2-1-2, Oyodo-kita, Kita-ku, Osaka 531-8511, Japan Tel: +81-6-6458-1111 4-1-15, Minami-Shinagawa, Shinagawa-ku, Tokyo 140-8675, Japan Tel:

+81-3-3474-1111

http://www.nipponpaint.co.jp

A n nual Report

2006

Printed on recycled paper.

Tradmark of American Soybean Association

Product names and company names in this annual report are trademarks (registered or otherwise) of Nippon Paint Co., Ltd. and/or other companies in Japan and/or other countries. All photographs and other images used in this annual report are copyrighted, and must not be reproduced or distributed without permission. Copyright 2006 Nippon Paint Co., Ltd. All rights reserved. Information in this annual report is subject to change without notice.

NP-K108
AA060902T

Management Principles
The Nippon Paint Group is committed to contributing to the welfare of society as a whole through its business activities, working together for the mutual harmony and benefit of everyone.

Water-Friendly Soil-Friendly

Air-Friendly Human-Friendly

Corporate Vision
The Company is working to expand globally as a specialty chemical company, offering high valueadded coatings. Our fundamental commitment is to become a trusted, eco-friendly company that helps protect the environment.

In line with our mission to contribute to society by providing environmentally friendly products, the Nippon Paint Group has set an environmental target of making all of our products environmentally friendly by fiscal 2010. Furthermore, at the Paint Show 2006 held in April 2006, we introduced visitors to the Nippon Paint Group's environmental management activities regarding water, the air, the soil and humans.

The 5 Cs Code of Behavior

Credibility Customer-oriented Creativity Challenge Collaboration
We shall respond to public confidence in our performances with right and fair judgment, keeping in mind a high sense of integrity and responsibility. We shall meet customer expectations by providing them with the best solutions through the Group's joint forces and all-out efforts. We shall create new values with wisdom, foresight and highly flexible ideas.

Table of Contents
Management Principles, Corporate Vision, The 5 Cs Code of Behavior Greetings From the President Interview With the President 2010 Long-term Management Plan Nippon Paint Group at a Glance Paints and Coatings Automotive coatings Trade-use paints Industrial coatings Auto refinish, marine coatings, household paints, road paints 17 18 19 21 22 Fine Chemicals Surface Treatment, Fine Products Group Businesses Overseas Research & Development Design Center 11 13 15 1 3 5 7 9 Corporate Social Responsibility (CSR) Social Contributions Environmental Preservation Topics Five-year Financial Highlights Management Discussion and Analysis Consolidated Balance Sheets Consolidated Statements of Income Consolidated Statements of Shareholders' Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements Report of Independent Auditors Nippon Paint Group History of Nippon Paint Corporate Data Share Information 23 25 26 27 29 30 33 35 36 37 38 48 49 51 53 54

We shall establish the highest possible goals and make every effort to achieve the highest levels of standards in the world. We shall cultivate a corporate culture of freedom and generosity through positive communication and cooperation by acknowledging the diversity of human characteristics.

Disclaimer:
The current plans, strategies and beliefs of Nippon Paint Co., Ltd. and the Nippon Paint Group contained in this annual report are based on assumptions and beliefs in light of information available to the Company at the time of preparation, and are subject to various inherent risks and uncertainties. Accordingly, please be advised that actual results and business performance of Nippon Paint Co., Ltd. and the Nippon Paint Group may differ substantially from the forward-looking statements, including projections, described herein.

