assets and liabilities ........................................
            Increase in notes and accounts receivable ...............................                                        (886)                  (1,581)          (7,503)
            Increase (decrease) in inventories ..............................................                              (2,528)                     158          (21,407)
            Increase in other current assets .................................................                               (722)                    (122)          (6,114)
            Increase in notes and accounts payable ....................................                                     1,886                        3           15,971
            Increase in accrued expenses and other current liabilities ....                                                 1,184                      597           10,026
        Other, net.................................................................................................             3                       40               24
          Subtotal.................................................................................................         7,129                    5,325           60,369
        Interest and dividend received............................................................                             14                       28              118
        Interest expense paid ...........................................................................                    (442)                    (352)          (3,743)
        Restructuring cost paid ........................................................................                     (998)                    (458)          (8,451)
        Investigation costs related to antitrust law paid..............................                                        —                       (58)              —
        U.S. civil action suit-related expenses paid......................................                                     —                    (1,348)              —
        Income taxes paid .................................................................................                  (738)                    (492)          (6,249)
     NET CASH PROVIDED BY OPERATING ACTIVITIES........................................                                      4,965                    2,645           42,044
     CASH FLOWS FROM INVESTING ACTIVITIES: .....................................................
        Payment for purchases of property, plant and equipment ............                                                (9,021)                 (15,885)         (76,388)
        Proceeds from sales of property, plant and equipment..................                                                  3                    5,056               29
        Payment for disposal of property, plant and equipment .................                                              (615)                    (259)          (5,207)
        Payment for purchases of investment securities ............................                                          (146)                     (21)          (1,241)
        Proceeds from sales of investment securities .................................                                        167                       —             1,416
        Other, net.................................................................................................           (22)                      (5)            (191)
     NET CASH USED IN INVESTING ACTIVITIES ..................................................                              (9,634)                 (11,114)         (81,582)
     CASH FLOWS FROM FINANCING ACTIVITIES: ....................................................
        Increase (decrease) in short-term bank loans .................................                                     (6,882)                  7,265           (58,278)
        Proceeds from long-term loans payable ...........................................                                   1,736                     985            14,701
        Issue of new shares ..............................................................................                  9,790                      —             82,903
        Other, net.................................................................................................           (64)                   (250)             (542)
     NET CASH PROVIDED BY FINANCING ACTIVITIES ........................................                                     4,580                   8,000            38,784
     EFFECT OF TRANSLATION OF CASH AND CASH EQUIVALENTS ...................                                                     6                     (19)               51
     NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................                                                    (83)                   (488)             (703)
     CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ...........................                                               225                     713             1,905
     CASH AND CASH EQUIVALENTS AT END OF YEAR .......................................                                 ¥       142             ¥       225      $      1,202


     The accompanying notes to consolidated financial statements are an integral part of these statements.


12     TOHO TENAX Annual Report 2007
TOHO TENAX CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended March 31, 2007 and 2006




NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES                      of the subsidiaries, including the portion attributable to minority
BASIS OF PRESENTING CONSOLIDATED FINANCIAL STATEMENTS                    shareholders, are recorded based on the fair value at the time the
   The accompanying consolidated financial statements of Toho            Company acquired control of the respective subsidiaries.
Tenax Co., Ltd. (the “Company”) and its consolidated subsidiaries
have been prepared in accordance with the provisions set forth in          The numbers of consolidated subsidiaries at March 31, 2007 and
the Japanese Securities and Exchange Law and its related                 2006 were as follows:
accounting regulations, and in conformity with accounting principles
generally accepted in Japan (“Japanese GAAP”), which are                                                            2007            2006
different in certain respects as to application and disclosure
requirements of International Financial Reporting Standards.                Consolidated subsidiaries                 7                 7

   The accounts of the Company's overseas subsidiaries are based
on their accounting records maintained in conformity with generally        All of the Company's subsidiaries are included in the
accepted accounting principles prevailing in the respective              consolidated financial statements.
countries of domicile. The accompanying consolidated financial
statements have been restructured and translated into English (with      CONSOLIDATED STATEMENTS OF CASH FLOWS
certain expanded disclosure and the inclusion of consolidated            In preparing the consolidated statements of cash flows, cash on
statements of shareholders' equity for 2006) from the consolidated       hand, readily-available deposits and short-term highly liquid
financial statements of the Company prepared in accordance with          investments with maturities of not exceeding three months at the
Japanese GAAP and filed with the appropriate Local Finance Bureau        time of purchase are considered to be cash and cash equivalents.
of the Ministry of Finance as required by the Securities and
Exchange Law. Certain supplementary information included in the          NET ASSETS
statutory Japanese language consolidated financial statements, but         The Japanese Corporate Law (“the Law”) became effective on
not required for fair presentation, is not presented in the              May 1, 2006, replacing the Japanese Commercial Code (“the
accompanying consolidated financial statements.                          Code”). The Law is generally applicable to events and transactions
                                                                         occurring after April 30, 2006 and for fiscal years ending after that
  The consolidated balance sheet as of March 31, 2007, which has         date.
been prepared in accordance with the new accounting standard as
discussed in Note 1 “PRESENTATION OF NET ASSETS IN THE                      Under Japanese laws and regulations, the entire amount paid for
BALANCE SHEET”, is presented with the consolidated balance sheet         new shares is required to be designated as common stock.
as of March 31, 2006 prepared in accordance with the previous            However, a company may, by a resolution of the Board of
presentation rules.                                                      Directors, designate an amount not exceeding one-half of the price
                                                                         of the new shares as additional paid-in capital, which is included in
   Also, as discussed in Note 1 “STATEMENT OF CHANGES IN NET             capital surplus.
ASSETS”, the consolidated statement of changes in net assets for
the year ended March 31, 2007 has been prepared in accordance               Under the Law, in cases where a dividend distribution of surplus
with the new accounting standard. The accompanying consolidated          is made, the smaller of an amount equal to 10% of the dividend or
statement of shareholders' equity for the year ended March 31, 2006      the excess, if any, of 25% of common stock over the total of
was voluntarily prepared for the purpose of inclusion in the             additional paid-in-capital and legal earnings reserve must be set
consolidated financial statements although such statements were          aside as additional paid-in-capital or legal earnings reserve. Legal
not required to be filed with the Local Finance Bureau.                  earnings reserve is included in retained earnings in the
                                                                         accompanying consolidated balance sheets.
   The translation of the Japanese yen amounts into U.S. dollars is
included solely for the convenience of readers outside Japan, using         Under the Code, companies were required to set aside an
the prevailing exchange rate at March 31, 2007, which was ¥118.09        amount equal to at least 10% of the aggregate amount of cash
to U.S.$1.00. The convenience translation should not be construed        dividends and other cash appropriations as legal earnings reserve
as representation that the Japanese yen amounts have been, could         until the total of legal earnings reserve and additional paid-in
have been, or could in the future be, converted into U.S. dollars at     capital equaled 25% of common stock.
this or any other rate of exchange.                                         Under the Code, companies were required to set aside an
                                                                         amount equal to at least 10% of the aggregate amount of cash
                                                                         dividends and other cash appropriations as legal earnings reserve
CONSOLIDATION                                                            until the total of legal earnings reserve and additional paid-in
   The consolidated financial statements include the accounts of         capital equaled 25% of common stock.
the Company and subsidiaries, which are controlled through
substantial ownership of majority voting rights or existence of            Under the Code, legal earnings reserve and additional paid-in
certain other conditions. All significant intercompany balances,         capital could be used to eliminate or reduce a deficit by a resolution of
transactions and unrealized intercompany profits have been               the shareholders' meeting or could be capitalized by a resolution of
eliminated in the consolidated financial statements. In the              the Board of Directors. Under the Law, both of these appropriations
elimination of investments in subsidiaries, the assets and liabilities   generally require a resolution of the shareholders' meeting.


