ANNUAL REPORT 2012 - 段ボール・板紙・包装の … REPORT 2012 For Year Ended March 31, 2012...

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For Year Ended March 31, 2012

http://www.rengo.co.jp/ANNUAL REPORT 2012For Year Ended March 31, 2012

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Cover design

“Isshin-no To (Tower of Unity)” by Masanori Sugisaki, a sculptor residing in Miyagi PrefectureReplacing Rengo’s Sendai Plant, which was devastated by the Great East Japan Earthquake of March 11, 2011, the Shin-Sendai Plant commenced in April 2012, the start of a promising new chapter in Rengo’s history in Tohoku.The monument “Isshin-no To (Tower of Unity)” at the Shin-Sendai Plant is a testament to those who died in the disaster and to the determination of people united in one spirit to rebuild and forge a common future. As its name suggests, this monument symbolizes the many people who are working hand in hand to achieve reconstruction and recovery from the disaster and embodies the artist’s hopes for reconstruction: “Placing stones one on top of another, being determined and working together with others who share the same determination, is the affirmation of life.”

The Rengo Group, founded by Teijiro Inoue in 1909 as Japan's first corrugated box

manufacturer, has consistently striven to excel as a packaging solutions company.

Our primary goal is to serve society by increasing the worth of our customers' products

through "value-added packaging" and by optimizing the "flow of products" in the market.

In our ongoing quest for the development of new packaging technology and the creation

of new value, we adhere to the following guiding principles in all our corporate activities.

1. Realization of prosperity and future goals through dynamic business initiatives

2. Integrity and fairness in management, fully respecting the individual

3. Creation of a corporate culture that is constantly vibrant and innovative

4. Adherence to corporate ethics and strict observance of all relevant legislation and regulations

5. Enhancement of corporate value through wide-ranging and clear disclosure of information

6. Prioritization of global environmental protection

7. Contribution to society as a good corporate citizen

Corporate Philosophy of the Rengo GroupCONTENTS

Consolidated Financial Highlights 1

Market Data 2

A Message from the President 3

An Interview with the President 4

Rengo at a Glance 10

Review of Operations 12

Overseas Business Development 16

Research and Development 17

Environmental Protection 18

Corporate Governance 19

Board of Directors, Corporate Auditors and Executive Officers 20

Financial Section 21

Directory 49

Investor Information 50

Growing beyond Packaging through Innovation

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1

Disclaimer Regarding Forward-Looking StatementsThis annual report contains forward-looking statements regarding the Rengo Group’s plans, strategies, and beliefs.

These forward-looking statements are based on management’s assumptions and beliefs in the light of information available at the time of publication, and actual

results may differ materially from the information presented in this report depending on a number of factors.

Consolidated Financial Highlights

Millions of yen % change Thousands of U. S. dollars

2012 2011 12/11 2012For the Year:

Net sales ¥ 492,628 ¥ 474,878 3.7 $ 6,007,659Operating income 25,068 32,391 （22.6） 305,707Net income 7,148 10,291 （30.5） 87,171Capital expenditures 47,741 22,650 110.8 582,207Depreciation and amortization 27,149 26,394 2.9 331,085At Year-End:

Total assets ¥ 549,058 ¥ 499,119 10.0 $ 6,695,829Interest-bearing debt 229,444 201,584 13.8 2,798,098Net assets 170,931 165,613 3.2 2,084,524

Yen Change U. S. dollars

Per Share Amounts:

Net income, basic ¥ 27.74 ¥ 39.67 （¥ 11.93） $ 0.34Net income, diluted ---- ---- ---- ----Cash dividends applicable to the year 12.00 12.00 0.00 0.15

Note: U.S. dollar amounts are translated from yen, for convenience only, at the rate of ¥82 to US$1 prevailing on March 31, 2012.

（十億円）

’09

5.7

21.83

7.8

163.9

140.8147.4

29.91 10.3

39.67

17.0

64.42

435.3446.7

457.4474.9

492.6

’08 ’11 ’12’10 ’09’08 ’11 ’12’10 ’09’08 ’11 ’12’10

165.6170.9

27.74

7.1

(Billions of yen)

(Billions of yen)

(Yen)

(Billions of yen)

Net AssetsNet Sales Net Income / Net Income per Share, Basic

For the years ended March 31, 2012 and 2011

（十億円）

’09

5.7

21.83

7.8

163.9

140.8147.4

29.91 10.3

39.67

17.0

64.42

435.3446.7

457.4474.9

492.6

’08 ’11 ’12’10 ’09’08 ’11 ’12’10 ’09’08 ’11 ’12’10

165.6170.9

27.74

7.1

(Billions of yen)

(Billions of yen)

(Yen)

(Billions of yen)

（十億円）

’09

5.7

21.83

7.8

163.9

140.8147.4

29.91 10.3

39.67

17.0

64.42

435.3446.7

457.4474.9

492.6

’08 ’11 ’12’10 ’09’08 ’11 ’12’10 ’09’08 ’11 ’12’10

165.6170.9

27.74

7.1

(Billions of yen)

(Billions of yen)

(Yen)

(Billions of yen)Net income per share, basic

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0

2,000

4,000

6,000

8,000

10,000

12,000

Domestic consumption volume

Export volume

(1,000 tons)

(CY)’05’03 ’04 ’06 ’07 ’08 ’10 ’11’09

0

2,000

4,000

6,000

8,000

10,000

12,000

0

500

1,000

1,500

2,000

2,500

0

500

1,000

1,500

2,000

2,500

China

Vietnam

Thailand

Other

Taiwan

(1,000 tons)

(CY)’05’03 ’04 ’06 ’07 ’08 ’10 ’11’09

0

3,000

6,000

9,000

12,000

15,000

Containerboard

Boxboard

Other paperboard

(1,000 tons)

(CY)’05’03 ’04 ’06 ’07 ’08 ’10 ’11’09

0

3,000

6,000

9,000

12,000

15,000

0

10

20

30

40

50

60

0

20

40

60

80

100

(yen/kg) (yen/sq. meters)

’00/4 ’02/4 ’04/4 ’06/4 ’08/4 ’10/4 ’12/7

(left scale)

(right scale)

Old corrugated containers (Japan)Old corrugated containers (export)Containerboard (liner)

Corrugated board

Containerboard (medium)

Processedfoods40.8％

Fruit andvegetables

11.9％

Other foods 4.3％

Pharmaceuticals, chemicals and cosmetics 6.0％Electrical appliances and machinery 8.3％

Ceramics, glassware and sundries 5.7％

Mail order, parcel delivery, and relocation 3.5％Textile products 2.3％

Others

16.3％

Other than for packaging0.9％

Sources: Nikkei Inc., Kanto Paper Manufacturing Material Direct Delivery Commerce, Paper Recycling Promotion Center

（ｇ）

(CY)’05’03 ’04 ’06 ’07 ’08 ’10 ’11’09

0

10

20

30

40

50

60

70

80

0

590

600

610

620

630

640

650

Basis weight : g/sq. meter

2

Market Data

Production of Paperboard

Export of Old Corrugated Containers by Country

Prices of Old Corrugated Containers, Containerboard, and Corrugated Board

Breakdown of Demand for Corrugated Boxes by Market (2011 calendar year)

Domestic Consumption and Export of Old Corrugated Containers

Recovered paper

Corrugated board

Corrugated boxesContainerboard

Papermaking process

Corrugating process

Convertingprocess

Recovery

0

3,000

6,000

9,000

12,000

15,000

’05’03 ’04 ’06 ’07 ’08 ’10 ’11’090

3,000

6,000

9,000

12,000

15,000

(CY)

(Million sq. meters)

Production of Corrugated Board

Average Basis Weight of Corrugated Board

Source: Ministry of Economy, Trade and Industry Ministry of Finance

Source: Ministry of Economy, Trade and Industry

Source: Japan Corrugated Case Association

Source: Ministry of Economy, Trade and Industry

Source: Ministry of Finance Source: Ministry of Economy, Trade and Industry

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A leading enterprise in the packaging industry, the Rengo Group is a source of diverse packaging solutions in six business fields:

paperboard, corrugated packaging, folding cartons, flexible packaging, heavy duty packaging and overseas business.

In April 2011, Rengo defined itself as a “General Packaging Industry (GPI).” Based on the firm foundation laid through initiatives

undertaken in recent years, we are pursuing higher performance and enhancing our comprehensive capabilities through unceasing

innovation. We aspire to be a group providing comprehensive packaging solutions that address the full spectrum of packaging needs

of diverse industries.

Rengo took the first step toward GPI in the fiscal year ended March 31, 2012. We worked to maintain a stable pricing

structure capable of ensuring a level of profit enabling sustainable operation and implemented various measures to improve

productivity and quality, reduce costs, strengthen the financial system and expand the scope of business in response to

globalization. These initiatives to establish a solid foundation for future development have yielded positive results.

As a result, despite the impact of the Great East Japan Earthquake that occurred in the final month of the previous fiscal year and the

ensuing crisis at the Fukushima Daiichi nuclear power plant, and the need to reduce power consumption because of the constraints on

electricity supplies in the aftermath of the disaster, consolidated net sales for the fiscal year ended March 31, 2012 (fiscal 2011) were a

record high of ¥492,628 million, having increased 3.7% year on year, owing to the contribution of newly consolidated subsidiaries

and increased demand for packaging. Operating income decreased 22.6% year on year to ¥25,068 million, as increases in prices of

raw materials and fuel could not be fully offset by increases in production volumes, efforts to reduce costs and the price revisions in

the second half of the fiscal year for paperboard and corrugated packaging. However, we maintained stable profit level. Net income

dropped 30.5% to ¥7,148 million because of a loss on valuation of investment securities amounting to ¥10,846 million, which is

recorded as an extraordinary loss.

In Japan demand associated with reconstruction from the Great East Japan Earthquake is expected to materialize as well as an upturn

in exports in line with both the ongoing recovery of the U.S. economy and the plateauing of the strong yen. However, the outlook for

the Japanese economy is likely to remain uncertain in view of the persisting weakness of the labor market, high crude oil prices and

concerns about electricity shortages because almost all of Japan’s nuclear power plants are out of service. In these circumstances,

based on the GPI concept, as well as offering packaging enriched with new value, we are striving to contribute to the sustainable

development of society while further enhancing corporate value by ensuring compliance and fulfilling CSR.

We would be grateful for the continued support and encouragement of our shareholders and other stakeholders in the years ahead.

A Message from the President

Kiyoshi OtsuboPresident & Chief Executive Officer

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Creating New Value in Packaging via the General Packaging Industry (GPI) Concept, Based on Keywords ‘Global’ and ‘Innovation’

The history of Rengo is synonymous with that of corrugated

and other packaging in Japan. Established more than a century

ago, Rengo has evolved into a packaging conglomerate based

on the “General Packaging Industry (GPI)” concept.

Today, the Rengo Group has a hexagonal operating structure

based on the six core business competences of paperboard,

corrugated packaging, folding cartons, flexible packaging,

heavy duty packaging, and overseas business. The Rengo Group

serves the varied packaging needs of industry by continually

honing packaging capabilities.

President Kiyoshi Otsubo discusses the future of Japan and the

country’s packaging industry in the wake of the Great East

Japan Earthquake in the following interview.

Kiyoshi Otsubo President & Chief Executive Officer

(Photographed by Yoshiyuki Uno)

An Interview with the President

Otsubo: We continue to pray for the repose of the souls of the many people who perished in the disaster and

extend our condolences to those left behind. Over a year has passed since the disaster, but the affected region still

bears deep scars and there has been no closure for residents.

Rengo and the subsidiaries Marusan Paper Mfg. Co., Ltd. and Howa Sangyo Co., Ltd. suffered extensive damage.

The damage at Rengo’s Sendai Plant was so devastating that we concluded it would be too difficult to rebuild on

the site and made a quick decision to construct a new plant on another site in Miyagi Prefecture. As a result of

the wholehearted cooperation that we received from everyone linked to the plant as well as from the local

authorities in Miyagi Prefecture, we were able to hold a commencement ceremony for the Shin-Sendai Plant on

March 15, 2012, barely one year after the disaster. The new plant officially started operations in April 2012.

Marusan Paper Mfg. (Minamisoma-shi, Fukushima Prefecture) is 25 kilometers from the Fukushima Daiichi nuclear

power plant and within the emergency evacuation preparation zone imposed following the accident. Thus, we

were forced to suspend all operations at the mill for approximately three months. Operations resumed on June

20, 2011. While on-site radiation levels at the mill have remained well below the regulatory safety standard, we

have also put in place stringent site management systems and taken every precaution to ensure our employees’

health and the safety of all products supplied by the mill. At the Howa Sangyo facilities, which sustained some

damage in the disaster, we were able to repair the plant completely by May 2011.

As a result, all of the Rengo Group facilities in the affected area have been completely repaired and restored. Our

regional production set-up is back to pre-disaster capacity.

“A Million Souls, One Spirit”—United in Pursuit of Recovery and Reconstruction as a Prelude to the Next Leap Forward

A year on from the Great East Japan Earthquake, how much progress has the Rengo Group made in reconstructing facilities damaged in the disaster?Q

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Otsubo: I was convinced that we had to make it clear that Rengo would not run away from Miyagi Prefecture.

We moved as quickly as possible to rebuild the plant in Sendai. We knew that swift construction of a new

corrugated plant would promote the revival of Miyagi and the broader Tohoku region because the plant is so

closely linked with the local economy. Another reason was to ensure the peace of mind of our employees by

maintaining a place of work for them in the region to which they are so attached.

Similar to the Fukushima-Yabuki Plant opened in 2010, we aimed to make the Shin-Sendai Plant the ideal eco-

friendly plant for manufacturing corrugated packaging, a product with excellent environmental performance. The

solar panels installed on the roof of the plant have an output of about 500kW and can supply around

450,000kWh of power per year. This is equivalent to an annual reduction of some 200 tons of carbon dioxide. We

have also installed large industrial lithium-ion storage batteries that can be recharged overnight at cheap off-peak

tariff rates. This arrangement allows us to use renewable sources of power during peak daytime hours, effectively

shifting our power consumption away from the peak period. Based on the lessons learned in the March 2011

disaster, the storage batteries linked with the solar panels can supply the minimum electricity necessary for the

plant in the event of a disaster and we have also increased the seismic resistance of the building.

As a testament to those who died in the disaster and to the determination of people united in one spirit to rebuild

and forge a common future, the site of the new plant includes a monument bearing the name “Isshin-no To

(Tower of Unity)” as well as a commemorative tablet inscribed “Bonds—March 11.” Besides being the Rengo

Group’s core facility in the Tohoku region, the Shin-Sendai Plant is a symbol of reconstruction and recovery from

the disaster. We hope it will contribute to the future economic development of the region.

The Shin-Sendai Plant has become a symbol of reconstruction and recovery in the Tohoku region. What are the special features of the plant?Q

Shin-Sendai Plant

Isshin-no To (Tower of Unity) monument

Bonds—March 11 commemorative tablet

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Otsubo: The framework of Japanese society is now one of a contracting equilibrium. While this may be the

inevitable destiny of a mature society, it also means that people have begun to focus on personal wellbeing as

well as material affluence.

Overseas Development Driving Faster Growth

Rengo is remarkably active overseas in Asia and other parts of the world. Is the strategy to gain scale mainly through overseas development?Q

Otsubo: The disaster has had a substantial impact during the past year, not merely on domestic consumption

patterns, but also on the production activities of companies. The paperboard and corrugated industries have been

exposed to the same impact, but production volumes have stabilized at roughly the same levels as a year ago due

to a modest economic recovery. I see this achievement as the fruit of our efforts to build an industry platform

based on the voluntary retirement of excess capacity and pricing reforms, which have resulted in levels of output

and production capacity that are in line with demand. The objectives of the extensive restructuring within the

paperboard, corrugated and recovered paper industries are closer integration with the recovered paper industry,

which supplies old corrugated containers, a key raw material for environmentally friendly corrugated packaging,

and building trust between the recovered paper, paperboard and corrugated industries. In addition, we have

promoted the industry-wide adoption of the “full-cost pricing principle” to ensure that all necessary costs are

incorporated into the price-setting process.

When fuel and raw material costs trended downward after the collapse of Lehman Brothers, we took the initiative

to lower the prices of our products. This contributed to increased price transparency and confidence in Rengo.

The paperboard and corrugated industries experienced especially tough conditions during 2011, when fuel and

raw material costs surged despite the historic strength of the yen. We began revising prices for paperboard and

corrugated packaging in October 2011 with the aim of reconstructing appropriate pricing structures for these

products, and to date our efforts have met with some success.

Through packaging innovation, we provide vital support to customers across diverse industrial sectors, helping

them create products with greater value that sell well. At the same time, we are contributing to the sustainable

development of society through development of environmentally friendly packaging solutions.

Structural Reforms Helping to Drive Industry Revival

Japan’s paperboard and corrugated industries have become stronger due to the construction of an industry platform, extensive restructuring within the paperboard, corrugated and recovered paper industries, and the introduction of the “full-cost pricing principle.” How have you worked together with other industries?