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Greetings From the President

Preserving the Beautiful and Irreplaceable Earth for Future Generations is the desire of the Nippon Paint Group

Shuuichi Endou : Tuvalu Overview

Ever since its inauguration in 1881, Nippon Paint's management principles have been to contribute through its business activities to society at large. Last year, I was honored to be appointed as the Company's 12th president. Looking back at where Nippon Paint has come from, I feel the weight of 125 years of history on my shoulders. From the perspective that a company should function as an organ of society, our business activities have been conducted in accordance with our management principles so as to meet the needs of each era throughout our history. In fact, this is the very reason that society has allowed us to continue to exist as a company for 125 years. For this, I have nothing but deep admiration for the wisdom and efforts of our predecessors. In my role as president, I recognize that my responsibilities include clearly stating the contemporary relevance of our management principles and working to achieve their aims. The Earth looks blue, and outer space is pitch black. Between Earth and outer space, there is the indescribable and subtle beauty of the thin veil of the Earth's atmosphere. This is the message sent from space by Mr. Soichi Noguchi, the Japanese astronaut who traveled on the space shuttle Discovery. This thin veil that so impressed him protects the planet brimming with life that we know as home.

Tuvalu is a small island nation located 90 centimeters on average above sea level, about the height of a chair. The island is faced with the very real threat of being swallowed up by rising sea levels caused by global warming. This is an environmental issue that could see one of the world's countries and the home of 10,000 people disappear forever. This is how Japanese photographer Mr. Shuuichi Endou publicized the plight of Tuvalu, the South Pacific island on the verge of submersion as sea levels rise due to global warming. The thin protective veil of our atmosphere has been affected and is now at grave risk. This has already resulted in climate changes in different parts of the world, and now an entire country a tropical paradise is about to disappear. It has become apparent that all economic activities impact on the environment to some degree or another. For this reason, it is the responsibility of today's top executives to ensure that actions are taken to preserve the future of our Earth. Our desire is To Preserve the Beautiful and Irreplaceable Earth for Future Generations. Under this trade mark phrase, we at Nippon Paint work to determine the social relevance of our management principles in the sphere of protecting the environment, and then to implement it in our corporate activities. As a leader in the paint and coating industry, we are acutely aware of our responsibility to develop environmentally friendly products and technologies. As espoused by our management principles, we aspire to become both an eco-friendly company that ensures conservation of the environment and saves resources and energy, and a specialty chemical company that is expanding globally.

August 2006 Representative Director and President Makoto Matsuura

(C)NASA

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Interview With the President

