· PDF fileA Message from the President 2 Kansai Paint Co., Ltd. Corporate Report 2010 Kansai Paint Co., Ltd. Corporate Report 2010 3 Yuzo Kawamori President

6-14, Imabashi 2-chome, Chuo-ku, Osaka 541-8523, Japan

Tel: 81-6-6203-5531Fax: 81-6-6203-5018

http://www.kansai.co.jp

2010

2010Year Ended March 31, 2010

Corporate Report

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Printed in JapanPrinted on recycled paper


Five-Year Summary of Selected Financial DataYears ended March 31, 2010, 2009, 2008, 2007 and 2006

Consolidated BasisThousands of

Millions of yen U.S. dollars(Note 1)

2010

For convenience only U.S. dollar amounts in this report have been converted from Japanese yen at the rate of ¥93.04 to US$1, the exchange rate at March 31, 2010.Net income per share is computed based on the weighted average number of shares outstanding during the respective years. From the year ended March 31, 2003, the portion of net income unavailable to common shareholders, such as directors’ bonuses, which is included in the appropriation of retained earnings, is deducted from net income for the calculation of net income per share.

2006 2007 2008 2009

2006 2007 2008 2009 2006 2007 2008 2009 2006 2007 2008 2009

2006 2007 2008 2009 2006 2007 2008 2009

14,000

12,000

10,000

8,000

6,000

4,000

2,000

0

250,000

200,000

150,000

100,000

50,000

0

25,000

20,000

15,000

10,000

5,000

0

25,000

20,000

15,000

10,000

5,000

0

300,000

250,000

200,000

150,000

100,000

50,000

0

200,000

150,000

100,000

50,000

0

210,965231,214

256,586

229,989

16,602

2010

22,40122,28424,287

26,397

18,903

22,09023,756

13,424

10,786

12,04913,267

13,755

266,887

299,299282,884

240,666

2010

2010 2010

2010

222,40120,505

11,830270,373

152,176164,131

156,832145,730

2010

161,231

(Millions of yen)

(Millions of yen) (Millions of yen) (Millions of yen)

(Millions of yen) (Millions of yen)

2010

¥ 222,40120,50522,40111,830

¥ 270,373161,231

¥ 44.56

$ 2,390,380220,389240,767127,150

$ 2,905,9871,732,921

$ 0.48

For the year:Net salesOperating incomeIncome before income taxesNet income

At year-end:Total assetsTotal shareholders’ equity

Per share amounts(in yen and U.S. dollars):Net income

2008 2007 2006

¥ 256,58623,75626,39713,755

¥ 282,884156,832

¥ 51.53

2009

¥ 229,98913,42416,60210,786

¥ 240,666145,730

¥ 40.61

¥ 231,21422,09024,28713,267

¥ 299,299164,131

¥ 48.98

¥ 210,96518,90322,28412,049

¥ 266,887152,176

¥ 44.04

Net sales

Net income Total assets Total shareholders' equity

Operating income Income before income taxes

1Kansai Paint Co., Ltd. Corporate Report 2010

HEAD OFFICE 6-14, Imabashi 2-chome, Chuo-ku Osaka 541-8523, JapanTel: 81-6-6203-5531 Fax: 81-6-6203-5018

TOKYO OFFICE24-15, Higashi-Ohi 5-chome, Shinagawa-ku Tokyo 140-8520, JapanTel: 81-3-3472-3131 Fax: 81-3-3458-0525

R&D CENTER17-1, Higashi-Yawata 4-chome, Hiratsuka-shi, Kanagawa 254-8562, JapanTel: 81-463-23-2100 Fax: 81-463-24-0637

Overseas

KANSAI PAINT (AMERICA), INC.5455 Corporate Drive, Suite 205 Troy, MI 48098, U.S.A.Tel: 1-248-952-0533 Fax: 1-248-952-0538

PPG KANSAI AUTOMOTIVE FINISHES U.S., LLCTroy-Automotive Technical Center, 5875 New King Court Troy, MI 48098, U.S.A.Tel: 1-248-641-2010 Fax: 1-248-641-2266

PPG KANSAI AUTOMOTIVE FINISHES CANADA, LP834 Caledonia Road, TorontoOntario M6B 3X9, CanadaTel: 1-905-855-5667 Fax: 1-905-823-4190

PPG ALESCO AUTOMOTIVE FINISHES MEXICO, S.de.R.L.de C.V.Libramiento a Tequisquiapan #66 Zona Industrial, San Juan del Rio, 76800 Queretaro, MexicoTel: 52-427-2710124 Fax: 52-427-2719195

KANSAI PAINT EUROPE LTD.20th Floor, Wembley Point, 1 Harrow Road Wembley, Middlesex HA9 6DE, UKTel: 44-20-8900-5933 Fax: 44-20-8900-5966

PPG KANSAI AUTOMOTIVE FINISHES UK, LLP4th Floor, Trigate 210-222 Hagley Road West Birmingham, B68 ONP, UKTel: 44-12-1423-7300Fax: 44-12-1434-5386

KANSAI ALTAN BOYA SANAYIVE TICAREP A.SAnkara Asfalti 25, km 35177 Kemalpasa - IZMIR, TurkeyTel: 90-232-877-00-71Fax: 90-232-877-00-70

KDK AUTOMOTIVE COATINGS CO., LTD.679-12 Naegi-ri, Poseung-eup, Pyeongtaek-si, 451 821, South KoreaTel: 82-31-684-6186Fax: 82-31-684-6190

KANSAI PAINT H. K. LTD.Suite 1018, 10th Floor, Ocean Centre Harbour City, No.5 Canton Road, Kowloon Hong KongTel: 852-2891-1280 Fax: 852-2891-0890

COSCO KANSAI PAINT & CHEMICALS (SHANGHAI) CO., LTD.No.5589-5689 Hutai RoadShanghai 201907, ChinaTel: 86-21-6602-5077 Fax: 86-21-5602-0852

COSCO KANSAI PAINT & CHEMICALS (TIANJIN) CO., LTD.42, 5th Avenue, TEDA Tianjin, 300457, ChinaTel: 86-22-2529-2009 Fax: 86-22-2532-0902

COSCO KANSAI PAINT & CHEMICALS (ZHUHAI) CO., LTD.Zhuhai Gaolan Port Economic Zone Fine Chemical Area, Zhuhai City, 519050, ChinaTel: 86-756-3986270 Fax: 86-756-3986276

CHONGQING KANSAI PAINT CO., LTD.9 Danlong Road, Nanping, Nan‘an District, Chongqing, 400060, ChinaTel: 86-23-6283-4824 Fax: 86-23-6283-7094

KANSAI PAINT (SHENYANG) CO., LTD.No.18, Shenxi Four East Road,Economic & Technology Development Zone, 110143, Shenyang, ChinaTel: 86-24-2532-6390Fax: 86-24-2532-6395

TIANJIN WINFIELD KANSAI PAINT & CHEMICALS CO., LTD.No.95 Taihua Road, TEDA, Tianjin, 300457 ChinaTel: 86-22-6623-0159 Fax: 86-22-6623-0152

HUNAN XIANGJIANG KANSAI PAINT CO., LTD.#16, Lixiang Road (W), Changsha Economy &Technology, Hunan 410100, ChinaTel: 86-731-8403-7050Fax: 86-731-8487-8159

GUANGZHOU KANSAI PAINT CO., LTD.26 Huangge East 2nd Road, Huangge Nansha, Guangzhou, Guangdong, ChinaTel: 86-20-3468-4900 Fax: 86-20-3468-4930

SUZHOU KANSAI PAINT CO., LTD.No.12 Fengxia-lu, Lujia Town, Kunshan City, Jiangsu Province, 215331 ChinaTel: 86-512-5756-3372 Fax: 86-512-5756-3374

TAIWAN KANSAI PAINT CO., LTD.No.6, Yungkong 2nd Road, Yung-an Industrial District, Yung-an Hsiang Kaohsiung Hsien, Taiwan R.O.C.Tel: 886-7-622-3171 Fax: 886-7-623-0155

KANSAI PAINT (SINGAPORE) PTE. LTD.57 Penjuru Road, Jurong Singapore 609141, SingaporeTel: 65-6261-8621 Fax: 65-6265-0301

KANSAI PAINT PHILIPPINES, INC.1st Street, Meridian Industrial Complex BO. Balibago, Sta. Rosa, Laguna, PhilippinesTel: 63-2-699-2028 Fax: 63-2-699-2029

THAI KANSAI PAINT CO., LTD.180 Moo 3 Taparuk Road, Amphur Muang Samutprakarn 10270, ThailandTel: 66-2-753-2377 Fax: 66-2-753-2774

KANSAI RESIN (THAILAND) CO., LTD.34 Moo 4, Eastern Seaboard Industrial Estate (Rayong), Yudhasart Road, Tumbol Pluakdaeng, Amphur Pluakdaeng, Rayong 21140, ThailandTel: 66-954-747 Fax: 66-954-751

SIME KANSAI PAINTS SDN. BHD.2, Solok Waja, 2 Kawasan PerindustrianBukit Raja 41710 Klang, Selangor D.E. MalaysiaTel: 60-3-3348-7805 Fax: 60-3-3348-7806

KANSAI COATINGS MALAYSIA SDN. BHD.4, Solok Waja, 2 Kawasan Perindustrian Bukit Raja, P.O. Box 159, 41710 Klang, Selangor D.E., MalaysiaTel: 60-3-3341-5333 Fax: 60-3-3342-7223

P.T. KANSAI PAINT INDONESIAMM 2100 Industrial Town, Blok DD-7, Jalan Irian No.9D, Cibitung-Bekasi 17520IndonesiaTel: 62-21-8998-2370 Fax: 62-21-8998-2369

P.T.GADJAH TUNGGAL PRAKARSAJl. Hayam Wuruk, 28 Jakarta 10120 IndonesiaTel: 62-21-385-4121 Fax: 62-21-381-0929

KANSAI NEROLAC PAINTS LTD.Ganpatrao Kadam Marg, Lower Parel Mumbai 400013, IndiaTel: 91-22-2493-4001 Fax: 91-22-2493-6296

KANSAI PAINT MIDDLE EAST FZCO25th Floor, Jafza Tower, LB 18, P.O.Box 262460 (Jabel)Jabel Ali, Free Zone Dubai, United Arab EmiratesTel: 971-4-886-4747Fax: 971-4-886-4748

Established in 1918, Kansai Paint Co., Ltd. has grown into Japan’s largest paint manufacturer as well as one of the country’s most progressive businesses. Today, the company enjoys a well-established position as one of the world’s leading paint manufacturers.

The various products provided by the Kansai Paint and its Group companies are highly valued around the world, by customers not only in Japan, but in Europe, the United States, and Asian countries such as China, and India as well, playing important roles in the protection and beautification of all types of products and merchandise. Some of our paints and coatings even instill the products they coat with special functionality. Our products are receiving high praise and earning a reputation for exceptional reliability in a wide range of fields. The fact that we hold a large share of the automotive coating market and that our products are used by many automobile manufacturers contribute to the good reputation we enjoy. We also continue to put unwavering effort into products for all types of items requiring painting or coating, including industrial products, residential housing, office buildings, and steel structures such as ships, bridges and plants.

Kansai Paint is much more than a paint manufacturer that simply sells its products through its joint ventures and affiliated companies. Throughout the world, Kansai Paint utilizes the achievements and knowledge earned through research and development efforts, and transforms these into technical services that the company is able to provide its customers together with the company’s outstanding products and services.

Contents

Corporate Brand

Our “ALESCO” brand name is formed from the Latin word “ALES”, meaning “wing” and “ESCO”, which stands for “Excellent Specialty Company”. In ancient Latin, “alesco” itself means to grow and mature. Therefore, “ALESCO” expresses the concept of Kansai Paint growing continuously and flying with its wings spread toward the future as a leading specialty company. The “ALESCO” corporate brand expresses to the world the image of the superb quality and excellent value of Kansai Paint and its Group companies.

Five-Year Summary of Selected Financial DataA Message from the PresidentManagement Philosophy and VisionBoard of Directors

Business Review ALESCO at a Glance Overseas Business Research and Development Operations New Products

Environmental Activities Policies on Environmental Conservation Environmental Management ALES ECO PLAN 2010 Environmental Conservation Activities Management of Chemical Substances Development of Environmental Technologies and Products / Green Procurement Social Activities Treatment of Employees Occupational Safety and Health Consumer Protection Social Action Programs

Financial SectionDirectory

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DirectoryProfile

A Message from the President

3Kansai Paint Co., Ltd. Corporate Report 2010Kansai Paint Co., Ltd. Corporate Report 20102

Yuzo KawamoriPresident, Representative Director

To all of our shareholders, here at Kansai Paint and its Group companies, we take the concept of “contributing to society by providing products and services that satisfy our customers” as our funda-mental business philosophy.

The coating business, the core business of the Kansai Paint Group, is supported by our customers in a wide range of fields, including various industrial products centering on automobiles, buildings, structures, ships and others. The very foundation of the existence of the Kansai Paint Group is the concept of continuously working to improve our level of customer satisfaction, and through these efforts, we are working to increase the value of our stock, strengthen our operational foundations and contribute widely to society.

Overview of the Fiscal Year Ended March 2010

Detailed figures for the consolidated fiscal year (the fiscal year ended March 31, 2010) are included in the latter half of this annual report. To summarize, we achieved a consolidated net sales of ¥222,401 million (approx. US$2,390 million, a year-over-year decrease of 3.3%), a consolidated operating income of ¥20,505 million (approx. US$220 million, a

year-over-year increase of approx. 52.8%), and a consolidated net income of ¥11,830 million (approx. US$127 million, a year-over-year increase of approx. 9.7%).

Furthermore, for the term under review, annual dividends were ¥10 per share.

Looking at the global economy over the past fiscal year, the situation was severe at the beginning of the term due to stagnant demand caused by the global recession. However, there was a gradual recovery as the Asian region, especially India and China, played a leading role and the economic-stimulus packages implemented by many countries began to take effect. As a result we saw increases in both our overseas sales and profits.

On the other hand, the domestic economy was on the road to recovery but the risk remains of downward pressure on the economy arising from the continuing harsh employment situation and effect of deflation. The paint industry also shifted over to recovery in production and sales volume during the latter half of the term, but the overall situation was still weak and continues to exert pressure on corporate profits. However, reductions were made in total costs and accordingly our business results improved. As a result, despite a fall in total domestic sales our profits registered an increase.

Outlook for the Fiscal Year Ending March 2011

Although there are no prospects for a rapid recovery concerning the domestic economy, growth in developing nations, especially those in Asia, is expected to continue. Accordingly, we plan to put our management resources to effective use in order to meet this burgeoning demand as we expand our businesses overseas. Moreover, based upon our management strategies detailed below, the Kansai Paint Group shall continue to strive towards developing businesses that emphasize earnings as well as reinforcing our management foundations.

As for the outlook for this term (fiscal year 2010), we have set targets as follows: net sales of ¥240,000 million (approx. US$2,579 million), operating income of ¥22,000 million (approx. US$236 million) and a net income of ¥13,100 million (approx. US$141 million) on a consolidated basis.

Management Strategies

Due to the worldwide recession the three-year mid-term business plan that got underway in fiscal 2008 was concluded one year ahead of schedule since revisions of our numerical targets were inevitable. The new three-year mid-term business plan was launched in fiscal 2010.

Our approach remains unchanged, namely working towards establishing a firm global founda-tion over the long term through our core business of paint. In order to make this a reality, mid- to long-term development shall be instigated through the three-year mid-term business plan that we are currently undertaking. The points below indicate the important policy areas as we continue to develop our business going forward.

1. Promotion of GlobalizationOur overseas businesses continue to grow apace and to take our business results to another level, with special focus on Asia and developing nations where the prospects for growth are most positive. As we plan to reinforce the way our business is structured, we continue to advance in developing businesses in new territories and

fields, areas that can make a significant contribu-tion to our business performance. Furthermore, as we strive to reinforce our management foundation to meet the needs of globalization, we are planning to improve management efficiency by increasing collaboration between our overseas and domestic businesses.

2. Strengthen Profitability in Domestic BusinessBy acting based upon what the market is indicating and developing products that offer a high degree of added value, we are looking to expand our market share. Through optimizing our business organization we will become more cost competitive and this in turn will lead to stronger profit performance.

With regard to the final fiscal year of our current three-year mid-term business plan (fiscal year 2012), we have set targets as follows: net sales of ¥265,000 million (approx. US$2,848 million), operating income of ¥25,000 million (approx. US$269 million) and a net income of ¥15,000 million (approx. US$161 million) on a consolidated basis.

In Closing

Kansai Paint and its Group companies, working in the spirit of “profit and fairness”, are entering a new stage in global business activities.

To that end, we will build our global manufac-turing and sales system and develop our business to meet the needs of customers in every region. By increasing the level of collaboration and working towards improving our business performance, we will continue on the road to company growth.

We sincerely hope this corporate report has provided useful information pertaining to the activities of Kansai Paint and its Group companies.

Corporate Governance Organization

*Corporate Governance Committee: The President serves as chairman, and the committee members aredirectors from each company division. The committee oversees matters such as internal control functions,compliance, risk management, and information management.

Appointments/Dismissals

Appointments/AuditsAudits

Financial AuditsAuditor

ManagementCommittee

General Shareholders’ Meeting

Board of Directors

President

Internal Audits

Board of AuditorsExternal Auditor

ReviewOffice

Company Departments and Affiliate Companies

Corporate Governance Committee*

Sound Business Activities

Internal Controls

Disclosure of

Information

ComplianceEnvironmental

Preservation

Contributions to Society

Risk Management

Compliance Promotion, Management Systems

President Auditors

Corporate Governance Committee

Management Headquarters

Legal Department

Review Office

Compliance Promotion Committee

Risk Management Investigation Committee

Internal Control Promotion Committee

Information Management Committee

Appointments/Dismissals

Customers

Business Connections

Shareholders and

Investors

Local Societies

Employees

Industrial Associations

Kansai Paint Group


Corporate Mission

(Established January 1967)

1. To further build company credibility with the public and to contribute to society by providing products and services that achieve customer satisfaction.

2. To build on our knowledge and strive for technological innovations in order to improve the company’s performance.

3. To harness the collective efforts of all individuals in order to maximize company returns.

Management Philosophy and Vision

Management philosophy

Our corporate mission is to contribute to society by providing eco-friendly and value-added coating materials and services that satisfy our customers. To realize new innovations in coating materials, we have defined our philosophy so that our employees are eager to undertake new challenges, and so that we can combine our wisdom and knowledge to create future products. We aim to use our products and services to make continuous contributions to society.