                                                                                                                          TOHO TENAX Annual Report 2007   13
        Additional paid-in capital and legal earnings reserve may not be      be written down to net asset value with a corresponding charge in
     distributed as dividends. Under the Code, however, on condition          the statement of operations in the event net asset value declines
     that the total amount of legal earnings reserve and additional paid-     significantly. In these cases, such fair market value or the net
     in capital remained equal to or exceeded 25% of common stock,            asset value will be the carrying amount of the securities at the
     they were available for distribution by resolution of the                beginning of the next year.
     shareholders' meeting. Under the Law, all additional paid-in-
     capital and all legal earnings reserve may be transferred to other       INVENTORIES
     capital surplus and retained earnings, respectively, which are           Inventories are stated primarily at the lower of cost or market. The
     potentially available for dividends.                                     cost of finished goods and work in process is principally
                                                                              determined by the weighted-average method and the cost of raw
       The maximum amount that the Company can distribute as                  materials and supplies is principally determined by moving average
     dividends is calculated based on the non-consolidated financial          method.
     statements of the Company in accordance with Japanese laws and
     regulations.                                                             PROPERTY, PLANT AND EQUIPMENT AND DEPRECIATION
                                                                                 Property, plant and equipment are carried at cost. Depreciation
     TRANSLATION OF FOREIGN CURRENCIES                                        is computed using primarily the declining-balance method for
       Receivables and payables denominated in foreign currencies             domestic companies and the straight-line method for overseas
     are translated into Japanese yen at the year-end rates. Balance          subsidiaries. The Company and its domestic subsidiaries
     sheets of consolidated overseas subsidiaries are translated into         depreciate buildings acquired after March 31, 1998 using the
     Japanese yen at the year-end rates except for shareholders' equity       straight-line method.
     accounts, and net assets account which are translated at the                The useful lives are from 10 to 50 years for buildings and
     historical rates. Statements of operations of consolidated               structures, and from 4 to 15 years for machinery and equipment.
     overseas subsidiaries are translated at the annual average rates
     except for transactions with the Company, which are translated at        FINANCE LEASES
     the rates used by the Company.                                             Finance leases, except those leases for which the ownership of
                                                                              the leased assets is transferred to the lessees at the end of the
     ALLOWANCE FOR DOUBTFUL ACCOUNTS                                          lease term, are accounted for in the same manner as operating
       Allowance for doubtful receivables is provided for individual          leases.
     amounts deemed to be uncollectible plus the amount calculated
     using the ratio of actual losses on collection in the past for the       IMPAIRMENT OF FIXED ASSETS
     remaining amounts.                                                          Effective from the year ended March 31, 2006, the Company and
                                                                              its domestic consolidated subsidiaries adopted the new
     SECURITIES                                                               accounting standard for impairment of fixed assets (“Opinion
        Under the Japanese accounting standard for financial                  Concerning Establishment of Accounting Standard for Impairment
     instruments (“Opinion Concerning Establishment of Accounting             of Fixed Assets” issued by the Business Accounting Deliberation
     Standard for Financial Instruments” issued by the Business               Council on August 9, 2002) and “Implementation Guidance for the
     Accounting Deliberation Council on January 22, 1999), the Company        Accounting Standard for Impairment of Fixed Assets”(the Financial
     and its domestic subsidiaries are required to examine the intent of      Accounting Standard Implementation Guidance No. 6 issued by the
     holding each security and classify those securities as (a) securities    Accounting Standards Board of Japan on October 31, 2003).
     held for trading purposes (“trading securities”), (b) debt securities       Along with this change, the Company recorded an impairment
     intended to be held to maturity (“held-to-maturity debt securities”),    loss of ¥59 million, and depreciation expenses decreased by ¥2
     (c) equity securities issued by subsidiaries and affiliated              million compared with the amount calculated if the new accounting
     companies, and (d) for all other securities that are not classified in   standard had not been adopted. As a result, loss before income
     any of the above categories ("available-for-sale securities"). The       taxes increased ¥57 million.
     Company and its consolidated domestic subsidiaries had no                   Accumulated loss from impairment is deducted directly from the
     trading securities and held-to-maturity debt securities at March 31,     acquisition costs of the related assets in accordance with the
     2007 and 2006.                                                           revised disclosure requirements.