United by our motto, Visionary ideas and unsurpassed craftsmanship, Nippon Paint aspires to be a distinguished company that is expanding globally.
Please tell us about the business stance of the long-term management plan. Conducting management rooted in CSR (Corporate Social Responsibility) is indispensable to ensuring that the contemporary Nippon Paint is beneficial to society. In particular, we are committed to contributing to the urgently needed preservation of the global environment in advance of our competitors by ensuring that by fiscal 2010, all of our products are environmentally friendly. To achieve this, we must develop technology that transcends existing ideas and invest business resources to preserve the beautiful and irreplaceable earth for future generations. We carry out business by acting according to our behavioral code with its five tenets: credibility, customer-oriented, creativity, challenge and collaboration. Among these tenets, we believe that the sincere quality of acting with credibility, as consistently practiced by all employees, will establish us as a sincere and distinguished company in the eyes of our customers and all of the rest of the world. Please tell us about the detailed targets contained in the management plan. Nippon Paint's consolidated net sales are currently nearly 210 billion and are targeted to rise to 250 billion in five years. Furthermore, our Asian joint venture business has achieved net sales of nearly 90 billion, which is not included in consolidated net sales, and this figure is targeted to rise to 150 billion. This represents total net sales of 400 billion, which is equivalent to the 3rd or 4th position in the global market. We aim to increase ordinary income to 30 billion from the current figure of nearly 12 billion. These targets are fairly ambitious, but we are confident that the Nippon Paint Group can focus its collective power to achieve them. What are your plans for the automotive coating as a core business? Globally, only about five companies, including the Nippon Paint Group, are involved in the automotive coatings business. Amid harsh competition, we are further solidifying the position of the Nippon Paint Group by pushing through with our Global Fifteen Project to raise our global share up to 15% from the current 11%. In particular, we are making every effort to corner overseas demand, especially in China, Thailand and elsewhere in Asia. To do this, it is important to achieve world standards in both middle and top coatings, and electro-deposition coatings, and to focus on unified activities with coatings for plastics managed by Group company Nippon Bee Chemical Co., Ltd. What is the key to expanding the market share of automotive coatings? Needless to say, coatings for automobiles should meet global standards. As a selection criteria, the design competence, such as color or style, become more important. We are required to provide such value-added skills as a fashion provider as it were. In the last fiscal year, our efforts were rewarded when our all-color products were selected for the Auto Color Award*. Without resting on our laurels, we will redouble our efforts in this area going forward. At the same time, it is also important to contribute to improving automakers' productivity. If an auto plant can achieve a go through rate whereby parts are coated, visually inspected to confirm there are no flaws, and then moved to assembly without any adjustments being made, this directly leads to improved productivity and economic efficiency at the plant, as well as reducing the environmental impact. In cooperation with automakers, we must increase the adoption of highly productive coating systems such as our three wet-on coating system. How is your other core business of trade-use paints doing? In trade-use paints (construction-use and heavy-duty anticorrosion paints), we are simultaneously developing business in Japan and throughout Asia. This is mainly because China and India are huge markets. The Nippon Paint Group is committed to being in the vanguard of the industry in promoting and popularizing products in the countries of Asia that respond to global concerns about environmental problems. At the same time, we view this situation as a business opportunity. In Japan, we will strengthen activities for identifying and recommending paint work for large structures in urban areas, and promote environmentally friendly products. Looking ahead, we will enforce our repainting business for individual residences and condominiums because we do not expect any substantial increase in new building projects. Furthermore, we pursue a policy of rigorously providing products as early as possible, if possible on the day after we receive the order. To realize this, we will open regional factories in suitable locations, which will focus on providing color-matching services. What are your thoughts on business other than automotive coatings and trade-use paints? The Nippon Paint Group has handled a wide variety of products, much like a department store. However, competition has recently been intensifying as specialized manufacturers have entered the fray, and it is clear that we must focus our business resources on selected areas in which we can be number one. We will further strengthen powder-based coatings, both in Japan where we are number one and in Asia, and substitute water-based coatings for conventional solvent-based coatings to provide environmentally friendly products. Furthermore, our Power Float electro-deposition coating has won wide acclaim and this is a good example of one of our products that sells well because our customers find it useful. Different from its conventional equivalents, Power Float only needs to be stirred when it is applied, thereby reducing electricity costs by about 75%, which not only helps customers economically but also reduces carbon dioxide emissions and thus contributes to preserving the global environment. In the non-coating business sector, sales account for onefifteenth of all our sales but profits in this high-value-added business account for one-fifth of all earnings. We will leverage our traditional coating and film technologies to cultivate these operations as a next-generation business. Please tell us about your determination to meet the goals of the long-term management plan. I formulated the long-term management plan through to 2010 under the motto, Visionary ideas and unsurpassed craftsmanship. Nippon Paint is committed to honestly, consistently and thoroughly pursuing our management principles, which we have espoused since our founding, of contributing to society through our business activities. In meeting the expectations of all our stakeholders, the entire Nippon Paint Group is united in aspiring to become a specialty chemical company that is expanding globally.

You started a long-term management plan in April 2006, covering the period to 2010. First, please tell us the basics of this plan. I believe it is very important for a company to have nonquantifiable as well as quantifiable targets. In other words, a company should strive to become the type of firm it aspires to be. Having celebrated the 125th anniversary of our founding in March 2006, Nippon Paint is focusing on becoming a distinguished company as befits its long history a company whose beneficial existence provides its employees with a sense of worth. In the past, Nippon Paint conducted its medium-term management plan through three years, but I have changed to a five-year plan to reflect a radical change in the company's spirit. Rather than merely pursuing quantifiable targets in threeyear cycles, we are determined to thoroughly consolidate our stance by strengthening our corporate backbone and returning to our business foundation.

*Awards recognizing excellence in automobile color design jointly given by the Japan Fashion Color Association and the Japan Fashion Association.