Vision

Synchronizing business and environmental conservation, the company promotes its worldwide activities by developing high quality, high performance, and low-cost coating products with new functionality, and aims to be the leading, most trusted company in the world. Kansai Paint Co., Ltd. and its Group companies have defined basic activity guidelines based on our corporate mission.

Basic activity guidelines (Established January 2001)

1. We shall conduct all phases of our business operations while adhering to high ethical standards, will comply with laws and social norms, and will engage in fair and transparent business activities to win the trust of societies throughout the world.

2. We shall respect the cultures of each country and region, observe local customs for better coexistence with such societies, and will use our business operations to contribute to the development of these societies.

3. We shall actively and voluntarily get involved in environmental conservation while we manufacture and provide eco-friendly products.

4. We shall develop and provide products and services based on the principle of “customer first”, with the goal of satisfying our customers.

5. We shall respect each employee’s individuality and create a workplace environment that nurtures the spirits of challenge and teamwork.

6. We shall respond to the expectations of our customers, employees, and shareholders by sustaining the continuous growth of our global business operations.

Corporate governance organization

This internal control organization assures healthy business administration and audits.

The Kansai Paint concept of corporate social responsibility

Building on a foundation of sustained growth through sound business activities, we are working to realize our corporate social responsibilities with a strong sense of the awareness of compliance and risk management, and through product creation and activities that emphasize environmental preservation.

Compliance promotion

Kansai Paint strives to comply with laws and regulations, and to fulfill the company’s social responsibilities. To that end, the company has set forth guidelines by defining a Code of Ethics, a Code of Conduct, and a Code of Behavior so that it can carry out appropriate business operations based on the corporate spirit of “Profit and Fairness”. We have also installed a Corporate Governance Committee, which is headed by the President of Kansai Paint, in order to make all employees of Kansai Paint and our Group companies fully aware of our ethical standards. We offer a wide variety of compliance activities, including educational training for all levels of employees, from new hires through company directors, the installation of hotlines, and the dissemination of information through company bulletins.

The Corporate Governance Committee led by the President was established with the purpose of proactively taking measures against critical risks that may affect company operations. Furthermore, the “Risk Management Guidelines” and the “Risk Management Manual” were put together in order to describe actions to be taken against risks that could be expected. Additionally, the “Action Manual” was prepared to counteract risks closely related to our operations and regardless of whether said risk is located

in Japan or overseas, the company needs a system to facilitate rapid access to information related to every type of risk and to implement appropriate countermeasures based on an accurate grasp of the situation. The company ensures that the operations of the risk management organization are well controlled and maintained.

We will also consider the preparation of a business continuity plan (BCP) in order to quickly respond to risks, so that we can minimize the risks to our customers.

• Kansai Paint Stakeholders

Risk management

Global Environment

(as of June 30, 2010)


Board of Directors

Business Review

08 ALESCO at a Glance

10 Overseas Business

12 Research and Development Operations

14 New Products

Chairman Shoju Kobayashi

President Yuzo Kawamori

Senior Managing Directors Koichi Imada

Mitsuhiro Fukuda

Hiroshi Ishino

Managing Directors Shigeru Nakamura

Masanobu Ota

Hiroshi Sakamoto

Directors Kazuo Ishikawa

Yoichi Yonehara

Akifumi Kondo

Hiroki Nagao

Masaru Tanaka

Kunishi Mouri

Corporate Auditors Saburo Takizawa

Hiroshi Suwa

Mineo Imamura

Yoko Miyazaki

Shoju KobayashiChairman

Yuzo KawamoriPresident

Main Products and ServicesSegment

ALESCO at a Glance

Business Review


Automotive coatings are classified as coatings for new cars used by automobile manufacturers and as automotive refinish paints used in auto body shops. Automotive coatings for new cars are paints applied by automobile manufacturers and paints applied at auto parts factories, using automatic application lines with high temperature curable paints. Automotive refinish paints are intended for use in body shops for vehicles damaged in accidents, etc.

In the field of automotive coatings for new cars, we concentrated on expanding sales of the Waterborne 3-Wet Coating System based on its superior appearance and our requirements to reduce CO2 emissions, as well as introducing a clear topcoat with excellent scratch resistance designed for high-class automobiles. Unfortunately, domestic sales fell due to a protracted fall in automobile production. Overseas, demand is recovering in India, China, etc. but total sales in the field of automotive coatings for new

cars have decreased overall.In the field of auto refinishing coatings,

we worked to expand sales of our core lineup of environmentally friendly products, such as strengthening the range of our waterborne coatings. However, these efforts were not successful enough to offset weak demand, and total sales in this area decreased.

Consequently, total sales for the entire field of automotive coatings decreased from the previous term.

Industrial coatings are used with a wide range of industrial products, including construction vehicles, industrial machines, agricultural equipments, home electronics, beverage cans, pre-coated metals and various types of building materials. For this area, differing types of coating performance, coating methods and application conditions are required for various types of industrial products. In order to meet these needs, we are providing an exceptionally wide and diverse range of paints, coatings and services.

In the domestic field of industrial coatings, sales of paint for pre-coated metal were brisk, while the market trends for other products was sluggish. Furthermore, we sought to expand sales and develop the market by introducing energy-efficient powder coatings curing at low temperature, contributing to lower CO2 emissions. Unfortunately, these efforts were not effective enough to overcome depressed

demand. Looking overseas, during the latter half of this term, there was upward momentum in sales mainly in the Chinese market but we could not attain the same level of sales as the previous term.

Consequently, total sales for industrial coatings decreased from the previous term.

Decorative coatings include coatings to protect structures such as residential houses and buildings from deterioration and coatings used to enhance the beauty of structures. These coatings are classified as exterior coatings or interior coatings, depending on where they are used, and are also classified according to the type of application — coatings for new structures and coatings for repairs. These coatings are used in close proximity to the human living environment, so there has been a growing demand recently for eco-friendly products in this area.

In the field of decorative coatings, domestic demand was slack due to fewer new housing constructions and decreased corporate capital investment. Amidst these conditions, we put our efforts into opening up new interior decoration markets with our anti-bacterial and anti-viral ”Shikkui Plaster” (traditional Japanese ecological lime-based plaster) as well as positively promoting the product in the residential building renovation market. Furthermore, we held product presentation workshops and housing

renovation seminars for general consumers to suggest enhancing one’s living environ-ment. However these efforts were not enough to counter the current depressed market conditions. Overseas, we worked to expand sales in India, etc. as well as introducing our waterborne multi-colored pattern coatings in the Middle East.

As a result, there was an increase in sales for decorative coatings from the previous term.

This area encompasses marine coatings used with marine structures in order to provide long-term protection from corrosion for steel structures and protective coatings for structures on land. Marine structures include ships, offshore structures and marine containers, while structures on land include bridges, tanks, and plants. Coatings are available for new structures and for maintenance applications.

In the field of marine coatings, with no significant negative influence from the global recession in new ship construction market, sales in this field displayed a bullish tone. Furthermore, in the market of ship repair works we encountered some cancellations due to a reduction in ocean-going freight, with more vessels placed in long-term moorings or scrapped, etc. Nevertheless we put our efforts into expanding sales of high value-added products, in particular, our anti-fouling paints.

In the field of protective coatings, as a result of promoting high value-added products, there were increases in the adoption of our products for both new constructions and repair of bridges. However, due to reduced capital investment in the private sector, there was a significant decline in sales of coatings mainly for industrial steel beams.

Consequently, sales for marine and protective coatings decreased from the previous term.

Automotive Coatings

Industrial Coatings

Decorative Coatings

Marine and Protective Coatings

TopicsProduct Sales Ratios

47%

10%

22%

21%


Overseas Business

Kansai Paint and its group companies are working to develop our overseas business with a focus on Asia, a region where continuous major growth is expected. While striving to maintain an appropriate balance in three heavily populated areas, India, China, and the various ASEAN nations, we have increased our production bases.

Paint is a necessity in many industries, and because we can expect the demand for paint to increase as these economies develop, we are continuing our efforts to expand our business overseas mainly in these growing markets. In North America and Europe, through a joint venture business operation with PPG Industries, we have established a solid supply system and business operations based on our automotive coatings, our primary product type in this area.

The following is a breakdown of our Group businesses by region.

IndiaIn India, against a background of an expanding market economy, we have seen a significant increase in the demand for automotive and decorative coatings. As a result our business performance in India has seen a large increase in income and profits. Looking forward, continued growth is forecast for the economy in India and we expect further expansion of our business there. Moreover, we urgently need to construct a production system capable of responding to this expanding demand and we are planning to make capital investments to augment our manufacturing base.

ChinaIn China, thanks to the economic stimulus policies enacted by the government, we saw an increase in income and profits in automotive coatings as this market enjoyed a significant improvement from the influence of the deceleration in the economy at the beginning of the fiscal year.

Looking forward, as automobile production expands we expect our business performance to expand accordingly. With regard to transport container box coatings, we saw a sharp decline in sales due to the global recession. In accordance with a recovery in the world economy, it is expected that demand will gradually improve.

Business Review

(FY)2005 2006 2007

2,2242,109

2,5652,312

0

500

1,000

1,500

2,000

2,500

3,000

Net Sales(100 millions of yen)

2008 2009

2,300

32.5% 34.4%37.2%

0

50

100

150

200

250

300

Ordinary Income(100 millions of yen)

35.1% 40.0%

220

261245

146

226

Consoridated Ordinary IncomeConsoridated Net Sales (Domestic)Consoridated Net Sales (Overseas)

Other ASEAN NationsIn regard to other ASEAN nations, in Thailand the global recession caused a decrease in the number of automobile exports originating from that country as well as a reduction in the number of automobiles manufactured in Thailand. As a result, our sales were down compared with the previous fiscal year.

On the other hand, in Indonesia and Malaysia, despite the effect on both economies of the global recession during the beginning of the fiscal year, both countries continued their gradual recovery and the underlying trend in terms of demand is once again positive.

As a result, our business performance in the ASEAN nations saw a decrease in sales but this was offset by a reduction in our total costs, mainly in raw materials, so overall we saw an increase in profits.

Going forward, the continuing growth of the market economics of the ASEAN nations is predicted to lead to similar growth in the business performance of the Group.

North America and EuropeIn the same manner North America and Europe has been significantly affected by the recession in the global economy.

In particular, in Turkey we recorded a decrease in sales compared with the previous fiscal year due to a decrease in the number of automobile exports originating from Turkey as well as a reduction in the number of automobiles manufactured in that country. However as we were able to promote and implement cost reduction measures, we endeavored to maintain our profit levels. Moreover, aside from our operations in Turkey, our automobile coatings business in North America and Europe showed a decrease in sales but thanks to the development of companies using the equity method, we were able to minimize the impact on our business performance. As a result our business results for North America and Europe showed only a slight decrease in profits despite a reduction in sales.

Looking forward, though there are fears about a slowdown in the larger economy due to financial instability in Europe, we expect the market economy to gradually improve.

Moreover, the joint venture that was established in the Middle East two years ago has seen production facilities built and gradually come online to aid our business expansion in the Middle East market.


Business Review

Research and Development Operations

In October 2009, the Kansai Paint Group reorganized its research systems, switching from 4 research institutes and 2 research centers to 5 research institutes and 1 research center. We are now more able to conduct efficient, wide-ranging research and development with regard to new technologies and products, in order to respond to what the market needs in a more timely fashion. Furthermore, our focus is on global development and by strengthening coordination between all companies in the Kansai Paint Group we are also working to promote technological development in order to meet the needs and standards of countries around the world as well as fostering human resources capable of working on a global scale.

During the consolidated term under review, the total R&D expenditures of the Kansai Paint Group amounted to ¥5,516 million, and a total of 574 people have been involved in R&D activities in the Kansai Paint Group as a whole. The following is an overview of the company’s R&D activities by business segment.

1) Coatings

Basic ResearchIn our basic research, we strive to accumulate fundamental technologies that are useful for coatings and the development of new business potential. Our fundamental technologies focus on polymer synthesis, new cross-linking reactions, pigment dispersion, surface and interface control, rheology control, and biotechnologies able to contribute to the improvement of the environment, etc. Thus we are aiming for the creation of a new foundation for coating technology that can be a springboard for a leap forward to the next stage of technology.

In the area of fundamental analysis and evaluation, we are working to establish new analytical technologies to examine the performance of films in the process of paint 　application and various phenomena observed therein, contact to substrates and film formation, as well as the establishing evaluative technologies in this very difficult field, in addition to analyzing these issues comprehensively from a physical, compositional and morphological standpoint. These efforts will lead us to the development of products based on more precise technological foundations. Furthermore, through these technologies, we are placing particular focus on our services such as analysis and consulting related to quality, safety and the effect on environment of our products for our customers both at home and overseas, and we are promoting the establishment of reliable, global operation systems.

Color DesignIn the area of color design and development research, in the automotive coatings field, in order to be able to propose a color range for the next fiscal year to Japanese automobile manufacturers we have developed advanced color groups for the latest color trends as well as developing new color proposals for motorcycles. Looking overseas, we undertook a survey of automotive color trends in the Middle East and Asia.

In regard to industrial coatings, we undertook a survey and analysis of color trends for construction materials and this information was utilized to create new color proposals. In the field of decorative coatings and protective coatings, in addition to continuing our research into color trends for single houses and apartment complexes, we collected our color planning materials together so that it can be used effectively in proposals. In the field of color science, we undertook research into the feasibility of a custom color matching process for trucks using a computer color matching system for metallic coatings and we plan to improve the efficiency of our color matching processes.

Coatings and Coating System DevelopmentIn regard to coatings and coating system development, we are developing eco-friendly technologies in order to contribute to a sustainable society, with particular effort being put into research and development of paints and coatings that are sensitive to the global environment, specifically products that reduce the amount of greenhouse gases and volatile organic compounds. We are also working in the research and development of eco-friendly technologies that encompass the entire lifecycle of paint and coating products, from raw materials, manufacturing of the coatings, application, and finally to disposal or recycling.

In the area of automotive coatings, in addition to the development of high value added coatings that offer high quality, durable, scratch resistant finishes, etc., we have been working to expand and diversify the use of our highly-evaluated Waterborne 3-Wet Coating System, manufactured using eco-friendly technologies that are both process- and energy-efficient. In the area of industrial coatings, decorative coatings, and protective coatings, we are promoting the conversion to water-based coatings in these fields as well as striving to research and develop high-performance materials in a variety of colors and textures with heat shielding, humidity controlling and anti-bacterial properties, with the aim of realizing comfortable housing. In addition, we are working to develop the evaluation technologies and evaluation equipment required for the development of these coatings, which will facilitate efficient product development and the realization of better products.

During the term under review, Kansai Paint’s expenditures on research and development in the coating business field amounted to ¥5,311 million.

2) Other business

We have been promoting the development of new technologies and new products in the electronics and communications and the environment and biotechnology fields. In the field of electronics and communications, we have been working on the development of photo-resist materials that will reduce the load on the environment through fewer processes and reduced waste, etc. and we plan to expand the uses of our laser direct imaging photo-resist and screen printing resist materials, etc. In the environmental and biotechnological fields, we are also promoting the development of a wastewater processing system for drained waterborne coatings and the development and improvement of supporting carriers for a more efficient sewage processing system.

During the term under review, Kansai Paint’s expenditures on research and development in other business fields amounted to ¥205 million.


New Products

Environmental Activities16 Policies on Environmental Conservation

17 Environmental Management

18 ALES ECO PLAN 2010

20 Environmental Conservation Activities

22 Management of Chemical Substances

24 Development of Environmental Technologies and Products / Green Procurement

Up to now, in Japan the application of high weather durability coatings has mainly meant using polyester powder coatings (the PE/BNCO curing system). However with this approach there is an issue with ε-Caprolactam, a PRTR substance which also causes dry residue in the oven. To meet

With the addition of the water-absorbency to the 1BC, this technique is both kinder to the environment as well as simplifying the coating process.

this challenge, we have developed “EVERCLAD HAABest” , a PE/HAA curing-type powder coating capable of baking at temperatures some 20 - 30ºC lower than existing products. The problem was solved by using β-Hydroxyalkylamide as curing agent containing no ε-Caprolactam.

“EVERCLAD HAABest” PRTR-Free, Lower Temperature curing Powder Coatings

The Waterborne 3-WET Coating System used in our automotive coatings actively works to reduce emissions of VOC and CO2 and here we would like to introduce one of the technologies that contribute to this reduction: the WACS Method (a Kansai Paint patented technology). WACS (an acronym of Water Absorbing Coating System) is a method for improving the external appearance of film by using a water-absorbent solvent-based coating as the first base coat (1BC) which prevents mixing with the second aqueous base coat (2BC). (Please refer to Fig. 1)

With regard to the Waterborne 3-WET Coating System, normally after the application of the 1BC a pre-heat zone is required but by using the WACS Method pre-heating is only required after the application of the 2BC (please refer to Fig. 2). Furthermore, because the 1BC is a solvent-type coating, it is easy to control the temperature and humidity and this works to reduce our CO2 emissions.

Automotive Coatings: Promoting Environmental Sensitivity The WACS Method: VOC and CO2 reduction technologies

200

(ºC)

180

160

140

PE/BNCO

PE/HAA

01 10 20 4030 50

Material temperature

Baking time(minutes)

y-axis: material temperature (?)x-axis: baking time (minutes)

(CO2-kg/m2)0 0.2 0.4 0.6 0.8 1.0

PE/BNCO (existing products)

Harvest (newly-developed product)

a reduction of 16%

The Technology of Lower Baking Temperatures (150-160ºC)The technology behind PE/HAA curing-type powder coatings means improved water-resistant properties in the coating film, thus optimizing the polyester resin resulting in a high degree of crosslinking density and lower temperature curing.(existing powder coatings require baking temperatures of 160-170ºC).

Reduction of dry residue in the ovenIncreased environmental sensitivity: In the baking oven, the only by-product of the curing is water.

Reduction in CO2 emissionsCompared with existing products, our new approach results in a 16% cut in CO2 emissions.