Q


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The paperboard and corrugated industries have always been seen as purely domestic sectors. Yet at the same time

Japan is exporting large volumes of recovered paper to China for reuse, and this trend is accelerating. The

demand for packaging is growing rapidly in markets across China and Southeast Asia, and we can be confident

that this trend will continue to drive growth from now on.

To date, our overseas expansion has been primarily about establishing joint ventures with leading local enterprises.

In China, however, in recent years we have tried to accelerate business development and focus on a Rengo-led

management approach by taking full ownership of enterprises based in Shanghai, Wuxi, Qingdao, Tianjin and

Guangdong. Our strategy in overseas markets is to supply high-quality corrugated packaging to a blue-chip

corporate client base, including Japanese companies.

Meanwhile, we established Rengo Packaging, Inc., a wholly owned subsidiary, in Hawaii, in April 2011, and took

over Hawaii Box & Packaging, Inc., which sells corrugated boxes and other packaging materials, in June 2011. We

intend to develop our packaging business based in Hawaii, where we plan to start operations at a new plant for

corrugated packaging. These operations could become a stepping-stone for future expansion on the West Coast

of the US.

In July 2011, Thai Containers Group Co., Ltd., an affiliate in which Rengo has a 30% equity stake, finalized the

acquisition of Alcamax Packaging (Vietnam) Joint Stock Company, a Vietnam-based corrugated packaging

manufacturer, and two subsidiaries. This move has doubled the Group’s monthly production capacity for

corrugated board in Vietnam to 14.5million square meters and enabled us to supply corrugated packaging in

Hanoi and Ho Chi Minh City, the two leading cities. Through the collaboration with Vina Kraft Paper Co.,

Ltd., we have established an integrated production system in Vietnam extending from paperboard to

corrugated packaging.

Going forward, we are also looking to expand into India as part of the development of Rengo Group operations

across Asia and the Pacific Rim.

Otsubo: Hung Hing Printing Group is a Hong Kong-based integrated printing, book binding and packaging

services provider in China. It is a well-established company with a history of over 60 years and a listing on the

Hong Kong stock market. Hung Hing is the largest producer of children’s books in Hong Kong, and one of the

leading manufacturers in its field in the world. It is generating a stable profit by exporting most of the books and

printed materials it produces to Europe and America. Capitalizing on this solid revenue base, Hung Hing is now

also focusing on building the packaging business in China. We consider Hung Hing an ideal strategic partner for

The acquisition of a stake in Hung Hing Printing Group Limited was one of the key developments in 2011. Is Hung Hing a strategic partner for the Rengo Group in China and Southeast Asia?

Q

Expanding the Scope of Business in Asia and the Pan-Pacific to Achieve the “General Packaging Industry” Concept

Hong Kong

ChinaJapan

Vietnam

MalaysiaSingapore

Indonesia

Thailand

U.S.A.Hawaii

Supporting sales of Japanese companies overseasTechnical guidance by RengoCultivating new markets through joint marketing

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Securing Important Bases in the Growing Markets of China and Other Asian Countries

Hung Hing Printing Group

Capital participation in Hung Hing Printing Group (29.9% as of August 2011)

The Printing & Packaging Provider

Brand strength

Superior human resources

Business operations expertise

Excellent customer base

Global leader in book printing industry

Among top 5 in folding cartons industry in China

Largest company in corrugated packaging industry in South China

Leader in paper trading in the south of China

Production centers in Hong Kong, Shenzhen, Heshan, Wuxi and Zhongshan

The Rengo GroupGeneral Packaging Industry

Marketing strength

Design capability

Solutions power

Excellent customer base

Corrugated packaging industry leader in Japan

Paperboard industry second top in Japan

Flexible packaging industry third top in Japan

Heavy duty packaging industry leader in Japan

Has expanded into China and 5 other Asian countries

8


Otsubo: In 2011, 96.2% of corrugated containers were recovered in Japan. These old corrugated containers are

reused as the raw materials for containerboard. At Rengo, we believe in making the most effective use of limited

resources in our production operations. We are proud of the leading role we are taking in helping to create a

recycling-based society that is more environmentally conscious. The key phrase “Less Weight, Less Carbon”

articulates our commitment to environmental protection. In both products and production processes, we are

committed to the creation of lighter and thinner packaging involving less CO2 emissions. We are promoting the

adoption of C-flute, which is about 1mm thinner than conventional corrugated board. We have also developed a

lightweight containerboard unique to Rengo called Less Caliper & Carbon (LCC) containerboard. These initiatives

are examples of our efforts to reduce the weight of corrugated packaging. The “Less Weight, Less Carbon”

philosophy is symbolized by the Fukushima-Yabuki Plant, which began operating in 2010, and by the Shin-Sendai

Plant, which came on stream in 2012. Daytime electricity demand of the Fukushima-Yabuki Plant is entirely

satisfied by photovoltaic power generation. The Shin-Sendai Plant is also equipped with large lithium-ion batteries.

The Nagoya Plant relocation project is underway and, upon completion in 2014, we will have a new production

base in central Japan for eco-friendly corrugated packaging.

In other moves, Rengo and subsidiary Nihon Matai Co., Ltd. have jointly developed sheeting made of

thermoplastic elastomers that can provide a shield against radioactivity. Compared with conventional

shielding materials made of lead or other metals, this sheeting is lightweight and flexible and thus easy to

Sustained Growth and Evolution of Packaging

Packaging continues to evolve rapidly. Where do you see the trend leading in terms of improving the environmental performance of such products?Q

Rengo in China and Southeast Asia.

I am confident that forging this link between two of the top packaging manufacturers in Japan and China will

lead to fruitful collaboration and synergies, and there is no doubt that it will become a major pillar of Rengo’s

overseas business. By combining the potential of the Hung Hing Printing Group’s packaging business with the

expertise that Rengo possesses in both ‘hard’ and ‘soft’ aspects of the business, I believe we can facilitate high-

level innovation and tap into the growth inherent in the Chinese economy.

We plan to strengthen the links between Rengo and Hung Hing Printing Group, our key business partner in

China, so as to reinforce the business foundation in China and Southeast Asia while working to establish a

structure capable of responding to the demands of the global economy under the GPI concept.

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9

Otsubo: In Europe, they have recently begun a paper recycling campaign under the slogan “Corrugated Of

Course.” Traditionally, much of the recovered paper in Europe has either been incinerated or disposed as landfill.

The major advantage of corrugated packaging is environmental friendliness because of 100% recyclability. It is

essential to establish a system for stable procurement of old corrugated containers, which are the raw materials

for containerboard. In Japan, we developed an integrated recycling system for recovered paper more than a

decade ago based on cooperation between the recovered paper, paperboard and corrugated industries. In

Europe, they have only just realized the importance of establishing an integrated paper recycling system.

Corrugated packaging is indispensable for logistics and

characterized by environmental friendliness. “General

Packaging Industry” expresses Rengo’s ambition to

enhance its comprehensive packaging capabilities in a

wider field, with the eco-friendly corrugated packaging

business at the core.

Within the GPI concept, the “G” stands not only for

‘general,’ but also for ‘global’ and ‘growing.’ The “I”

incorporates the sense of ‘innovation’ as well as ‘industry.’

In 2009, the Rengo Group evolved from a pentagonal to a

hexagonal business structure by adding heavy duty

packaging as a sixth core competence. Advancing with the

GPI concept, the Group will ultimately become more like a

globe with many areas of packaging-related expertise.

Under the GPI banner, the Rengo Group is targeting

continued growth based on the keywords ‘global’ and

‘innovation,’ to set the pace in packaging innovation.

I hope that all of our shareholders, investors and other

stakeholders will give us their continued support.

Can we be confident Rengo will continue to achieve sustainable growth inspired by the “General Packaging Industry (GPI)” concept?Q

handle. This material, which works by simply covering any object needing protection from radiation, is

expected to find applications in sheeting as well as in wall or flooring materials.

Through the GPI concept, we aim to enhance our capabilities in a wider field, going beyond the fundamental

functions of product packaging and protection. In accordance with our vision, we aspire to be a source of

comprehensive, optimum packaging solutions for our customers, covering everything from ‘hard’ aspects and

‘soft’ aspects concerning planning and design of products to be packed, to proposing on the system design of

packaging lines and improvement of the overall efficiency of logistics systems. This requires packaging innovation

in all of the product areas and peripheral sectors in which the Rengo Group operates. Innovation to boost

environmental performance is a priority in the 21st century, an era in which the environment has risen to the top

of the global agenda.

010_0899701372408.indd 9 2012/09/21 14:25:05

10

0

10,000

20,000

30,000

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60,000(Millions of yen)

’10 ’11 ’120

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’10 ’11 ’120

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’11 ’120

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’10’10 ’11 ’120

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(Millions of yen)

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’10 ’11 ’120

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’10 ’11 ’12

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’11 ’120

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’10’10 ’11 ’120

5,000

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(Millions of yen)

’10 ’11 ’12

With core competences in six business fields—

paperboard, corrugated packaging, folding

cartons, flexible packaging, heavy duty

packaging, and overseas business, the Rengo

Group defines itself as a “General Packaging

Industry (GPI)” proposing solutions for the full

spectrum of packaging needs of diverse

industries through responsiveness to changing

circumstances and unceasing innovation.

For the fiscal year ended March 31, 2012, sales from the

paperboard and packaging-related business edged up 0.3%

year on year to ¥362.7 billion but operating income

decreased 22.9% to ¥22.2 billion.

Sales from the flexible packaging-related business

decreased 1.3% to ¥53.3 billion but operating income

increased 58.4% to ¥2.4 billion.

Sales from the heavy duty packaging-related business

edged down 0.4% to ¥23.9 billion and operating income

Rengo at a GlanceFY

201

1N

et S

ales

Mai

n P

rod

uct

sM

ain

Grou

p Co

mpa

nies

Flexible Packaging-Related BusinessPaperboard and Packaging-Related Business

(year-on-year increase of 0.3 %) (year-on-year decrease of 1.3 %)

(year-on-year decrease of 22.9 %) (year-on-year increase of 58.4 %)

¥ 362,735million ¥ 53,319million

¥ 22,216million ¥ 2,412million

Net Sales Net Sales

Operating Income Operating Income

Paperboard Corrugated Packaging

Containerboard

Coated board

Tube board

Chipboard

Corrugated board

Corrugated boxes

Folding cartons

Yamato Shiki Co., Ltd.

Settsu Carton Corporation

Tokai Shiki Co., Ltd.

Hinode Shiki Kogyo Co., Ltd.

Marusan Paper Mfg. Co., Ltd.

Osaka Paper Co., Ltd.

Flexible packaging

Cellophane

Howa Sangyo Co., Ltd.

010_0899701372408.indd 10 2012/09/21 14:25:06

FY 2011 Composition of Net Sales

Flexible Packaging-Related Business 10.8%

Heavy Duty Packaging-Related

Business

4.9%

Overseas Business 4.5%

Other Businesses6.2%

Paperboard and Packaging-Related Business

73.6%

11

Rengo Nonwoven Products Co., Ltd.

Yamada Kikai Kogyo Co., Ltd.

Rengo Logistics Co., Ltd.

Sanyo Jidosha Unso Co., Ltd.

Zhongshan Rengo Hung Hing Paper Manufacturing Co., Ltd.

Dalian Rengo Packaging Co., Ltd.

Jiangsu Zhongjin Matai Medicinal Packaging Co., Ltd.

MATAI (VIETNAM) Co., Ltd.

0

10,000

20,000

30,000

40,000

50,000


’10 ’11 ’120

50,000

100,000

150,000

200,000

250,000

300,000

350,000


’10 ’11 ’120

10,000

20,000

30,000

40,000

50,000


’10 ’11 ’12

0

5,000

10,000

15,000

20,000


’11 ’120

5,000

10,000

15,000

20,000


’10’10 ’11 ’120

5,000

10,000

15,000

20,000

25,000

35,000

30,000

(Millions of yen)

’10 ’11 ’12

0

10,000

20,000

30,000

40,000

50,000


’10 ’11 ’120

50,000

100,000

150,000

200,000

250,000

300,000

350,000


’10 ’11 ’120

10,000

20,000

30,000

40,000

50,000


’10 ’11 ’12

0

5,000

10,000

15,000

20,000


’11 ’120

5,000

10,000

15,000

20,000


’10’10 ’11 ’120

5,000

10,000

15,000

20,000

25,000

35,000

30,000

(Millions of yen)

’10 ’11 ’12

0

10,000

20,000

30,000

40,000

50,000


’10 ’11 ’120

50,000

100,000

150,000

200,000

250,000

300,000

350,000


’10 ’11 ’120

10,000

20,000

30,000

40,000

50,000


’10 ’11 ’12

0

5,000

10,000

15,000

20,000


’11 ’120

5,000

10,000

15,000

20,000


’10’10 ’11 ’120

5,000

10,000

15,000

20,000

25,000

35,000

30,000

(Millions of yen)

’10 ’11 ’12

decreased 8.8% to ¥1.2 billion.

Sales from the overseas business surged 51.2% to ¥22.0

billion but an operating loss of ¥0.8 billion was recorded.

Sales from other businesses rose 47.3% to ¥30.6 billion

but an operating loss amounted to ¥19 million.

FY 2011

Net Sales

Main

Prod

ucts

Main Group Com

panies

Heavy Duty Packaging-Related Business Other BusinessesOverseas Business

(year-on-year decrease of 0.4 %) (year-on-year increase of 51.2 %) (year-on-year increase of 47.3 %)

(year-on-year decrease of 8.8 %)

¥ 23,902million ¥ 22,025million ¥ 30,647million

¥ 1,151million ¥ 847million ¥ 19million

Net Sales Net Sales Net Sales

Operating Income Operating loss Operating loss

Polyethylene heavy-duty bags

Kraft paper bags

Nihon Matai Co., Ltd.

Containerboard

Corrugated board

Corrugated boxes

Flexible packaging

Flexible container bags

Nonwoven products

Folding carton machines

Newsprint

Chemical products

Transportation

010_0899701372408.indd 11 2012/09/21 14:25:07

12

The Tonegawa Division (Bando-shi, Ibaraki Prefecture), consisting of a

paper mill, a printing and converting plant, and a folding carton

plant, is one of Rengo’s key divisions. In addition to production of

paperboard, including containerboard and coated board, the division

prints processed paperboard for decorative corrugated packaging and

produces processed paperboard with various features, such as water-

resistant and anti-corrosive properties, and folding cartons centering

on multi-packs. A large-scale refurbishment project was conducted to

mark the 50th anniversary of the Tonegawa Division in 2011. The

project included the construction of a biomass boiler that efficiently

utilizes paper sludge and other waste emitted from the plant’s paper

production process as thermal energy, remodeling of the No. 1 paper

machine for coated board, construction of an automated rack

warehouse at the folding carton plant, and rebuilding of the entire

main office block. The

result is rationalized and

streamlined operations

with a production system

embodying Rengo’s key

environmental concept

of “Less Weight, Less

Carbon.”

Tonegawa Division Refurbished

Demand in the paperboard market was on a recovery track

throughout almost the entire year under review. However,

paperboard production volume decreased from the previous year’s

level as a result of the halting of operations of Marusan Paper Mfg.

following the accident at the Fukushima Daiichi nuclear power

plant. Regarding costs, energy prices were on an upward trend. The

price of recovered paper, which is the principal raw material, also

increased from the second half of the fiscal year under review.

The Rengo Group’s paperboard production volume in Japan

amounted to 2,013 thousand tons, a decrease of 3.3% year on

year. Paperboard sales increased 0.7% to ¥50.7 billion, accounting

for 10.3% of consolidated net sales.

Paperboard and Packaging-Related Business

Paperboard

Sales (after intersegment elimination) (Millions of yen)

Production (in Japan, consolidated basis) (Thousand tons)

2010 2011 2012

Paperboard 50,303 50,365 50,723

2010 2011 2012

Paperboard 1,978 2,081 2,013

Major Manufacturing Groups‘ Shares of the Paperboard Market in Japan

Rengo %O %N %D %Others %

Total productionin

ton

レンゴー 18.3%O社 28.0%N社 15.2%D社 10.9%他 27.6%

Rengo Group

　18.2%

O Group

29.1%

N Group 15.2%

D Group

9.0%

Others 28.5%

Total productionin 2011

Market Environment and Business Results

Corrugated board Corrugated boxesVarious types of paperboard

The Rengo Group’s paperboard manufacturing and sales business is carried out by Rengo Co., Ltd., Marusan Paper Mfg. Co., Ltd. and Osaka Paper

Co., Ltd. Their products are distributed to customers via Rengo Paper Business Co., Ltd. and other sales channels and are also supplied to companies

within the Rengo Group via Rengo Co., Ltd. and Rengo Paper Business Co., Ltd. as the principal raw materials for corrugated packaging.

Marusan Paper Mfg. Co., Ltd. (Minamisoma-shi, Fukushima

Prefecture), a consolidated subsidiary, suffered damage in the Great

East Japan Earthquake, and was compelled to suspend operations

because it is located 25 kilometers from the Fukushima Daiichi

nuclear power plant. Marusan Paper Mfg. resumed operations on

June 20, 2011. Detailed investigations of the radiation levels have

been conducted and it is confirmed that on-site radiation levels are

substantially within the regulatory safety standard. To be doubly sure,

the entrances to all mill buildings are covered with high-performance

Cellgaia sheeting developed by Rengo that contains zeolites to absorb

radiation. All the water used in papermaking processes is processed

by passing it through water tanks containing bags packed with

zeolites to eliminate any radiation.