Visionary ideas and unsurpassed craftsmanship

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2010 Long-term Management Plan

The Nippon Paint Group is determined to become a recognized name, renowned for its global scope and worldclass technology in the paints and coatings industry. In April 2006, the Company embarked on a new long-term management plan, scheduled to conclude in fiscal 2010, designed to help in achieving this aim. Ensuing business initiatives will see the Group draw on its collective capabilities in a bold push to attain plan objectives.

Fiscal 2010
(Ending March 2011)

400 billion
Consolidated net sales

Total sales

Management Strategies
Nippon Paint will approach Japan and the rest of Asia as one and the same market, positioning automotive coatings and trade-use paints as core business operations as it strives to build a more entrenched market presence. The Company will also develop eco-friendly technologies for creating outstanding products that will spur further sales and earnings expansion.

250 billion

Numerical Targets
The Company has established the following business targets for fiscal 2010: consolidated net sales of 250 billion, ordinary income of 30 billion, and total sales* of 400 billion.
(Billions of yen)
(Ended March 2006) (Ending March 2007) (Ending March 2009) (Ending March 2011)
Consolidated net sales Sales from consolidated equity-method affiliates in Asia
(Billions of yen)

400 350 300 250 200 150 100 50 0

400.0 150.0

Fiscal 2005

Fiscal 2006 (Forecast) Fiscal 2008 (Planned) Fiscal 2010 (Planned)

360.0 296.4 88.4 319.0 107.0 130.0

Total sales Consolidated net sales

Sales from consolidated equity-method affiliates in Asia

296.4 208.0 88.4 10.0 11.3 2.3

319.0 212.0 107.0 10.0 12.0 3.0

360.0 230.0 130.0 17.0 20.0 4.0

400.0 250.0 150.0 25.0 30.0 5.0

Sales and earnings expansion

250.0

Growth

Operating income Ordinary income (Equity in earnings of affiliates)

208.0

212.0

230.0

2005

2006

2008

2010

*The sum of consolidated net sales and sales from joint ventures in Asia (consolidated affiliates accounted for by the equity method).

Consolidated management Selectivity and focus

Group

No.1 in Asia World-renowned technological capabilities

Global

Management Approach
Nippon Paint will pursue the following four management approaches to attain business targets:

Governance
CSR management Environmental management

1 CSR management that gives top priority to social responsibility fundamental to conducting corporate activities 2 Environmental management that contributes to environmental preservation and reductions in resource and energy usage 3 Consolidated management able to capitalize on Group scale 4 Human resource management that optimizes and brings to the fore employee talents

Fiscal 2005
(Ending March 2006)

By always adhering to credibility as the most basic guiding principle, the Nippon Paint Group, under the corporate slogan Visionary

ideas and unsurpassed craftsmanship, is committed to

296.4 billion
Consolidated net sales

Total sales

becoming a more dynamic corporation supported by outstanding technological capabilities.

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208.0 billion

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Nippon Paint Group at a Glance

Since its establishment in 1881, the Nippon Paint Group has consistently been a leader in the paint and coating industry. We operate in two business segmentspaints and coatings, and fine chemicals. The paints and coatings segment comprises four sectorsautomotive coatings, trade-use paints, industrial coatings, and other paints, which include auto refinish, marine coatings, household paints and road paints.

Results for the year ended March 31, 2006

In fiscal 2005, ended March 31, 2006, the Nippon Paint Group recorded consolidated net sales of 207,999 million, up 2.5% from the previous fiscal year. Consolidated recurring income rose 6.2% to 11,363 million, but net income decreased 7.5% to 6,578 million. The paints and coatings segment posted a rise in sales of 2.7% to 196,864 million, and sales in the fine chemicals segment nudged up 0.2% to 11,135 million.