        Available-for-sale securities with available market value are         RESEARCH AND DEVELOPMENT COSTS
     stated at market value and the others without available market             Research and development costs are charged to operations
     value are stated at moving-average cost in accordance with the           when they are incurred.
     Japanese accounting standard for financial instruments.
     Unrealized gains and losses on available for sale securities with        DEFERRED COSTS
     available market value are reported, net of applicable income              Stock issuance costs are charged to operations when they are
     taxes, as a separate of shareholders' equity and net assets.             paid.
     Realized gains and losses on sale of such securities are computed
     using moving-average cost.                                               SEVERANCE AND RETIREMENT BENEFITS
        If the market value of available-for-sale securities declines            The Company and its domestic consolidated subsidiaries provide
     significantly, such securities are stated at fair market value and the   two types of post-employment benefit plans, tax-qualified defined
     difference between fair market value and the carrying amount is          benefit pension plans and unfunded lump-sum payment plans. One
     recognized as loss in the period of decline. If the fair market value    of its overseas consolidated subsidiaries also has a defined benefit
     of equity securities is not readily available, such securities should    pension plan. The Company also has an employee pension trust.




14    TOHO TENAX Annual Report 2007
  The Company and its domestic consolidated subsidiaries                      the book value of the receivable or payable is recognized in
resolved to change its defined benefit pension plans from tax-                the statement of operations in the period which includes the
qualified pension plans to new defined benefit pension plans in the           inception date, and
year beginning April 1, 2007.                                              b) the discount or premium on the contract (that is, the
                                                                              difference between the Japanese yen amount of the contract
  As a result of this change, the projected benefit obligation                translated using the contracted forward rate and that
increased from ¥6,351 million to ¥6,368 million, and the prior service        translated using the spot rate at the inception date of the
costs amounting to ¥17 million were recognized as expense for the             contract) is recognized over the term of the contract.
year ended March 31, 2007.
                                                                         PRESENTATION OF NET ASSETS IN THE BALANCE SHEET
  Actuarial gains and losses are amortized over the average of the          Effective from the year ended March 31, 2007, the Company and
estimated remaining service lives of 15 years commencing with the        its consolidated subsidiaries adopted the new accounting
succeeding period. Prior service costs are recognized as expense         standard, “Accounting Standard for Presentation of Net Assets in
when they are incurred.                                                  the Balance Sheet” (Statement No. 5 issued by the Accounting
                                                                         Standards Board of Japan on December 9, 2005), and the
   For directors and corporate statutory auditors, the Company and       implementation guidance for the accounting standard for
its domestic consolidated subsidiaries provide for 100% of the           presentation of net assets in the balance sheet (the Financial
liabilities for the estimated retirement benefits that would be          Accounting Standard Implementation Guidance No. 8 issued by the
payable at the end of each year in accordance with the internal          Accounting Standards Board of Japan on December 9, 2005),
rules.                                                                   (collectively, “the New Accounting Standards”).

ACCRUED EMPLOYEES’ BONUSES                                                  The consolidated balance sheet as of March 31, 2007 prepared
  The Company and its domestic consolidated subsidiaries                 in accordance with the New Accounting Standards comprises
accrued the estimated amounts of employees' bonus based on               three sections, which are the assets, liabilities and net assets
estimated amounts to be paid in the subsequent period.                   sections. The consolidated balance sheet as of March 31, 2006
                                                                         prepared pursuant to the previous presentation rules comprises
INCOME TAXES                                                             the assets, liabilities, minority interests and shareholders’ equity
   Income taxes comprise corporate, enterprise and inhabitant            sections. Under the New Accounting Standards, the following
taxes. Deferred income taxes are recognized for temporary                items are presented differently at March 31, 2007 compared to
difference between the financial statement basis and the tax basis       March 31, 2006. The net assets section includes unrealized
of assets and liabilities. The asset and liability approach is used to   gains/losses on hedging derivatives, net of taxes. Under the
recognize deferred tax assets and liabilities for the expected future    previous presentation rules, unrealized gains/losses on hedging
tax consequences of temporary differences.                               derivatives were included in the assets or liabilities section without
                                                                         considering the related income tax effects.
EARNINGS PER SHARE
  Earnings per share is computed based upon the weighted-average         STATEMENT OF CHANGES IN NET ASSETS
number of shares of common stock outstanding during the year.               Effective from the year ended March 31, 2007, the Company and
                                                                         its consolidated subsidiaries adopted the new accounting
   Diluted net income per share is not disclosed because potentially     standard, “Accounting Standard for Statement of Changes in Net
dilutive securities are not issued.                                      Assets” (Statement No. 6 issued by the Accounting Standards
                                                                         Board of Japan on December 27, 2005), and the implementation
DERIVATIVES AND HEDGE ACCOUNTING                                         guidance for the accounting standard for statement of changes in
   The Company and its domestic consolidated subsidiaries state          net assets (the Financial Accounting Standard Implementation
derivative financial instruments at fair value and recognize             Guidance No. 9 issued by the Accounting Standards Board of
changes in the fair value as gains or losses unless the derivative       Japan on December 27, 2005), (collectively, “the Additional New
financial instruments are used for hedging purposes.                     Accounting Standards”).