Marusan Paper Mfg. Resumes Operations

Biomass incineration facility of the Tonegawa Division

Review of Operations

Source: Japan Paper Association

Despite the impact of the Great East Japan Earthquake, the paperboard and packaging-related business secured virtually the same level of sales as for the previous year through vigorous sales & marketing. However, increased prices of raw materials and fuel greatly reduced profits. Segment sales were ¥362,735 million, an increase of 0.3% year on year, and operating income was ¥22,216 million, a decrease of 22.9%. The paperboard and packaging-related business accounted for 73.6% of consolidated net sales.

010_0899701372408.indd 12 2012/09/21 14:25:07

13

The Shin-Sendai Plant (Taiwa-cho, Kurokawa-gun, Miyagi Prefecture)

was inaugurated in April 2012. The Sendai Plant (Miyagino-ku,

Sendai-shi, Miyagi Prefecture) suffered devastating damage in the

Great East Japan Earthquake and the Shin-Sendai Plant was

constructed to replace it.

In order to ensure employment of workers of the Sendai Plant and

earnestly desiring to serve as a leader in the revitalization of the local

economy, we quickly decided to build a new plant and made a

concerted effort. As a result, Rengo restarted operations in Sendai

about a year after the earthquake.

The Shin-Sendai Plant will contribute to the local economy, serving

as the Rengo Group’s core plant in Tohoku and as a symbol of

reconstruction and revitalization following the disaster.

Shin-Sendai Plant Inaugurated

Corrugated Packaging

During the year under review, despite the impact of the Great East

Japan Earthquake, the corrugated packaging market experienced

an increase in demand, primarily for corrugated boxes for

beverages, reflecting the extremely hot summer of 2011 as well as

the modest recovery of the Japanese economy. As a result,

production of corrugated packaging was virtually the same as the

previous year’s level.

The Rengo Group’s production volumes of corrugated packaging

in Japan were as follows. Production of corrugated board increased

1.4% to 3,610 million square meters and production of corrugated

boxes increased 2.7% to 2,729 million square meters. Sales of

corrugated packaging increased 0.4% to ¥286.2 billion, accounting

for 58.1% of consolidated net sales.


The Rengo Group’s business for manufacturing and sales of corrugated board and boxes is carried out by Rengo Co., Ltd. and its Group

companies nationwide, such as Yamato Shiki Co., Ltd., and Settsu Carton Corporation, each rooted in its local community. Rengo Co., Ltd.

and Rengo Riverwood Packaging, Ltd. manufacture and sell multi-packs used for six packs of canned beer.

Rengo %O %N %D %Others %

Total productionin

ton

レンゴー 18.3%O社 28.0%N社 15.2%D社 10.9%他 27.6%

2010年（暦年）の全国生産量11,800千トン

レンゴー 26.9%O社 23.2%T社 6.7%N社 4.8%D社 4.5%他 33.9%

Total productionin 2010

Rengo Group

　28.0%

O Group 22.9%

T Group 7.2%

N Group 4.7%

D Group 4.8%

Others 32.4%

Agricultural products10.5%

Processed foods53.1%

Electrical appliances and machinery 8.5%

Pharmaceuticals and chemicals　7.2%

Ceramics, glassware and sundries

5.2%

Mail order, parcel delivery, and relocation

3.6%

Textile products　1.2%

Others 10.7%

FY 2011 Rengo Group

(Domestic)

2010 2011 2012

Corrugated packaging 280,797 285,078 286,210

Other packaging-related products 22,979 26,048 25,802

2010 2011 2012

Corrugated board 3,423 3,559 3,610

Corrugated boxes 2,561 2,656 2,729

Major Manufacturing Groups‘ Shares of the Corrugated Board Market in Japan


Production (in Japan, consolidated basis) (Million sq. meters)

Breakdown of Demand for Corrugated Boxes by Market

Source: Yano Research Institute

* Corrugated board production volume includes those converted into corrugated boxes.

The Tosu Plant (Tosu-shi, Saga Prefecture), Rengo’s main plant in

Kyushu, was refurbished, coinciding with its 50th anniversary in

2012. A new office block was constructed to enhance operational

efficiency. The “Less Weight, Less

Carbon” Tosu Plant is equipped

with solar power generation

systems and other environmentally

friendly facilities.

Tosu Plant Refurbished

New office block of the Tosu Plant

Rengo acquired 85.8% of the shares issued by Yoshikawa Shigyo Co.,

Ltd. (Date-gun, Fukushima Prefecture) in February 2012 and made it a

subsidiary (a wholly owned subsidiary from April 2012). Doing

business mainly in northern Fukushima Prefecture, Yoshikawa Shigyo

is a notable corrugated box manufacturer.

Rengo aims to further enhance the corrugated packaging business

of the Rengo Group in Tohoku through collaboration with

neighboring Rengo plants and Group companies.

Capital Participation in a Corrugated Box Manufactures

Rengo executed the following mergers between its Group companies

with the aim of expanding their operations and improving their financial

performance through efficient utilization of resources in October 2011.

Through the reorganization, the Rengo Group is striving to respond

to user needs more swiftly and improve quality as well as optimizing the

production and supply structure, and thus further strengthening the

Group’s business.

Reorganization of Group Companies

Merger between Sakaiminato Gyokan Co., Ltd. and Sakaiminato Danboru Co., Ltd.

(both in Sakaiminato-shi, Tottori Prefecture)

Merger between Kofu Daiichi Jitsugyo Co., Ltd. (Chuo-shi, Yamanashi Prefecture)

and Kubota Art Package Co., Ltd (Matsumoto-shi, Nagano Prefecture)

Merger between Kowa Sangyo Co., Ltd. (Yuki-shi, Ibaraki Prefecture) and Takeuchi

Bijutsu Insatsu Co., Ltd. (Itabashi-ku, Tokyo)

010_0899701372408.indd 13 2012/09/21 14:25:08

Film wraps

Labels

Cellophane

Polyethylene heavy duty bags Kraft paper bags Flexible container bag

14

Heavy Duty Packaging-Related Business

Flexible Packaging-Related Business



2010 2011 2012

Heavy Duty Packaging-Related Business 18,794 24,002 23,902

2010 2011 2012

Flexible Packaging-Related Business 53,830 54,015 53,319



Both sales and profits were lower than the previous year

owing to lower demand for heavy duty packaging for the

automotive, electric and IT-related industries that were

burdened by the strong yen.

Segment sales were ¥23,902 million, a decrease of 0.4%

year on year, and operating income was ¥1,151 million, a

decrease of 8.8%. The heavy duty packaging-related business

accounted for 4.9% of consolidated net sales.

Although the flexible packaging-related business experienced a

decrease in sales as a result of temporary disruptions in procurement

of principal raw materials in the aftermath of the Great East Japan

Earthquake, efforts to reduce costs contributed to higher profits.

Segment sales were ¥53,319 million, a decrease of 1.3% year on

year, and operating income was ¥2,412 million, an increase of

58.4%. The flexible packaging-related business accounted for 10.8%

of consolidated net sales.

The Rengo Group’s business for manufacturing and sales of

heavy duty packaging is mainly carried out by Nihon Matai Co.,

Ltd. and its subsidiary in Japan.

The Rengo Group’s business for manufacturing and sales of flexible

packaging is carried out by Howa Sangyo Co., Ltd. and Rengo Co.,

Ltd. also sells flexible packaging. Manufacturing and sales of

cellophane are carried out by Rengo Co., Ltd.

Review of Operations

010_0899701372408.indd 14 2012/09/21 14:25:09

Nonwoven products

Zhongshan Rengo Hung Hing Paper Manufacturing Co., Ltd.

Dalian Rengo Packaging Co., Ltd.

Folding carton machine

Viscopearl (porous cellulose beads)15

Overseas Business

Other Businesses



2010 2011 2012

Other Businesses 19,079 20,801 30,647

2010 2011 2012

Overseas business 11,604 14,568 22,025



Sales from other businesses increased thanks to increased production

of newsprint and nonwoven products and because of a newly

consolidated subsidiary. However, profits decreased owing to

increased prices of raw materials and fuel.

Segment sales rose 47.3% year on year to ¥30,647 million, but an

operating loss of ¥19 million was recorded. Other businesses

accounted for 6.2% of consolidated net sales.

Sales of the overseas business increased because two Chinese

containerboard subsidiaries were newly consolidated. However,

profits decreased owing to the major impact of increases in prices of

raw materials.

Overseas production volume of paperboard by Rengo’s

consolidated subsidiaries amounted to 177 thousand tons and that of

corrugated board was 245 million square meters, an increase of

3.4% year on year. Although segment sales surged 51.2% to

¥22,025 million, an operating loss of ¥847 million was recorded. The

overseas business accounted for 4.5% of consolidated net sales.

The Rengo Group’s production volume of paperboard in China

and Southeast Asia amounted to 381 thousand tons and that of

corrugated board was 1,510 million square meters.

Manufacturing and sales of other products are carried out by the

following companies: Rengo Nonwoven Products Co., Ltd. for

nonwoven products, Yamada Kikai Kogyo Co., Ltd. for folding carton

machines, Osaka Paper Co., Ltd. for newsprint, and Rengo Co., Ltd.

for chemical products. Rengo Co., Ltd. also sells folding carton

machines.

The transport business is carried out by Rengo Logistics Co., Ltd.

and Sanyo Jidosha Unso Co., Ltd. Insurance agency, leasing, and real

estate businesses are carried out by Rengo Logistics Co., Ltd.

The overseas business includes the overseas operations of the

paperboard and packaging-related business, flexible packaging-related

business, and heavy duty packaging-related business.

Manufacturing and sales of the Rengo Group’s products overseas are

carried out principally by Zhongshan Rengo Hung Hing Paper

Manufacturing Co., Ltd., etc. for paperboard, principally by Dalian Rengo

Packaging Co., Ltd., etc. for corrugated board and boxes, by Jiangsu

Zhongjin Matai Medicinal Packaging Co., Ltd. for flexible packaging, and

by MATAI (VIETNAM) Co., Ltd. for heavy duty packaging.

2010 2011 2012

Paperboard (thousand tons) ーー 177

Corrugated board (million sq. meters) 179 237 245

Corrugated boxes (million sq. meters) 171 220 224

Production (overseas, consolidated basis) (Million sq. meters)

* Corrugated board production volume includes those converted into corrugated boxes.

Rengo Logistics Establishes Sanda Logistics Center

Rengo Logistics Co., Ltd., a subsidiary, established the Sanda Logistics

Center (Sanda-shi, Hyogo Prefecture) in November 2011. Adjacent to

the Maizuru-Wakasa Expressway Sanda-nishi Interchange, the new

center’s location is ideal for a base for collection and transport serving

various destinations. Countermeasures for dust and insects and

environmental measures are implemented as well as various security

systems. Taking advantage of the Sanda Logistics Center, Rengo

Logistics swiftly responds to customer needs and offer fine-tuned

services as a comprehensive logistics service provider helping Rengo

to become a “General Packaging Industry (GPI).”

010_0899701372408.indd 15 2012/09/21 14:25:10

16

FoshanShenzhen

Hong Kong

Heshan

Dujiangyan

Zhongshan

U.S.A.

Qingdao

Shanghai

Dalian

Tianjin

Wuxi

Hanoi

Khon KaenSaraburi Prachinburi

Taipei

SamutprakarnNonthaburi

NavanakornPatumthani

RatchaburiChonburi

Chachoengsao

Lianyungang

Rayong Ho Chi Minh City

Songkhla

Subang Jaya

JakartaSemarang

Surabaya

China

Paperboard: 3

Corrugated packaging: 27

Folding cartons: 2

Flexible packaging: 3

Heavy duty packaging: 2

Others: 10

Japan

Vietnam

Malaysia

Singapore

Indonesia

Thailand

Changshu

Hawaii

Major developments

April 2011 Rengo Packaging, Inc. was established in Hawaii, the U.S.

July 2011Thai Containers Group Co., Ltd., an affiliate in which Rengo has a 30% equity stake, acquired Alcamax Packaging

Joint Stock Company, a Vietnam-based corrugated packaging manufacturer, and its two subsidiaries.

August 2011Rengo acquired a 29.9% equity stake in Hung Hing Printing Group Limited.

Rengo acquired all the equity of Tianjin Rengo Packaging Co., Ltd.

October 2011 Rengo acquired all the equity of Guangdong Rengo Packaging Co., Ltd.

January 2012 Tianjin Rengo Packaging Co., Ltd. commenced operations at its new plant.

March 2012Thai Containers Group Co., Ltd. acquired a 72% equity stake in Tawana Container Co., Ltd., a Thai manufacturer of

corrugated packaging

May 2012Rengo acquired a 4.23% equity stake in Chung Loong Paper Holdings Limited, a member of Taiwan-based Cheng

Loong Group.

Tianjin Rengo Packaging Co., Ltd.

Karawang Factory of P.T. Surya Rengo Containers

Sales Office of Rengo Packaging, Inc.

Overseas Business Development

Note: Flexible packaging, heavy duty

packaging and others include companies

that are non-consolidated.

(As of June 30, 2012)

The “G” in GPI also stands for ‘global.’ The Rengo Group is expanding its global network to enable seamless offering of packaging solutions around the world

We are meeting our customers’ packaging needs worldwide by making full use of the excellent packaging technologies we

have cultivated over many years, while enhancing the culture of packaging and economic development wherever we operate.

In line with the progress of globalization of the economy and society, the Rengo Group intends to continue vigorous capital

investment overseas.

Plan

Fall 2012 New Karawang Factory of P.T. Surya Rengo Containers is scheduled for completion.

010_0899701372408.indd 16 2012/09/21 14:25:12

17

Design Marketing

Packaging Technology

R&D Central Laboratory

TOTALSUPPORT

Creating new products through R&D of raw materials and manufacturing technology as a pioneer in corrugated packaging

Design Marketing Center

Packaging Technical Center

Offering in-depth support on packaging-related technical issues through collaboration between packaging engineers and sales personnel who possess professional packaging qualifications

Design and improvement proposals for transport packaging

Material and package tests

Packaging-related technological development

Provision of information on packaging technology

R&D relating to paper manufacturing (paperboard)

R&D relating to corrugated packaging

R&D relating to folding cartons and flexible packaging

R&D relating to new functional materials

Analysis

Providing comprehensive support extending from marketing and product planning to packaging design for the creation of top-selling products

Provision of marketing information

Formulation of product plans

Packaging design

Retail sales activation planning

Research and Development

Offering Solutions to Packaging Issues through a 3-pronged Support Framework

Rengo offers comprehensive support to meet the full spectrum of customers’ packaging needs, taking into consideration the

overall cost throughout the entire packaging process of products, including sales promotion benefits and reduction of

environmental impacts.

Rengo is developing products attuned to the needs of the era, capitalizing on the Rengo Group’s accumulated expertise in packaging as a pioneer in the Japanese corrugated industry.

RAFEP with excellent fire-retardant attributes is the first corrugated

board that meets the fire-retardant product certification standard of

the Japan Fire Retardant Association.

RAFEP is suitable for decorative printing. In addition to the use for

evacuation shelter partitions, RAFEP is expected to have a wide

application field, including applications requiring fireproof

performance for which corrugated board has not been previously

utilized, such as building materials, filters, and automotive parts.

This radiation shielding sheet made of thermoplastic elastomers* is

lightweight and flexible. It is expected to have a wide range of uses,

such as helping protect building interiors against radiation from

external sources and shielding contaminated waste stored

temporarily during decontamination.

Fire-retardant corrugated board developed by Rengo Radiation shielding sheet jointly developed by Rengo and Nihon Matai

* Thermoplastic elastomer is a high-polymer material that possesses the properties of both plastic and rubber.

010_0899701372408.indd 17 2012/09/21 14:25:13

18

Caring about People and the Environment

Energy consumption (Manufacturing operations)

The Rengo Group, inspired by its “General Packaging Industry”

concept, is active in environmental protection, always endeavoring

to serve society to the best of its ability.

* Biotope: Derived from the Ancient Greek words, bios meaning 'life' and topos meaning 'place,' a biotope is an area where plants and animals in an ecosystem can thrive.

Biotope at Takefu PlantA biotope was created at a site

previously occupied by tanks containing

heavy oil, which were eliminated as a

result of the switch of energy source

from heavy oil to LNG. The biotope has

been open to the public since June 20,

2012. People from the local community

can also come here to enjoy the

delights of nature.

Biotope at Fukushima-Yabuki Plant (concept illustration of the biotope in two years’ time)To the north of the plant site is a Suwa

shrine surrounded by virgin forest. For

symbiosis with the pristine natural

environment, we are creating a biotope

at the site of the Fukushima-Yabuki

Plant to promote biodiversity.