WACS Method (Fig.2)

Principles and Structure of the WACS Film Coating (Fig.1)

InspectionBaking OvenPrimer (Electro-deposition coating)

Inspection Application of 1BC

Application of 2BC

Preheating Solvent-type Clear Coat

Baking Oven

Viscosity increased quickly

forms a good aluminum orientation

A coating formed from a water-absorbent resin

Clear Coat

Baking

Baking

Pre-heating

Second Base Coat

Second Base Coat (Water-based)

First Base Coat (WACS)

First Base Coat (Solvent-based)

Primer (Electrodeposition coating)

Business Review

Environmental Activities


Policies on Environmental Conservation

Internal Audits, Monitoring, Measurement, etc.

ALES ECO PLAN

RC CommitteeCommittee Chairman:President

RC Top Management ReviewPresident, Senior Managing Director in Charge, Auditor

SecretariatQA & Environment Division

Environmental & Product Safety Committee

Activities Activities ActivitiesDecrease toxic substances in productsDevelopment of Eco-Products

User- and Customer-related Environmental Safety Committee

Environmental Safety & Health Committee

Decrease the burden on the environment during production operationsSecuring of Safety and HealthEnvironmental conservation

RC Committee for Company-wide Promotion of Quality Control and Environmental Protection

Reflection in Company-wide PDCA activities

ISO14001 ActivitiesSite Environmental Policies

Objectives, Targets, Plans

Management Review

Implementation and Operation

Fulfillment of a system for dealing with environmental laws and regulationsDealing with PL(Product Liability)

Environmental Management

Corporate Policies on Environmental Conservation

Basic Policies

Action Policies

Operational Policy

In order to achieve our goals concerning the protection of the global environment, our company and all of its employees cooperatively promote Responsible Care based on the Action Policies.

1. To supply products after full consideration of their potential impacts on people and the environment.

2. To undertake proactive countermeasures to cope with the potential effects of products on people and the environment.

3. To cooperate with internal and external organizations to raise awareness concerning the environment, safety, and health.

4. To disclose and provide information related to the environment, safety, and health.

1. To develop new technologies and products with a focus on the maintenance and promotion of environmental friendliness, and the protection of natural resources.

2. To communicate fully with customers, and promote the wider use of eco-friendly products.

3. To proactively prevent the occurrence of environmental, safety, and health issues related to customer use of our products.

4. To promote green procurement and the purchase of green products.

5. To disclose environmental, safety, and health information regarding our products.

6. To ensure a sound environment, safety and health, and reduced solvent emissions in our business operations.

7. To reduce waste and effluent, and promote recycling and resource recovery.

8. To reduce energy use and carbon dioxide emissions.

9. To educate our employees and affiliated companies regarding environmental, safety, and health issues, as well as to promote communication with our stakeholders.

10. To issue environmental and social reports.

Responsible Care

It is recognized that regulations alone can not completely ensure eco-friendliness, human safety, and health. In response to current demands, the world’s chemical industries have begun working on self-imposed controls to protect the environment, safety, and health at all stages of chemical processing, from development right through to disposal. This activity is called “Responsible Care (RC)”.

• Environmental Conservation (Responsible Care) Organization Chart

Audit by Top Management, RC Committee

All committees report the status of their activities, and their results once a year individually to top management including the President in his capacity as the Chairman of the RC Committee. These committees then ask senior management for their confirmation of these reports and for instructions regarding further activities to assure the efficiency and effectiveness of overall operations throughout the company, taking the production, technical and sales divisions as one body.

During a top-level diagnosis of fiscal 2009, discussions centered on the policies for our responsible care activities, part of our 13th mid-term business plan which is due to start the next fiscal year. In order to achieve our aim of expanding business globally, the following instructions were issued.

Environmental & Product Safety Committee

In the second year of the “ALES ECO PLAN 2010”, we were able to achieve most of our targets for fiscal 2009. With regard to reduction of harmful substances contained in our products, fiscal 2009 saw a decrease in our production volume that reflected the current economic situation and of the products that we did sell the amount of lead compounds, hexavalent chromium compounds, T, X and EB contained in said products were significantly reduced.

As part of our response to regulations and customer demands, we are promoting the development of products and technologies that place less burden on the environment. Through these efforts, we are striving to reduce environmental burden related to paints and coatings.

User- and Customer-Related Environmental Safety Committee

The User- and Customer-Related Environmental Safety Committee promotes companywide activities to formulate and establish internal company systems and rules that will allow us to respond appropriately to the enforcement and revisions of various environment-related laws and regulations in Japan and abroad so that we may properly and accurately provide products to the market which meet customer needs.

Environmental Safety & Health Committee

Our aim as a coating manufacturer is to ‘Always have Safety as our Utmost Priority’ and ‘Constantly Aim for Zero Accidents in the Workplace’.

In concrete terms, this means our Committee activities are divided amongst our five teams: 1. The Central Environment, Safety, and Health Diagnosis Team; 2. The Health and Sanitation Sub-Committee; 3. The Company-Wide Safety & Environment Promotion Team; 4. The Central Energy Conservation and Environmental Measures Team; 5. The Safety & Environment Promotion Teams for Overseas and Affiliated Companies.

These teams conduct safety checks for all group companies, and the Central Safety and Environment Manager, the Central Hygiene Manager and specialized team also carry out a central diagnosis on the environment, safety, and hygiene. Efforts to ensure compliance with laws and KYT activities (hazard prediction training), education and training are ongoing throughout the year. In this way, we are proactively preventing workplace accidents.

2009 Instructions by Top Management

1. Looking forward, we will continue to promote market development and product design with concerns for safety and the environment with profitability and fairness as the criteria of our approach.

2. Promotion of proper communication at the local level is part of quality control management; overseas laws and regulations must also be observed.

3. The “ALES ECO PLAN 2010” continues until the end of the coming fiscal year, so over the next year we will settle on a new plan.

○

○

○

△

△

○

○

○

Target value achieved



Target value mostly achieved

Target value mostly maintained

Achieved the target value

Target value not achieved

Environmental& Product Safety

Environmental Safety and Health

User- and Customer-related Environmental Safety

Disclosure of Environmental Information

Activities Items Targeted FY2009 Targets FY2010 TargetsFY2009 Achievements Evaluation*

*Evaluation, ○: Progress definitely observed, △: Progress observed, ×: Progress not observed.

Reduction of Hazardous Substances in Products

Promotion of Products with Reduced Environmental Burden

Reduction of Environmental Burden in Operations

Securing Safety and Health

Environmental Conservation Activities

User- and Customer-related Environmental SafetyActivities

1. Lead compounds in products sold

4. VOC in products sold*

2. CO2 emissions (total)

3. Waste emissions (per unit of production)

4. Waste recycling ratio

2. Assurance of transportation safety

Reduce fiscal 2003 figures by 37%: 471 tons → 298 tons

Reduce fiscal 2003 figures by 45%: 333 tons → 183 tons

Reduce fiscal 2003 figures by 10%: 37,200 tons → 33,500 tons

Reduce fiscal 2003 figures by 9%

Increase ratio of eco-products to at least 63%

Reduce fiscal 2007 figures by 1.0%

Reduce amount for fiscal 1990 by 8.0%

Reduce fiscal 2007 figures by 2.0%

Maintain a level of 99% or higher

3.0% reduction from fiscal 2006 results

Establishment of labor-saving operations

3. T, X, EB** in products sold* (T: Toluene, X: Xylene, EB: Ethyl benzene)

2. Hexavalent chrome compounds in products sold

1. Energy consumption (per unit of production)

2. Organic solvent handling operations in Class-II Class-III workplaces

1. Compliance with domestic and overseas environmental laws

2. Enhanced environment management system

242 tons/annual shipments (49% reduction compared with fiscal 2003)

153 tons/annual shipments (54% reduction compared with fiscal 2003)

26,676 tons/annual shipments(28% reduction compared with fiscal 2003)

22.5%(8% reduction compared with fiscal 2003)

Eco-product ratio: 60%

15% increase compared with fiscal 2007

8.6% decrease compared with results for fiscal 1990

18.7% increase compared with fiscal 2007

Annual average: 99.6%

• Ongoing response to the Chemical Substances Management Promotion Law

• Ongoing response to the revisions to the Export Trade Order (Rotterdam Treaty)

• Ongoing response to the revisions of the notice stipulating substances that pollute the oceans

Information was released as planned

Implementation of each item was continued

Ongoing implementation of activitiesEnergetic efforts to achieve zero disasters

• Completion of a system to provide online security when an order is placed for products that contain poisonous and deleterious substances; said system is currently operating with no defects

• In accordance with revisions to the law, updates and improvements to the systems that issue MSDS, etc. are currently being implemented

Publication of the English edition of the “Corporate Report 2009” (October)

“Environment and Social Report 2009” (Japanese) published in June

0 claims for Kansai Paint, Kansai Paint Sales, NKM, Kanpe Hapio

* Including thinners that were sold.** “T, X, and EB” indicates “toluene, xylene, and ethylbenzene”.

Assurance of Environmental Safety during Transportation

1. Total energy during shipping (basic unit) Fiscal 2006: 9.27 L/t (converted to crude oil)

Ongoing publication

Ongoing publication

Determine candidates for PL and achieve 0 claims

50% reduction from fiscal 2003 results




65% or higher




Maintenance of 99% or higher


Establishment of operation

• Construction and establishment of systems for compliance with laws and regulations related to the environment

• Revision of designs suitable for compliance with laws and regulations

Maintenance of MSDS and PRTR systems Color label KK-VANRevision of the labor safety law master Revision of the system for receiving and placing orders for poisonous materials

Ongoing implementation of activities

Within standard values: 0 cases

1 case of lost-work injuries

3 cases of Class II workplaces improvements made to the local exhaust ventilation, air blower, etc.

Ongoing implementation

Ongoing publication


Ongoing publication

0 cases

0 cases

Within standard values 0 cases

Determine candidates for PL and achieve 0 claims

Ongoing publication

Establishment of a system in accordance with needs

Adherence to a system that strictly obeys all rules and regulations related to the environment

0 cases

0 cases


Ongoing publication

0 cases

3. Prevention of product liability claims

1. Publishing of environmental report

3. Prevention of environmental pollution

1. ISO 14001 activities

2. Preparation for environmental accounting

1. Number of accidents (Lost-work injuries)

Ongoing publication2. Publishing of annual report




Continue to tackle the issue of transportation safety

Energetic efforts to achieve zero disasters

2.7% reduction compared with the results for FY2006

Labelling 100% maintained

ALES ECO PLAN 2010(Evaluation of FY2009 results and targets)



Environmental Conservation Activities



0.7 0.1

9.310.4

0.5 0.1 0.7 0.1

9.5

0.5 0.05

10.3

1.20.1

7.7

We understand that the reduction of energy consumption and CO2 emissions in our production process is an important part of our business activities, and thus we are promoting the installation of energy-saving equipment when upgrades are conducted.

The carbon dioxide emission volume for the production

division in FY2009 was 34,500 tons. The production volume decreased by 6.8% compared with FY2008, and although we promoted energy-saving activities, the basic unit for CO2 emissions was 140kg CO2/ton, an increase of 7.7% compared with FY2008.

The amount of energy used by the production division in FY2009 increased by 0.15% compared with FY2008, but the decrease in production volume meant that energy used per

basic unit increased by 7.4%, compared with FY2008. We are going to continue our energy-saving activities in order to suppress the amount of energy used.

The production volume was down 6.8% in fiscal 2009 compared with fiscal 2008, while the amount of water used in the manufacturing stage increased 0.8% compared with

2008; water use per basic unit increased 8.1% compared with 2008. Kansai Paint shall continue to make effective use of cooling water and boiler steam water.

Water pollution prevention at production plantsThe amount of COD discharge, an indicator of the emission volume of water pollutants has, due to the efficient way we have managed our water resources, decreased 1.6% compared with fiscal 2008.

Water Conservation Efforts at Production Plants

Kansai Paint started a company-wide waste reduction system in 1999 to promote the “3Rs” of industrial waste required by a resource cycling society — A reduction in the generation of industrial wastes (Reduce), recycling of waste that is generated (Recycle), and the reutilization of materials (Reuse). We have set our sights on the achievement of zero emissions for industrial waste generated through our manufacturing activities. As a result, we were able to achieve

zero emission by our production plants in fiscal 2005 and have been able to maintain zero emission since that time. As for “Recycle” and “Reuse”, as shown in the graphs below, our production plants achieved a very high standard for the ratio of recycling, 99.6%, in fiscal 2009.

Waste Reduction

COD (Chemical Oxygen Demand)COD is an index of water pollution resulting from organic matter, and expresses the amount of oxygen consumed during the oxidation decomposition of the organic matter.

SOx (sulfur oxide)SOx comprises sulfur dioxide and a small amount of sulfur trioxide, and is discharged when fuels including crude oil, heavy oil, and coal, as well as wastes containing sulfur, are burned.

NOx (nitrogen oxide)NOx, comprises nitrogen monoxide, nitrogen dioxide, etc., and is contained in exhaust gases from thermal power stations, boilers, incinerators, and trucks.

DustDusts are particulate matters comprising soot and cinders, and are defined by the Air Pollution Control Law as particles discharged when fuels and other materials are burned or used as thermal sources.

NoteData from the five production sites (including the Technology Department) were totaled up.

Reduction of CO2 emissions

Promotion of energy-saving activities

(FY)2005 2006 2007 2008 2009

(t-CO2)

11,000

12,000

13,000

14,000

15,000

10,000

12,30011,800

12,40011,900

11,600

(FY)2005 2006 2007 2008 2009

0

100

200

300

400

(106MJ)

266 255 268 259 251

Total

223 213 129 112

267 282339

250 300 292

316

287

740 795 760 715

92

322

307

721

1,000

800

600

400

200

0

(103m3)

(FY)2005 2006 2007 2008 2009

24,000

26,000

28,000

30,000

32,000

30,00030,660 30,750

30,10030,770 30,850

26,970

24,270

27,070

24,370

(t)

(FY)2005 2006 2007 2008 20090

100

200

90

95

100

90110

102 99

99.7 99.7 99.7

99

(t) (%)

(FY)2005 2006 2007 2008 2009

1.70 1.75

1.23 1.26 1.24

2.0

1.5

1.0

0.5

0

(t)

(FY)2005 2006 2007 2008 2009

(FY)2005 2006 2007 2008 200920,000

25,000

30,000

35,000

40,000

100

110

120

130

140

121

114

119

36,400 35,10036,900

130

34,200

140

34,500

(t-CO2) (kg-CO2/t)

(FY)2005 2006 2007 2008 2009400

500

600

700

800

2,200

2,400

2,600

2,800

3,000

2,340 2,290

2,400

707 704743

2,560 2,750

676 677

(106MJ) (kJ/kg)

99.6 99.6

Total CO2 emissions

CO2 emissions per production unit

CO2 Emissions in Production Plants Including incinerators*

*Values amended retrospectively to fiscal 2005Amount of CO2 emissionThe carbon emission coefficient adopted by the Japan Chemical Industry Association was used until FY2005. In FY2006 through FY2008, the amount of emission was calculated using the FY2005 emission coefficient adopted by the Japan Chemical Industry Association.

CO2 Emissions in R&D Divisions

Total CO2 emissions

Transitions in Energy Consumption in Production Plants

Total energy consumption

Energy consumptionper production unit

Transitions in Amounts of Energy Used byTechnology and R&D Divisions

Total energy consumption

SOx Emissions Quantities, NOx Emissions Quantities, Dust Emissions Quantities

DustNOxSOx

(FY)

20

10

0

(t)

2005 2006 2007 2008 2009

Air Pollution Controls (at Production Plants)

Tap water

Groundwater

Industrial water

Amount of Water Used

2.47

2.93

2.57 2.452.713.0

2.0

1.0

0

(L/kg)

(FY)2005 2006 2007 2008 2009

Amount of Water Used per Production Unit

Transitions in COD Emissions

Amount of Industrial Waste Generated and Amount Recycled (Production Plants)

Amount of generated industrial waste

Amount recycled

Amount of external intermediate treatment including final landfill

Recycling ratios

Recycling Ratios, and External Intermediate Treatment Amounts, Including Final Landfill Amounts (Production Plants)


Management of Chemical Substances


Product design

Raw material candidates

Registered material?

Any restrictions on use?

Review and re-design

Evaluation and judgment

Design work

Registration

New materials・Investigation・Confirming MSDS, etc.

Banned materials?

Restricted materials?

Hazardous or harmful materials?

Corporate Rules

Banned materials

Restricted materials

Hazardous or harmful materials

Ordinary and common materials

Corporate Rules Regarding the Selection of Raw Materials at the Product Design Stage

Banned, Restricted and Hazardous Raw Materials by Corporate Rule

Chemical substances contained in raw materials are pre-evaluated. Our voluntary pre-evaluation system protects the environment, safety, and health for our plants, neighboring residents and the users of our products.