   If derivative financial instruments are used as hedges and meet          The Company prepared the accompanying consolidated
certain hedging criteria, the Company and its consolidated               statement of changes in net assets for the year ended March 31,
domestic subsidiaries defer recognition of gains or losses resulting     2007 in accordance with the Additional New Accounting
from changes in fair value of derivative financial instruments until     Standards. The accompanying consolidated statement of
the related losses or gains on the hedged items are recognized.          shareholders’ equity for the year ended March 31, 2006, which
                                                                         was voluntarily prepared for inclusion in the consolidated
   However, in cases where forward foreign exchange contracts            financial statements, has not been adapted to the new
are used as hedges and meet certain hedging criteria, forward            presentation rules of 2007.
foreign exchange contracts and hedged items are accounted for in
the following manner:                                                    RECLASSIFICATION
   If a forward foreign exchange contract is executed to hedge an          Certain prior year amounts have been reclassified to conform to
existing foreign currency receivable or payable,                         the presentation of the year ended March 31, 2007. These changes
   a) the difference, if any, between the Japanese yen amount of         had no impact on previously reported results of operations.
      the hedged foreign currency receivable or payable translated
      using the spot rate at the inception date of the contract and




                                                                                                                      TOHO TENAX Annual Report 2007   15
     NOTE 2 – INVENTORIES                                                                      Employees’ severance and retirement benefit expenses, included in
        Inventories consist of the following:                                               the consolidated statement of operations for the years ended March
                                                      March 31,               March 31,
                                                                                            31, 2007 and 2006, are comprised of the following:

                                                 2007              2006         2007                                                              March 31,                March 31,

                                                                             (Thousands)                                                      2007              2006         2007
                                                       (Millions)
                                                                               (Note 1)                                                                                   (Thousands)
                                                                                                                                                   (Millions)
     Finished goods                            ¥ 6,378             ¥ 5,431     $ 54,010                                                                                     (Note 1)
     Work in process                             2,854               2,316       24,168     Service costs – benefits earned during the year    ¥ 276             ¥ 271       $ 2,337
     Raw materials                               2,525               1,078       21,382     Interest cost on projected benefit obligation        160               151         1,355
     Supplies                                      390                 384        3,302     Expected return on plan assets                       (19)              (13)         (161)
                                                                                            Amortization of net transition obligation             17                —            144
     Total                                     ¥ 12,147            ¥ 9,209     $ 102,862
                                                                                            Amortization of actuarial differences                (56)               75          (474)
                                                                                              Employees’ severance and
                                                                                                retirement benefit expenses                    ¥ 378             ¥ 484       $ 3,201
     NOTE 3 – ACCUMULATED DEPRECIATION
       Accumulated depreciation for the years ended March 31, 2007 and                         The discount rate and the rate of expected return on plan assets
     2006 were ¥46,625 million ($394,826 thousand) and ¥46,330 million,                     used by the Company are 2.0% for the years ended March 31, 2007 and
     respectively.                                                                          2006. The estimated amount of all retirement benefits to be paid at the
                                                                                            future retirement date is allocated equally to each service year using
     NOTE 4 – SHORT-TERM LOANS AND LONG-TERM DEBT                                           the estimated number of total service years. Actuarial gains and
       Short-term loans at March 31, 2007 and 2006 bore interest at the                     losses are recognized in expenses in equal amounts over 15 years.
     annual rates ranging from 1.06% to 6.5% and 0.7% to 5.3 %                              Prior service costs are recognized as expense when they are incurred.
     respectively.
       Long-term debt consists of the following                                             NOTE 6 – LEASES
                                                                                               The Company and its subsidiaries lease certain machinery,
                                                      March 31,               March 31,
                                                                                            equipment and tools under non-cancelable finance leases which do
                                                 2007              2006         2007        not transfer ownership. Assuming that assets used under such finance
                                                                                            leases were capitalized, they would be recorded on the consolidated
                                                                             (Thousands)
                                                       (Millions)                           financial statements as of March 31, 2007 and 2006 as follows:
                                                                               (Note 1)
     Unsecured loans, 3.7-4.347%                ¥ 2,986        ¥ 1,007         $ 25,286
                                                ¥ 2,986        ¥ 1,007         $ 25,286     (1)Purchase price equivalents, accumulated depreciation
     Less current portion                            —              —                —      equivalents, and book value equivalents
     Long-term debt, net                        ¥ 2,986        ¥ 1,007         $ 25,286
       The annual maturities of long-term debt outstanding at March 31,                     Machinery and equipment:
                                                                                                                                                   March 31,               March 31,
     2007 were as follows:
                                                             Amount                                                                           2007           2006           2007
                                                                             (Thousands)                                                                                  (Thousands)
                                               (Millions)                                                                                          (Millions)
                                                                               (Note 1)                                                                                     (Note 1)
     Year ending March 31,                                                                  Purchase price equivalents                        ¥ 1,891        ¥ 1,350        $ 16,018
     2008                                           —                                —
                                                                                            Accumulated depreciation equivalents                 (745)          (559)         (6,309)
     2009                                      ¥ 1,868                         $ 15,819
     2010                                           —                                —      Book value equivalents                            ¥ 1,146        ¥ 791          $ 9,709
     2011                                           —                                —
     2012 and thereafter                       ¥ 1,118                         $ 9,467
         Total                                 ¥ 2,986                         $ 25,286     Tools:                                                 March 31,               March 31,

                                                                                                                                              2007           2006           2007
                                                                                                                                                                          (Thousands)
     NOTE 5 – EMPLOYEES' SEVERANCE AND                                                                                                              (Millions)
                                                                                                                                                                            (Note 1)
              RETIREMENT BENEFITS                                                           Purchase price equivalents                        ¥ 364             ¥ 348        $ 3,084
        The liabilities for employees’ severance and retirement benefits                    Accumulated depreciation equivalents                (225)             (177)       (1,909)
     included in the liability section of the consolidated balance sheets as                Book value equivalents                            ¥ 139             ¥ 171        $ 1,175
     of March 31, 2007 and 2006 consist of the following:
                                                                                               Purchase price equivalents were calculated using the inclusive-
                                                      March 31,               March 31,     of-interest method.
                                                 2007          2006            2007
                                                                                            (2)Lease commitments
                                                                             (Thousands)                                                           March 31,                March 31,
                                                      (Millions)
                                                                               (Note 1)
                                                                                                                                               2007              2006        2007
     Projected benefit obligation              ¥ (6,368)       ¥ (6,349)       $ (53,925)
     Fair value of pension assets                 5,504           5,744           46,609                                                                                  (Thousands)
                                                                                                                                                    (Millions)
                                                                                                                                                                            (Note 1)
      Unfunded projected benefit obligation        (864)           (605)          (7,316)    Due within one year                              ¥ 326              ¥ 253       $ 2,766
     Unrecognized actuarial differences            (910)         (1,206)          (7,706)    Due after one year                                 959                709         8,118
     Prepaid pension cost                           372              —             3,150
      Liability for employees’ severance and                                                       Total                                      ¥ 1,285             ¥ 962      $ 10,884
       retirement benefits                     ¥ (2,146)       ¥ (1,811)       $ (18,172)
                                                                                               Lease commitments were calculated using the inclusive-of-
                                                                                            interest method.