Use of clean energy sources to minimize CO2 emissions

Rengo is promoting the adoption of clean energy sources to

minimize CO2 emissions while increasing the use of biomass fuel,

solar power, and other renewables. We are also vigorously

introducing energy-efficient facilities to reduce energy consumption.“Less Weight, Less Carbon”

This key phrase expresses Rengo’s environmental commitment to

the manufacture of corrugated packaging that is lighter,

thinner and emits less CO2.

Three Initiatives for Environmental Sustainability

1. Realization of a recycling-based society2. Realization of a low-carbon society3. Realization of harmony with the natural environment

Corrugated board average weight index (FY 2004=100)

Recovered paper utilization ratio for paperboard (%)

0

200

400

600

800

1,000

1,200

0

20

40

60

80

100

0

20

40

60

80

100

Industry

(%)

’70 ’80 ’90 ’00 ’06 ’07 ’08 ’09 ’10 ’11

Rengo

(FY)

CO2 emissions

0

200

400

600

800

1,000

1,200

0

200

400

600

800

1,000

1,200

Corrugated and folding carton plants Paperboard mills and cellophane plant

(1,000 tons)

(FY)’90 ’08 ’10 ’11’09

0

200

400

600

800

1,000

1,200

90

92

94

96

98

100

102

(千トン)

’04 ’05 ’06 ’07 ’08 ’09 ’10 ’11

Industry Rengo

(FY)

Source: Paper Recycling Promotion Center

Source: Japan Corrugated Case Association

0

5

10

15

20

Heavy oil/coalCity gas LNGBiomass / wastePurchased electricity

(1,000TJ)

(FY)’90 ’00 ’11

Environmental Protection

Recycling-based society: Maximizing the use of recovered paper for efficient use of finite resources

Our long-standing effort to maximize the use of recovered

paper is underpinned by R&D to facilitate recycling and

greater use of recovered paper. Rengo has been maintaining

a high recovered paper utilization ratio of over 97% since

fiscal 2007. In addition to old corrugated containers,

newspapers, and magazines, in 2006 we started use of

confidential paper waste.

Low-carbon society: Thinner containerboard and lighter corrugated board

Capitalizing on our accumulated expertise in paperboard

production, we have developed Less Caliper & Carbon (LCC)

containerboard, Rengo’s unique lightweight containerboard. We are

also promoting C-flute corrugated board, which is about 1mm

thinner than A-flute. Thinner and lighter containerboard means

efficient utilization of old corrugated containers and higher

transportation efficiency, leading to a great reduction in CO2

emissions.

Harmony with the natural environment: Fostering biodiversity at plant sites

We are creating biotopes at our plants to protect biodiversity as a

good corporate citizen cherishing the relationship with the

communities we serve.

Rengo Group’s initiatives for environmental protection recognized in fiscal 2011

Rengo’s products won awards in Japan Packaging Contest 2011.

Rengo won the Sankei Shimbun Award of the 20th Global

Environmental Awards.

The Rengo booth at Eco-Products 2011 won the Superior Award

of the Eco & Design Booth Prize.

Rengo’s Shin-Kyoto Plant won the Third Nagaokakyo “Eco

Capital” Prize.

Rengo received an SMBC Environmental Assessment Loan from

Sumitomo Mitsui Banking Corporation for the second time.

010_0899701372408.indd 18 2012/09/21 14:25:14

19

Corporate Governance Structure

General Meeting of Shareholders

Corporate head of�ces, business units, mills and plants, and subsidiaries and af�liates

Board of Directors Meeting

Representative Directors

CSR CommitteeGroup Companies’

Management Meeting

18 directors(of whom one is an outside director) Auditors Committee

Auditors Of�ce

�ve auditors(of whom three are outside auditors)

Appointment/dismissal Appointment/dismissal Appointment/dismissal

Independent Auditors

Internal Audit Organization Report

Executive Of�cers

Ethics Subcommittee

Environment Subcommittee

Health and Safety Subcommittee

Customer Satisfaction Subcommittee

Public Relations Subcommittee

Senior Executive Meeting(Deliberation of important matters)

Election/dismissalSupervision

InstructionSupervision

Consent on appointment/reappointmentJudgment of appropriateness of accounting audit

Audit

Audit

Submission ofimportant matters, report

Submissionof policies

Submission of plans, report, etc.

Report

Report

Report Report

Report

Report Audit

Submission of policies,approval of plans

Aspiring to be an enterprise that continues to earn the trust of society, we are strengthening corporate governance through greater transparency and more robust systems and procedures. In keeping with our philosophy whose essence is “The truth is in the workplace,” Rengo is enhancing corporate governance by strengthening the current director and corporate auditor systems while delegating authority and accelerating decision-making.

Corporate Governance

Promoting CSR

Rengo established the CSR Committee on January 1, 2005, with the aim of promoting CSR management. Chaired by the president, the CSR

Committee has five subcommittees devoted to the ethics, environment, health and safety, customer satisfaction, and public relations,

respectively. The CSR Committee spearheads formulation and implementation of CSR policies and action plans, while strengthening

collaboration with the departments concerned in the company.

Internal Control

Appropriate internal control is put in place in each business unit. Moreover, the Audit Department consisting of seven personnel periodically

conducts audits of Rengo’s sites. The Audit Department and supervisory business units conduct internal audits of consolidated subsidiaries.

Rengo Endorses the United Nations Global Compact

In November 2009 Rengo endorsed the United Nations Global Compact. In fulfilling our

responsibility as a corporate citizen, we support the 10 principles of the UN Global

Compact and adhere to its philosophy toward sustainable and comprehensive

development of the global economy.

Investigation by the Japan Fair Trade Commission

On June 5, 2012, Rengo and certain Rengo Group companies were investigated by the Japan

Fair Trade Commission on suspicion of having violated the antitrust law in trading of

corrugated board and corrugated boxes. The Rengo Group is extending full cooperation to the

Japan Fair Trade Commission in this matter.

010_0899701372408.indd 19 2012/09/21 14:25:14

20

(As of June 28, 2012)Board of Directors, Corporate Auditors and Executive Officers

Representative Director, President and Chief Executive Officer Kiyoshi OtsuboRepresentative Director, Executive Vice President

Kazuteru Kishimoto

Toshihide Seki

Board of Director, Senior Managing Executive Officer

Moriaki Maeda

Yoshitaka Ozawa

Sadaaki Goto

Ichiro Hasegawa

Takashi Inaba

Board of Director, Managing Executive Officer

Misao Wakamatsu

Kiwamu Hashimoto

Yasuhiro Baba

Hiromi SambeBoard of Director, Executive Officer Shigechika Ishida

Yosuke Kawamoto

Hirokazu Nakai

Toshihiro Yoneda

Sadatoshi Inoue

Board of Director Yoshifumi Nishikawa

Corporate Auditor Toshihito Miura

Hiromi Hirayama

Shogo Itoda

Kenji Tsujimoto

Ikuho Inoue

Managing Executive Officer Osamu Nishimura

Executive Officer Sakae Shinotsuka

Ryuzo Shinano

Shunji Ogawa

Iwao Shiozaki

Yasuhiro Miyoshi

Hiroshi Ebihara

Koichi Hirano

Takeshi Hosokawa

Mitsumasa Yokota

From left:Kazuteru Kishimoto, Kiyoshi Otsubo, Toshihide Seki

010_0899701372408.indd 20 2012/09/21 14:25:15

2121

Financial Section

Consolidated Five-Year SummaryRengo Co., Ltd. and Consolidated Subsidiaries

CONTENTS

21 Consolidated Five-Year Summary

22 Management’s Discussion and Analysis

24 Consolidated Balance Sheets

26 Consolidated Statements of Income

27 Consolidated Statements of Comprehensive Income

28 Consolidated Statements of Changes in Net Assets

29 Consolidated Statements of Cash Flows

30 Notes to the Consolidated Financial Statements

48 Independent Auditors’ Report

For the years ended March 31, 2008, 2009, 2010, 2011 and 2012

*Total shareholders’ equity = Net assets - Minority interests

Millions of yen2008 2009 2010 2011 2012

For the Year:

Net sales ¥435,339 ¥446,660 ¥457,386 ¥474,878 ¥492,628Gross profits 66,226 69,813 91,645 91,888 86,196Operating income 12,799 15,213 33,727 32,391 25,068Income before income taxes 9,654 14,215 29,633 18,042 11,272Net income 5,659 7,831 16,987 10,291 7,148Research and development expenses 1,486 1,663 1,507 1,486 1,541Depreciation and amortization 24,227 24,337 25,223 26,394 27,149Capital expenditures 21,083 20,526 29,363 22,650 47,741EBITDA 37,026 39,550 58,950 58,785 52,217Per share amounts (yen):

Net income, basic 21.83 29.91 64.42 39.67 27.74 Net income, diluted ---- ---- ---- ---- ---- Cash dividends applicable to the year 10.00 10.00 10.00 12.00 12.00At Year-End:

Total assets ¥468,887 ¥457,263 ¥498,137 ¥499,119 ¥549,058Working capital （53,538）（43,897）（37,080）（36,385）（46,135）Interest-bearing debt 194,251 193,374 199,237 201,584 229,444Net assets 147,382 140,779 163,926 165,613 170,931Total shareholders’ equity* 142,221 136,175 159,385 159,395 164,339Ratios:

Return on equity (%) 3.9 5.6 11.5 6.5 4.4Return on total assets (%) 1.2 1.7 3.6 2.1 1.4Debt to equity ratio (times) 1.37 1.42 1.25 1.27 1.40Total shareholders’ equity to total assets (%) 30.3 29.8 32.0 31.9 29.9Other statistics:

Number of shares of common stock (thousand) 263,774 263,774 271,056 271,056 271,056Number of employees 10,181 9,089 11,182 12,267 12,961Stock prices (yen):

High ¥927 ¥849 ¥652 ¥597 ¥619 Low 451 425 483 414 458

011_0899701372408.indd 21 2012/09/21 14:26:26

22

2010 2011 2012

Cost of sales 80.8% 80.7% 82.5%

SG&A expenses 12.6 12.5 12.4

Operating income 7.4 6.8 5.1

Net income 3.7 2.2 1.5

’12’10’09’08 ’110

10

20

30

40

(Billions of yen)

’12’10’09’08 ’110

5

10

15

20(Billions of yen)

Net IncomeNet Income per Share, Basic

(left scale)(right scale)

0

20

40

60

80(Yen)

In the fiscal year ended March 31, 2012 (fiscal 2011), inspired by its

“General Packaging Industry (GPI)” concept, the Rengo Group worked

to further strengthen competitiveness in all its business fields—

paperboard, corrugated packaging, folding cartons, flexible packaging,

heavy duty packaging, and overseas business, through improvement of

both productivity and quality, reduction of costs, and expansion of the

scope of business overseas in response to globalization.

Prompted by surging fuel and raw material costs, we began revising

prices of paperboard and corrugated packaging in the second half of

fiscal 2011 with the aim of reconstructing appropriate pricing

structures for these products, and our efforts met with some success.

We built the Shin-Sendai Plant in Taiwa-cho, Kurokawa-gun, Miyagi

Prefecture, to replace the Sendai Plant in Miyagino-ku, Sendai-shi,

Miyagi Prefecture, which was devastated by the tsunami of March

11, 2011. As a result of the wholehearted cooperation that we

received from everyone linked to the factory, including the local

authorities in Miyagi Prefecture, we were able to hold a

commencement ceremony for the Shin-Sendai Plant on March 15,

2012, just one year after the disaster. The new plant officially started

operations in April 2012. This marked the complete restoration of all

of the Rengo Group operations in the affected area.

Despite increased net sales, net income decreased from the previous

year primarily due to a loss on valuation of investment securities.

As of March 31, 2012, the number of consolidated subsidiaries was

49, three more than at the end of the previous year, and the number

of affiliates accounted for by the equity method was six, unchanged

from the end of the previous year.

Consolidated net sales increased ¥17.7 billion or 3.7% year on year

from ¥474.9 billion for the previous year to ¥492.6 billion for fiscal

2011. Although paperboard sales in Japan decreased because the

accident at Fukushima Daiichi nuclear power plant forced Marusan

Paper Mfg. Co., Ltd. in Minamisoma-shi, Fukushima Prefecture, to

suspend operations until mid-June 2011, the inclusion of additional

subsidiaries in the scope of consolidation led to higher net sales. In

particular, paperboard companies in China, whose statuses changed

from equity-method affiliates to consolidated subsidiaries at the end

of fiscal 2010, and a logistics company in Japan, which became a

consolidated subsidiary from the second quarter of fiscal 2011,

greatly contributed to increased net sales.

Sales from the paperboard and packaging-related business segment

edged up 0.3% year on year, sales from the flexible packaging-related

business segment decreased 1.3%, sales from the heavy duty

packaging business were down 0.4%, sales from the overseas

business soared 51.2%, and sales from other businesses rose 47.3%.

Year-on-year increases in sales from the overseas business and from

other businesses were outstanding.

Sales volumes of corrugated boxes in Japan increased 2.6% year on

year, benefitting from increased demand for beverage applications

despite the impact of the Great East Japan Earthquake.

Operating Expenses and Operating IncomeCost of sales increased 6.1% year on year from ¥383.0 billion for the

previous year to ¥406.4 billion owing to higher costs of raw

materials and fuel, including recovered paper and city gas, besides

the addition of consolidated subsidiaries. Selling, general and

administrative expenses increased 2.7% year on year from ¥59.5

billion to ¥61.1 billion primarily as a result of the addition of

subsidiaries to the scope of consolidation.

Operating income decreased ¥7.3 billion or 22.6% year on year from

¥32.4 billion to ¥25.1 billion. This decrease was primarily due to

increased prices of raw materials and fuel and the impact of the

suspension of operations of Marusan Paper Mfg. for several months

following the accident at Fukushima Daiichi nuclear power plant.

Other Income and ExpensesRegarding the net balance of other income and expenses, a loss of

¥13.8 billion was recorded for fiscal 2011, compared with a loss of

¥14.3 billion for the previous year. Although the loss on valuation of

investment securities increased ¥3.4 billion from ¥7.4 billion for fiscal

2010 to ¥10.8 billion, this was offset by the fact that no loss on

disaster was recorded for fiscal 2011 whereas a ¥4.0 billion loss on

disaster was recorded for the previous year. The loss on valuation of

Management’s Discussion and Analysis

Operating Income Net Income and Net Income per Share, Basic

Income and Expenses as a Percentage of Net Sales

Overview

Sales

Income and Expenses

011_0899701372408.indd 22 2012/09/21 14:26:26

23

’12’10’09’08 ’110

100

200

300

400

500

600

Total Shareholders’ EquityTotal Assets

(Billions of yen)

’12’10’09’08 ’110

100

200

300

400

Interest-bearing DebtDebt to Equity Ratio

(left scale)(right scale)

0.0

0.5

1.0

1.5

2.0(Billions of yen) (Times)

’12’10’09’08 ’110

3

6

9

12(%)

Return on EquityReturn on Total Assets

investment securities reflected a decline in the share price of Hung

Hing Printing Group Ltd., a company listed on the Hong Kong Stock

Exchange and acquired by Rengo in August 2011, whereas the

previous year’s loss on valuation of investment securities reflected a

decline in the value of certain equities held by the Company as a

result of the Great East Japan Earthquake.

We booked equity in income of affiliates for fiscal 2011 whereas

equity in losses of affiliates was recorded for the previous year.

Income Taxes and Minority InterestsIncome taxes decreased ¥3.2 billion from ¥7.5 billion for the

previous year to ¥4.3 billion as a result of a decrease in income

before income taxes and minority interests. Minority interests in

losses amounted to ¥0.2 billion for fiscal 2011 whereas minority

interests in income amounted to ¥0.2 billion for the previous year.

Net IncomeNet income was ¥7.1 billion for fiscal 2011, a decrease of ¥3.2

billion or 30.5% from ¥10.3 billion for the previous year. Net income

per share was ¥27.74 compared with ¥39.67 for the previous year.

Despite a decline in profit resulting from the recording of a large loss

on valuation of investment securities for the two consecutive years,

we maintained annual cash dividends per share of ¥12, unchanged

from the previous year, taking into account the trend of financial

performance, financial condition, and business development from

now on from a comprehensive and long-term perspective.

AssetsTotal assets were ¥549.1 billion, having increased ¥50.0 billion from

¥499.1 billion at the end of the previous year. The principal factors

were a ¥14.1 billion increase in current assets, a ¥21.7 billion increase

in property, plant and equipment, a ¥0.9 billion increase in intangible

assets, and a ¥13.2 billion increase in investments and other assets.

The principal reason for the increase in current assets was an

increase in notes and accounts receivable-trade because the last

day of fiscal 2011 fell on a holiday and the increase in property,

plant and equipment was attributable to the construction of the

Shin-Sendai Plant.

Liabilities and Net AssetsTotal liabilities amounted to ¥378.1 billion, having increased ¥44.6

billion from ¥333.5 billion at the end of the previous year, reflecting

increased raw materials and fuel prices and the construction of the

Shin-Sendai Plant.

Interest-bearing debt at the end of the year stood at ¥229.4 billion,

having increased ¥27.8 billion from ¥201.6 billion at the end of the

previous year. However, if a ¥0.6 billion increase in the interest-

bearing debt associated with the newly consolidated subsidiaries is

not taken into account, the increase in the interest-bearing debt was

¥27.2 billion.