Business Areas
Share of Net Sales
70 60 50 52.3 56.0 60.8 53.9 54.8

Net Sales
(Billions of yen)

Applications New automobiles

Business Outline Through our mainstay automotive coatings business, we supply products to customers in Japan and overseas, including coating systems for new automobiles which cover the entire spectrum of applications: from surface treatment to base coatings, middle coatings and top coatings, as well as coatings for bumpers and other plastic surfaces.

Automotive coatings

29.2%

40 30 20 10 0 02/3 03/3 04/3 05/3 06/3

70 60 50 42.8 40.1 39.9

(Billions of yen)

Buildings, structures, new and renovated residences

Paints and Coatings

Trade-use paints

19.3%

40 30 20 10 0

41.6

40.1

In trade-use paints, we provide construction-use paints for houses, condominiums, high-rise buildings and other buildings, and heavy-duty anticorrosive coatings for bridges, storage tanks and other structures.

02/3

03/3

04/3

05/3

06/3

70 60 50

(Billions of yen)

Industrial coatings

19.3%

40 30 20 10 0 02/3 30.9

36.7

37.7

39.2

40.2

Machinery, metal products, building materials, electrical appliances

Our industrial coatings are used in a wide variety of applications throughout society, including building materials for housing and other buildings, steel furniture and home electrical appliances, IT products and bullet trains.

03/3

04/3

05/3

06/3

70

(Billions of yen)

Auto refinish, marine coatings, household paints, road paints

60 50

55.3

53.5

55.9

56.1

55.8

Automobile repairs, ships, homes, road signs

26.8%

40 30 20 10 0 02/3 03/3 04/3 05/3 06/3

The Nippon Paint Group provides a wide range of paints in this sector, including paints for auto refinish, marine coatings, household paints and road paints.

Fine Chemicals

70 60 50

(Billions of yen)

Fine chemicals

5.4%

40 30 20 10 0 11.4 02/3 11.5 03/3 11.2 04/3 11.1 05/3 11.1 06/3

Surface treatment agents, electronic materials, life science products, adhesive agents

Fine chemicals comprise the surface treatment business and fine products business. The latter includes electronic materials, life science products and adhesive agents.

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Automotive coatings

Three wet-on coating system

Electro-deposition coating line

Bumper using coatings for plastics

New automobiles

More durable, more beautiful and environmentally friendly

As well as focusing on the development of environmentally friendly products and systems, we are responding to the globalization of automakers' operations by developing our business in Europe, the U.S. and Asia.
Nippon Paint develops its automotive coatings hand in hand with automakers. Recently in the automobile industry, efforts to shorten vehicle development time and globalize and enhance the efficiency of sales and production activities have been accelerating. In response, we are shortening our own development time for new automotive coating colors. We are also proactively responding to the requirements of Japanese automakers for greater supplies of coatings to their overseas bases and for products and systems that improve the efficiency of production lines. In new high-value-added products, we developed our three wet-on system that improves automakers' production efficiency and reduces environmental impact. While providing the same levels of external finish and coating quality as conventional coating systems, the three wet-on coating system reduces the number of coating drying processes for a new automobile from three to two. The processes therefore generate less carbon dioxide, have lower energy costs and require much fewer costly changes in the paint line. These features have earned high praise from Japanese automakers, and overseas automakers are now increasingly using the system. Furthermore, the Nippon Paint Group's coatings for plastics are often used for the resin-made parts used in bumpers, fender-mirror covers and other automobile components.

In addition to meeting customer needs for coatings that extend an automobile's lifetime by protecting it from rust, we provide new added value by creating new body colors that are protected with attractive coating films. Nippon Paint's state-of-the-art technology is reflected in these advanced coatings that are as thin as 0.1 mm. We have developed highly functional products and systems that reduce the number of coating processes and save energy, and also used our proprietary technology to successfully develop and apply water-based coatings. We can therefore meet automakers' advanced needs by leveraging our cutting-edge coating technologies to offer more environmentally friendly products.