<Banned materials>(Banned regardless of reason)Any raw material that contains 0.1% or more of any of the following substances, excluding those otherwise specified

1. 16 substances defined as Class-1. Particularly Specified Chemical Substance by the Chemical Substances Control Law

2. 23 substances defined as Class-2. Particularly Specified Chemical Substance by the Chemical Substances Control Law

3. 79 poisonous substances as defined by the Poisonous and Deleterious Substance Control Law

4. 90 ODS (ozone depleting substances) as defined by the Montreal Protocol

5. 88 substances defined as container Class-1 in Appendix Table 1 (toxic substances) of the Ship Safety Law

6. 11 banned substances as defined by the Industrial Safety and Health Law, and 8 substances defined as Class-1 by the Ordinance on Prevention of Hazards due to Specified Chemical Substances

7. 12 substances defined as being in a specified class by the Chemical Weapons Prohibition Law 3 toxic substances defined as Class-1 and 4 substances defined as Class-2

8. 3 substances as defined by the Air Pollution Control Law

9. Others1) Cadmium and its compounds2) Asbestos3) The following chloride compounds

•Vinyl chloride monomers•PCP and its sodium salts•PCT

4) Bis (tributyltin) dibromosuccinate5) 2-Nitropropane6) Ethylene glycol monomethyl ether7) Ethylene glycol monomethyl ether acetate8) The following organic bromine compounds

•Polybromobiphenyl•Polybrominated diphenyl ether

9) PFOS and PFOS-related chemical compounds

<Restricted materials>(Registered raw materials containing restricted substances)Any raw materials that contain 1% or more of the following substances, excluding those otherwise specified

1. Substances for which health disturbance prevention guidelines were issued by Article 28-3 of the Industrial Safety and Health Law

2. Mutagenic substances as defined by the Health, Labour and Welfare Ministry

3. Reprotoxic substances (teratogenic substances)1) Ethylene glycol monoethyl ether2) Ethylene glycol monoethyl ether acetate

4. Raw materials defined as Class-1 by the Chemical Weapons Prohibition Law

5. Carcinogenic substance defined as 1 or 2A by the IARC (excluding banned substances)1) Formaldehyde2) Hexavalent chromium compounds

6. Substances regarded as deleterious substances (even with 5% or less content) by the Poisonous and Deleterious Substance Control Law

7. Lead or its compounds

8. Chemical substances defined by the Pollutant Release and Transfer Register (PRTR) as Class-1 substances (excluding banned substances)

9. Chlorinated paraffin (C10～13 · C1≧50%)

10. Azo compounds (compounds that generate amin as specified by German restrictions in consumer goods)

11. Others1) Dichloromethane2) 2-Isocyanatoethyl methacrylate3) Other chlorinated organic compounds4) Other organic bromine compounds5) Polyvinyl chloride (PVC) and PVC Compounds6) HCB (self-management upper limit)7) PFOA (includes prior structures and the same type of substances)

Use of the following raw materials is restricted for household coatings1. Substances controlled by the Poisonous and Deleterious Substance Control

Law, or preparations containing more than the specified amount of such substances

2. Substances controlled by the Law for the Control of Household Products Containing Harmful Substances

3. Methanol (5% or higher content)

<Hazardous materials>Any raw material that contains 1% or more of any of the following substances, excluding those otherwise specified1. Dangerous materials described by the Fire Service Law (in Class-4 materials,

including only special inflammable liquid)

2. Substances defined as a specified chemical substance by the Chemical Substances Control Law

3. Other substances that pose major hazards to human health

Hazardous Material Reduction Results

1) Lead compounds contained in products soldWe are continuing our efforts to reduce the use of lead compounds, and compared with FY2003, the amount of lead compounds in products sold was 51% (242 tons) in FY2009.

The percentage of lead compounds per 100 tons of product showed a decrease compared with the previous fiscal year due to our further transition from rustproof coatings containing lead to rustproof coatings that are both chromium- and lead-free and a decrease in the total volume of coating materials sold.

As part of our efforts to meet customer needs, we are promoting the development of new products designed to replace lead-based rust inhibiting agents and hardening acceleration agents.

2) Hexavalent chromium compound contained in products sold

We are continuing our efforts to reduce the use of hexavalent chromium compounds, and compared with FY2003, the amount of these compounds in products sold was 46% (153 tons) in FY2009.

The results for the percentage of hexavalent chromium compounds per 100 tons of product was the same as the previous fiscal year.

Factors hampering the reduction of products including hexavalent chromium compounds include the required verification of long-term performance aspects, such as weather resistance and durability, and the high cost of material substitution. However, as these are products that people can easily come into contact with, we continue to develop and expand products to replace these compounds.

3) Toluene, xylene, and ethyl benzene contained in products sold

We are continuing our efforts to reduce the use of toluene, xylene, and ethyl benzene (hereafter, T, X, and EB). In FY2009, we transitioned from solvent-based coatings to water-based coatings and due to our progress in developing a market for coatings that do not contain PRTR substances, there was a decrease of 28% in the use of these materials compared with the figure for FY2003, representing a large reduction to 26,676 tons.

In the future, we will continue to develop products to replace those containing T, X, and EB, and further promote the reduction in the use of these substances.

4) VOC percentage contained in products soldFY2009 showed sluggish economic performance and particularly sales of low-VOC coatings did not show any remarkable growth and as a result the volume of VOC in the coatings sold decreased. However, compared with FY2007, the percentage of VOC contained in products sold remained the same.

In the future, we will continue to reduce the amount of VOC and promote the transition to water-based and hybrid coatings in all fields.

(FY)2003 2005 2006 2007 20080.00

0.05

0.10

0.15

0.20

0.25

0.19

0.13 0.13 0.13

2009

0.14

0.10

(t)

Lead Compounds Contained per 100 Tons of Products Sold

(FY)2003 2005 2006 2007 2008 20090.00

0.05

0.10

0.15

0.20

0.13

(t)

0.100.09

0.080.07 0.07

Hexavalent Chromium Compounds Containedper 100 Tons of Products Sold

(FY)2003 2005 2006 2007 2008 20090

5

10

1512.7

(t)

12.0 11.811.1 11.0

10.2

Toluene, Xylene, and Ethyl benzene Contained per 100 Tons of Products Sold

(FY)2003 2005 2006 2007 2008 20090

10

20

30

24.4

(%)

23.7 23.5 22.5 22.6 22.5

VOC percentage Contained in Products Sold

Kansai Paint Co., Ltd. Corporate Report 201024

CoatingsApplication

Color and Design

Polymer synthesis

Polymer cross-linking

Computer simulation

Light energy

Coloring materials

Biotechnology

Surface control

Engineering

Analysis

Rheological control

Technologies to modify surfaces and to extremely increase the value of products

Pursue the ultimate in possibilities for coating materials

Develop new technol-ogies and new fields based on coating technology

Develop environment-friendly products

Development of Environmental Technologies and Products/Green Procurement


(FY)0

40

20

60

80

100

(%)

Target

Transitions in Eco-product Ratio

2005 2007 2008 2009 2010

6055

59 60 65


Kansai Paint’s Basic Technologies Look to the Future

Kansai Paint’s core technologies are represented by coating material, coating processes and coloring technologies.

Furthermore, these technologies are supported by fundamental technologies that include polymer synthesis, molecular cross-linking, photochemistry and material coloring. These core technologies are used in a wide range of applications to improve surfacing results and increase product value.

In order to assure the original mission of paint and coating, the protection of a product, ensure a beautiful appearance and reduce the burden on the environment throughout the lifecycle of the product, we concentrate on research and development that will assure low-environment burden, high performance and highly functional products.

Eco-product Ratio

Working towards our goal of an eco-product ratio of 65% in fiscal 2010 with “ALES ECO PLAN 2010”, we promoted the conversion to eco-products in all of our coatings fields. In fiscal 2009 our eco-product ratio was 60%, compared with our stated goal of 63%, due to sluggish economic performance resulting in no growth shown in sales of low-VOC coatings.

As we work towards our goal of an eco-product ratio of 65% in fiscal 2010, we are continuing to promote the development and provision of eco-products.

The protection function of a coating for a material comes into play when a coating film is formed, suppressing the deterioration of the coated material, increasing its durability and contributing to environmental conservation. The primary burdens placed on the environment up to the time of the formation of the coating film are generated from the raw materials used in the coating and in the film formation process of coating application, so Kansai Paint is designing products with reduced environmental burden throughout the lifecycle of the coating material and coating film. For example, products with a thinner coating film thicknesses, increased coating film durability and simpler drying processes. LCA is a useful tool for quantitatively ascertaining the environmental burden of the product. Based on this LCA method, we have studied evaluation methods that can be suitably applied to coatings and these methods have served useful in the evaluation of environmental burden at the time of product design.

Life Cycle Assessment (LCA) Initiatives Kansai Paint Procurement Policies

• Kansai Paint promises to conduct fair and impartial business transactions following a “legal mindset”.

• Kansai Paint shall work to open doors widely for business transactions, both in Japan and abroad.

• In the spirit of green procurement, Kansai Paint shall give preference to business partners that have established environmental management systems.

• Kansai Paint shall create a fair relationship of cooperation within which the company is on equal footing with business partners as we continue to work to enhance our partnerships.

Classifications of Materials Used

In regard to the materials used by Kansai Paint, we shall clearly classify materials, make specific details available to our business partners, etc., using such documents as the Kansai Paint Environmental Management Substances List and shall work to obtain materials that minimize the burden on the environment.

Social Activities26 Treatment of Employees

28 Occupational Safety and Health

29 Consumer Protection

30 Social Action Programs

Social Activities


Treatment of Employees

Human Resource Development and Training

Our human resource development plan has been designed to motivate our employees, as we consider that motivation is one of the most important factors in human development.

Human resource development systemFive themes have been defined for human resource development training: a self-development program, a long-term training plan, expansion of job capabilities, a revolution in corporate culture and a training structure.

Systematically established training systemOur training system has been systemized as a matrix corresponding to the various types of study objectives and levels. Our goal is to enhance the specialized skills of each employee and to foster the comprehensive abilities of our professionals.

Hierarchical StudyIn order to increase job performance with each year, we conduct training for new employees as well as core employee training, supervisor training, administrator training, etc., as needed.

Training by FunctionSpecialized training particular to each area (administration, sales, technologies, manufacturing) is being conducted.

International TrainingIn order to expand our consciousness and capabilities on an international scale, we are providing support for foreign language studies, studies for dealing with other cultures, studies for employees being stationed overseas, etc.

Life Design TrainingTo help our employees enjoy long and healthy lives, we provide time for implementing life plan seminars organized by the employees themselves.

Common Training, Occupational TrainingThe Kansai Paint Training Center, a vocational training center certified by the Ministry of Health, Labor and Welfare, conducts common training for safety, improvement activities, basic training, skill improvement training, craftsman training related to each type of coating, etc. We also promote participation in outside seminars for each type of occupation and hierarchical level.

Health Care

The Health and Sanitation Sub-Committee has been installed under the Environmental Safety & Health Committee, which is dedicated to ensuring the good health of all employees in Kansai Paint Group companies.

In FY2009, the committee continued to promote its antismoking campaign while continuing its activities to support people suffering from mental health issues and lifestyle-related illnesses.

Mental health care supportDuring a training course for new employees, participants were given instructions on general health management and stress measures by our industrial physicians on the theme of “Health Management for Adults,” as a part of the process of transition from being a student to becoming a full-fledged member of society.This increased awareness of “health management for mind and body” concept as well as raising self-awareness of the importance of self-care.

Aiming for the creation of a workplace that promotes health and an easy-to-work-in environment, we provided instructions on the basics of line care for newly appointed administrators, based on the theme of “Mental Health in the Workplace,” and we are also promoting safety-awareness activities.

Antismoking campaignAs the next step in the separation of smoking areas that was completed in FY2005, we have started an antismoking campaign that helps smokers quit smoking, with the goal of eliminating the risk factors of diseases and enhancing the health of our employees.

For instance, we have introduced several how-to books, and distributed nicotine gum to participants to help them quit smoking.

In addition, our internal house organ included a series of articles written by out-sourced health and welfare consultants on the theme of quitting smoking as part of our educational activities.

Lifestyle-related disease measuresAs part of the activities of the Health, Labor and Welfare Ministry and Japan Industrial Safety & Health Association ‘THP (Total Health Promotion) Demonstration Program’ the company held a health seminar.

A ‘Personalized Health Management Check Sheet’ was uploaded to the internal company digital notice board and active use of one’s annual health check results was promoted. The seminar also covered efforts to raise awareness of the prevention of lifestyle-related illnesses.

Equal Employment Opportunities

We respect the Equal Employment Opportunity Law for Men and Women. We implement many measures to protect both women’s rights and their persons. We provide equal pay and benefits to both genders without discriminating against female employees.

Prevention of Sexual Harassment

Our company rulebook specifically prohibits sexual harassment and provides a system for all employees to receive consultation by phone and e-mail.

Furthermore, this subject is included in the training program and seminars for managers and new hires.

Employment of Disabled Persons

We make our workplace friendly to disabled personnel, and offer job openings for disabled personnel throughout the year. In FY2009, our ratio of disabled personnel was 1.8%, thus fulfilling our legal requirement to have 1.8% of our workforce consist of disabled people. We resolve to continue to work hard in this regard.

Benefit Programs

We provide benefit programs based on the idea of respecting individual lifestyles and individuality.

Our benefit programs include annual paid holidays, congratulatory bonuses and condolence leave accumulated paid holidays used for nursing care, volunteer work, as well as sick leave, personal holidays, childcare leave and family care leave.

Employees may also take 28 half-day paid holidays (amounting to 14 workdays) per year to encourage our employees to utilize their paid holidays.

Privacy Protection

A privacy protection administrator was assigned to each division, and privacy protection guidelines set forth in order to prevent private information from being leaked, and to handle such information correctly in this IT era.

The auditing of compliance with such guidelines is carried out by auditors who are appointed by the Compliance Committee, thus ensuring the protection of privacy in the organization.

A Mental Health Workshop

Seminar on how to counter lifestyle-related illnesses (at the Tokyo Office)

50

40

30

(%)

(FY)2006 2008 20092005 2007

41.7

37.535.8

38.139.4

Transition in the ratio of smokers (Kansai Paint)

Social Activities


Skull and crossbones

Exclamation mark Health hazard Environment

Exploding bomb Flame Flame over circle

Gas cylinder Corrosion

･ Flammable and combustible･ Autoreactive substance･ Auto-ignition and self-heating substances

･ Oxidizer･ Organic peroxide

･ High pressure gas ･ Metal corrosive substance･ Skin corrosive･ Serious damage to eyes

･ Acute toxicity･ High toxic substance

･ Acute toxic substance (low toxicity)･ Skin irritating substance･ Eye irritating substance･ Skin sensitizing substance

･ Mutagen･ Carcinogenic substance･ Reprotoxic substance･ Respiratory sensitizing substance･ Organ toxic substance

･ Aquatic ecotoxic substance

Note) The titles of the pictograms are those defined by JISZ7251.

･ Explosive･ Autoreactive substance･ Organic peroxide

Internal Chemical Substance Management System

(Material MSDS, Documentation, etc.)

Customers, Users, etc.

Automatic Publication SystemBranch Office, Sales Outlet, etc.

ProductDesign

Automatic Document Creation

Product MSDS

Material Selection

Legal Information (Enactment, Revision)

Safety Diagnoses at Foreign Affiliated Companies

In order to prevent accidents and disasters at foreign affiliated companies, safety diagnoses are conducted in each region every year, limiting the number of affiliates subject to these diagnoses.In July of fiscal 2009, Thailand was subject to a safety diagnosis, followed by India in November. , As these diagnoses followed the training sessions held in Japan, each plant that was subject to a diagnosis was extremely serious in their approach to their safety operations and improvements were seen in both static electricity counter measures and the 5S standards. We will also continue to conduct diagnoses in the future.

Consumer Protection

Activities for Occupational Safety and Health

Kansai Paint conducts various activities each year with the goal of realizing zero accidents and disasters. In July, all employees are involved in a comprehensive safety inspection (for both operating and non-operating times) that encompasses the entire Group and focuses on the equipment and facilities.

During September and October, central environmental safety diagnoses by central safety personnel were conducted at 15 worksites. Safety diagnoses are also conducted at 44 CCs (color centers) around the country throughout the year (between August and January). In conjunction with the implementation of risk prediction training, which includes other non-regular types of work, efforts are also being made to thoroughly implement safe work. The frequency of industrial accidents and the severity rates for FY2009 at Kansai Paint Co., Ltd. (Japan) are shown below. These results are due to the occurrence of one accident that caused a cessation of work.

Environmental Safety and Health Inspections by ManagementWhile there is a definite trend for a decrease in the number of industrial accidents at our Company over the long-term, during the last few years, accidents involving people and/or property have reached a plateau. Given this background in fiscal 2009, the slogan “Eliminate even the Hidden Dangers: Creating a Zero-Accident Workplace by Following the Rules”

was adopted for the central environmental, safety and hygiene diagnoses.

Diagnoses were conducted in September and October at 7 operation plants, 1 center, 4 affiliated companies, and 3 color centers, stressing the status of promoting countermeasures to prevent static electricity, measures for the safe operation of dryers, life-like general disaster and safety training based on real disaster models, safety measures for electrical equipment and machinery facilities and 3A KYT practical training (actual place, actual goods, actual conditions). These diagnoses, led by the central safety and environmental management officer, are being performed by a ten-person team, including the central hygiene managers, a general management team as well as a team of experts. They found that there was an overall improvement in safety awareness levels, but that there was still room for improvement. Especially, the safety awareness level of the technical division and the affiliated company are improving as a result of our continuous diagnoses every year and with regard to specific incidents, apart from one area we have seen an improvement overall. The company thus reviews the content of current basic training and daily check items, and ensures compliance with the company safety codes in order to further enhance our safety assurance system.

Safety Measures of Overseas Affiliates

The number of plants run by overseas affiliates increases with each year. Kansai Paint currently has 25 production plants in China, Taiwan, ASEAN, India Pakistan and Turkey, and we anticipate further increases in the future. The total production volume of overseas affiliates is at the point where it is overtaking that of Kansai Paint itself. For all of these worksites, we cannot allow even one failure related to safety. Kansai Paint employees are stationed at our overseas production plants and work in safety, production or quality management and support. We are also implementing safety diagnosis programs at our overseas affiliates.

Safety Information

Based on the idea that even a safe product could lead to an accident if used incorrectly, we provide MSDSs (material safety data sheets), product catalogs and technical information. Also, usage precautions are described on our product labels to ensure safe use by consumers.

MSDS

In order to promote the safe and correct use of our coatings, which are chemical products, as well as preventing accidents, Kansai Paint issues MSDSs to provide detailed product information. Placing emphasis on the importance of compliance, Kansai Paint reviews the content of these MSDSs and incorporates the latest legal information into the documents.

Labels and MSDS in Compliance with GHS (Global Hazard Standard)

In preparation for the United Nations recommendations on 2008 goals, Japan has been implementing a partial introduc-tion of GHS in conjunction with the December 2006 revisions to the Industrial Safety and Health Laws. Kansai Paint has achieved compliance with the revised Labor Safety Law enacted December 2006 with product labels and an MSDS publication system that are based on Japan Paint Manufacturers Association guidelines.Due to a partial revision of the enforcement ordinance of the Chemical Substance Management Promotion Law, some items were added to and deleted from the list of products subject to PRTR and MSDS controls. Our MSDS response system was revised and enforced in October 2009 and now our company measures and policies are fully appropriate.Looking forward, with regard to revisions and updates to laws both at home and overseas and with the introduction of GHS, etc, we plan to perform regular reviews of our labeling and MSDS compliance.