Net assets amounted to ¥170.9 billion, having increased ¥5.3 billion

from ¥165.6 billion at the end of the previous year, primarily due to

a ¥4.3 billion increase in retained earnings.

Cash FlowsNet cash provided by operating activities amounted to ¥33.6 billion,

a decrease of ¥8.4 billion from ¥42.0 billion for the previous year.

Major items were depreciation and amortization amounting to ¥27.1

billion, a ¥12.0 billion increase in notes and accounts receivable-

trade, and income before income taxes and minority interests

amounting to ¥11.3 billion.

Net cash used in investing activities increased ¥28.6 billion from

¥26.4 billion for the previous year to ¥55.0 billion. Major items were

purchases of property, plant and equipment and purchases of

investment securities amounting to ¥33.3 billion and ¥18.5 billion,

respectively.

Net cash provided by financing activities was ¥18.8 billion, having

increased ¥28.4 billion from net cash used in financing activities

amounting to ¥9.6 billion for the previous year. Major items were a

¥19.1 billion net increase in short-term and long-term loans payable,

¥10.0 billion in proceeds from issuance of bonds, and a ¥5.9 billion

outlay for redemption of bonds.

As a result, cash and cash equivalents were ¥17.7 billion at the end

of fiscal 2011, having decreased ¥2.5 billion from the previous year.

Total Shareholders’ Equity and Total Assets

Interest-bearing Debt and Debt to Equity Ratio

Return on Equityand Return on Total Assets

Financial Position and Cash Flows

011_0899701372408.indd 23 2012/09/21 14:26:27

24

Rengo Co., Ltd. and Consolidated Subsidiaries

Consolidated Balance Sheets

March 31, 2012 and 2011

Millions of yen

Thousands ofU.S. dollars

(Note 1)

2012 2011 2012

Assets

Current assets:

Cash and deposits (Notes 3, 7 and 16) ¥ 16,250 ¥ 18,560 $ 198,171

Short-term investment securities (Notes 3 and 4) 2,150 2,200 26,220

Receivables—

Notes and accounts receivable-trade (Note 3) 140,407 125,986 1,712,280

Other 2,602 2,018 31,732

Allowance for doubtful accounts (730) (605) (8,902)

142,279 127,399 1,735,110

Inventories (Note 5) 28,941 26,806 352,939

Deferred tax assets (Note 14) 3,740 4,362 45,610

Other 2,807 2,735 34,230

Total current assets 196,167 182,062 2,392,280

Property, plant and equipment (Notes 7 and 12):

Buildings and structures 185,978 174,832 2,268,024

Machinery, equipment and vehicles 394,893 373,853 4,815,768

Land 107,053 100,944 1,305,524

Construction in progress 5,809 3,718 70,841

Other 22,433 20,842 273,575

716,166 674,189 8,733,732

Less accumulated depreciation (451,284) (430,986) (5,503,464)

Total property, plant and equipment 264,882 243,203 3,230,268

Intangible assets:

Goodwill 2,941 2,407 35,866

Other (Notes 7 and 12) 6,352 5,954 77,463

Total intangible assets 9,293 8,361 113,329

Investments and other assets:

Investment securities (Notes 3, 4 and 7) 64,256 55,417 783,610

Long-term loans receivable 344 338 4,195

Deferred tax assets (Note 14) 5,973 2,663 72,841

Other (Note 7) 9,613 8,543 117,233

Allowance for doubtful accounts (1,470) (1,468) (17,927)

Total investments and other assets 78,716 65,493 959,952

¥549,058 ¥499,119 $6,695,829

The accompanying notes are an integral part of these statements.

011_0899701372408.indd 24 2012/09/21 14:26:27

25

Millions of yen


(Note 1)

2012 2011 2012

Liabilities and Net Assets

Current liabilities:Short-term borrowings and the current portion of long-term debt (Notes 3, 6 and 7) ¥109,454 ¥103,355 $1,334,805

Payables—Notes and accounts payable-trade (Notes 3 and 7) 80,841 71,488 985,866 Other (Note 7) 23,533 12,040 286,988

104,374 83,528 1,272,854 Income taxes payable 4,084 5,868 49,805 Provision for directors’ bonuses 149 174 1,817 Other (Note 7) 24,241 25,522 295,622

Total current liabilities 242,302 218,447 2,954,903

Noncurrent liabilities:Long-term debt due after one year (Notes 3, 6 and 7) 114,202 94,504 1,392,707 Deferred tax liabilities (Note 14) 3,965 4,477 48,354 Provision for retirement benefits (Note 11) 7,198 7,918 87,780 Provision for directors’ retirement benefits 928 881 11,317 Other (Note 7) 9,532 7,279 116,244

Total noncurrent liabilities 135,825 115,059 1,656,402

Contingent liabilities (Note 8)

Net assets (Note 10):Shareholders’ equity:Capital stock:

Authorized – 800,000,000 shares Issued – 271,056,029 shares 31,067 31,067 378,866

Capital surplus 33,998 33,998 414,610 Retained earnings 110,489 106,221 1,347,427 Treasury stock:

13,412,626 shares in 2012 and 13,383,132 shares in 2011 (7,854) (7,839) (95,781)Total shareholders’ equity 167,700 163,447 2,045,122

Accumulated Other Comprehensive Income:Valuation difference on available-for-sale securities 791 (94) 9,646 Deferred gains or losses on hedges (0) — (0)Foreign currency translation adjustment (4,152) (3,958) (50,634)

Total accumulated other comprehensive income (3,361) (4,052) (40,988)

Minority interests 6,592 6,218 80,390

Total net assets 170,931 165,613 2,084,524

¥549,058 ¥499,119 $6,695,829

011_0899701372408.indd 25 2012/09/21 14:26:27

26

Years ended March 31, 2012 and 2011

Millions of yen


(Note 1)

2012 2011 2012

Net sales (Note 17) ¥492,628 ¥474,878 $6,007,659

Cost of sales 406,432 382,990 4,956,489

Selling, general and administrative expenses (Note 13) 61,128 59,497 745,463

Operating income (Note 17) 25,068 32,391 305,707

Other income (expenses):

Interest and dividends income 1,698 1,642 20,707

Rent income 557 505 6,793

Equity in earnings (losses) of affiliates 270 (18) 3,293

Interest expenses (2,515) (2,560) (30,671)

Subsidy 436 155 5,317

Insurance income 306 2 3,732

Gain on sales of noncurrent assets 250 224 3,049

Loss on valuation of investment securities (10,846) (7,436) (132,268)

Other, net (3,952) (6,863) (48,196)

Income before income taxes and minority interests 11,272 18,042 137,463

Income taxes (Note 14):

Income taxes-current 7,710 10,268 94,024

Income taxes-deferred (3,433) (2,738) (41,866)

4,277 7,530 52,158

Income before minority interests 6,995 10,512 85,305

Minority interests in income (loss) (153) 221 (1,866)

Net income ¥ 7,148 ¥ 10,291 $ 87,171

Yen U.S. dollars

(Note 1)

Per share data: 2012 2011 2012

Net income per share, basic ¥ 27.74 ¥ 39.67 $ 0.34

Net income per share, diluted — — —

Cash dividends applicable to the year 12.00 12.00 0.15



Consolidated Statements of Income

011_0899701372408.indd 26 2012/09/21 14:26:27

27


Millions of yen


(Note 1)

2012 2011 2012

Income before minority interests ¥6,995 ¥10,512 85,305

Other comprehensive income:

Valuation difference on available-for-sale securities 897 (438) 10,939

Deferred gains or losses on hedges (0) — (0)

Foreign currency translation adjustment (14) (977) (171)

Share of other comprehensive income of associates accounted for using equity method (494) (578) (6,024)

Total other comprehensive income (Note 15) 389 (1,993) 4,744

Comprehensive income ¥7,384 ¥8,519 $90,049

Comprehensive income attributable to

Comprehensive income attributable to owners of the parent ¥7,517 ¥8,353 $91,671

Comprehensive income attributable to minority interests (133) 166 (1,622)



Consolidated Statements of Comprehensive Income

011_0899701372408.indd 27 2012/09/21 14:26:27

28


Thousands Millions of yen

Number of shares of common

stockCapital stock

Capital surplus

Retained earnings

Treasury stock

Valuation difference

on available-for-sale securities

Deferred gains or losses on hedges

Foreign currency

translation adjustment

Minority interests Total

Balance at April 1, 2010 271,056 ¥31,067 ¥33,998 ¥ 98,713 (¥2,280) ¥314 ¥— (¥2,428) ¥4,542 ¥163,926 Change of scope of consolidation 20 20 Dividends from surplus (2,884) (2,884)Net income 10,291 10,291 Purchase of treasury stock (5,561) (5,561)Disposal of treasury stock (0) 2 2 Other 81 81 Net changes of items other than shareholders’ equity (408) (1,530) 1,676 (262)

Balance at March 31, 2011 271,056 ¥31,067 ¥33,998 ¥106,221 (¥7,839) (¥ 94) ¥— (¥3,958) ¥6,218 ¥165,613 Change of scope of consolidation 70 70 Dividends from surplus (3,092) (3,092)Net income 7,148 7,148 Purchase of treasury stock (17) (17)Disposal of treasury stock (0) 2 2 Other 142 142 Net changes of items other than shareholders’ equity 885 (0) (194) 374 1,065

Balance at March 31, 2012 271,056 ¥31,067 ¥33,998 ¥110,489 (¥7,854) ¥791 (¥ 0) (¥4,152) ¥6,592 ¥170,931

Thousands of U.S. dollars (Note 1)

Capital stock

Capital surplus

Retained earnings

Treasury stock

Valuation difference on

available-for-sale securities

Deferred gains or losses on hedges

Foreign currency

translation adjustment

Minority interests Total

Balance at March 31, 2011 $378,866 $414,610 $1,295,378 ($95,598) ($ 1,146) $— ($48,268) $75,829 $2,019,671 Change of scope of consolidation 854 854 Dividends from surplus (37,707) (37,707)Net income 87,171 87,171 Purchase of treasury stock (207) (207)Disposal of treasury stock (0) 24 24 Other 1,731 1,731 Net changes of items other than shareholders’ equity 10,792 (0) (2,366) 4,561 12,987

Balance at March 31, 2012 $378,866 $414,610 $1,347,427 ($95,781) $ 9,646 ($ 0) ($50,634) $80,390 $2,084,524



Consolidated Statements of Changes in Net Assets

011_0899701372408.indd 28 2012/09/21 14:26:27

29


Millions of yen


(Note 1)

2012 2011 2012Net cash provided by (used in) operating activitiesIncome before income taxes and minority interests ¥11,272 ¥18,042 $137,463 Depreciation and amortization 27,149 26,394 331,085 Impairment loss 20 297 244 Amortization of goodwill 354 201 4,317 Increase (decrease) in provision for retirement benefits (1,206) (2,533) (14,707)Increase (decrease) in provision for directors' retirement benefits (18) 19 (220)Interest and dividends income (1,698) (1,642) (20,707)Interest expenses 2,515 2,560 30,671 Equity in (earnings) losses of affiliates (270) 18 (3,293)Loss (gain) on sales of investment securities (1) (169) (12)Loss (gain) on valuation of investment securities 10,850 7,442 132,317 Loss (gain) on sales of property, plant and equipment (97) (153) (1,183)Loss on retirement of property, plant and equipment 749 1,799 9,134 Decrease (increase) in notes and accounts receivable-trade (12,000) (1,703) (146,341)Decrease (increase) in inventories (1,931) (1,141) (23,549)Increase (decrease) in notes and accounts payable-trade 7,549 2,369 92,061 Other, net 396 859 4,830

Subtotal 43,633 52,659 532,110 Interest and dividends income received 1,988 1,939 24,244 Interest expenses paid (2,508) (2,579) (30,585)Income taxes paid (9,527) (10,059) (116,184)

Net cash provided by (used in) operating activities 33,586 41,960 409,585

Net cash provided by (used in) investing activitiesNet decrease (increase) in time deposits 125 592 1,524 Purchase of property, plant and equipment (33,254) (25,390) (405,537)Proceeds from sales of property, plant and equipment 1,220 601 14,878 Purchase of intangible assets (1,752) (956) (21,366)Purchase of investment securities (18,487) (2,480) (225,451)Proceeds from sales and redemption of investment securities 195 409 2,378 Payments for investments in capital of subsidiaries and affiliates (1,746) (2,102) (21,293)Net decrease (increase) in short-term loans receivable (206) 2,781 (2,512)Payments of long-term loans receivable (219) (162) (2,671)Collection of long-term loans receivable 136 172 1,659 Purchase of investments in subsidiaries

resulting in change in scope of consolidation (1,103) — (13,451)Other, net 100 140 1,220

Net cash provided by (used in) investing activities (54,991) (26,395) (670,622)

Net cash provided by (used in) financing activitiesNet increase (decrease) in short-term loans payable 1,166 (4,477) 14,220 Proceeds from long-term loans payable 37,998 9,064 463,390 Repayment of long-term loans payable (20,032) (14,011) (244,293)Proceeds from issuance of bonds 10,000 10,000 121,951 Redemption of bonds (5,865) (730) (71,524)Purchase of treasury stock (18) (5,561) (220)Proceeds from sales of treasury stock 2 2 24 Cash dividends paid (3,092) (2,885) (37,707)Other, net (1,330) (963) (16,219)

Net cash provided by (used in) financing activities 18,829 (9,561) 229,622

Effect of exchange rate change on cash and cash equivalents (142) (160) (1,731)

Net increase (decrease) in cash and cash equivalents (2,718) 5,844 (33,146)Cash and cash equivalents at beginning of year 20,207 14,299 246,427 Increase in cash and cash equivalents

from newly consolidated subsidiaries 187 64 2,280 Cash and cash equivalents at end of year (Note 16) ¥17,676 ¥20,207 $215,561



Consolidated Statements of Cash Flows

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1. BASIS OF PRESENTING THE CONSOLIDATED FINANCIAL STATEMENTSThe accompanying consolidated financial statements of Rengo Co., Ltd. (the “Company”) and its consolidated subsidiaries (together, the “Companies”) have been prepared in accordance with the provisions set forth in the Japanese Financial Instruments and Exchange Law and its related accounting regulations and in conformity with accounting principles generally accepted in Japan (“Japanese GAAP”), which are different in certain respects as to application and disclosure requirements from International Financial Reporting Standards.

The accompanying consolidated financial statements have been restructured and translated into English with some expanded disclosure from the consolidated financial statements of the Company prepared in accordance with Japanese GAAP and filed with the appropriate Local Finance Bureau of the Ministry of Finance as required by the Japanese Financial Instruments and Exchange Law. Certain supplementary information included in the statutory Japanese language consolidated financial statements, but not required for fair presentation, is not presented in the accompanying consolidated financial statements.

The translations of the Japanese yen amounts into U.S. dollar amounts are included solely for the convenience of readers outside Japan, using the prevailing exchange rate at March 31, 2012, which was ¥82 to U.S. $1.00. The translations should not be construed as representations that the Japanese yen amounts have been, could have been or could in the future be converted into U.S. dollars at this or any other rate of exchange.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(1) ConsolidationThe accompanying consolidated financial statements include the accounts of the Company and its 49 (46 in 2011) significant subsidiaries over which the Company has power of control through majority voting rights or existence of certain other conditions evidencing control by the Company. Certain subsidiaries are consolidated on the basis of fiscal year ending on December 31, which differs from the date of the Company. However, necessary adjustments have been made if the effect of the difference is material.

Investments in nonconsolidated subsidiaries and affiliates over which the Company has the ability to exercise significant influence over operating and financial policies are principally accounted for on the equity method and, accordingly, stated at cost adjusted for the equity in the undistributed earnings and losses from the date of acquisition.

For the purposes of preparing the consolidated financial statements, all significant intercompany transactions, account balances and unrealized profits among the Companies have been eliminated, and the portion attributable to minority interests is charged or credited to minority interests.

In the elimination of investments in subsidiaries, the assets and liabilities of the subsidiaries, including the portion attributable to minority interests, are evaluated based on the fair value at the time the Company acquired control of the subsidiaries. Goodwill is amortized on a straight-line basis over the period in which the economic benefits are expected to be realized. However, such amounts for certain consolidated subsidiaries were fully expensed. Negative goodwill acquired prior to March 31, 2010 is amortized on a straight-line basis continuously.

(2) Translation of Foreign CurrenciesA. Translation of Foreign Currency Receivables and PayablesReceivables and payables denominated in foreign currencies are translated into Japanese yen at the year-end rates.

B. Translation of Foreign Currency Financial Statements The balance sheets of consolidated overseas subsidiaries are translated into Japanese yen at year-end rates except for shareholders’ equity accounts, which are translated at historical rates. The income statements of the consolidated overseas subsidiaries are translated at the year-end rates except for transactions with the Company, which are translated at rates used by the Company. Resulting adjustments are included in net assets.

(3) Allowance for Doubtful AccountsThe allowance for doubtful accounts is provided for possible losses on unrecoverable receivables. The Companies provide the allowance for doubtful accounts for normal receivables based on a historical rate of loss and for specific doubtful accounts based on an individual evaluation.