Results for the year ended March 31, 2006

In automotive coatings, customers are increasingly demanding coating systems that are both environmentally friendly and improve production efficiency. Furthermore, they want these products to be of such quality that they bring out the best of an automobile's design, exterior appearance and functions. The Nippon Paint Group has been steadily satisfying these customer demands by developing water-based coatings for plastic components of automobile bodies and bumpers, the three wet-on solvent-based coating system that is economically attractive to customers, and finishing topcoats that achieve a stylishly designed exterior appearance. As a result, net sales for automotive coatings for the year under review rose 10.8% to 60,758 million. Moreover, all equity-method affiliated companies in China, Thailand and elsewhere in Asia achieved significant growth in sales.

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Trade-use paints

Buildings, structures, new and renovated residences

Fullcast Stadium Miyagi Date photograph taken: August 5, 2005

Seto Bridge

Tokyo International Airport

Protecting buildings and structures with our technological capabilities that match a wide variety of environmental conditions.
The two basic requirements of trade-use paints are that they protect and add beauty to the structures on which they are used. In recent years, with the increasing number of high-rise buildings and changes in construction materials, customers are demanding that these paints prevent corrosion for longer periods and offer improved weather resistance. Customers are also demanding the development of environmentally friendly products with a very low VOC (volatile organic compound) content. The Nippon Paint Group has been meeting these varied needs by proactively developing high-grade environmentally friendly products, leveraging its reliable quality control system and drawing on its extensive domestic and international sales network.

Trade-use paints have found a wide range of uses, from detached housing and condominiums to bridges and other structures.
In trade-use paints, in the 1970s, we began working to accurately meet the needs of local communities by acting in the vanguard of the industry and establishing regional sales companies. In 2004, we integrated these sales companies and formed an organization that made full use of the Nippon Paint Groups combined capabilities, aiming to respond precisely to recent changes in the market landscape. Amid growing concerns about the environment, we have also been developing environmentally friendly products. To counteract the sick house and sick school syndromes, we developed water-based paints with less than 1% VOC (volatile organic compound) content, and paints with superior weather resistance for use in renovating housing complexes and painting large structures. In the heavy-duty anti-corrosion field, we are developing coatings and coating systems that satisfy special conditions, such as the ability to withstand severe external environments or be chemically resistant. These products are used on a variety of large projects and in their follow-up maintenance. Furthermore, to satisfy the social need of preventing concrete from peeling off and falling as it deteriorates, causing accidents, we provide coatings and a coating system that prevent concrete peeling by using the highly elastic property and ability to apply a thick coating instantly that is made possible by the combination of two liquids.

Results for the year ended March 31, 2006

In construction-use paints, despite sluggish demand, sales were on a par with the previous year because we aggressively promoted environmentally friendly products in major urban areas with large demand, improved our distribution system to meet needs for smalllot and short-period deliveries, and strengthened our sales system. In heavy-duty anti-corrosive paints, demand slumped due to continuous declines in public-sector investment despite strong capital investment in the private-sector. The Nippon Paint Group maintained sales levels by strengthening sales activities aimed at meeting private-sector demand. At the same time, we introduced new construction techniques in the concrete sector to satisfy customer needs for economical products. In the construction-coating business, sales declined significantly below the previous year, reflecting our selective focused approach and specialization in high earnings construction-coating products. As a result, sales for the entire segment decreased 3.4% to 40,148 million.

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Yoyogi National Gymnasium (Tange Associates) Refrigerator and refrigerated shop showcase using our powder-based toning system Electro-deposition system that requires no hanging Paint Show 2006 Coating series with reduced heavy metals that conforms to the EUs RoHS directive

Industrial coatings

Machinery, metal products, building materials, electrical appliances

By developing highly functional products with a wide variety of applications, we contribute to many aspects of society.
Nippon Paint offers paints and coatings for metal products and electrical machinery that are finely tuned to customers tastes and preferences. Our paints and coatings for building construction materials satisfy peoples increasing demand for designs that harmonize with the surrounding landscape. These products are underpinned by our advanced technological development capabilities and solid design development organization. In recent years, customers have been demanding products that are environmentally friendly as well as attractive in appearance. In response to this trend, Nippon Paint has developed powder- and water-based paints that have fewer VOCs (volatile organic compounds), heat-insulating paints that counteract the heat island phenomenon, and a new coating system that enables recycling.