Occupational Safety and Health

Minor injuries Lost-work injuriesNumber of industrial accidents

(FY)

20

10

0

Annual Changes in Accidents at Work

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

0

52 21 1

0 41

11

97

9

5 558

5

1311

8

Frequency ratio

(FY)1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

2.0

1.5

1.0

0.5

0

Annual Changes in Frequency Ratios for Accident

0.28 0.290.30

1.20

0.000.250.24

0.44

1.01

0.00

0.56

Frequency ratio for accidents = (Lost-work accidents (number of victims)/ Total man-hours) × 1,000,000

Severity

(FY)1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Change in Severity

0.01 0.01

2.29

0.030.000.010.000.01

0.17

0.020.00

0.2

0.1

0

Severity = (Lost-work days / Total

man-hours) × 1,000

Principle of Consumer Protection

In order to ensure product safety for consumers when conducting market development for new products and when using new materials, the Kansai Paint Group implements investigations based on internal company standards related to safety verification, providing customers with safe products. The provision of safer products is also linked to improvements in the working environments of our coatings manufacturers.

Social Action Programs

Social Activities

Social Activities

Status of Presentations at Product Explanatory Meetings, Exhibits, etc.

To promote understanding by our customers of the efforts Kansai Paint is making to create products that reduce environmental burden, Kansai Paint holds explanatory meetings about its eco-friendly products, with a focus on decorative coatings, automotive coatings and industrial coatings.

Kansai Paint also exhibits its eco-friendly products at various types of exhibitions. In FY2009, Kansai Paint held a total of 256 product explanatory meetings and exhibited products 78 times at exhibitions.

Kizugawa Wall Painting 2009

Held in August 2009, the Kizugawa Wall Painting project was organized by Osaka Prefecture with the cooperation of Kansai Paint and Kansai Paint Sales providing paints, etc. for the project. The wall forming the banks of the Kizugawa river located directly in front of the Kyocera Dome Osaka provided the venue and the 11 designs solicited from the public and submitted for the project were reproduced on this wall in great detail using paints supplied by Kansai Paint. People passing through this area now have plenty to look at!

Fukakita Green Park Dinosaur Plaza

Responding to a request from the Hirakata City Office of Public Works (Osaka Prefecture) and in order to illustrate the importance of our environmental measures as well as enlightening people to the fun and enjoyment of paint, Kansai Paint supplied the Dinosaur Plaza with ‘HILM A’ heat shield paint for their walkways, as well as providing guidance on all coating issues. Local university students volunteered to paint the walkways of the Dinosaur Plaza, located in the Fukakita Green Park, Daito City, Osaka Prefecture. We also prepared a corner where children can experience temperature differentials first-hand.

The KANSAI PAINT SCHOLARSHIP program for Foreign Students to Study in Japan

Kansai Paint grants scholarships to students from Asian countries with the expectation that the students will focus on their studies and make contributions to the development of international societies after they return to their countries. 2009 is the 11th year of the KANSAI PAINT SCHOLARSHIP program and since the program began we have granted funds to 49 students in total.

It is our sincere hope that these scholarships and their recipients, including scholarship alumni, will create cultural bridges with other countries and promote international exchange

Financial Section


Kansai Paint was proud to receive a certificate of gratitude from the Governor Hashimoto of Osaka Prefecture for its cooperation in supplying paint for this Osaka Prefecture initiative.

32 Financial Review

34 Consolidated Balance Sheets

36 Consolidated Statements of Income

37 Consolidated Statements of Changes in Net Assets

38 Consolidated Statements of Cash Flows

39 Notes to Consolidated Financial Statements

52 Independent Auditors’ Report

Kansai Paint Co., Ltd. Corporate Report 2010 33Kansai Paint Co., Ltd. Corporate Report 201032

Other Income and ExpensesOther income (net total profit offset by expenses) for theterm was ¥1,896 million, compared with ¥3,178 million forthe previous term. This resulted from a decrease in foreigncurrency exchange loss and write-downs in investmentsecurities as well as decreases in dividends earned and adrastic decrease in the gain on the sale of fixed assets.

Net Income for the TermNet income for the term amounted to ¥11,831 million, up¥1,045 million (9.7%) from the previous term. Return onsales (ROS) was 5.3%. There was also an increase in earningsper share (EPS), rising to ¥44.56 from ¥40.61 for theprevious term.

DividendsThe Company’s basic policy is to share profits in proportionto business results, striving to provide stable and continuousdividends to shareholders while enhancing the Company'sprofitability by forming a stronger corporate constitution.

With respect to internal reserves, we are effectivelyutilizing these to invest in research and development and toimprove production and sales systems in Japan and abroadin order to establish a stable, long-term business foundationwhile working toward further growth.

The Company is maintaining its policy of payingdividends biannually based on the record date at the end ofthe second and the fourth quarters respectively.

For the term under review, annual dividends were ¥10per share, the same amount as the previous term.

Financial PositionCurrent assets increased to ¥140,014 million, up ¥19,901million (16.6%) from the end of the previous term. This wasprimarily due to increases in cash, deposits, notes andaccounts receivable. Tangible fixed assets, intangible fixedassets, investments and other assets amounted to ¥130,359million, an increase of ¥9,806 million (8.1%) from the end ofthe previous term. The main factor for the increase was theincrease in the fair value of investment securities caused by arise in stock prices.

Current liabilities amounted to ¥70,435 million, anincrease of ¥8,564 million (13.8%) from the end of theprevious term. This increase was mainly attributable to a risein notes and accounts payable and income tax payables.Long-term liabilities amounted to ¥18,902 million, anincrease of ¥2,590 million (15.9%) from the end of theprevious term, owing mainly to an increase in deferred taxliabilities in relation to the rise in the fair value of investmentsecurities.

Total shareholders’ equity amounted to ¥161,230 million,an increase of ¥15,500 million (10.6%) from the end of theprevious term. This increase was caused mainly by a ¥9,432million increase in retained earnings and increases in thesecurities valuation difference due to the rises in the stockmarket.

The shareholders’ equity ratio fell from 60.6% at the endof the previous term to 59.6% at the end of the currentterm. The return on equity (ROE) increased from 7.1% to7.7%, and the return on assets (ROA) increased from 4.1%to 4.6%.

Cash FlowsNet cash provided by operating activities was ¥19,583million, while net cash used in investment activities and infinancing activities was ¥7,674 million and ¥3,220 million,respectively. As a result, cash and cash equivalents at the endof the year stood at ¥40,548 million, an increase of ¥9,126million (29.0%) from the end of the previous term.

Mid-Term Business Plan Progress• The consolidated subsidiaries Kansai Paint Sales Co., Ltd.

and Kanpe Kyohan Hokkaido Co., Ltd. were merged intoone company during the second quarter of the currentterm in order to improve business performance andefficiency in the decorative and auto-refinish area. Afterthe merger, the Company's interest in Kansai Paint SalesCo., Ltd. stood at 76.67%, up from 75.44% at the end ofthe previous term.

• During the third quarter of the current term, for thepurpose of stabilizing the supply of marine coatings, theCompany acquired a plant in Ako City, Hyogo Prefecture,from BASF Coatings Japan Ltd. The plant continues itsmanufacturing function after the establishment of KanpeAko Co., Ltd., of which the Company holds 100% votingrights.

• Due to the disturbance caused by the worldwide recession,the three-year mid-term business plan that got underwayin fiscal 2008 was concluded one year ahead of the initialschedule since revisions of our numerical targets wasunavoidable. The new three-year mid-term business planwas launched in fiscal 2010.

Outlook for the Next TermAlthough there are no prospects for a rapid recovery in thedomestic economy, growth in developing nations, especiallythose in Asia, is expected to continue. Under thesecircumstances, we will continue to stress the core policies ofthe Group, represented by the slogans “further promotion ofglobalization” and “Strengthen profitability in domesticbusiness” and undertake our business activities towardsrecovery and further growth.

As for the outlook for the next term, we estimate netsales of ¥240,000 million (an increase of 7.9% from thecurrent term), operating profit of ¥22,000 million (anincrease of 7.3% from the current term) and a net income of¥13,100 million (an increase of 10.7% from the currentterm) on consolidated basis.

OverviewLooking at the global economy for the term in review, thesituation was tough at the beginning of the term due to astagnant demand caused by the global recession. However,there was a gradual recovery as the Asian region, especiallyIndia and China, played a leading role, and the economic-stimulus packages implemented by many countries began totake effect. While the domestic economy inclined towardsrecovery, there still remains the risk of downward pressure onthe economy arising from the continuing harsh employmentsituation and deflation. The paint industry also restoredproduction and sales volume during the latter half of theterm, but the overall situation was still weak and continuesto exert pressure on corporate profits.

Amidst these economic conditions, the Kansai PaintGroup has worked to intensify Group management, promotetotal cost reduction and strengthen its global strategies inorder to improve its business results.

Consequently, consolidated net sales decreased by 3.3%,consolidated operating income increased by 52.7%, andconsolidated net income increased by 9.7% from theprevious term.

Status of Sales● Paint BusinessSales in the paint business as a whole totaled ¥218,116million, a year-on-year decrease of ¥6,964 million (3.1%).

• Automotive CoatingsIn the field of automotive OEM coatings, we concentratedon expanding sales of our Waterborne 3-Wet CoatingSystem with its superior appearance in addition to itscompliance with our environmental requirements to reduceCO2 emissions, as well as introducing a clear topcoat withexcellent scratch resistance designed for high-classautomobiles. Unfortunately, domestic sales fell from theprevious term as a consequence of a protracted decline inautomobile production. Overseas, the picture is more positivethanks to recovering demand in India, China, etc. but totalsales in the field of automotive OEM coatings decreasedcompared with the previous term.

In the area of auto refinishing paint, we worked toexpand sales through our core lineup of environmentallyfriendly products by strengthening the range and variety ofour waterborne coatings as well as releasing a new surfacerand color-matching system to the market. However, theseefforts were not successful enough to offset the weakdemand, and total sales in this area decreased.

Consequently, total sales for the entire field ofautomotive coatings decreased from the previous term.

• Industrial CoatingsIn the domestic field of industrial coatings, sales of paint forpre-coated metal were brisk, while the market trends forother products was sluggish. Furthermore, we sought todevelop the market by introducing energy efficient powdercoatings that cure at low temperatures and contributing tolower CO2 emissions. Unfortunately, these efforts were notenough to overcome depressed demand. Looking overseas,during the latter half of this term, there was upwardmomentum in sales mainly in the Chinese market, but we

could not attain the same level of sales as the previous term.Consequently, total sales for industrial coatings

decreased from the previous term.

• Decorative CoatingsIn the area of decorative coatings, the demand in thedomestic market was slack due to fewer new housingconstructions and weak capital investment by corporations.Amidst these conditions, we strove to put our efforts intoexpanding interior decoration markets with our anti-bacterialand anti-viral “Shikkui Plaster” (traditional Japaneseecological lime-based plaster) as well as promoting theproduct in the residential building renovation market.Furthermore, we held product presentation workshops andhousing renovation seminars for general consumers toencourage enhancing one’s living environment. Howeverthese efforts were not enough to counter the depressedmarket conditions. As for markets overseas, we worked toexpand sales in India and other countries and began a newventure to introduce our waterborne multi-colored patterncoatings in the Middle East.

As a result, there was an increase in sales for decorativecoatings from the previous term.

• Marine and Protective CoatingsIn the field of marine coatings, with no significant negativeinfluence from the global recession in the new shipconstruction market, sales in this field were bullish. In themarket for ship repair works, we encountered somecancellations due to a reduction in ocean-going freight,nevertheless we put our efforts into expanding sales of highvalue-added products, in particular, our anti-fouling paints.

In the field of protective coatings, as a result ofpromoting high value-added products, there were increasesin the adoption of our products for both new constructionand bridge repair. However, due to reduced investment inthe private sector, there was a significant decline in sales ofcoatings for industrial steel beams.

Consequently, sales for marine and protective coatingsdecreased from the previous term.

● Other BusinessSales for other business as a whole totaled ¥4,285 million, ayear-on-year decrease of ¥623 million (12.7%).

In the protective films market, we witnessed a decreasein sales for protective films resulting from a decline in bothdomestic and overseas automobile production.

Cost of Sales, SG&A, and OperatingIncomeCost of sales amounted to ¥155,062 million, a decrease of¥13,604 million (8.1%) from the previous term. The grossprofit margin for this term was 30.3%, up from 26.7% forthe previous term. Selling, general, and administrativeexpenses amounted to ¥46,834 million, a reduction of¥1,065 million (2.2%) from the previous term. As a result,operating income rose to ¥20,505 million, an increase of¥7,081 million (52.7%), and the ratio of operating incomeversus sales was 9.2%, up from 5.8%.

Financial Review


Millions of yen Thousands ofU.S. dollars (Note 1)

Liabilities and Net Assets 2010 2009 2010

Current liabilities:Short-term borrowings (Notes 5 and 8) .................................................................. ¥ 1,321 ¥ 273 $ 14,198Long-term debt due within one year (Notes 5 and 8) ............................................. 590 913 6,341Payables (Note 8): Trade notes and accounts:

Unconsolidated subsidiaries and affiliates ....................................................... 1,251 1,149 13,446 Other .............................................................................................................. 48,791 44,618 524,409

Other .................................................................................................................. 3,703 4,332 39,800

53,745 50,099 577,655

Income and enterprise taxes payable (Note 8) ......................................................... 4,605 1,078 49,495Accrued expenses ................................................................................................... 7,082 6,423 76,118Deferred income tax liabilities (Note 12) ................................................................ 17 14 183Other current liabilities ............................................................................................ 3,075 3,071 33,050

Total current liabilities ............................................................................ 70,435 61,871 757,040

Long-term debt due after one year (Notes 5 and 8) .......................................... 811 1,234 8,717Employees’ severance and retirement benefits (Note 11) ................................. 6,090 6,737 65,456Retirement benefits for directors and corporate auditors .............................. 587 554 6,309Deferred income tax liabilities (Note 12) ............................................................ 9,400 5,901 101,032Other long-term liabilities ................................................................................. 2,014 1,886 21,646Contingent liabilities (Note 7)

Net Assets (Note 10):Shareholders’ equity:Common stock: Authorized — 793,496,000 shares in 2010 and 2009 Issued — 272,623,270 shares in 2010 and 2009 ............................................... 25,659 25,659 275,785Capital surplus ....................................................................................................... 27,154 27,154 291,853Retained earnings ................................................................................................... 108,005 98,573 1,160,845Treasury stock, at cost: 7,110,603 shares in 2010 7,062,405 shares in 2009 ................................................................................... (5,704) (5,671) (61,307)

Total shareholders’ equity ...................................................................... 155,114 145,715 1,667,176

Valuation and translation adjustments:Net unrealized holding gains on securities .............................................................. 13,092 8,555 140,714Foreign currency translation adjustments ................................................................ (6,976) (8,540) (74,979)

Total valuation and translation adjustments ........................................ 6,116 15 65,735

Minority interests ................................................................................................ 19,806 16,753 212,876 Total net assets ......................................................................................... 181,036 162,483 1,945,787

¥ 270,373 ¥ 240,666 $ 2,905,987

See accompanying notes.


Assets 2010 2009 2010

Current assets:Cash and cash equivalents (Notes 6 and 8) ............................................................ ¥ 40,548 ¥ 31,422 $ 435,813Receivables (Note 8): Trade notes and accounts:

Unconsolidated subsidiaries and affiliates ....................................................... 12,051 11,260 129,525Other .............................................................................................................. 58,111 50,141 624,581

Loans (Note 8) .................................................................................................... 529 816 5,685 Other .................................................................................................................. 1,382 1,430 14,854

Allowance for doubtful receivables .................................................................... (1,072) (774) (11,522)

71,001 62,873 763,123

Inventories (Note 6):Finished goods .................................................................................................... 13,757 10,858 147,861Work-in-process .................................................................................................. 3,064 2,994 32,932

Raw materials and supplies ................................................................................. 6,816 5,696 73,259

23,637 19,548 254,052

Deferred income tax assets (Note 12) .................................................................... 3,223 2,691 34,641Other current assets (Note 8) ................................................................................. 1,605 3,579 17,251

Total current assets ................................................................................. 140,014 120,113 1,504,880

Property, plant and equipment (Note 6):Land ........................................................................................................................ 17,008 16,845 182,803Buildings, machinery and equipment ...................................................................... 168,985 164,488 1,816,262Construction in progress ......................................................................................... 508 1,163 5,460

186,501 182,496 2,004,525Accumulated depreciation ...................................................................................... (128,073) (122,378) (1,376,537)

58,428 60,118 627,988

Investments and other assets:Investments in and loans to unconsolidated subsidiaries and affiliates .................... 16,786 14,602 180,417Investment securities (Notes 4, 6 and 8) ................................................................ 48,158 38,239 517,605Loans receivable (Note 8) ........................................................................................ 9 108 97Prepaid pension costs (Note 11) ............................................................................. 2,537 2,678 27,268Deferred income tax assets (Note 12) .................................................................... 900 899 9,673Other ...................................................................................................................... 1,601 2,596 17,208Allowance for doubtful receivables ......................................................................... (439) (432) (4,719)

69,552 58,690 747,549Intangible assets ................................................................................................... 2,379 1,745 25,570

¥ 270,373 ¥ 240,666 $ 2,905,987


Consolidated Balance SheetsKansai Paint Co., Ltd. and Consolidated SubsidiariesMarch 31, 2010 and 2009


Millions of yen

Shareholders’ equity Valuation and translation adjustments

Total Net Foreign Total Common Capital Retained Treasury shareholders’ unrealized currency valuation and Minority Total net

stock surplus earnings stock equity holding gains translation translation interests assetson securities adjustments adjustments

Balance at March 31, 2008 ................... ¥ 25,659 ¥ 27,161 ¥ 91,451 ¥ (5,621) ¥ 138,650 ¥ 18,173 ¥ 9 ¥ 18,182 ¥ 20,292 ¥ 177,124Effect of changes in accounting policies applied to foreign subsidiaries ........................................... – – (295) – (295) – – – – (295)Cash dividends paid — ¥12.50 per share ................................. – – (3,333) – (3,333) – – – – (3,333)Net income .............................................. – – 10,786 – 10,786 – – – – 10,786Purchase of treasury stock ....................... – – – (150) (150) – – – – (150)Disposal of treasury stock ........................ – (7) (34) 98 57 – – – – 57Change in scope of equity method companies ........................................... – – (2) – (2) – – – – (2)Change in treasury stock due to change in interest in equity method companies .............................. – – – 2 2 – – – – 2Net changes in items other than shareholders’ equity ............................ – – – – – (9,618) (8,549) (18,167) (3,539) (21,706)