(4) SecuritiesHeld-to-maturity debt securities are stated at amortized cost. Equity securities issued by subsidiaries and affiliated companies which are not consolidated or accounted for using the equity method are stated at moving average cost.


Notes to the Consolidated Financial Statements

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Available-for-sale securities with available fair market values are stated at fair market value. Unrealized gains and unrealized losses on these securities are reported net of applicable income taxes as a separate component of net assets. Realized gains and losses on the sale of such securities are computed using moving average cost.

Debt securities with no available fair market value are stated at amortized cost, net of the amount considered not collectible. Other securities with no available fair market value are stated at moving average cost.

If the fair market value of held-to-maturity debt securities, equity securities issued by unconsolidated subsidiaries and affiliated companies or available-for-sale securities declines significantly and is not expected to recover, such securities are stated at fair market value, and the difference between the fair market value and the carrying amount is recognized as loss in the period of the decline. If the fair market value of equity securities issued by unconsolidated subsidiaries and affiliated companies is not readily available, such securities should be written down to net asset value with a corresponding charge in the statement of income in the event net asset value declines significantly. In these cases, such fair market value or the net asset value will be the carrying amount of the securities at the beginning of the next year.

(5) InventoriesRaw materials are mainly stated at the lower of cost determined by the moving-average method and net realizable value.Other inventories are mainly stated at the lower of cost determined by the average method and net realizable value.

(6) Property, Plant and Equipment (Except Lease Assets)Property, plant and equipment are carried at cost. Depreciation is principally computed by the declining balance method over the estimated useful life of the assets, in accordance with the Corporation Tax Law of Japan. Buildings acquired after April 1, 1998 are depreciated by the straight-line method.

(7) Intangible Assets (Except Lease Assets)The Companies include internal use software in other intangible assets and amortize it using the straight-line method over the estimated useful life of 5 years.

Other intangible assets are principally amortized using the straight-line method over the estimated useful life in accordance with the Corporation Tax Law of Japan.

(8) Lease AssetsProperty, plant and equipment capitalized under finance lease arrangements are depreciated over the estimated useful life or the lease term of the respective assets.

The Companies account for finance leases commencing prior to April 1, 2008 which do not transfer ownership of the leased property to the lessee as operating leases with the disclosure of certain “as if capitalized” information.

(9) Deferred assetsThe full cost of issuing bonds is recognized in expenses as incurred.

(10) Provision for Directors’ BonusesThe Companies provide directors’ and corporate auditors’ bonuses applicable to the current fiscal year under review based on the projected amounts of payment.

(11) Provision for Retirement BenefitsThe Companies provide two types of post-employment benefit plans, unfunded lump-sum payment plans and funded pension plans, under which substantially all eligible employees are entitled to benefits based on the level of wages and salaries at the time of retirement or termination, length of service and certain other factors.

The Companies provide for employees’ severance and retirement benefits based on the estimated amounts of projected benefit obligation and the fair value of the plan assets at the end of the year. Differences generated from changes in actuarial assumptions are amortized on a straight-line basis over mainly 13 years, which is shorter than the average remaining service periods of the employees, beginning with the term following that the differences are generated. Prior service costs are amortized over certain periods (10 years), which is shorter than the average remaining service periods of the employees.

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(12) Provision for Directors’ Retirement BenefitsCertain consolidated subsidiaries pay lump-sum retirement benefits to directors and corporate auditors. Those consolidated subsidiaries provide the amounts that would be required if all directors and corporate auditors retired at the balance sheet date, in accordance with internal rules.

(13) Allowance for Investment LossAllowance for investment loss is provided at the estimated amount of possible investment losses for unconsolidated subsidiaries and affiliate companies, according to internal rules, considering the financial condition of the investees.

An allowance of ¥116 million (U.S. $1,415 thousand) and ¥339 million were deducted directly from the amounts of investment securities at March 31, 2012 and 2011, respectively.

(14) Income TaxesThe asset and liability approach is used to recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

(15) Derivative Transactions and Hedge AccountingIn principal, the Companies state derivative financial instruments at fair value and recognize changes in the fair value as gain or loss unless the derivative financial instruments are used for hedging purposes.

If derivative financial instruments are used as hedges and meet certain hedging criteria, the Companies defer recognition of gain or loss resulting from a change in the fair value of the derivative financial instrument until the related loss or gain on the hedged item is recognized. However, in cases where forward foreign exchange contracts are used as hedges and meet certain hedging criteria, forward foreign exchange contracts and hedged items are accounted for in the following manner:

A. If a forward foreign exchange contract or option contract is executed to hedge an existing denominated in a foreign currencies, (a) the difference, if any, between the Japanese yen amount of the hedged foreign currency receivable or payable translated using the spot rate at the inception date of the contract and the book value of the receivable or payable is recognized in the consolidated statement of income in the period which includes the inception date, and(b) the discount or premium on the contract (that is, the difference between the Japanese yen amount of the contract translated using the contracted forward rate and that translated using the spot rate at the inception date of the contract) is recognized over the term of the contract.

B. If a forward foreign exchange contract or option contract is executed to hedge a future transaction denominated in a foreign currency, the future transaction will be recorded using the contracted forward or option rate, and no gain or loss on the forward foreign exchange contract is recognized.Assets and liabilities denominated in foreign currencies for which foreign exchange forward contacts or currency swaps are used to hedge the foreign currency swaps qualify for hedge accounting.The interest rate swaps that qualify for hedge accounting and meet specific matching criteria are not remeasured at fair value but the differential paid or received under the swap agreements are recognized and included in interested expense or income.

(16) ReclassificationCertain reclassifications of the financial statements for the years ended March 31, 2010 and 2011 have been made to conform to the presentation for the year ended March 31, 2012.

(17) Net Income Per ShareBasic net income per share is based on the weighted average number of shares of common stock outstanding during the year.

Diluted net incomes per share for the year ended March 31, 2012 and 2011 are not disclosed because there were no outstanding dilutive potential common stock equivalents.

Cash dividends per share represent actual amounts applicable to the respective years.

(18) Accounting Standard for Accounting Changes and Error CorrectionsThe Companies have adopted “Accounting Standard for Accounting Changes and Error Corrections” (Accounting Standards Board of Japan (“ASBJ”) Statement No.24 issued on December 4, 2009) and “Guidance on Accounting Standard for Accounting Changes and Error Corrections” (ASBJ Guidance No. 24, issued on December 4, 2009) for accounting changes and corrections of prior period errors which are made from the fiscal year beginning on April 1, 2011.

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3. FINANCIAL INSTRUMENTS(1) Status of Financial InstrumentsA. Policies for using financial instruments

The Companies set up the fund management plan based on the plan for capital expenditures and investments and procure the necessary long-term funds by borrowings from banks and issuing corporate bonds. The Companies raise short-term working capital for the ordinary business activities by bank loans and manage temporary surplus funds through financial assets that have a high level of safety. The Company and certain consolidated subsidiaries utilize derivative financial instruments to hedge interest rate fluctuation risk of long-term borrowings and foreign currency exchange rate fluctuation risk arising from the export and import transactions denominated in foreign currencies and do not enter into derivative transactions for speculative purposes and with the high level of leveraged effect.

B. Details of financial instruments and associated risks and the risk management systemNotes and accounts receivable arising from operation are exposed to credit risk of customers. The Companies set a credit limit amount for such business partner and manage the outstanding balance under the credit management rules.

Investment securities are primarily the stocks of companies with which the Companies have business relationship and are exposed to market price fluctuation risk. The Companies periodically evaluate the fair value of these securities and monitor the issuing company and review its policies for the building of stocks.

Trade notes and accounts payable are due within one year. In addition, certain payables are denominated in foreign currencies, and exposed to the risk of exchange rate fluctuations. The Company and certain subsidiaries use appropriate forward foreign exchange contracts to hedge the risk of such exchange rate fluctuations.

The Companies generally raise the working capital required for business transactions through short-term loans and procure the long-term funds required for capital expenditure, investment and loans receivable through long-term loans and the bonds issuance. Although some long-term loans are exposed to the risk of interest rate fluctuations or of exchange rate fluctuations, the Companies hedge the risk by derivative transactions such as interest rate swaps and currency swaps. The risks of fluctuations in interest rates and exchange rates have been assumed to be completely hedged over the period of the hedging contracts as major conditions of the hedging instruments and hedged items are consistent. Accordingly, an evaluation of the effectiveness of the hedging contracts is unnecessary.

The derivative transactions are executed and managed by the Finance and Accounting Group in accordance with its established policies. In using derivatives transactions, the Companies mitigate counterparty risk by conducting transactions with highly creditworthy financial institutions. The Companies recognize almost no risk of default.

The Companies manage liquidity risk associated with trade payable and fund procurement (payment default risk) by creating and updating monthly cash flow plans as needed.

C. Supplemental information on fair valuesThe fair value of financial instruments is based on market prices or a reasonable estimate of fair value for instruments for which market prices are not available. Estimates of fair value are subject to fluctuation because they employ variable factors and assumptions.

In addition, the contract amounts of the derivative transactions discussed in Note 18 below are not an indicator of the market risk associated with derivatives transactions.

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(2) Fair Values of Financial InstrumentsBook values of the financial instruments presented in the consolidated balance sheets, the market value and any differences as of March 31, 2012 and 2011 are set for in the tables below. Items whose fair market value is considered to be extremely difficult to determine were not presented in the tables. (See Note (2) “Financial instruments for determining fair value is difficult”, below)

Millions of yen Thousands of U.S. dollars2012 2011 2012

Book value

Market value Difference

Book value


Book value


(A) Cash and deposits ¥ 16,250 ¥ 16,250 ¥ — ¥ 18,560 ¥ 18,560 ¥ — $ 198,171 $ 198,171 $ — (B) Notes and accounts receivable-trade 140,407 140,407 — 125,986 125,986 — 1,712,280 1,712,280 —(C) Securities and investment securities

Available-for-sale securities 47,901 47,901 — 45,813 45,813 — 584,159 584,159 —Equity securities issued by affiliated companies 4,690 4,690 — — — — 57,195 57,195 —

Total assets ¥209,248 ¥209,248 ¥ — ¥190,359 ¥190,359 ¥ — $2,551,805 $2,551,805 $ —

(A) Notes and accounts payable-trade ¥ 80,841 ¥ 80,841 ¥ — ¥ 71,488 ¥ 71,488 ¥ — $ 985,866 $ 985,866 $ — (B) Short-term borrowings 104,404 104,607 203 97,490 97,649 159 1,273,220 1,275,695 2,475 (C) Current portion of bonds 5,050 5,089 39 5,865 5,899 34 61,585 62,061 476 (D) Bonds payable 30,000 30,422 422 25,000 25,431 431 365,854 371,000 5,146 (E) Long-term loans payable 84,202 86,427 2,225 69,504 70,833 1,329 1,026,853 1,053,988 27,135 Total liabilities ¥304,497 ¥307,386 ¥2,889 ¥269,347 ¥271,300 ¥1,953 $3,713,378 $3,748,610 $35,232

Derivatives transactions (*1)(a) Hedge accounting is not applied ¥ — ¥ — ¥ — ¥ — ¥ — ¥ — $ — $ — $ — (b) Hedge accounting is applied (0) (0) — — — — (0) (0) —Total derivatives transactions (¥ 0) (¥ 0) ¥ — ¥ — ¥ — ¥ — ($ 0) ($ 0) $ —

(*1) Amounts shown are net of assets and liabilities which are occurred from derivative transactions. Net liability items in the total are shown in parentheses ( ).

Note (1) Methods and assumptions to estimate fair value of financial instruments and matters concerning securities and derivative transactions. Assets(A) Cash and deposits and (B) Notes and accounts receivable-tradeAll deposits are short-term. Therefore, the book value is used for the fair value of deposits because these amounts are essentially the same.(C) Securities and investment securitiesThe fair value of investments which have market values in securities is the price listed on securities exchanges. Negotiable certificates of deposits are based on book values of interest due to their short terms. Note 4 provides information on marketable securities by the intent for which they are held.

Liabilities(A) Notes and accounts payable-trade and (B) Short-term borrowingsThe book value is used for the fair value of these short-term maturity these amounts are essentially equivalent. The current portion of long-term debt and short-term borrowings use the same methods for estimating fair value as (E) Long-term loans payable.(C) Current portion of bonds and (D) Bonds payableThe fair value of bonds issued by the Company with available fair market value is estimated based on market prices. The fair value of these investments with no available fair market value is estimated as the discounted present value of total principal and interest using assumed interest rates for equivalent new loans. (E) Long-term loans payableThe book value approximates used for the fair value of these long-term floating-rate loans because the floating interest rate reflect the market rates within short period and the Company’s credit conditions unchanged following the execution of such debt. The fair value of these investments is estimated as the discounted present value of total principal and interest using assumed interest rates for equivalent new loans. (*) For long-term loans using Interest rate swaps subject to special treatment or currency swaps subject to appropriate treatment (Note 18 for additional explanation,) the amount of principal and interest on the loans included in these interest rate swaps or currency swaps is used.

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Derivatives TransactionsThe details are described in Note 18.

Note (2) Financial instruments for which determining fair value is extremely difficult

Millions of yenThousands of U.S. dollars

2012 2011 2012Available-for-sale securities ¥ 3,794 ¥3,604 $ 46,268 Equity securities issued by unconsolidated subsidiaries and affiliated companies 10,022 8,200 122,220

These financial instruments for which determining fair value is extremely difficult because no market price is available and future cash flow estimates are not possible are not included in (C) Securities and investment securities.

Note (3)The redemption schedule for receivables and marketable securities with maturity subsequent to March 31, 2012 and 2011 are as follows

Millions of yen2012

Within one year

Over one year but within five years

Over five years but within ten years Over ten years

Cash and deposits ¥ 16,250 ¥ — ¥ — ¥ —Notes and accounts receivable-trade 140,407 — — —Securities and investment securities Available-for-sale securities — — 1,000 —Total ¥156,657 ¥ — ¥ 1,000 ¥ —

Millions of yen2011

Within one year



Cash and deposits ¥ 18,560 ¥ — ¥ — ¥ —Notes and accounts receivable-trade 125,986 — — —Securities and investment securities Available-for-sale securities — — 1,000 —Total ¥ 144,546 ¥ — ¥ 1,000 ¥ —

Thousands of U.S. dollars2012

Within one year



Cash and deposits $ 198,171 $ — $ — $ —Notes and accounts receivable-trade 1,712,280 — — —Securities and investment securities Available-for-sale securities — — 12,195 —Total $1,910,451 $ — $12,195 $ —

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Note (4) The repayment schedule of long-term debt and lease debt, others subsequent to March 31, 2012 and 2011 are as follows

Millions of yen2012

Within one year

Over one year but

within two years

Over two years but

within three years

Over three years but

within four years

Over four years but within five

yearsOver five

yearsLong-term debt ¥28,750 ¥26,608 ¥24,938 ¥20,800 ¥25,827 ¥16,029 Lease debt 1,264 1,120 768 503 281 211Others 334 337 340 342 287 — Total ¥30,348 ¥28,065 ¥26,046 ¥21,645 ¥26,395 ¥16,240

Millions of yen2011

Within one year

Over one year but

within two years

Over two years but

within three years


within four years


yearsOver five

yearsLong-term debt ¥25,729 ¥28,194 ¥25,263 ¥19,147 ¥14,549 ¥7,351Lease debt 1,027 975 834 481 226 182Others — — — — — — Total ¥26,756 ¥29,169 ¥26,097 ¥19,628 ¥14,775 ¥7,533


Within one year

Over one year but

within two years

Over two years but

within three years


within four years


yearsOver five

yearsLong-term debt $350,610 $324,488 $304,122 $253,658 $314,963 $195,476Lease debt 15,415 13,659 9,366 6,134 3,427 2,573Others 4,073 4,109 4,146 4,171 3,500 — Total $370,098 $342,256 $317,634 $263,963 $321,890 $198,049

4. INFORMATION ON SECURITIES(1) Acquisition Costs and Book Values (Fair Values) of Available-for-Sale Securities with Available Fair ValuesThe following table summarizes acquisition costs and book values (fair values) of available-for-sale securities with available fair values as of March 31, 2012 and 2011.

Millions of yen Thousands of U.S. dollars2012 2011 2012

Book value

Acquisitioncost Difference

Book value


Book value


Securities with book values (fair values) exceeding acquisition costs: Equity securities ¥21,464 ¥13,108 ¥8,356 ¥18,224 ¥10,789 ¥7,435 $261,756 $159,854 $101,902Bonds 1,008 1,006 2 — — — 12,293 12,269 24 Others 6 3 3 6 3 3 73 36 37

22,478 14,117 8,361 18,230 10,792 7,438 274,122 172,159 101,963 Securities with book values (fair values) not exceeding acquisition costs:Equity securities 23,266 29,785 (6,519) 24,368 31,358 (6,990) 283,732 363,232 (79,500)Bonds — — — 1,006 1,008 (2) — — —Others 2,158 2,159 (1) 2,209 2,210 (1) 26,317 26,329 (12)

25,424 31,944 (6,520) 27,583 34,576 (6,993) 310,049 389,561 (79,512)Total ¥47,902 ¥46,061 ¥1,841 ¥45,813 ¥45,368 ¥ 445 $584,171 $561,720 $ 22,451

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(2) Sales of Available-for-Sale SecuritiesProceeds from sales of available-for-sale securities in the years ended March 31, 2012 and 2011 amounted to ¥195 million (U.S. $2,378 thousand) and ¥365 million, respectively. The related gains for the years ended March 31, 2012 and 2011 amounted to ¥5 million (U.S. $61 thousand) and ¥169 million, respectively. The related losses for the years ended March 31, 2012 and 2011 amounted to ¥3 million (U.S. $37 thousand) and ¥1 million, respectively.