16     TOHO TENAX Annual Report 2007
(3)Lease payments and depreciation equivalents                              The following table summarizes book values of securities with no
                                          March 31,          March 31,    available fair values as of March 31, 2007 and 2006.
                                                                                                                  March 31,              March 31,
                                   2007            2006       2007
                                                           (Thousands)    Type                                2007          2006           2007
                                          (Millions)
                                                             (Note 1)                                                                   (Thousands)
Lease payments                     ¥ 288           ¥ 254      $ 2,439                                              (Millions)
                                                                                                                                          (Note 1)
Depreciation equivalents           ¥ 288           ¥ 254      $ 2,439     Non-listed equity securities         ¥ 129            ¥ 146        $ 1,092
  The depreciation is calculated using the straight-line method over      Others                                 316              286          2,676
the lease terms assuming no residual value.                                   Total                            ¥ 445            ¥ 432        $ 3,768
                                                                             The proceeds from sales of available-for-sale securities were
NOTE 7 – SECURITIES                                                       ¥167 million for the year ended March 31, 2007. The gross realized
  The information of securities as of March 31, 2007 and 2006 were        losses on those sales were ¥24 million for the year ended March 31,
as follows:                                                               2007. The Company didn’t sale any available-for-sale securities for
                                                                          the year ended March 31, 2006.
   The following tables summarize acquisition costs, book values and
fair values of securities with available fair values as of March 31,      NOTE 8 – RESEARCH AND DEVELOPMENT COSTS
2007 and 2006.                                                               Research and development costs in the years ended March 31,
                                                                          2007 and 2006 amounted to ¥1,701 million ($14,404 thousand) and
   (Available-for-sale securities)                                        ¥1,474 million, respectively.
   (1) Securities with book values exceeding acquisition costs:

                                       March 31, 2007                     NOTE 9 – DERIVATIVE FINANCIAL INSTRUMENTS
                                                                                   AND HEDGING TRANSACTIONS
                                           (Millions)
                                                                             As explained in Note 1, the Company and its domestic consolidated
Type                   Acquisition cost       Book value   Difference
Equity securities                   ¥5                ¥8           ¥3     subsidiaries are required to state derivative financial instruments at
    Total                           ¥5                ¥8           ¥3     fair value and to recognize changes in the fair value as gains or losses
                                                                          unless derivative financial instruments are used for hedging purpose.
                                      March 31, 2006
                                           (Millions)                        The Company and its subsidiaries utilize foreign currency forward
                                                                          contracts as derivative financial instruments only for the purpose of
Type                   Acquisition cost      Book value    Difference
                                                                          mitigating future risks of fluctuation of foreign currency exchange
Equity securities                   ¥4               ¥9            ¥5
    Total                           ¥4               ¥9            ¥5     rates with respect to foreign currency receivables and payables.

                                                                            The derivative transactions are executed and managed in
                                       March 31, 2007
                                                                          accordance with the established policies and within the specified limit
                                    (Thousands) (Note 1)                  on the amounts of derivative transactions allowed.
Type                   Acquisition cost       Book value   Difference
Equity securities                  $ 42             $ 68          $ 26      The following summarizes hedging derivative financial instruments
    Total                          $ 42             $ 68          $ 26    used by the Company and its subsidiaries and items hedged:

   (2) Securities with book values not exceeding acquisition costs:
                                                                          Hedging instruments: Foreign currency forward contracts
                                       March 31, 2007                     Hedged items:Foreign currency trade receivables and payable
                                           (Millions)
Type                   Acquisition cost       Book value   Difference        The Company and its consolidated subsidiaries evaluate hedge
Equity securities                  ¥—               ¥—           ¥—
                                                                          effectiveness semi-annually by comparing the cumulative changes in
    Total                          ¥—               ¥—           ¥—
                                                                          interest rate of hedged items and the corresponding changes in the
                                                                          hedging derivative instruments.
                                     March 31, 2006
                                          (Millions)
                                                                            The Company and its subsidiaries' financial instrument counter-
Type                  Acquisition cost       Book value    Difference     parties were all prime banks operating domestically in Japan, and
Equity securities                 ¥ 40             ¥ 29          ¥ (11)   credit risk in the event of non-performance by the counter-parties is
    Total                         ¥ 40             ¥ 29          ¥ (11)   considered minor.

                                      March 31, 2007                         Market value and other information on derivative financial
                                    (Thousands) (Note 1)                  instruments at March 31, 2007 and 2006 were not subject to disclose
Type                   Acquisition cost      Book value    Difference     as the Company and its subsidiaries applied hedge accounting to all
Equity securities                  $—              $—            $—       derivative financial instruments used.
    Total                          $—              $—            $—
  The Company and its subsidiaries recognize impairment loss for
the securities, whose available fair values decline more than 50% of
the carrying amount.