Balance at March 31, 2009 ................... ¥ 25,659 ¥ 27,154 ¥ 98,573 ¥ (5,671) ¥ 145,715 ¥ 8,555 ¥ (8,540) ¥ 15 ¥ 16,753 ¥ 162,483Cash dividends paid — ¥9.00 per share ................................... – – (2,398) – (2,398) – – – – (2,398)Net income .............................................. – – 11,831 – 11,831 – – – – 11,831Purchase of treasury stock ....................... – – – (36) (36) – – – – (36)Disposal of treasury stock ........................ – – (1) 3 2 – – – – 2Net changes in items other than shareholders’ equity ............................ – – – – – 4,537 1,564 6,101 3,053 9,154

Balance at March 31, 2010 ................... ¥ 25,659 ¥ 27,154 ¥108,005 ¥ (5,704) ¥ 155,114 ¥ 13,092 ¥ (6,976) ¥ 6,116 ¥ 19,806 ¥ 181,036

Thousands of U.S. dollars (Note 1)

Shareholders’ equity Valuation and translation adjustments

Total Net Foreign TotalCommon Capital Retained Treasury shareholders’ unrealized currency valuation and Minority Total net

stock surplus earnings stock equity holding gains translation translation interests assetson securities adjustments adjustments

Balance at March 31, 2009 ................... $ 275,785 $291,853 $1,059,470 $ (60,952) $1,566,156 $ 91,950 $(91,789) $ 161 $180,062 $1,746,379Cash dividends paid — ¥9.00 per share ................................... – – (25,774) – (25,774) – – – – (25,774)Net income .............................................. – – 127,160 – 127,160 – – – – 127,160Purchase of treasury stock ....................... – – – (387) (387) – – – – (387)Disposal of treasury stock ........................ – – (11) 32 21 – – – – 21Net changes in items other than shareholders’ equity ............................ – – – – – 48,764 16,810 65,574 32,814 98,388

Balance at March 31, 2010 ................... $ 275,785 $291,853 $1,160,845 $ (61,307) $1,667,176 $140,714 $(74,979) $ 65,735 $212,876 $1,945,787



2010 2009 2010

Net sales ............................................................................................................... ¥ 222,401 ¥ 229,989 $ 2,390,380Cost of sales ......................................................................................................... 155,062 168,666 1,666,616Selling, general and administrative expenses .................................................. 46,834 47,899 503,375Operating income .............................................................................................. 20,505 13,424 220,389

Other income (expenses):Interest and dividend income ................................................................................. 1,205 1,526 12,951Interest expense ...................................................................................................... (106) (153) (1,139)Gain on sale of marketable and investment securities, net ..................................... 126 171 1,355Write-down of marketable and investment securities ............................................. – (629) –Loss on disposal of inventories ................................................................................ (343) (528) (3,687)Gain (loss) on sale or disposal of property, plant and equipment, net ..................... (178) 2,569 (1,913)Foreign currency exchange loss ............................................................................... (45) (717) (484)Equity in earnings of unconsolidated subsidiaries and affiliates .............................. 694 645 7,459Other, net ............................................................................................................... 543 294 5,836

1,896 3,178 20,378Income before income taxes and minority interests ......................................... 22,401 16,602 240,767

Income taxes (Note 12):Current ................................................................................................................... 7,283 3,420 78,278Deferred .................................................................................................................. 59 258 634

7,342 3,678 78,912

Minority interests in net income of consolidated subsidiaries ........................ (3,228) (2,138) (34,695)Net income ........................................................................................................... ¥ 11,831 ¥ 10,786 $ 127,160

Yen U.S. dollars(Note 1)

2010 2009 2010Net income per share .......................................................................................... ¥ 44.56 ¥ 40.61 $ 0.48Cash dividends per share .................................................................................... ¥ 10.00 ¥ 10.00 $ 0.11


Consolidated Statements of IncomeKansai Paint Co., Ltd. and Consolidated SubsidiariesYears ended March 31, 2010 and 2009

Consolidated Statements of Changes in Net AssetsKansai Paint Co., Ltd. and Consolidated SubsidiariesYears ended March 31, 2010 and 2009


The accompanying consolidated financial statements ofKansai Paint Co., Ltd. (the “Company”) and its consolidatedsubsidiaries (together the “Companies”) have been preparedin accordance with the provisions set forth in the FinancialInstruments and Exchange Law and their related accountingregulations and in conformity with accounting principlesgenerally accepted in Japan (“Japanese GAAP”), which aredifferent in certain respects as to application and disclosurerequirements from International Financial ReportingStandards.

The accompanying consolidated financial statementshave been restructured and translated into English, withsome expanded descriptions, from the consolidated financialstatements of the Company prepared in accordance withJapanese GAAP and filed with the appropriate Local Finance

Bureau of the Ministry of Finance as required by theFinancial Instruments and Exchange Law. Certainsupplementary information included in the statutoryJapanese language consolidated financial statements, butnot required for fair presentation, is not presented in theaccompanying consolidated financial statements.

The translations of the Japanese yen amounts into U.S.dollar amounts are included solely for the convenience ofreaders outside Japan, using the prevailing exchange rate atMarch 31, 2010, which was ¥93.04 to US$1.00. Thetranslations should not be construed as representations thatthe Japanese yen amounts have been, could have been orcould in the future be converted into U.S. dollars at this orany other rate of exchange.

Principles of consolidationThe consolidated financial statements in the fiscal year endedMarch 31, 2010 include the accounts of the Company andits 36 (36 in the fiscal year ended March 31, 2009)significant subsidiaries. Intercompany transactions andaccounts have been eliminated.

Investment in 17 unconsolidated subsidiaries and 29affiliates in the fiscal year ended March 31, 2010 (18 and 32,respectively, in the fiscal year ended March 31, 2009) arestated at cost, adjusted for equity in undistributed earningsand losses since acquisition.

The accounts of 17 consolidated subsidiaries in the fiscalyear ended March 31, 2010 (17 in the fiscal year endedMarch 31, 2009) are included on the basis of their respectivefiscal years, one of which ends on February 28 and theothers on December 31. These subsidiaries do not prepare,for consolidation purposes, statements for the period, whichcorresponds with the fiscal year of the Company, which endsMarch 31. For these consolidated subsidiaries, when thereare significant transactions between their respective fiscalyear ends and that of the Company, necessary adjustmentsare made to reflect the transactions in the accompanyingconsolidated financial statements.

In the elimination of investments in subsidiaries, theassets and liabilities of the subsidiaries, including the portionattributable to minority shareholders, are evaluated using thefair value at the time the Company acquired control of therespective subsidiary.

The difference between the cost of an investment in asubsidiary and the equity in the fair value of net assets at thedate of acquisition is amortized over five years in principle.

Cash and cash equivalentsIn preparing the consolidated statements, cash on hand, readilyavailable deposits and short-term highly liquid investments withmaturities not exceeding three months at the time of purchaseare considered to be cash and cash equivalents.

Allowance for doubtful receivablesThe allowance for doubtful receivables is determined byadding the estimated uncollectible amounts of individualreceivables to an amount calculated using a rate based onpast experience.

SecuritiesThe Companies do not hold trading securities. Held-to-maturity debt securities are stated at amortized cost. Equitysecurities issued by subsidiaries and affiliated companieswhich are not consolidated or accounted for using theequity method are stated at moving average cost. Available-for-sale securities with available fair market values are statedat fair market value. Unrealized gains and losses on thesesecurities are reported, net of applicable income taxes, as aseparate component of net assets. Realized gains and losseson the sale of such securities are computed using movingaverage cost. Securities with no available fair market valueare stated mainly at moving average cost.

If the market value of equity securities issued byunconsolidated subsidiaries or affiliated companies not onthe equity method or the market value of available-for-salesecurities declines significantly, the securities are stated atfair market value, and the difference between fair marketvalue and the carrying amount is recognized as loss in theperiod of the decline. If the fair market value of equitysecurities issued by unconsolidated subsidiaries or affiliatedcompanies not on the equity method is not readily available,the securities are written down to net asset value with acorresponding charge in the consolidated statements ofincome in the event the net asset value declines significantly.In these cases, the fair market value or the net asset valuewill be the carrying amount of the securities at thebeginning of the next year.

InventoriesInventories held for the purpose of ordinary sale are statedprincipally at the lower of moving average cost or netrealized value.

(Accounting change)Effective from the year ended March 31, 2009, theCompany and its consolidated subsidiaries adopted the newaccounting standard, “Accounting Standard forMeasurement of Inventories” (Statement No. 9 issued by theAccounting Standards Board of Japan on July 5, 2006). Thisstandard requires that inventories held for sale in theordinary course of business be measured at the lower ofcost or net selling value, which is defined as the selling priceless additional estimated manufacturing costs and estimated

1. Basis of Presenting Consolidated Financial Statements

2. Summary of Significant Accounting Policies


2010 2009 2010

Cash flows from operating activities:Income before income taxes ................................................................................... ¥ 22,401 ¥ 16,602 $ 240,767Depreciation and amortization ................................................................................ 7,053 7,280 75,806Amortization of goodwill ........................................................................................ 42 27 452Decrease in provision for severance and retirement benefits .................................. (516) (1,060) (5,546)Increase in allowance for doubtful receivables ........................................................ 274 118 2,945Interest and dividend income ................................................................................. (1,205) (1,526) (12,951)Interest expense ...................................................................................................... 106 153 1,139Equity in earnings of unconsolidated subsidiaries and affiliates .............................. (694) (645) (7,459)Write-down of marketable and investment securities ............................................. – 629 –(Gain) loss on sale or disposal of property, plant and equipment ............................ 240 (2,569) 2,580(Increase) decrease in trade receivables ................................................................... (7,880) 13,476 (84,695)(Increase) decrease in inventories ............................................................................ (3,447) 1,839 (37,049)Increase (decrease) in trade payables ...................................................................... 3,374 (10,319) 36,264Other ...................................................................................................................... 2,394 (2,768) 25,731

22,142 21,237 237,984Interest and dividends received ............................................................................... 1,364 1,577 14,660Interest paid ........................................................................................................... (106) (153) (1,139)Income taxes paid ................................................................................................... (3,817) (5,731) (41,026)Net cash provided by operating activities ................................................................ 19,583 16,930 210,479

Cash flows from investing activities:Purchase of marketable securities ........................................................................... (51,449) (9,735) (552,977)Proceeds from sale of marketable securities ............................................................ 51,449 9,735 552,977Purchase of property, plant and equipment ............................................................ (5,038) (10,309) (54,149)Proceeds from sale of property, plant and equipment ............................................. 114 3,111 1,225Purchase of intangible assets ................................................................................. (470) (170) (5,052)Purchase of investment securities ............................................................................ (10,781) (12,926) (115,875)Proceeds from sale of investment securities ............................................................ 8,691 7,063 93,412Loans receivable advanced ...................................................................................... (1,378) (1,802) (14,811)Collection on loans receivable ................................................................................. 1,136 1,672 12,210Other ...................................................................................................................... 52 1,748 559Net cash used in investing activities ........................................................................ (7,674) (11,613) (82,481)

Cash flows from financing activities:Proceeds from short-term debt ............................................................................... 2,028 4,035 21,797Payment of short-term debt .................................................................................... (1,326) (4,594) (14,252)Proceeds from long-term debt ................................................................................ 200 959 2,150Payment of long-term debt ..................................................................................... (664) (1,172) (7,137)Purchase of treasury stock ...................................................................................... (36) (150) (387)Proceeds from sale of treasury stock ....................................................................... 2 57 22Cash dividends paid ................................................................................................ (2,398) (3,333) (25,774)Cash dividends paid to minority shareholders ......................................................... (1,026) (1,001) (11,028)Other ...................................................................................................................... – 74 –

Net cash used in financing activities ........................................................................ (3,220) (5,125) (34,609)

Effect of exchange rate changes on cash and cash equivalents ..................... 372 (1,888) 3,999Increase (decrease) in cash and cash equivalents .............................................. 9,061 (1,696) 97,388Cash and cash equivalents at beginning of year .............................................. 31,422 33,118 337,726Increase in cash and cash equivalents due to merger ...................................... 65 – 699Cash and cash equivalents at end of year ......................................................... ¥ 40,548 ¥ 31,422 $ 435,813


Consolidated Statements of Cash FlowsKansai Paint Co., Ltd. and Consolidated SubsidiariesYears ended March 31, 2010 and 2009

Notes to Consolidated Financial StatementsKansai Paint Co., Ltd. and Consolidated Subsidiaries


Derivatives and hedge accountingThe Companies state derivative financial instruments at fairvalue and recognize any change in the fair value as gain orloss, unless the derivative financial instruments are used forhedging purposes. If derivative financial instruments areused as hedges and meet certain hedging criteria, theCompany and the domestic consolidated subsidiaries deferrecognition of the gain or loss resulting from a change inthe fair value of the derivative financial instrument until therelated loss or gain on the hedged items are recognized.

However, in cases where forward foreign exchangecontracts are used as hedges and meet certain hedgingcriteria, the forward foreign exchange contracts and hedgeditems are accounted for in the following manner:(1) If a forward foreign exchange contract is executed to

hedge an existing foreign currency receivable or payable,(a) the difference, if any, between the Japanese yen

amount of the hedged foreign currency receivable orpayable translated using the spot rate at theinception date of the contract and the book value ofthe receivable or payable is recognized in the incomestatement in the period which includes the inceptiondate, and

(b) the discount or premium on the contract (thedifference between the Japanese yen amount of thecontract translated using the contracted forward rateand that translated using the spot rate at theinception date of the contract) is recognized over theterm of the contract.

(2) If a forward foreign exchange contract is executed tohedge a future transaction denominated in a foreigncurrency, the future transaction will be recorded usingthe contracted forward rate, and no gain or loss on theforward foreign exchange contract will be recognized.

Net income and cash dividends per shareThe computation of net income per share is based on theweighted average number of shares outstanding during theperiod. Diluted net income per share of common stock forthe years ended March 31, 2010 and 2009 is not shownsince there were no outstanding convertible bonds or othercommon stock equivalents.

Cash dividends per share presented in the accompanyingconsolidated statements of income are dividends applicableto the respective years including dividends to be paid afterthe end of the year.

Changes in accounting procedures for the yearended March 31, 2009

Unification of accounting policies applied toforeign subsidiaries for consolidated financialstatementsPreviously, Japanese GAAP allowed a company to use for itsconsolidation process the financial statements of its foreignsubsidiaries which had been prepared in accordance withgenerally accepted accounting principles in their respectivejurisdictions, unless they were clearly unreasonable. Effectivefrom the year ended March 31, 2009, the Companyadopted the new accounting standard, “Practical Solutionon Unification of Accounting Policies Applied to ForeignSubsidiaries for Consolidated Financial Statements,”(Practical Issues Task Force (PITF) No.18 issued by theAccounting Standards Board of Japan on May 17, 2006).

direct selling expenses. The replacement cost may be used inplace of the net selling value if appropriate. The standardalso requires that inventories held for trading purposes bemeasured at the market price. The effect from the adoptionof the new accounting standard has been insignificant.

Property, plant and equipment and depreciationProperty, plant and equipment are stated at cost.Depreciation is computed primarily using the decliningbalance method for the Company and the domesticconsolidated subsidiaries and the straight-line method foroverseas subsidiaries. For the Company and the domesticconsolidated subsidiaries, buildings acquired after March 31,1998 are depreciated using the straight-line method.Depreciation of fixed assets whose acquisition costs arebetween ¥100 thousand and ¥200 thousand is providedusing the straight-line method over three years.

(Accounting change)(Additional information)Effective from the year ended March 31, 2009, theCompany and the domestic consolidated subsidiaries havechanged the useful life applied to machinery and equipmentpursuant to the revision of the Corporation Tax Law. As aresult of this change, operating income and income beforeincome taxes and minority interests were ¥222 million and¥224 million less, respectively, for the year ended March 31,2009, than they would have been under the previousmethod.

Software costsInternal use software, recorded in intangible assets, isamortized using the straight-line method over the estimateduseful life of five years.

Research and development expensesResearch and development expenses are charged to incomeas incurred. Research and development expenses for the yearsended March 31, 2010 and 2009 were ¥5,516 million ($59,286thousand) and ¥5,553 million, respectively.

Income taxesIncome taxes comprise corporation tax, prefectural andmunicipal inhabitants taxes and enterprise tax. Enterprisetax is deductible from taxable income when paid.

The asset and liability approach is used to recognizedeferred tax assets and liabilities for the expected future taxconsequences of temporary differences between thecarrying amounts of assets and liabilities for financialreporting purposes and the amounts used for income taxpurposes.

Finance leasesFinance leases which do not transfer ownership of the leaseassets are capitalized and depreciated by the straight-linemethod over the term of the lease with the assumption ofno residual value.

(Accounting change)Effective from the year ended March 31, 2009, theCompany and the domestic consolidated subsidiaries haveadopted the new accounting standard, “AccountingStandard for Lease Transactions,” (Statement No.13 issuedon March 30, 2007, revising the former accounting standard

for lease transactions issued on June 17, 1993) and theaccompanying “Implementation Guidance on AccountingStandard of Lease Transactions” (Guidance No.16 issued onMarch 30, 2007, revising the former guidance issued onJanuary 18, 1994). Prior to the release of the revisedstandard, finance leases which did not transfer ownershipwere accounted for in the same manner as operating leases.The revised accounting standard requires that all financelease transactions be capitalized to recognize lease assetsand lease obligations in the balance sheet. Finance leaseswhich do not transfer ownership and were entered intoprior to the application date continue to be accounted for inthe same manner as operating leases. The effect from theadoption of the new accounting standard has beeninsignificant.

Retirement benefits(1) Employees’ severance and retirement benefits

The Company and some of the domestic consolidatedsubsidiaries have two types of defined benefit plans,corporate pension funds and lump-sum payment plans.Several of the other domestic consolidated subsidiarieshave defined benefit plans in the form of tax-qualifiedpension funds and lump-sum payment plans. Most ofthe overseas consolidated subsidiaries have various typesof pension benefit plans which are mainly definedcontribution plans and defined benefit plans. Theamount of the retirement benefit is, in general, based onthe length of service, basic salary at the time ofretirement or termination and certain other factors.Liabilities and expenses for severance and retirementbenefits are actuarially calculated using certainassumptions.

The Company and the domestic consolidatedsubsidiaries provide for employees’ severance andretirement benefits based on the estimated amounts ofprojected benefit obligation and the fair value of planassets. Actuarial gains and losses and prior service costsare recognized in expenses using the straight-linemethod mainly over 13 years, which is within theaverage of the estimated remaining service years of theemployees.