With our powder- and water-based paints gaining acceptance, environmentally friendly products are accounting for a steadily increasing share of sales.
The Nippon Paint Group has taken the initiative in developing powder- and water-based paints that minimize VOCs (volatile organic compounds) in the industrial coatings segment, and a new coating system that enables recycling. Powder-based paints are environmentally friendly because they do not need solvents; Nippon Paint commands the largest market share in the industry. Our powder-based toning system, a world first, enables the toning to be done in a powder state, thereby allowing customers to choose their preferred hues on-site. Powder-based paints are used for a wide range of products, including system kitchens, home electrical appliances, office equipment, vending machines and machine tools. In water-based paints, we have developed a groundbreaking coating system that recycles paint and water. Any paint left over is filtered and condensed for recycling. This system is used for industrial coatings, and by automakers and other manufacturers in their production lines. Heat-insulating paints are increasingly being used to counteract the heat island phenomenon and save energy. Heat-insulating paints curb rises in surface temperature of the objects to which they are applied, and their uses include roofs and exterior walls of buildings, sidewalks, open paved areas and railway rolling stock. With trains traveling ever faster, we have also developed a special paint for bullet trains.

Results for the year ended March 31, 2006

In industrial coatings, demand for paints for machinery and construction materials led the way, underpinned by favorable exports and domestic capital expenditures. The Nippon Paint Group focused on acquiring new production lines and strengthening the product lineup with water-based paints for ceramic-related construction materials and powder-based paints that exhibit the qualities of being environmentally friendly, economical for customers and innovatively designed. Furthermore, the energy-saving, electro-deposition coating Power Float introduced last year is economical for customers and is steadily producing benefits. As a result, sales rose 2.4% to 40,150 million.

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Auto refinish, marine coatings, household paints, road paints

The Nippon Paint Group supplies paints for all manner of uses, including auto refinish, marine coatings, household paints and road paints.

Fine Chemicals

Surface treatment agents, electronic materials, life science products, adhesive agents

Nippon Paint uses its core paint and coating technologies in both surface treatment and fine products.

Auto refinish
In June 2005, we unveiled the e (pronounced e-cubed) Series, a coating system for automobile repairs with a greatly reduced environmental impact. We offer three versions of this new system, designed for different types of coatings. Developed with the environment and greater application efficiency in mind, the e3 Series meets the needs of a wide range of customers.
3

Household paints
We sell a wide range of do-it-yourself products, including paints for repainting dwellings and rooms, paints for hobbies and crafts, as well as interior-use items and materials such as value-added painting tools and wallpaper. Some of these products have earned Eco Mark certification as environmentally friendly products.

Surface Treatment
Nippon Paint supplies surface treatment agents that are used to modify the surfaces of metal, plastic and other materials before a coating is applied. These agents improve the coatings adhesiveness and rust-prevention capability. We have developed and marketed a variety of surface treatment products and systems. These include water-based treatment agents for automotive bumpers, fluorine-free degreasing agents for aluminum beverage cans and low-temperature treatment agents that reduce carbon dioxide emissions. We also offer products and systems that reduce emissions of harmful substances such as chromium and nickel.

Fine Products
In the electronic materials sector, the high-quality, process-saving resist electrodeposition method developed by Nippon Paint is essential for manufacturing printed circuit boards. Also, our photosensitive epoxy resin films are used in insulating materials for nextgeneration semiconductor packages. In the life sciences sector, Nippon Paint actively researches and develops technologies to protect human life and health. We provide a blood serum separation polymer, that draws on resin synthesis and dispersion technologies, and super-fine magnetic particles, used in medical testing and diagnosis. In the adhesive agents sector, Nippon Paints adhesive for metal structures has been used successfully for nearly 30 years.