                                                                                                                       TOHO TENAX Annual Report 2007   17
     NOTE 10 – INCOME TAXES                                                             NOTE 11 – TRANSACTIONS WITH RELATED PARTIES
      Significant components of deferred tax assets and liabilities as of                 Transactions with Teijin Ltd., the parent company of the Company, for
     March 31, 2007 and 2006 were as follows:                                           the years ended March 31, 2007 and 2006 were as follows:
                                                      March 31,           March 31,                                                March 31,              March 31,

                                                  2007           2006       2007                                              2007          2006           2007
                                                                         (Thousands)                                                (Millions)           (Thousands)
                                                      (Millions)                                                                                           (Note 1)
                                                                           (Note 1)
     Deferred tax assets:                                                               Unsecured short-term loans          ¥ 10,743       ¥ 18,118        $ 90,973
       Severance and retirement benefits      ¥ 1,965         ¥ 1,294       $ 16,640    Unsecured long-term loans                 —           1,300              —
       Unrealized gain from intercompany                                                Interest expense                         222            209           1,880
        sale of fixed assets                       —               47             —     Sales of property, plant
                                                                                         and equipment                             —              924              —
       Restructuring cost                         244              —           2,066    Issuance of new shares
       Grant for capital investment               115              —             974     via Third-Party Allocation            9,853               —           83,442
       Accrued bonuses                            243             213          2,058
       Loss carry-forward                       5,252           6,029         44,474      The interest rate applicable to the short-term loans was determined
       Other                                      227             196          1,922    on the basis of market interest rate. The sales prices of property, plant
         Total deferred tax assets              8,046           7,779         68,134
     Valuation allowances                      (6,518)         (6,926)       (55,194)   and equipment were determined on the basis of appraised value by the
     Net deferred tax assets                  ¥ 1,528         ¥ 853         $ 12,940    real-estate appraiser. Teijin Ltd. underwrote the issuance of new
                                                                                        shares at the rate of ¥695 per share.
     Deferred tax liabilities:                ¥     148            —        $ 1,253
     Prepaid pension costs                          148            —          1,253
                                                                                           Transactions with Teijin Engineering Ltd., the subsidiary of Teijin Ltd.
     Deferred tax assets (current)            ¥ 1,065         ¥    709      $ 9,019     (the parent company of the Company), for the years ended March 31,
     Deferred tax assets (non-current)            463              144        3,921     2007 were as follows:
     Deferred tax liabilities (non-current)       148               —         1,253                                                                March 31,

                                                                                                                                            2007           2007
        The following table summarizes the significant differences between                                                                               (Thousands)
                                                                                                                                          (Millions)       (Note 1)
     the statutory tax rate and the Company’s and its consolidated
     subsidiaries’ effective tax rate for financial statement purposes for the          Execution of construction work                      ¥ 1,132         $ 9,584
                                                                                        Other account payable                                   572           4,852
     year ended March 31, 2007. The information for the year ended March
     31, 2006 is not presented, because this information is not required to be            The business terms were negotiated and determined in view of
     disclosed in the case of net loss                                                  market prices.

                                                                             2007          Transactions with Kure Kogyo Co., Ltd., the subsidiary of Teijin Ltd.
     Statutory tax rate                                                    38.5%        (the parent company of the Company), for the year ended March 31,
       Net operating loss carried forward utilized                          (45.0)
       Current temporary differences                                                    2007 were as follows:
                                                                                                                                                   March 31,
       which were not recognized
       Valuation allowance                                                   23.3                                                           2007           2007
       Other                                                               (13.5)                                                                        (Thousands)
     Effective tax rate                                                     3.7%                                                          (Millions)
                                                                                                                                                           (Note 1)
                                                                                        Execution of construction work                           ¥ 628         $ 5,319
                                                                                        Other account payable                                      515           4,358
                                                                                          The business terms were negotiated and determined in view of
                                                                                        market prices.
     NOTE 12 – SEGMENT INFORMATION
        The Company and its subsidiaries operate primarily in the manufacture and sales of products in four business segments: carbon fiber industry,
     textile industry, machinery and engineering industry and service.
                                                                                          Year ended March 31, 2007
                                                                                 Machinery and                                      Corporate or
                                                  Carbon fiber           Textile   Engineering           Service           Total     elimination Consolidated
                                                                                                   (Millions)
      Net sales                                       ¥ 34,074           ¥ 6,433        ¥ 7,872           ¥ 1,686       ¥ 50,065          ¥ (1,548)        ¥ 48,517
      Operating expenses                                28,171             6,890          7,444             1,594         44,099            (1,562)          42,537
      Operating income (loss)                         ¥ 5,903            ¥ (457)        ¥ 428             ¥ 92          ¥ 5,966           ¥     14         ¥ 5,980
      Identifiable assets                             ¥ 45,210           ¥ 4,281        ¥ 5,877           ¥ 1,302       ¥ 56,670          ¥ 314            ¥ 56,984
      Depreciation and amortization                   ¥ 2,510            ¥ 161          ¥ 91              ¥ 71          ¥ 2,833           ¥     37         ¥ 2,870
      Capital expenditures                            ¥ 10,892           ¥ 136          ¥ 113             ¥ 49          ¥ 11,190          ¥     13         ¥ 11,203

                                                                                          Year ended March 31, 2006
                                                                                 Machinery and                                      Corporate or
                                                  Carbon fiber           Textile   Engineering           Service           Total     elimination Consolidated
                                                                                                   (Millions)
      Net sales                                       ¥ 28,959           ¥ 6,692        ¥ 7,352           ¥ 1,887       ¥ 44,890          ¥ (888)          ¥ 44,002
      Operating expenses                                24,741             7,192          7,006             1,793         40,732            (893)            39,839
      Operating income (loss)                         ¥ 4,218            ¥ (500)        ¥ 346             ¥ 94          ¥ 4,158           ¥    5           ¥ 4,163
      Identifiable assets                             ¥ 30,708           ¥ 5,232        ¥ 5,286           ¥ 1,356       ¥ 42,582          ¥ (132)          ¥ 42,450
      Depreciation and amortization                   ¥ 1,739            ¥ 214          ¥ 96              ¥ 92          ¥ 2,141           ¥   36           ¥ 2,177
      Capital expenditures                            ¥ 6,535            ¥ 126          ¥ 73              ¥ 80          ¥ 6,814           ¥   35           ¥ 6,849