(2) Retirement benefits for directors and corporate auditorsRetirement benefits for directors and corporate auditorsof the Company and certain domestic consolidatedsubsidiaries are provided on the accrual basis inaccordance with the Companies’ established rules.

(Accounting change)Effective from the fiscal year ended March 31, 2010, theCompany and the domestic consolidated subsidiariesadopted the “Partial Amendments to Accounting Standardfor Retirement Benefits (Part 3)” (Accounting StandardsBoard of Japan (“ASBJ”) Statement No.19 issued on July 31,2008). The new accounting standard requires domesticcompanies to use the rate of return on long-termgovernment or gilt-edged bonds as of the end of the fiscalyear for calculating the projected benefit obligation of adefined benefit plan. Previously, domestic companies wereallowed to use a discount rate determined by taking intoconsideration fluctuations in the yield of long-termgovernment or gilt-edged bonds over a certain period. Thischange had no material impact on the consolidated financialstatements for the year ended March 31, 2010.

The new standard requires that the accounting policiesand procedures applied to a parent company and itssubsidiaries for similar transactions and events under similarcircumstances should, in principle, be unified for thepreparation of the consolidated financial statements.However, financial statements prepared by foreignsubsidiaries in accordance with either International FinancialReporting Standards or the generally accepted accountingprinciples in the U.S. may, tentatively, be used for theconsolidation process. In addition, unless they areimmaterial, the following items should be adjusted in theconsolidation process so that net income is accounted for inaccordance with Japanese GAAP:

(1) Amortization of goodwill(2) Actuarial gains and losses of defined benefit plans

recognized outside profit or loss(3) Capitalization of intangible assets arising from

development phases(4) Fair value measurement of investment properties and

the revaluation model for property, plant andequipment, and intangible assets

(5) Retrospective application when accounting policiesare changed

(6) Accounting for net income attributable to a minorityinterest

The effect from the adoption of the new accountingstandard has been insignificant.


(b) The following table summarizes book values of available-for-sale securities with no available fair values as of March 31,2009.

Available-for-sale securities Thousands ofMillions of yen U.S. dollars

(Note 1)

Non-listed equity securities ....................................................................................................... ¥ 743 $ 7,986

(c) Total sales of available-for-sale securities in the year ended March 31, 2010 amounted to ¥60,140 million ($646,389thousand), and the related gains and losses amounted to ¥126 million ($1,354 thousand) and ¥1 million ($11 thousand)respectively.

(2) Information on securities of the Companies at March 31, 2009:(a) The following table summarized acquisition costs, book values and fair values of available-for-sale securities with available

fair values as of March 31, 2009.

Available-for-sale Millions of yen

Securities with book values exceeding acquisition costs: Acquisition cost Book value Difference

Equity securities .............................................................................................. ¥ 8,296 ¥ 23,795 ¥ 15,499 Investment trust funds .................................................................................... 1,088 1,204 116

Total ................................................................................................................ ¥ 9,384 ¥ 24,999 ¥ 15,615

Securities with book values not exceeding acquisition costs: Equity securities .............................................................................................. ¥ 6,972 ¥ 4,852 ¥ (2,120) Investment trust funds .................................................................................... 4,544 4,544 (0)

Total ................................................................................................................ ¥ 11,516 ¥ 9,396 ¥ (2,120)

(b) The following table summarized book values of available-for-sale securities with no available fair values as of March 31, 2009.

Available-for-sale securities Millions of yen

Non-listed equity securities .................................................................................................................................... ¥ 3,747 Other ..................................................................................................................................................................... 98

Total ....................................................................................................................................................................... ¥ 3,845

(c) Total sales of available-for-sale securities in the year ended March 31, 2009 amounted to ¥16,798 million, and the relatedgains amounted to ¥177 million.

3. Finance LeasesFinance lease transactions that commenced on and before March 31, 2008, and which did not transfer ownership areaccounted for in the same manner as operating leases.Non-capitalized finance leases at March 31, 2010 and 2009 were as follows:

Millions of yen

2010 Machinery, equipment Tools and fixtures Totaland vehicles

Original lease obligations (including finance charges) ......................................... ¥ 517 ¥ 452 ¥ 969Payments remaining: Payments due within one year ........................................................................ ¥ 64 ¥ 68 ¥ 132 Payments due after one year .......................................................................... 51 26 77

¥ 115 ¥ 94 ¥ 209



Original lease obligations (including finance charges) ......................................... $ 5,557 $ 4,858 $10,415Payments remaining: Payments due within one year ........................................................................ $ 688 $ 731 $ 1,419 Payments due after one year .......................................................................... 548 279 827

$ 1,236 $ 1,010 $ 2,246

Millions of yen


Original lease obligations (including finance charges) ......................................... ¥ 718 ¥ 700 ¥ 1,418Payments remaining: Payments due within one year ........................................................................ ¥ 108 ¥ 89 ¥ 197 Payments due after one year .......................................................................... 135 93 228

¥ 243 ¥ 182 ¥ 425

Lease payments under non-capitalized finance leases for the years ended March 31, 2010 and 2009 were ¥241 million ($2,590thousand) and ¥255 million, respectively.

4. Securities(1) Information on securities of the Companies at March 31, 2010:(a) The following table summarized acquisition costs, book values and fair values of available-for-sale securities with available

fair values as of March 31, 2010.

Available-for-sale Millions of yen


Equity securities .............................................................................................. ¥ 14,105 ¥ 35,978 ¥ 21,873Investment trust funds .................................................................................... 6,506 6,603 97Total ................................................................................................................ ¥ 20,611 ¥ 42,581 ¥ 21,970

Securities with book values not exceeding acquisition costs:Equity securities .............................................................................................. ¥ 4,073 ¥ 2,923 ¥ (1,150)

Investment trust funds .................................................................................... 1,913 1,911 (2)Total ................................................................................................................ ¥ 5,986 ¥ 4,834 ¥ (1,152)

Available-for-sale Thousands of U.S. dollars (Note 1)


Equity securities .............................................................................................. $ 151,601 $ 386,694 $ 235,093Investment trust funds .................................................................................... 69,927 70,969 1,042Total ................................................................................................................ $ 221,528 $ 457,663 $ 236,135

Securities with book values not exceeding acquisition costs:Equity securities .............................................................................................. $ 43,777 $ 31,417 $ (12,360)

Investment trust funds .................................................................................... 20,561 20,539 (22)Total ................................................................................................................ $ 64,338 $ 51,956 $ (12,382)

(b) The following table summarized book values of available-for-sale securities with no available fair values as of March 31, 2010.


7. Contingent LiabilitiesInformation on contingent liabilities of the Companies at March 31, 2010 and 2009 was as follows:

Thousands ofMillions of yen U.S. dollars

(Note 1)

2010 2010

As endorser of notes endorsed ................................................................................................................ ¥ 117 $ 1,258As guarantor of indebtedness of unconsolidated subsidiaries and affiliates ............................................. 3 32

¥ 120 $ 1,290

Millions of yen

2009

As endorser of notes endorsed ........................................................................................................................................ ¥ 144

¥ 144

6. Pledged AssetsPledged assets at March 31, 2010 and 2009 were as follows:


(Note 1)

2010 2010Cash and cash equivalents pledged for certain trade notes and accounts ............................................. ¥ 20 $ 215Inventories pledged for ¥464 million ($4,987 thousand) of short-term borrowings at

12.000% - 13.000% ........................................................................................................................ 1,260 13,542Property, plant and equipment pledged for ¥100 million ($1,075 thousand) of short-term borrowings at 0.560% - 0.570%, ¥539 million ($5,793 thousand) of long-term debt due within one year at 1.219% - 1.800%, ¥811 million ($8,717 thousand) of long-term debt due after one year at 1.250% - 1.800%, ¥89 million ($957 thousand) of other current liabilities and ¥151 million ($1,623 thousand) of other long-term liabilities ..................................... 2,784 29,923Investment securities pledged for certain trade notes and accounts ...................................................... 9 97

¥ 4,073 $ 43,777

Millions of yen

2009

Cash and cash equivalents pledged for certain trade notes and accounts ..................................................................... ¥ 20Inventories pledged for ¥36 million of short-term borrowings at 13.250% - 15.000% ................................................. 1,170Property, plant and equipment pledged for ¥68 million of short-term borrowings at 0.970% - 0.973%, ¥555 million of long-term debt due within one year at 0.810% - 1.800%, ¥1,175 million of long-term debt due after one year at 1.219% - 1.800%, ¥55 million of other current liabilities and ¥223 million of other long-term liabilities ................................................................................................................. 2,750Investment securities pledged for certain trade notes and accounts .............................................................................. 8

¥ 3,948

5. Short-Term Borrowings and Long-Term DebtShort-term borrowings consisted principally of bank loans with interest rates ranging from 0.19% to 13.00% at March 31, 2010and from 0.97% to 15.00% at March 31, 2009.Long-term debt at March 31, 2010 and 2009 consisted of the following:


2010 2009 2010

Loans from banks and insurance companies at 1.219% - 3.630% in 2010(0.81% - 5.92% in 2009) maturing serially through 2016 ................................. ¥ 1,401 ¥ 2,147 $ 15,058

1,401 2,147 15,058Less amounts due within one year ........................................................................... 590 913 6,341

¥ 811 ¥ 1,234 $ 8,717

The aggregate annual maturities of long-term debt were as follows:

Years ending March 31 Millions of yen Thousands ofU.S. dollars (Note 1)

2011 .................................................................................................................................................. ¥ 590 $ 6,3412012 .................................................................................................................................................. 426 4,5792013 .................................................................................................................................................. 237 2,5472014 .................................................................................................................................................. 116 1,2472015 .................................................................................................................................................. 23 247

2016 and thereafter .......................................................................................................................... 9 97

¥ 1,401 $ 15,058

Effective from the fiscal year ended March 31, 2010, the Company adopted the revised Accounting Standard, “AccountingStandard for Financial Instruments” (Accounting Standards Board of Japan (“ASBJ”) Statement No. 10, revised on March 10,2008) and the “Guidance on Disclosures about Fair Value of Financial Instruments” (ASBJ Guidance No.19, revised on March10, 2008). Information on financial instruments for the year ended March 31, 2010 required by the revised accountingstandards was as follows:

1. Qualitative information on financial instruments(1) Policies for the use of financial instruments

The Companies raise funds for capital investment and short-term capital mainly from bank loans. The Companies managetemporary fund surpluses through financial assets that have a high level of safety. The Companies utilize derivative financialinstruments to hedge foreign currency exchange risk and do not enter into derivative transactions for trading or speculativepurposes.

(2) Financial instruments used and the exposures to risk and how they ariseNotes and accounts receivables, which are operating receivables, are exposed to customer credit risk. In addition, receivablesdenominated in foreign currencies are exposed to the risk of exchange rate fluctuations. Investment securities are primarily theshares of the companies with which the Companies have operational relationships and are exposed to market price fluctuation risk. Notes and accounts payables, which are operating debts, are mostly due within one year. Those denominated in foreigncurrencies are exposed to the risk of exchange rate fluctuations. The Companies use forward exchange contracts to hedge the risk of exchange rate fluctuations associated with receivables andpayables denominated in foreign currencies.

(3) Policies and processes for managing risk1) Credit risk management (counterparty risk)

The Company has established internal rules and procedures for receivables under which the Business Planning & AdministrationDivision and Finance and Accounting Department are primarily responsible for periodically monitoring counterparty status. Thedepartments manage amounts and settlement dates by counterparties and work to quickly identify and mitigate payment riskthat may result from situations including deterioration of the financial condition of counterparties. Consolidated subsidiaries ofthe Company are subject to the same risk management rules. In using derivative transactions, the Company mitigates counterparty risk by conducting transactions with financial institutionswith high credit ratings.

2) Market risk management (risk of exchange rate and interest rate fluctuations)For some receivables and payables denominated in foreign currencies, the Companies use forward foreign exchange contracts tohedge the risk of exchange rate fluctuations on a monthly and a currency-by-currency basis. For investment securities, the Companies periodically examine fair values and the financial condition of the issuing entities. Inaddition, the Companies regularly revise the portfolio based on the relationships with the issuing entities. For derivative transactions, the Finance & Accounting Department handles the transactions after receiving approval fromthose with final approval authority in accordance with the Company’s internal rules. Administrative reports on the results areperiodically provided to the Management Committee, etc.

3) Management of liquidity risk associated with capital procurement (payment default risk)In the Companies, the Financial & Accounting Department manages liquidity risk by creating and updating a capital deploymentplan based on reports from each division as well as maintaining adequate liquidity.

8. Financial Instruments(Additional Information - Disclosure of fair values of financial instruments)


9. Derivative TransactionsContract amount, fair value and valuation loss on derivative transactions as of March 31, 2010 and 2009 were as follows:

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

2010 ContractFair value

Unrealized ContractFair value

Unrealizedamount gain (loss) amount gain (loss)

Foreign currency forward contractsBuyU.S. dollar .......................................... ¥ 19 ¥ (0) ¥ (0) $ 204 $ (0) $ (0)Japanese Yen ..................................... 814 (18) (18) 8,749 (193) (193)SellU.S. dollar .......................................... 84 (1) (1) 903 (11) (11)

¥ 917 ¥ (19) ¥ (19) $ 9,856 $ (204) $ (204)

Millions of yen

2009 ContractFair value

Unrealizedamount gain (loss)

Foreign currency forward contractsBuyU.S. dollar .......................................... ¥ 154 ¥ (5) ¥ (5)

There were no applicable items for derivative transactions to which the Companies applied hedge accounting as of March 31,2010.Derivative transactions to which the Companies applied hedge accounting were excluded as of March 31, 2009.

10. Net AssetsUnder Japanese laws and regulations, the entire amount paid for new shares is required to be designated as common stock.However, a company may, by a resolution of the Board of Directors, designate an amount not exceeding one half of the priceof the new shares as additional paid-in capital, which is included in capital surplus.

Under the Japanese Corporate Law, in cases in which a dividend distribution of surplus is made, the smaller of an amountequal to 10% of the dividend or the excess, if any, of 25% of common stock over the total of additional paid-in capital andlegal earnings reserve must be set aside as additional paid-in capital or legal earnings reserve. Legal earnings reserve is includedin retained earnings in the accompanying consolidated balance sheets.

Legal earnings reserve and additional paid-in capital may be used to eliminate or reduce a deficit by a resolution of theshareholders’ meeting. All additional paid-in capital and all legal earnings reserve may be transferred to other capital surplusand retained earnings, respectively, which are potentially available for dividends.

The maximum amount that the Company can distribute as dividends is calculated based on the unconsolidated financialstatements of the Company in accordance with Japanese laws and regulations.

2. Fair values of financial instrumentsBook values of the financial instruments included in the consolidated balance sheets and their fair values at March 31, 2010 were asfollows (Financial instruments for which the fair values were extremely difficult to measure were not included.):

Millions of yen

Book value Fair value Difference

(1) Cash and deposit ....................................................................................... ¥ 41,184 ¥ 41,184 ¥ – (2) Receivables - trade notes and accounts ..................................................... 70,162 70,162 –

(3) Investment securities ................................................................................. 47,415 47,415 – (4) Payables - trade notes and accounts .......................................................... 50,042 50,042 –

(5) Derivative transactions ............................................................................... (19) (19) –


Book value Fair value Difference

(1) Cash and deposit ....................................................................................... $ 442,648 $ 442,648 $ – (2) Receivables - trade notes and accounts ..................................................... 754,106 754,106 –

(3) Investment securities ................................................................................. 509,619 509,619 – (4) Payables - trade notes and accounts .......................................................... 537,855 537,855 –

(5) Derivative transactions ............................................................................... (204) (204) –

Derivative assets and liabilities were on net basis

Fair value measurement of financial instruments(1) Cash and deposits

As they are settled in a short period and their fair values are nearly identical to their book values, the book values are used.(2) Receivables - trade notes and accounts

As they are settled in a short period and their fair values are nearly identical to their book values, the book values are used.(3) Investment securities

The fair values of equity securities are determined by the quoted market price. The fair values of debt securities are determined bythe quoted market price or the price provided by financial institutions.

(4) Payables - trade notes and accountsAs they are settled in a short period and their fair values are nearly identical to their book values, the book values are used.

(5) Derivative transactionsThe fair values of derivative transactions are determined at the quoted price obtained from the relevant financial institutions.

Book values of financial instruments for which the fair values were extremely difficult to measure

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

Non-listed equity securities .............................................................................................. ¥ 743 $ 7,986Non-listed investment securities of unconsolidated subsidiaries and affiliates ................. 8,096 87,016

The redemption schedule for money claims subsequent to the consolidated balance sheet date

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

Receivables -trade Receivables -tradeCash and deposits notes and accounts Cash and deposits notes and accounts

Within 1 year .................................................................. ¥ 41,184 ¥ 70,162 $ 442,648 $ 754,106From 1 year to 5 years .................................................... – – – –From 5 years to 10 years ................................................. – – – –Over 10 years .................................................................. – – – –

(4) Supplemental information on fair valuesFair values of financial instruments are measured based on quoted market prices, if available, or reasonably assessed values ifquoted market prices are not available. Fair values of financial instruments for which quoted market prices are not available arecalculated based on variable factors and assumptions, and the fair values might differ if different assumptions are used.


12. Deferred Income TaxesThe following table summarized the significant differences between the statutory tax rate and the Companies’ effective incometax rate for financial statement purposes for the years ended March 31, 2010 and 2009.