5. INVENTORIESInventories at March 31, 2012 and 2011 were as follows:


2012 2011 2012Merchandise and finished goods ¥14,358 ¥13,770 $175,097 Work in process 1,515 1,559 18,476Raw materials and supplies 13,068 11,477 159,366Total ¥28,941 ¥26,806 $352,939

6. SHORT-TERM BORROWINGS AND LONG-TERM DEBT Short-term borrowings and the current portion of long-term debt at March 31, 2012 and 2011 consisted of the following:


Weighted average interest rate

2012 2011 2012 2012Short-term borrowings ¥ 80,704 ¥ 77,626 $ 984,195 0.81%Current portion of long-term debt 28,750 25,729 350,610 1.13 Total ¥109,454 ¥103,355 $1,334,805 —

Long-term debt at March 31, 2012 and 2011 was as follows:


2012 2011 20120.05% to 7.15% loans, principally from banks and insurance companies, due in installments through 2022 ¥107,902 ¥ 89,368 $1,315,878 Unsecured 1.55% bonds, due September 2012 50 — 609Unsecured 1.42% bonds, due November 2012 5,000 5,000 60,976Unsecured 1.91% bonds, due September 2013 5,000 5,000 60,976Unsecured 1.71% bonds, due November 2014 5,000 5,000 60,976Unsecured 0.62% bonds, due June 2015 10,000 10,000 121,950Unsecured 0.57% bonds, due July 2016 5,000 — 60,976Unsecured 0.86% bonds, due July 2018 5,000 — 60,976Unsecured 1.69% bonds, due July 2011 — 225 —Unsecured 1.54% bonds, due September 2011 — 5,000 —Unsecured 1.60% bonds, due February 2012 — 500 —Unsecured 1.37% bonds, due February 2012 — 40 —Unsecured 1.37% bonds, due March 2012 — 100 —

142,952 120,233 1,743,317Less current portion (28,750) (25,729) (350,610)

¥114,202 ¥ 94,504 $1,392,707

The aggregate annual maturities of long-term debt at March 31, 2012 were as follows:

Year ending March 31 Millions of yenThousands of U.S. dollars

2013 ¥ 28,750 $ 350,610 2014 26,608 324,4882015 24,938 304,1222016 20,800 253,6582017 and thereafter 41,856 510,439Total ¥142,952 $1,743,317

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7. ASSETS PLEDGED AS COLLATERALAssets pledged as collateral for short-term borrowings of ¥6,084 million (U.S. $74,195 thousand) and current portion of long-term debt, long-term debt of ¥3,611 million (U.S. $44,037 thousand), accounts payable-trade of the ¥353 million (U.S. $4,305 thousand) and others of ¥1,143 million (U.S. $13,939 thousand) at March 31, 2012 were summarized as follows:


Property, plant and equipment ¥76,029 $927,183 Investment securities 669 8,159 Other 143 1,744

8. CONTINGENT LIABILITIESAs of March 31, 2012, the Companies’ contingent liabilities were as follows:


As endorser of notes discounted ¥171 $2,085 As endorser of notes endorsed 138 1,683 As guarantor of indebtedness and lease obligations 239 2,915

9. LEASES(1) Finance LeasesRelated to finance lease transactions without transfer of ownership, the Company and its consolidated domestic subsidiaries apply the according treatment similar to that used for sales transaction, except for the transaction that commenced prior to April 1, 2008. Information relating to finance leases which are not capitalized and accounted at March 31, 2012 and 2011 and for the fiscal years then ended, as lessee and lessor, were as follows:

Non-Capitalized finance leases, as lessee at March 31, 2012 and 2011 were as follows.


2012 2011 2012Assumed acquisition costs ¥9,345 ¥12,256 $113,963 Accumulated depreciation 6,396 8,358 78,000Net leased property ¥2,949 ¥ 3,898 $ 35,963

As lessee under non-capitalized finance leases, amount of future minimum inclusive of interest were as follows.


2012 2011 2012Due within one year ¥ 678 ¥1,177 $ 8,268 Due over one year 2,271 2,721 27,695Total ¥2,949 ¥3,898 $35,963

Lease payments in the years ended March 31, 2012 and 2011 amounted to ¥1,184 million (U.S. $14,439 thousand) and ¥1,700 million, respectively.

Non-Capitalized finance leases, as lessor at March 31, 2012 and 2011 were as follows.


2012 2011 2012Assumed acquisition costs ¥173 ¥480 $2,110 Accumulated depreciation 154 379 1,878Net leased property ¥ 19 ¥101 $ 232

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As lessor under non-capitalized finance leases, amount of future minimum inclusive of interest were as follows.


2012 2011 2012Due within one year ¥16 ¥ 75 $195 Due over one year 3 26 37Total ¥19 ¥101 $232

Lease revenue in the years ended March 31, 2012 and 2011 amounted to ¥59 million (U.S. $720 thousand) and ¥150 million, respectively.

(2) Operating LeasesFuture minimum non-cancelable operating lease payments for the remaining lease periods at March 31, 2012 and 2011:

As lessee under operating leases, amount of future minimum inclusive of interest were as follows.


2012 2011 2012Due within one year ¥1 ¥7 $12 Due over one year — 1 —Total ¥1 ¥8 $12

10. NET ASSETSUnder the Japanese Corporate Law (“the Law”), 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 price of the new shares as additional paid-in capital, which is included in capital surplus.

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

Additional paid-in capital and legal earnings reserve may not be distributed as dividends. Under the Law, all additional paid-in capital and all legal earnings reserve may be transferred to other capital surplus and retained earnings, respectively, which are potentially available for dividends.

The maximum amount that the Company can distribute as dividends is calculated based on the non-consolidated financial statements of the Company in accordance with the Law.

11. PROVISION FOR RETIREMENT BENEFITS The liabilities for severance and retirement benefits included in the liability section of the consolidated balance sheets as of March 31, 2012 and 2011 consisted of the following:


2012 2011 2012Projected benefit obligation ¥42,504 ¥42,768 $518,341Unrecognized actuarial differences (6,503) (7,609) (79,305)Unrecognized prior service costs 131 154 1,598Less fair value of pension assets (29,027) (27,400) (353,988)Prepaid pension costs 93 5 1,134Provision for retirement benefits ¥ 7,198 ¥ 7,918 $ 87,780

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Severance and retirement benefit expenses included in the consolidated statements of income for the years ended March 31, 2012 and 2011 consisted of the following:


2012 2011 2012Service costs – benefits earned during the year ¥2,259 ¥2,317 $27,549 Interest cost on projected benefit obligation 753 779 9,183 Expected return on plan assets (397) (373) (4,841)Amortization of net unrecognized actuarial differences 1,001 1,020 12,207 Amortization of prior service costs (23) (23) (280)Contributions to the pension fund, established comprehensive type 246 263 3,000

Contributions to the Smaller Enterprise Retirement Allowance Mutual Aid 101 103 1,231 Contributions to defined contribution pension plan 75 72 914 Extra retirement payments — 0 —Severance and retirement benefit expenses ¥4,015 ¥4,158 $48,963

The discount rate of the projected benefit obligation used by the Companies for the years ended March 31, 2012 and 2011 is 2.0%. The rate of expected return on plan assets used by the Companies for the years ended March 31, 2012 and 2011 is 1.5%. The estimated amount of all retirement benefits to be paid at future retirement dates is allocated equally to each service year using the estimated number of total service years. Actuarial gains and losses are recognized in the statements of income principally over 13 years commencing with the following period. Past service cost is amortized in the statements of income over 10 years.

12. INACTIVE NONCURRENT ASSETS(For the year ended March 31, 2011)The operations of Marusan Paper Mfg. Co., Ltd., a consolidated subsidiary, located within 25 km of the Tokyo Electric Power Company Fukushima Daiichi Nuclear Power Plant, were suspended at March 31, 2011 due to the accident of power plant. The operations have been proceeding gradually from June 20, 2011.

At March 31, 2011, the inactive property, plant and equipment and intangible assets of Marusan Paper Mfg. Co., Ltd. were as follows:

Millions of yen2011

Buildings and structures ¥ 1,890Machinery, equipment and vehicles 3,277Land 4,990Other 126Total ¥10,283

13. RESEARCH AND DEVELOPMENT EXPENSESResearch and development expenses are included in “General and administrative expenses” and are charged to income as incurred. The aggregate amounts of research and development expenses charged to income were ¥1,541 million (U.S. $18,793 thousand) and ¥1,486 million for the years ended March 31, 2012 and 2011, respectively.

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14. INCOME TAXESAt March 31, 2012 and 2011, significant components of deferred tax assets and liabilities were as follows:


2012 2011 2012Deferred tax assets: Net operating loss carryforwards for tax purposes ¥ 2,767 ¥ 3,274 $ 33,744 Provision for retirement benefits 2,777 3,237 33,866 Accrued bonuses 2,319 2,400 28,280 Write-down of golf club membership 579 691 7,061 Provision for directors’ retirement benefits 523 567 6,378 Loss on valuation of investment securities 7,125 3,680 86,890 Allowance for doubtful accounts 146 326 1,780 Unrealized gain on sale of property, plant and equipment eliminated on consolidation 319 289 3,890 Accrued enterprise taxes 385 507 4,695 Impairment loss 696 949 8,488 Other 2,377 3,192 28,989 Subtotal deferred tax assets 20,013 19,112 244,061 Valuation allowance (4,884) (6,109) (59,561)Total deferred tax assets 15,129 13,003 184,500

Deferred tax liabilities:Deferred gain of property in tax treatment (4,423) (5,365) (53,939)Land revaluation difference, net of taxes unrealized gain (4,114) (4,655) (50,171)Other (844) (435) (10,292)Total deferred tax liabilities (9,381) (10,455) (114,402)Net deferred tax assets (liabilities) ¥ 5,748 ¥ 2,548 $ 70,098

At March 31, 2012, a reconciliation of the aggregate statutory income tax rate to the effective income tax rate was as follows:

2012Statutory tax rate 40.4%Effect of:Tax deductions (9.8)Non-deductible items such as entertainment expenses 7.4Non-taxable items such as dividends received (5.4)Inhabitants’ per capita taxes 2.8Adjustment of deferred tax assets and liabilities for enacted changes in tax laws and rates

2.5

Dividends received eliminated in consolidation 2.4Equity in earnings of affiliates (1.0)Other (1.4)Effective tax rate 37.9%

The difference between the aggregate statutory income tax rate and the effective tax rate for the years ended March 31, 2011 was not significant.

On December 2, 2011, amendments to the Japanese tax regulations were enacted into law. As a result of these amendments, the statutory income tax rate for the Company will be reduced to 37.7% for years beginning on or after April 1, 2012 and 35.4% for years beginning on or after April 1, 2015. Based on the amendments, the statutory income tax rates utilized for the measurement of deferred tax assets and liabilities expected to be settled or realized from April 1, 2012 to March 31, 2015 and on or after April 1, 2015 are 37.7% and 35.4%, respectively, as of March 31, 2012.

As a result of these changes, deferred tax assets (net of deferred tax liabilities) decreased ¥154 million (U.S. $1,878 thousand) income taxes deferred and valuation difference on available-for-sale securities increased ¥246 million (U.S. $3,000 thousand) and ¥92 million (U.S. $1,122 thousand), respectively, and deferred gains or losses on hedges decreased ¥0 million (U.S. $0 thousand).

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15. COMPREHENSIVE INCOME STATEMENTSAmounts reclassified to net income (loss) in the current period that had been recognized in other comprehensive income in the current or previous periods and tax effects for each component of other comprehensive income were as follows:


2012Valuation difference on available-for-sale securitiesIncrease (decrease) during the year ¥1,289 $15,720 Reclassification adjustments for losses realized in net income 91 1,109

Sub-total, before-tax amount 1,380 16,830 Tax (expense) or benefit (483) (5,890)Sub-total, net-of-tax amount 897 10,940

Deferred gains or losses on hedgesIncrease (decrease) during the year (0) (0)Tax (expense) or benefit 0 0Sub-total, net of tax (0) (0)

Foreign currency translation adjustmentIncrease (decrease) during the year (14) (171)

Share of other comprehensive income of affiliates accounted for using equity method

Increase (decrease) during the year (494) (6,024)Total other comprehensive income ¥ 389 $ 4,744

16. CASH FLOW STATEMENTSCash and cash equivalents comprised cash on hand, bank deposits that were withdrawable on demand and short-term highly liquid investments due within three months at date of purchase and substantially free from any price fluctuation risk.

Reconciliations of cash and deposits shown in the consolidated balance sheets and cash and cash equivalents shown in the consolidated statements of cash flows as of March 31, 2012 and 2011 were as follows:


2012 2011 2012Cash and deposits ¥16,250 ¥18,560 $198,171 Less: Time deposits with maturities exceeding three months (724) (553) (8,829)Add: Negotiable certificates of deposits 2,150 2,200 26,220Cash and cash equivalents ¥17,676 ¥20,207 $215,561

17. SEGMENT INFORMATION(1) Segment InformationA. Overview of reportable segmentsThe Company’s reportable segments are the business units for which separate financial information is available, and which are periodically reviewed by the board of directors for the purposes of monitoring to determine the allocation of business resources and evaluate business performance.

To fulfill the multiple needs of packaging as “General Packaging Industry” = GPI Rengo, the Companies expanded the business field into flexible packaging and heavy duty packaging and overseas, and had been making plans for the comprehensive strategy about products in each business field, in addition to the integrated production from paperboards to corrugated boxes. The Company has designated four reportable segments, which are the “Paperboard and Packaging-Related Business”, “Flexible Packaging-Related Business”, “Heavy Duty Packaging-Related Business”, and “Overseas Business” segments, based on the business field.

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The “Paperboard and Packaging-Related Business” segment includes manufacturing and sales of paperboard, corrugated board and corrugated boxes domestically. The “Flexible Packaging-Related Business” segment includes manufacturing and sales of flexible packaging and cellophane domestically. The “Heavy Duty Packaging-Related Business” segment includes manufacturing and sales of heavy duty packaging products domestically. The “Overseas Business” segment includes manufacturing and sales of paperboard, corrugated board, corrugated boxes, flexible packaging and heavy duty packaging products in overseas operations.

B. Method of calculating sales, profit or loss, assets and other material items by reportable segmentThe accounting policies for business segments reported are generally the same as on those described in Note 2 “Summary of Significant Accounting Policies”. Figures of reportable segment income are based on operating income. Internal transactions are based on the current market prices.

C. Information on sales, profit or loss, assets and other material items by reportable segmentInformation by segment for the years ended March 31, 2012 and 2011 were as follows:

Millions of yen

2012Reportable segments

Paperboard and

packaging-related

business

Flexible packaging-

related business

Heavy duty packaging-

related business

Overseasbusiness Subtotal

Otherbusinesses

(*1)Adjustments

(*2)Total(*3)

Sales to third parties Intergroup sales and transfers

¥362,735

3,148

¥53,319

50

¥23,902

1,216

¥22,025

1,474

¥461,981

5,888

¥30,647

20,467

¥ —

(26,355)

¥492,628

—Total sales 365,883 53,369 25,118 23,499 467,869 51,114 (26,355) 492,628 Segment profit (loss) 22,216 2,412 1,151 (847) 24,932 (19) 155 25,068Segment assets 454,614 40,872 24,107 40,191 559,784 32,152 (42,878) 549,058Other items

Depreciation and amortization 21,008 1,999 747 1,305 25,059 1,832 (57) 26,834Amortization of goodwill 378 237 12 214 841 52 — 893Investment to equity method affiliates 1,150 — — 6,777 7,927 — — 7,927Increase in property, plant and equipment and intangible assets 38,555 3,267 646 3,790 46,258 1,537 (54) 47,741

Millions of yen


Paperboard and

packaging-related

business

Flexible packaging-

related business


related business

Overseas business Subtotal

Otherbusinesses

(*1)Adjustments

(*2)Total(*3)


¥361,491

2,080

¥54,015

60

¥24,002

1,350

¥14,569

1,392

¥454,077

4,882

¥20,801

19,603

¥ —

(24,485)

¥474,878

—Total sales 363,571 54,075 25,352 15,961 458,959 40,404 (24,485) 474,878 Segment profit 28,823 1,523 1,262 503 32,111 171 109 32,391Segment assets 415,103 37,448 23,646 33,066 509,263 25,640 (35,784) 499,119Other items

Depreciation and amortization 20,784 2,248 743 935 24,710 1,412 (57) 26,065Amortization of goodwill 378 237 22 73 710 — — 710Investment to equity method affiliates 1,080 — — 6,254 7,334 — — 7,334Increase in property, plant and equipment and intangible assets 17,868 1,791 510 341 20,510 2,184 (44) 22,650

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Thousands of US dollars


Paperboard and

packaging-related

business

Flexible packaging-

related business


related business


Otherbusinesses

(*1)Adjustments

(*2)Total(*3)


$4,423,598

38,390

$650,231

610

$291,488

14,829

$268,598

17,976

$5,633,915

71,805

$373,744

249,597

$ —

(321,402)

$6,007,659

—Total sales 4,461,988 650,841 306,317 286,574 5,705,720 623,341 (321,402) 6,007,659 Segment profit (loss) 270,927 29,415 14,037 (10,329) 304,049 (232) 1,890 305,707Segment assets 5,544,073 498,439 293,988 490,134 6,826,634 392,097 (522,902) 6,695,829Other items

Depreciation and amortization 256,195 24,378 9,110 15,915 305,598 22,341 (695) 327,244Amortization of goodwill 4,610 2,902 146 2,598 10,256 634 — 10,890Investment to equity method applied 14,025 — — 82,646 96,671 — — 96,671Increase in property, plant and equipment and intangible assets 470,183 39,841 7,878 46,220 564,122 18,744 (659) 582,207

(*1) “Other businesses” are the business which is not included in reportable segments and included manufacturing and sales of nonwoven products, paper packaging machinery, newsprint and chemical products, and other business such as transport, insurance agency, leasing and real estate.