18     TOHO TENAX Annual Report 2007
                                                                         Year ended March 31, 2007
                                                                Machinery and                                      Corporate or
                                 Carbon fiber         Textile     Engineering         Service              Total    elimination Consolidated
                                                                           (Thousands) (Note 1)
Net sales                           $ 288,543       $ 54,476         $ 66,661         $ 14,277         $ 423,957       $ (13,109)       $ 410,848
Operating expenses                    238,555         58,346           63,037           13,498           373,436         (13,227)         360,209
Operating income (loss)             $ 49,988        $ (3,870)        $ 3,624          $ 779            $ 50,521        $      118       $ 50,639
Identifiable assets                 $ 382,844       $ 36,252         $ 49,767         $ 11,025         $ 479,888       $ 2,659          $ 482,547
Depreciation and amortization       $ 21,255        $ 1,363          $    771         $ 601            $ 23,990        $      313       $ 24,303
Capital expenditures                $ 92,235        $ 1,151          $    957         $ 415            $ 94,758        $      110       $ 94,868


(2) Geographic segment information for the years ended March 31, 2007 and 2006 was as follows:
                                                                                 Year ended March 31, 2007
                                                                                                                   Corporate or
                                                      Japan           Europe        Americas              Total     elimination Consolidated
                                                                                          (Millions)
Net sales                                            ¥ 41,380         ¥ 11,617         ¥ 9,770          ¥ 62,767       ¥ (14,250)         ¥ 48,517
Operating expenses                                     37,200           10,441           8,768            56,409         (13,872)           42,537
Operating income                                     ¥ 4,180          ¥ 1,176          ¥ 1,002          ¥ 6,358        ¥ (378)            ¥ 5,980
Identifiable assets                                  ¥ 40,054         ¥ 14,152         ¥ 6,771          ¥ 60,977       ¥ (3,993)          ¥ 56,984

                                                                                 Year ended March 31, 2006
                                                                                                                   Corporate or
                                                       Japan          Europe         Americas             Total     elimination     Consolidated
                                                                                         (Millions)
Net sales                                            ¥ 37,365         ¥ 9,908          ¥ 7,652          ¥ 54,925       ¥ (10,923)         ¥ 44,002
Operating expenses                                     34,331           8,588            7,691            50,610         (10,771)           39,839
Operating income (loss)                              ¥ 3,034          ¥ 1,320          ¥ (39)           ¥ 4,315        ¥ (152)            ¥ 4,163
Identifiable assets                                  ¥ 32,537         ¥ 8,678          ¥ 3,756          ¥ 44,971       ¥ (2,521)          ¥ 42,450

                                                                                 Year ended March 31, 2007
                                                                                                                   Corporate or
                                                      Japan           Europe         Americas             Total     elimination Consolidated

                                                                             (Thousands) (Note 1)
Net sales                                           $ 350,411        $ 98,374        $ 82,734     $ 531,519          $ (120,671)         $ 410,848
Operating expenses                                    315,014           88,416         74,249       477,679            (117,470)           360,209
Operating income                                    $ 35,397         $ 9,958         $ 8,485      $ 53,840           $ (3,201)           $ 50,639
Identifiable assets                                 $ 339,182        $ 119,841       $ 57,337     $ 516,360          $ (33,813)          $ 482,547

 (3) Overseas sales information by geographic areas for the years ended March 31, 2007 and 2006 was as follows:
                                                                                 Year ended March 31, 2007

                                                                         Asia          Europe          Americas            Other             Total
                                                                                 (Millions)
Overseas sales                                                        ¥ 6,892         ¥ 11,235          ¥ 6,284              ¥ 12         ¥ 24,423
Percentage of overseas sales
 to consolidated net sales                                              14.2%           23.2%             12.9%             0.0%            50.3%
                                                                                    Year ended March 31, 2006

                                                                         Asia          Europe          Americas           Other               Total
                                                                                 (Millions)
Overseas sales                                                        ¥ 5,854          ¥ 9,467           ¥ 5,015             ¥ 20         ¥ 20,356
Percentage of overseas sales
 to consolidated net sales                                              13.3%           21.5%             11.4%             0.1%             46.3%

                                                                                 Year ended March 31, 2007

                                                                         Asia          Europe          Americas            Other             Total
                                                                            (Thousands) (Note 1)
 Overseas sales                                                       $ 58,362        $ 95,139          $ 53,214            $102         $ 206,817




                                                                                                                         TOHO TENAX Annual Report 2007   19
     NOTE 13 – CONTINGENT LIABILITIES
        The Company and one of its consolidated subsidiaries were contingently liable for repurchase of accounts receivable amounting to ¥294
     million ($2,489 thousand) and ¥350 million at March 31, 2007 and 2006, respectively.

     NOTE 14 – RESTRUCTURING COST
        Restructuring cost for the years ended March 31, 2007 and 2006 were ¥1,081 million ($9,154 thousand) and ¥1,135 million, respectively, for
     the purpose of the withdrawal from the rayon business and clean up of the land and groundwater.

     NOTE 15 – IMPAIRMENT LOSS
        During the year ended March 31, 2006, the Company and its domestic consolidated subsidiaries recognized loss on impairment of fixed
     assets on following group of assets.
            Use                   Type of assets                    Location         Amount (Millions)
     Idle properties        Buildings and structures          Gifu prefecture                   ¥ 17
     Idle properties        Machinery and equipment           Gifu prefecture                      12
     Idle properties        Machinery and equipment           Osaka prefecture                      4
     Idle properties        Machinery and equipment           Shizuoka prefecture                  26
            Total                                                                               ¥ 59
        The Company and its domestic consolidated subsidiaries classified fixed assets into groups mainly by the type of managerial accounting
     segments whose cash flows were grasped continually, and classified idle properties into groups by the type of respective properties.
        Carrying amounts of idle properties were devalued to their recoverable amounts, owing to no possibilities of using in the future.
        The recoverable amounts were measured at their net selling prices by referring to the published evaluation prices and the price examples
     of similar transactions.
       As a result, the Company and its domestic consolidated subsidiaries recognized loss on impairment of fixed assets in the amount of ¥59 million.