2010 2009Statutory tax rate .............................................................................................................................. 40.0% 40.0%Nondeductible expenses ................................................................................................................... 0.4 0.6Nontaxable dividend income............................................................................................................. (1.0) (1.6)

Elimination of dividends from subsidiaries ........................................................................................ 3.0 – Equity in earnings of affiliates ........................................................................................................... (1.3) (1.6) Undistributed foreign earnings ......................................................................................................... 1.7 (10.7) Difference in statutory tax rates of foreign subsidiaries .................................................................... (4.9) – Deductible taxes and other ............................................................................................................... (5.1) (4.5) Effective tax rate ............................................................................................................................... 32.8% 22.2%

Significant components of the Companies’ deferred tax assets and liabilities as of March 31, 2010 and 2009 were as follows:


(Note 1)

2010 2009 2010

Deferred tax assets: Valuation loss on inventories .......................................................................... ¥ 128 ¥ 183 $ 1,376 Elimination of unrealized profit on inventories ................................................ 530 453 5,696 Excess allowance for doubtful receivables ....................................................... 306 229 3,289

Excess accrued expenses ................................................................................. 239 216 2,569Accrued enterprise tax .................................................................................... 316 2 3,396Excess bonuses accrued .................................................................................. 1,287 1,182 13,833Retirement benefits ........................................................................................ 2,230 2,304 23,968

Other .............................................................................................................. 1,159 1,383 12,457Subtotal .............................................................................................................. 6,195 5,952 66,584

Valuation allowance ........................................................................................ (243) (222) (2,612)Total deferred tax assets ...................................................................................... 5,952 5,730 63,972

Deferred tax liabilities: Adjustments to allowance for doubtful accounts in the consolidation resulting from elimination of receivables and payables ............................... 16 13 172 Adjustments to fixed assets based on corporate tax laws ............................... 1,186 1,227 12,747 Net unrealized holding gains on securities ...................................................... 8,278 5,429 88,973 Tax effect of foreign subsidiaries' and affiliates' undistributed earnings .......... 1,766 1,386 18,981Total deferred tax liabilities ................................................................................. 11,246 8,055 120,873Net deferred tax assets (liabilities) ....................................................................... ¥ (5,294) ¥ (2,325) $ (56,901)

11. Employees’ Severance and Retirement BenefitsThe liabilities for severance and retirement benefits included in the liability section of the consolidated balance sheets as ofMarch 31, 2010 and 2009 consisted of the following:


(Note 1)

2010 2009 2010

Projected benefit obligation ................................................................................ ¥ 45,653 ¥ 47,068 $ 490,682Unrecognized prior service costs ......................................................................... 1,448 1,747 15,563Unrecognized actuarial differences ..................................................................... (11,040) (16,140) (118,659)Prepaid pension costs ......................................................................................... 2,537 2,678 27,268Less fair value of pension assets .......................................................................... (32,508) (28,616) (349,398) Liability for severance and retirement benefits ................................................ ¥ 6,090 ¥ 6,737 $ 65,456

The expenses for severance and retirement benefits included in the consolidated statements of income for the years endedMarch 31, 2010 and 2009 comprised the following:


(Note 1)

2010 2009 2010

Service costs - benefits earned during the year ................................................... ¥ 1,490 ¥ 1,778 $ 16,015Interest cost on projected benefit obligation ....................................................... 822 827 8,835Expected return on plan assets ........................................................................... (649) (779) (6,976)Amortization of prior service costs ...................................................................... (300) (300) (3,225)Amortization of actuarial differences .................................................................. 1,970 1,399 21,174 Severance and retirement benefit expenses .................................................... ¥ 3,333 ¥ 2,925 $ 35,823

The discount rate and the rate of expected return on plan assets used by the Companies were mainly 1.8% and 2.5%, respectively, forthe year ended March 31, 2010 and 1.8% and 2.5%, respectively, for the year ended March 31, 2009.The estimated amount of all retirement benefits to be paid at future retirement dates is allocated equally to each service year using theestimated number of total service years.

Prior service costs and actuarial gains and losses were recognized in expenses using the straight-line method over mainly 13 years,which is within the average of the estimated remaining service years of the employees, commencing with the current and the followingperiod, respectively.


Overseas sales include overseas subsidiaries‘ sales to overseas third parties as well as export sales of the Company and thedomestic consolidated subsidiaries to third parties.The regions mainly include the following countries:

(1) Asia: India, Thailand, China and Malaysia(2) Americas: United States(3) Europe: Turkey and United Kingdom

14. Related Party TransactionsSales to unconsolidated subsidiaries and affiliates for the years ended March 31, 2010 and 2009 were as follow:


(Note 1)

2010 2009 2010Sales to unconsolidated subsidiaries and affiliates .............................................. ¥ 14,599 ¥ 17,603 $ 156,911

Receivables from unconsolidated subsidiaries and affiliates at March 31, 2010 and 2009 were as follows:


(Note 1)

2010 2009 2010Receivables from unconsolidated subsidiaries and affiliates ................................ ¥ 6,553 ¥ 6,214 $ 70,432

15. Subsequent Events1. Dividend

The following appropriations of retained earnings, which have not been reflected in the accompanying consolidated financialstatements for the year ended March 31, 2010, were approved at the shareholders' meeting of the Company on June 29, 2010.

Thousands ofMillions of yen U.S. dollars (Note 1)

Appropriations:

Cash dividends - ¥5.0 ($0.05) per share ............................................................................... ¥ 1,332 $ 14,316

2. Establishment of a subsidiary in ChinaBased on the resolution of the Board of Directors on May 28, 2010, the Company decided to establish a subsidiary in China.(1) Purpose for establishing subsidiary

In response to the sustained business expansion in China, the Company aims for control and governance of the groupoperations in China as well as effective utilization of management resources under its prospective business strategy in theregion.

(2) Profile of subsidiary to be established1) Name: Kansai Paint (China) Investment Co., Ltd. (tentative)2) Location: Shanghai, China3) Date of establishment: September, 2010 (plan)4) Capital: US$32 million (plan) (US$8 million for initial investment at the time of establishment (plan))5) Share structure ratio: 100% held by the Company6) Line of business: Headquarters governing Chinese business, strategic planning, marketing and fund-management

13. Segment InformationThe Companies are primarily engaged in the manufacture and sale of paints and coatings. Net sales, operating income (loss) andassets related to this industry segment exceeded 90% of the respective consolidated amounts for the years ended March 31,2010 and 2009. Accordingly, information by industry segment is not shown.Net sales, operating income (loss) and identifiable assets by geographic area for the years ended March 31, 2010 and 2009were as follows:

Millions of yen

2010 Total sales to Intersegment Operating Operatingexternal sales or transfer Net sales expenses income Assets

customers amounts

Japan ................................................. ¥ 143,446 ¥ 12,093 ¥ 155,539 ¥ 144,808 ¥ 10,731 ¥ 222,068Asia .................................................... 69,829 244 70,073 61,215 8,858 59,408Americas ............................................ 557 – 557 512 45 826Europe ............................................... 8,569 32 8,601 7,603 998 6,626Total ................................................... 222,401 12,369 234,770 214,138 20,632 288,928Elimination and corporate .................. – (12,369) (12,369) (12,242) (127) (18,555)Consolidated basis ............................. ¥ 222,401 ¥ – ¥ 222,401 ¥ 201,896 ¥ 20,505 ¥ 270,373

Millions of yen


customers amounts

Japan ................................................. ¥ 159,123 ¥ 9,244 ¥ 168,367 ¥ 161,643 ¥ 6,724 ¥ 203,305Asia .................................................... 60,050 209 60,259 54,711 5,548 47,647Americas ............................................ 749 – 749 691 58 822Europe ............................................... 10,067 37 10,104 9,029 1,075 5,507Total ................................................... 229,989 9,490 239,479 226,074 13,405 257,281Elimination and corporate .................. – (9,490) (9,490) (9,509) 19 (16,615)Consolidated basis ............................. ¥ 229,989 ¥ – ¥ 229,989 ¥ 216,565 ¥ 13,424 ¥ 240,666



customers amounts

Japan ................................................. $ 1,541,767 $ 129,976 $ 1,671,743 $ 1,556,406 $115,337 $2,386,801Asia .................................................... 750,526 2,623 753,149 657,943 95,206 638,521Americas ............................................ 5,987 – 5,987 5,503 484 8,878Europe ............................................... 92,100 344 92,444 81,717 10,727 71,217Total ................................................... 2,390,380 132,943 2,523,323 2,301,569 221,754 3,105,417Elimination and corporate .................. – (132,943) (132,943) (131,578) (1,365) (199,430)Consolidated basis ............................. $ 2,390,380 $ – $ 2,390,380 $ 2,169,991 $220,389 $2,905,987

Useful life of fixed assetsThe Company and the domestic consolidated subsidiaries changed the useful life of machinery and equipment in the fiscal yearended March 31, 2009 as mentioned in Note 2 of Summary of Significant Accounting Policies - Property, plant and equipmentand depreciation. As a result of this change, operating income in the Japan geographic area was ¥222 million less than it wouldhave been under the previous method.

Overseas sales for the years ended March 31, 2010 and 2009 were as follows:


(Note 1)

2010 2009 2010

Asia ...................................................................................................................... ¥ 76,784 ¥ 66,684 $ 825,280Americas .............................................................................................................. 2,543 2,382 27,332Europe ................................................................................................................. 9,527 11,633 102,397Overseas sales ...................................................................................................... ¥ 88,854 ¥ 80,699 $ 955,009

Kansai Paint Co., Ltd. Corporate Report 201052

HEAD OFFICE 6-14, Imabashi 2-chome, Chuo-ku Osaka 541-8523, JapanTel: 81-6-6203-5531 Fax: 81-6-6203-5018

TOKYO OFFICE24-15, Higashi-Ohi 5-chome, Shinagawa-ku Tokyo 140-8520, JapanTel: 81-3-3472-3131 Fax: 81-3-3458-0525

R&D CENTER17-1, Higashi-Yawata 4-chome, Hiratsuka-shi, Kanagawa 254-8562, JapanTel: 81-463-23-2100 Fax: 81-463-24-0637

Overseas

KANSAI PAINT (AMERICA), INC.5455 Corporate Drive, Suite 205 Troy, MI 48098, U.S.A.Tel: 1-248-952-0533 Fax: 1-248-952-0538

PPG KANSAI AUTOMOTIVE FINISHES U.S., LLCTroy-Automotive Technical Center, 5875 New King Court Troy, MI 48098, U.S.A.Tel: 1-248-641-2010 Fax: 1-248-641-2266

PPG KANSAI AUTOMOTIVE FINISHES CANADA, LP834 Caledonia Road, TorontoOntario M6B 3X9, CanadaTel: 1-905-855-5667 Fax: 1-905-823-4190

PPG ALESCO AUTOMOTIVE FINISHES MEXICO, S.de.R.L.de C.V.Libramiento a Tequisquiapan #66 Zona Industrial, San Juan del Rio, 76800 Queretaro, MexicoTel: 52-427-2710124 Fax: 52-427-2719195

KANSAI PAINT EUROPE LTD.20th Floor, Wembley Point, 1 Harrow Road Wembley, Middlesex HA9 6DE, UKTel: 44-20-8900-5933 Fax: 44-20-8900-5966

PPG KANSAI AUTOMOTIVE FINISHES UK, LLP4th Floor, Trigate 210-222 Hagley Road West Birmingham, B68 ONP, UKTel: 44-12-1423-7300Fax: 44-12-1434-5386

KANSAI ALTAN BOYA SANAYIVE TICAREP A.SAnkara Asfalti 25, km 35177 Kemalpasa - IZMIR, TurkeyTel: 90-232-877-00-71Fax: 90-232-877-00-70

KDK AUTOMOTIVE COATINGS CO., LTD.679-12 Naegi-ri, Poseung-eup, Pyeongtaek-si, 451 821, South KoreaTel: 82-31-684-6186Fax: 82-31-684-6190

KANSAI PAINT H. K. LTD.Suite 1018, 10th Floor, Ocean Centre Harbour City, No.5 Canton Road, Kowloon Hong KongTel: 852-2891-1280 Fax: 852-2891-0890

COSCO KANSAI PAINT & CHEMICALS (SHANGHAI) CO., LTD.No.5589-5689 Hutai RoadShanghai 201907, ChinaTel: 86-21-6602-5077 Fax: 86-21-5602-0852

COSCO KANSAI PAINT & CHEMICALS (TIANJIN) CO., LTD.42, 5th Avenue, TEDA Tianjin, 300457, ChinaTel: 86-22-2529-2009 Fax: 86-22-2532-0902

COSCO KANSAI PAINT & CHEMICALS (ZHUHAI) CO., LTD.Zhuhai Gaolan Port Economic Zone Fine Chemical Area, Zhuhai City, 519050, ChinaTel: 86-756-3986270 Fax: 86-756-3986276

CHONGQING KANSAI PAINT CO., LTD.9 Danlong Road, Nanping, Nan‘an District, Chongqing, 400060, ChinaTel: 86-23-6283-4824 Fax: 86-23-6283-7094

KANSAI PAINT (SHENYANG) CO., LTD.No.18, Shenxi Four East Road,Economic & Technology Development Zone, 110143, Shenyang, ChinaTel: 86-24-2532-6390Fax: 86-24-2532-6395

TIANJIN WINFIELD KANSAI PAINT & CHEMICALS CO., LTD.No.95 Taihua Road, TEDA, Tianjin, 300457 ChinaTel: 86-22-6623-0159 Fax: 86-22-6623-0152

HUNAN XIANGJIANG KANSAI PAINT CO., LTD.#16, Lixiang Road (W), Changsha Economy &Technology, Hunan 410100, ChinaTel: 86-731-8403-7050Fax: 86-731-8487-8159

GUANGZHOU KANSAI PAINT CO., LTD.26 Huangge East 2nd Road, Huangge Nansha, Guangzhou, Guangdong, ChinaTel: 86-20-3468-4900 Fax: 86-20-3468-4930

SUZHOU KANSAI PAINT CO., LTD.No.12 Fengxia-lu, Lujia Town, Kunshan City, Jiangsu Province, 215331 ChinaTel: 86-512-5756-3372 Fax: 86-512-5756-3374

TAIWAN KANSAI PAINT CO., LTD.No.6, Yungkong 2nd Road, Yung-an Industrial District, Yung-an Hsiang Kaohsiung Hsien, Taiwan R.O.C.Tel: 886-7-622-3171 Fax: 886-7-623-0155

KANSAI PAINT (SINGAPORE) PTE. LTD.57 Penjuru Road, Jurong Singapore 609141, SingaporeTel: 65-6261-8621 Fax: 65-6265-0301

KANSAI PAINT PHILIPPINES, INC.1st Street, Meridian Industrial Complex BO. Balibago, Sta. Rosa, Laguna, PhilippinesTel: 63-2-699-2028 Fax: 63-2-699-2029

THAI KANSAI PAINT CO., LTD.180 Moo 3 Taparuk Road, Amphur Muang Samutprakarn 10270, ThailandTel: 66-2-753-2377 Fax: 66-2-753-2774

KANSAI RESIN (THAILAND) CO., LTD.34 Moo 4, Eastern Seaboard Industrial Estate (Rayong), Yudhasart Road, Tumbol Pluakdaeng, Amphur Pluakdaeng, Rayong 21140, ThailandTel: 66-954-747 Fax: 66-954-751

SIME KANSAI PAINTS SDN. BHD.2, Solok Waja, 2 Kawasan PerindustrianBukit Raja 41710 Klang, Selangor D.E. MalaysiaTel: 60-3-3348-7805 Fax: 60-3-3348-7806

KANSAI COATINGS MALAYSIA SDN. BHD.4, Solok Waja, 2 Kawasan Perindustrian Bukit Raja, P.O. Box 159, 41710 Klang, Selangor D.E., MalaysiaTel: 60-3-3341-5333 Fax: 60-3-3342-7223

P.T. KANSAI PAINT INDONESIAMM 2100 Industrial Town, Blok DD-7, Jalan Irian No.9D, Cibitung-Bekasi 17520IndonesiaTel: 62-21-8998-2370 Fax: 62-21-8998-2369

P.T.GADJAH TUNGGAL PRAKARSAJl. Hayam Wuruk, 28 Jakarta 10120 IndonesiaTel: 62-21-385-4121 Fax: 62-21-381-0929

KANSAI NEROLAC PAINTS LTD.Ganpatrao Kadam Marg, Lower Parel Mumbai 400013, IndiaTel: 91-22-2493-4001 Fax: 91-22-2493-6296

KANSAI PAINT MIDDLE EAST FZCO25th Floor, Jafza Tower, LB 18, P.O.Box 262460 (Jabel)Jabel Ali, Free Zone Dubai, United Arab EmiratesTel: 971-4-886-4747Fax: 971-4-886-4748

Established in 1918, Kansai Paint Co., Ltd. has grown into Japan’s largest paint manufacturer as well as one of the country’s most progressive businesses. Today, the company enjoys a well-established position as one of the world’s leading paint manufacturers.

The various products provided by the Kansai Paint and its Group companies are highly valued around the world, by customers not only in Japan, but in Europe, the United States, and Asian countries such as China, and India as well, playing important roles in the protection and beautification of all types of products and merchandise. Some of our paints and coatings even instill the products they coat with special functionality. Our products are receiving high praise and earning a reputation for exceptional reliability in a wide range of fields. The fact that we hold a large share of the automotive coating market and that our products are used by many automobile manufacturers contribute to the good reputation we enjoy. We also continue to put unwavering effort into products for all types of items requiring painting or coating, including industrial products, residential housing, office buildings, and steel structures such as ships, bridges and plants.

Kansai Paint is much more than a paint manufacturer that simply sells its products through its joint ventures and affiliated companies. Throughout the world, Kansai Paint utilizes the achievements and knowledge earned through research and development efforts, and transforms these into technical services that the company is able to provide its customers together with the company’s outstanding products and services.

Contents

Corporate Brand

Our “ALESCO” brand name is formed from the Latin word “ALES”, meaning “wing” and “ESCO”, which stands for “Excellent Specialty Company”. In ancient Latin, “alesco” itself means to grow and mature. Therefore, “ALESCO” expresses the concept of Kansai Paint growing continuously and flying with its wings spread toward the future as a leading specialty company. The “ALESCO” corporate brand expresses to the world the image of the superb quality and excellent value of Kansai Paint and its Group companies.

Five-Year Summary of Selected Financial DataA Message from the PresidentManagement Philosophy and VisionBoard of Directors

Business Review ALESCO at a Glance Overseas Business Research and Development Operations New Products

Environmental Activities Policies on Environmental Conservation Environmental Management ALES ECO PLAN 2010 Environmental Conservation Activities Management of Chemical Substances Development of Environmental Technologies and Products / Green Procurement Social Activities Treatment of Employees Occupational Safety and Health Consumer Protection Social Action Programs

Financial SectionDirectory

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DirectoryProfile

6-14, Imabashi 2-chome, Chuo-ku, Osaka 541-8523, Japan

Tel: 81-6-6203-5531Fax: 81-6-6203-5018

http://www.kansai.co.jp

2010

2010Year Ended March 31, 2010

Corporate Report

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· PDF fileA Message from the President 2 Kansai Paint Co., Ltd. Corporate Report 2010 Kansai Paint Co., Ltd. Corporate Report 2010 3 Yuzo Kawamori President

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