(*2) Resulting “Adjustments” were as follows:(a) The adjustments of segment profits (losses) of ¥155 million (U.S. $1,890 thousand) and ¥109 million for the

years ended March 31, 2012 and 2011, respectively, were from the elimination of intersegment transactions. (b) The adjustments of segment assets of - ¥42,878 million (-U.S. $522,902 thousand) and -¥35,784 million for the

years ended March 31, 2012 and 2011, respectively, were from the elimination of intersegment transactions.(c) The adjustments of depreciation and amortization of -¥57 million (-U.S. $695 thousand) and -¥57 million for the

years ended March 31, 2012 and 2011, respectively, were from the elimination of intersegment transactions.(d) The adjustments of increases in property, plant and equipment, and intangible assets of -¥54million (-U.S. $659

thousand) and -¥44 million for the years ended March 31, 2012 and 2011, respectively, from the elimination of intersegment transactions.

(*3) The segment profit (loss) was reconciled with operating income in the consolidated statements of income.

(2) Related Information A. Products and services


2012 2011 2012Sales to third parties

Paperboard ¥ 56,715 ¥ 50,365 $ 691,646 Corrugated board 46,679 48,122 569,256 Corrugated boxes 251,137 247,479 3,062,646 Flexible packaging and cellophane 52,487 52,783 640,086 Other 85,610 76,129 1,044,025 Total ¥492,628 ¥474,878 $6,007,659

B. Geographical SegmentsThe ratios of sales and property, plant and equipment in Japan to those in consolidated financial statements exceeded 90% for the years ended March 31, 2012 and 2011. Therefore, information regarding geographical segments was not required to disclose.

C. Major customersA specific customer exceeding 10% of the total sales in the consolidated statements of income did not exist for the years ended March 31, 2012 and 2011. Therefore, information regarding major customer was not required to disclose.

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(3) Information on Impairment Loss in Property, Plant and Equipment by Reportable Segment

Millions of yen


Paperboard and

packaging-related

business

Flexible packaging-

related business


related business


Otherbusinesses Adjustments Total

Impairment loss ¥17 ¥20 ¥ — ¥ — ¥37 ¥ — ¥ — ¥37

Millions of yen


Paperboard and

packaging-related

business

Flexible packaging-

related business


related business


Otherbusinesses

Adjustments Total

Impairment loss ¥700 ¥65 ¥ — ¥73 ¥838 ¥1 ¥ — ¥839



Paperboard and

packaging-related

business

Flexible packaging-

related business


related business



Impairment loss $207 $244 $ — $ — $451 $ — $ — $451

“Other businesses” are the business which is not included in reportable segments and include manufacturing and sales of nonwoven products, paper packaging machinery, newsprint and chemical products and other business such as transport, insurance agency, leasing and real estate.

(4) Information on Amortization of Goodwill and Unamortized Balance by Reportable Segment

Millions of yen


Paperboard and

packaging-related

business

Flexible packaging-

related business


related business



GoodwillAmortized for the period ¥ 378 ¥ 238 ¥ 12 ¥213 ¥ 841 ¥ 52 ¥ — ¥ 893Balance at end of period 1,589 1,661 28 914 4,192 294 — 4,486

Negative goodwillAmortized for the period 267 2 219 51 539 — — 539Balance at end of period 760 23 545 216 1,544 — — 1,544

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Millions of yen


Paperboard and

packaging-related

business

Flexible packaging-

related business


related business



GoodwillAmortized for the period ¥ 377 ¥ 237 ¥ 22 ¥ 74 ¥ 710 ¥0 ¥ — ¥ 710Balance at end of period 1,897 1,899 40 654 4,490 0 — 4,490

Negative goodwillAmortized for the period 237 2 219 51 509 — — 509Balance at end of period 1,027 25 765 266 2,083 — — 2,083



Paperboard and

packaging-related

business

Flexible packaging-

related business


related business



GoodwillAmortized for the period $ 4,610 $ 2,902 $ 146 $ 2,598 $10,256 $ 634 $ — $10,890Balance at end of period 19,378 20,256 342 11,146 51,122 3,585 — 54,707

Negative goodwillAmortized for the period 3,256 24 2,671 622 6,573 — — 6,573Balance at end of period 9,268 281 6,646 2,634 18,829 — — 18,829

“Other businesses” are the business which is not included in reportable segments and include manufacturing and sales of nonwoven products, paper packaging machinery, newsprint and chemical products and other business such as transport, insurance agency, leasing and real estate.

(5) Information on Gain on Negative Goodwill by Reportable SegmentFor the year ended March 31, 2012 and 2011, gains on negative goodwill were not material and has not been presented.

18. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING TRANSACTIONS(1) Derivatives Transactions for which Hedge Accounting does not ApplyFor the year ended March 31, 2012 and 2011, there is no relevant transaction.

(2) Derivatives Transactions for which Hedge Accounting Applies

Millions of yen2012

Hedge accountingmethod Type of transaction Hedge item

Contractamount

Portion over 1 year Fair value

Special treatment of interest rate swaps

Interest rate swaps transaction

Payable fixed rate swaps / Receivable floating interest rate

Long-term loanspayable ¥44,463 ¥32,188 (*2)

Appropriated treatment of currency swaps

Currency swaps transaction

Receive in yen/Pay in U.S. dollar

Long-term loanspayable 11,000 11,000 (*3)

Forward exchange contracts with principle method

Forward exchange contracts Accounts

receivableSelling U.S. dollar 3 — (¥0)

Forward exchange contracts with allocation method


receivableSelling U.S. dollar 27 — (*4)

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Millions of yen2011

Hedge accounting method Type of transaction Hedge item

Contract amount


Interest rate swaps transactions



Long-term loans payable ¥47,368 ¥39,593 (*2)


Hedge accounting method Type of transaction Hedge item

Contract amount


Interest rate swaps transaction



Long-term loans payable $542,232 $392,537 (*2)

Appropriated treatment of currency swaps

Currency swaps transactionReceive in yen/ Pay in U.S. dollar

Long-term loans payable 134,146 134,146 (*3)

Forward exchange contracts with principle method


receivableSelling U.S. dollar 37 — ($0)

Forward exchange contracts with allocation method


receivableSelling U.S. dollar 329 — (*4)

(*1) The fair value of derivative transactions is determined by prices principally reported by the financial institutions with which the Companies engage in derivative transactions.(*2) The fair value of interest rate swaps subject to special treatment is included in the fair value of the corresponding long-term loans. The details have been described in Note 3.(*3) The fair value of currency swaps subject to appropriated treatment is included in the fair value of the corresponding long-term loans. The details have been described in Note 3.(*4) The fair value of forward contracts that subject to appropriated treatment is included in the fair value of the corresponding accounts receivable. The details have been described in Note 3.

19. SUBSEQUENT EVENTSAt the Board of Directors meeting held on May 11, 2012, the Company resolved the following year-end appropriation of non-consolidated retained earnings:

Millions of yen Thousands of U.S. dollarsYear-end cash dividends (¥6.00 = U.S. $0.07 per share) ¥1,546 $18,854

The above mentioned appropriation has not been reflected in the consolidated financial statements as of March 31, 2012. Such appropriations are recognized in the period in which they are approved.

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To the Board of Directors of Rengo Co., Ltd.

We have audited the accompanying consolidated financial statements of Rengo Co., Ltd. and its con-solidated subsidiaries, which comprise the consolidated balance sheets as at March 31, 2012 and 2011, and the consolidated income statements, statements of comprehensive income, statements of changes in net assets and statements of cash flows for the years then ended, and a summary of significant accounting policies and other explanatory information.

Management’s Responsibility for the Consolidated Financial StatementsManagement is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in Japan, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatements, whether due to fraud or error.

Auditor’s ResponsibilityOur responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in Japan. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from materi-al misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our judgement, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit pro-cedures that are appropriate in the circumstances, while the objective of the financial statement audit is not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

OpinionIn our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Rengo Co., Ltd. and its consolidated subsidiaries as at March 31, 2012 and 2011, and their financial performance and cash flows for the years then ended in accordance with accounting principles generally accepted in Japan.

Convenience TranslationThe U.S. dollar amounts in the accompanying consolidated financial statements with respect to the year ended March 31, 2012 are presented solely for convenience. Our audit also included the translation of yen amounts into U.S. dollar amounts and, in our opinion, such translation has been made on the basis described in Note 1 to the consolidated financial statements.

Osaka, JapanJune 28, 2012

KPMG AZSA LLC

Independent Auditors’ Report

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(As of June 30, 2012)Directory

Head Office2-7 Nakanoshima 2-chome, Kita-ku, Osaka 530-0005, JapanPhone: 06-6223-2371Fax: 06-4706-9909

Tokyo Head Office16-1 Konan 2-chome, Minato-ku, Tokyo 108-0075, JapanPhone: 03-6716-7300Fax: 03-6716-7330

Plants and MillsCorrugated Packaging: Eniwa, Asahikawa, Aomori, Shin-Sendai, Fukushima-Yabuki, Oyama, Maebashi, Tokyo, Chiba, Shonan, Shimizu, Nagano, Niigata, Toyohashi, Nagoya, Fukui, Shiga, Shin-Kyoto, Sanda, Wakayama, Okayama, Hiroshima, Hofu, Matsuyama, Tosu

Folding Cartons:Katsushika, Tonegawa, Shin-Kyoto

Paperboard:Tonegawa, Yashio, Kanazu, Yodogawa, Amagasaki

Paperboard Converting:Tonegawa

Chemical/Biotechnological Products:Kanazu

Cellophane: Takefu

LaboratoriesOsaka, Fukui

Packaging Technical CentersTokyo, Osaka, Shanghai

Overseas Representative OfficeShanghai

JapanAsahi Danboru Co., Ltd.Asahi Shiko Co., Ltd.Awaji Shiko Co., Ltd.Chuo Danboru Co., Ltd.Hinode Shiki Kogyo Co., Ltd.Hokkaido Hoso Shizai

Co., Ltd.Hokuriku Shiki CorporationHowa Sangyo Co., Ltd.Ihara Shiki Co., Ltd.Kofu Daiichi Jitsugyo

Co., Ltd.Kowa Sangyo Co., Ltd.Kyoei Danboru Co., Ltd.Kyowa Shigyo Co., Ltd.Marusan Paper Mfg. Co., Ltd.Nihon Matai Co., Ltd.Nitto Shiki Kogyo Co., Ltd.Osaka Paper Co., Ltd.Rengo Logistics Co., Ltd.Rengo Nonwoven Products

Co., Ltd.Rengo Paper Business Co., Ltd.Rengo Riverwood Packaging

Co., Ltd.Saito Shiki Co., Ltd.Sakaiminato Gyokan Co., Ltd.Sanko Co., Ltd.Sankyo Danboru Co., Ltd.Sanyo Jidosha Unso Co., Ltd.Settsu Carton CorporationTaiko Seikan Co., Ltd.Taiyo Industry Ltd.Tohoku Asahi Danboru

Co., Ltd.Tohoku Kogyo Co., Ltd.Tokai Shiki Co., Ltd.Yamada Kikai Kogyo Co., Ltd.Yamato Shiki Co., Ltd.Yamatoya Co., Ltd.

AsiaChina:Dalian Rengo Packaging Co., Ltd.Dalian Guoli Packaging Co., Ltd.Guangdong Rengo Packaging Co., Ltd.Hung Hing Printing Group LimitedJiangsu Zhongjin Matai Medicinal Packaging Co., Ltd.Qingdao Rengo Packaging Co., Ltd.Shanghai Rengo Packaging Co., Ltd.Tianjin Rengo Packaging Co., Ltd.Wuxi Rengo Packaging Co., Ltd.Zhongshan Rengo Hung Hing Paper Manufacturing Co., Ltd.Zhongshan Ren Hing Paper Manufacturing Co., Ltd.Malaysia:Sime Rengo Packaging (M) Sdn. Bhd.Thailand:Thai Containers Group Co., Ltd.Indonesia:P. T. Surya Rengo ContainersVietnam:Vina Kraft Paper Co., Ltd.MATAI (VIETNAM) Co., Ltd.

U.S.A. Rengo Packaging, Inc.

Principal Subsidiaries and Affiliates

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Founded April 12, 1909

Incorporated May 2, 1920

Capital Stock ¥31,067 million

Number of Shares Authorized: 800,000,000

Issued: 271,056,029

Number of Shareholders 17,862

Number of Employees Parent Company 3,638Consolidated Subsidiaries 9.323

Total 12,961

Stock Listings Tokyo, Osaka

Transfer Agent Sumitomo Mitsui Trust Bank, Limited*5-33 Kitahama 4-chome, Chuo-ku, Osaka, Japan

*Renamed on April 1, 2012.

(As of March 31, 2012)Investor Information

Major Shareholders

Shareholders% of total

shares issued

Japan Trustee Services Bank, Ltd. 15.02%

The Master Trust Bank of Japan, Ltd. 6.92

Nippon Paper Group, Inc. 4.87

Sumitomo Mitsui Banking Corporation 3.53

National Mutual Insurance Federation of Agricultural Cooperatives

3.48

Trust & Custody Services Bank, Ltd. 2.92

Mitsui Sumitomo Insurance Company, Limited 2.88

Sumitomo Life Insurance Company 2.68

Sumitomo Corporation 2.31

The Norinchukin Bank 2.20

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Cover design

“Isshin-no To (Tower of Unity)” by Masanori Sugisaki, a sculptor residing in Miyagi PrefectureReplacing Rengo’s Sendai Plant, which was devastated by the Great East Japan Earthquake of March 11, 2011, the Shin-Sendai Plant commenced in April 2012, the start of a promising new chapter in Rengo’s history in Tohoku.The monument “Isshin-no To (Tower of Unity)” at the Shin-Sendai Plant is a testament to those who died in the disaster and to the determination of people united in one spirit to rebuild and forge a common future. As its name suggests, this monument symbolizes the many people who are working hand in hand to achieve reconstruction and recovery from the disaster and embodies the artist’s hopes for reconstruction: “Placing stones one on top of another, being determined and working together with others who share the same determination, is the affirmation of life.”

The Rengo Group, founded by Teijiro Inoue in 1909 as Japan's first corrugated box

manufacturer, has consistently striven to excel as a packaging solutions company.

Our primary goal is to serve society by increasing the worth of our customers' products

through "value-added packaging" and by optimizing the "flow of products" in the market.

In our ongoing quest for the development of new packaging technology and the creation

of new value, we adhere to the following guiding principles in all our corporate activities.

1. Realization of prosperity and future goals through dynamic business initiatives

2. Integrity and fairness in management, fully respecting the individual

3. Creation of a corporate culture that is constantly vibrant and innovative

4. Adherence to corporate ethics and strict observance of all relevant legislation and regulations

5. Enhancement of corporate value through wide-ranging and clear disclosure of information

6. Prioritization of global environmental protection

7. Contribution to society as a good corporate citizen

Corporate Philosophy of the Rengo GroupCONTENTS

Consolidated Financial Highlights 1

Market Data 2

A Message from the President 3

An Interview with the President 4

Rengo at a Glance 10

Review of Operations 12

Overseas Business Development 16

Research and Development 17

Environmental Protection 18

Corporate Governance 19

Board of Directors, Corporate Auditors and Executive Officers 20

Financial Section 21

Directory 49

Investor Information 50

Growing beyond Packaging through Innovation

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AN

NU

AL R

EPO

RT 2

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For Year Ended March 31, 2012

http://www.rengo.co.jp/ANNUAL REPORT 2012For Year Ended March 31, 2012

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ANNUAL REPORT 2012 - 段ボール・板紙・包装の … REPORT 2012 For Year Ended March 31, 2012...

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