     NOTE 16 – LAND TRANSFERRED TO THE ORGANIZATION FOR PROMOTING URBAN DEVELOPMENT
        The Company bought back the former site of Ogaki Plant handed over to the Organization for Promoting Urban Development in March and June
     1996 in accordance with the provisions of the handover agreement after the land was not used for private urban development within ten years.
       As a result of this transaction in 1996, the Company had earned ¥6,612 million by selling the land at ¥7,906 million.
        On the other hand, with the help of the parties concerned, the Company had endeavored to attract a business to the site for active use of
     the land. Eventually obtaining the prospect that it would be used as a factory site, the Company sold the land on March 24, 2006. As a result of
     this release, the Company posted an extraordinary loss of ¥5,794 million on the handover of the land in its financial results for the fiscal year
     ending March 31, 2006.

     NOTE 17 -SUBSEQUENT EVENTS
      (1) Capacity Expansion for Carbon Fiber “TENAX”
        The board of the Company passed a resolution for the capacity expansion of PAN-based carbon fiber ''TENAX'' on April 12, 2006. The
     Company plans to install in its Mishima plant, Japan, a new carbonization line with annual production capacity of 2,700 metric tons, with
     startup scheduled in April 2008. Also, the expansion of its precursor (raw material of carbon fibers) production capacity is to be pursued in
     parallel. The capital expenditure for the new capacities for both carbon fiber and precursor will be 10.7 billion yen.
     (2) Conversion to wholly owned subsidiary via Stock Swap
        The Board of Directors meeting of the Company, held on May 28, 2007, resolved to conduct a Stock Swap with Teijin Ltd. (“Teijin”), under
     which the Company will become the wholly owned subsidiary of Teijin. On the same date, the Company and Teijin concluded a Stock Swap
     agreement. The ordinary Shareholders’ meeting, held on June 28, 2007, approved the Stock Swap.

         1.Objective of the Stock Swap
            Teijin acquired a majority of the common stock in the Company, in February 2000. Since that time, the Teijin Group (the “Group”) has
         aggressively invested management resources in carbon fiber operations, which is positioned as a core business, under a basic policy aimed at
         profitable growth. Thereafter, Teijin acquired a third-party allocation of new shares that the Company issued to raise its capital, etc., bringing its
         ownership ratio to the present level of 68.41%.
            The objective of Teijin’s conversion of the Company to a wholly owned subsidiary is to raise the overall corporate value of the Group by
         expanding the Company's operations by enabling the Group to strengthen additionally the positioning of carbon fiber operations as a core
         business, responding appropriately to the anticipated high growth in demand for carbon fiber and further promoting joint developments with the
         Group business that take advantage of the Group technologies and expertise.

         2.Method and contents of the Stock Swap
            According to the Stock Swap agreement, the Company becomes a wholly-owned subsidiary of Teijin through conducting the Stock Swap as
         the effective date, September 1, 2007.
            As a result of this Stock Swap, the Company’s shareholders (excluding Teijin) receive the Teijin’s common stock in exchange for the Company’s
         common stock which shall be delivered to Teijin.
            1.15 common stock of Teijin per share of the Company will be delivered to the Company's shareholders whose names were listed or recorded in
         the Company's register of shareholders as of the day preceding the effective date.

         3.Overview of Teijin
         Name                          Teijin Limited                        Capital as of March 31, 2007      ¥70,787 million ($599,433 thousand)
         Head office location          6-7, Minami-hommachi 1-chome,         Consolidated net assets           ¥407,736 million ($3,452,756 thousand)
                                       Chuo-ku, Osaka                        as of March 31, 2007
         Representative's              Toru Nagashima, President and CEO     Consolidated total assets         ¥999,917 million ($8,467,415 thousand)
         name and title                                                      as of March 31, 2007
                                                                             Description of business           To control or manage the subsidiary’s
                                                                                                               operations through the ownership of shares
                                                                                                               or holding of the subsidiaries, etc.
         4.Delisting the stock of the Company
         As a result of the Stock Swap, effective September 1, 2007, Teijin will become the complete parent company of the Company, and the Company’s
         shares are expected to be delisted on August 28, 2007 (with August 27, 2007 as the final day of trading).



20     TOHO TENAX Annual Report 2007
INDEPENDENT AUDITORS’ REPORT



 To the Shareholders and Board of Directors of
 TOHO TENAX CO., LTD.



    We have audited the accompanying consolidated balance sheets of Toho Tenax Co., Ltd. and
    consolidated subsidiaries as of March 31, 2007 and 2006, the related consolidated statements of
    operations for the years then ended, the consolidated statement of changes in net assets for the
    year ended March 31, 2007, the consolidated statement of shareholders' equity for the year ended
    March 31, 2006, and the consolidated statements of cash flows for the years ended March 31, 2007
    and 2006, 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 Toho Tenax Co., Ltd. and consolidated
    subsidiaries as of March 31, 2007 and 2006, 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.

    Without qualifying our opinion, we draw attention to the following:
    (1) As discussed in Note 15 to the consolidated financial statements, effective from the year ended
        March 31, 2006, Toho Tenax Co., Ltd. and its domestic consolidated subsidiaries adopted the
        accounting standard for impairment of fixed assets.
    (2) As discussed in Note 17 to the consolidated financial statements, the board of Toho Tenax Co., Ltd.
        passed a resolution for the capacity expansion on April 12, 2006.
    (3) As discussed in Note 17 to the consolidated financial statements, Toho Tenax Co., Ltd. and
        Teijin Ltd. concluded a Stock Swap agreement on May 28, 2007, under which Toho Tenax Co.,
        Ltd. will become the wholly owned subsidiary of Teijin Ltd. The Stock Swap agreement was
        approved by the ordinary shareholders' meeting held on June 28, 2007.

    The U.S. dollar amounts in the accompanying consolidated financial statements with respect to
    the year ended March 31, 2007 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.




    Tokyo, Japan
    June 28, 2007




                                                                                               TOHO TENAX Annual Report 2007   21
(Effective from November 12, 2007)
29F Kasumigaseki Common Gate West Building,
2-1, Kasumigaseki 3-chome, Chiyoda-ku,
Tokyo 100-8585, Japan
Tel: +81-3-3506-6800

								
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