Marine coatings
Nippon Paint Marine Coatings Co., Ltd. conducts business in the marine coatings sector. Since fiscal 2004, this company has established local subsidiaries with the aim of expanding business in the Asian region, which accounts for around 60% of the global demand for marine coatings. Nippon Paint Marine Coatings contributes to the prevention of oceanic pollution such as by the original offering of ship bottom paints that contain no tin.

Road paints
Road paints help make travel safer and smoother for people. We offer mainly road marking paints for center lines, and colored pavement paints. We also contribute to traffic safety with such products as road studs that flash at intersections, road signs and other places on the road.

Results for the year ended March 31, 2006

In the auto refinish category, amid a slight drop in demand, we developed business with our vehicle panel paint diagnosis technology, leveraging our proprietary experience in supporting productivity enhancements at customer workplaces. At the same time, we were the first in the industry to launch products that conform to regulations on VOC (volatile organic compound) emissions, and continued to increase sales of products with superior functionality. As a result, sales rose over the previous year. Sales significantly increased over the previous year in the marine coatings category due to favorable new production in the shipbuilding industry. Overseas, we improved the foundations of the four subsidiaries we established last year with the aim of expanding sales in Asia. Sales of household paints, road paints and markingrelated construction paints significantly declined accompanying the slump in demand. As a result, total sales for all these paint categories decreased 0.5% to 55,807 million.

Results for the year ended March 31, 2006

Sales in surface treatment rose year on year due to increased sales of chrome-free and other environmentally friendly products. Although sales rose for materials used in medical testing and diagnosis, sales fell for additives possessing charge-control functions used in toners and other products. As a result, total sales for all these paint categories increased 0.2% to 11,135 million.

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Group Businesses Overseas

Nippon Paint boasts one of the top overseas development capabilities in the industry, with a network of roughly 40 companies located in Asia, North America and Europe. Leveraging a track record of dynamic business activities outside Japan spanning half a century, the Company, long global in practice, is set to pursue the kind of borderless business activities that are the mark of a truly global firm.

Europe
In Europe, Nippon Paint supplies industrial coatings and automotive coatings. Industrial coatings are produced by the Company's bases in the U.K. and six other countries, which also supply coil coatings to markets throughout Europe. In automotive coatings, Nippon Paint produces and sells plastic and other coatings targeting Japanese automakers operating in the U.K., and offers related technology services.

Asia
Nippon Paint established its first overseas joint venture in Asia in Singapore in 1962. In the years since, the Company has set up operations in Thailand, Malaysia, Taiwan, the Philippines, South Korea, Vietnam, China and India. In these eight countries, the Company is involved in coating businesses targeting a wide range of sectors, including the production and sale of everything from trade for buildings, to automotive coatings and industrial coatings for home appliances and other products. In China, Asia's largest market, Nippon Paint is preparing for another surge in demand by bolstering and upgrading its sales and production network. Nippon Paint (China)'s brand, meanwhile, commands the leading share in China as the top brand in construction-use and household paints.
10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

North America
DAIHAN AUTOMOTIVE COATINGS CO., LTD. (South Korea) DAIHAN BEE CHEMICAL CO., LTD. (South Korea) NIPSEA CHEMICAL CO., LTD. (South Korea) ASIA INDUSTRIES, LTD. (Taiwan) NIPPON PAINT (H.K.) CO., LTD. (Hong Kong, China) NIPPON PAINT (CHINA) CO., LTD. (Shanghai, China) GUANG LI CHEMICALS (SHANGHAI) CO., LTD. (Shanghai, China) GUANGZHOU NIPPON PAINT CO., LTD. (Guangzhou, China) NIPPON PAINT (CHENGDU) CO., LTD. (Chengdu, China) NIPPON PAINT PHILIPPINES, INC. (The Philippines) NIPPON PAINT (THAILAND) CO., LTD. (Thailand) NIPPON PAINT (MALAYSIA) SDN. BHD. (Malaysia) PAINT MARKETING COMPANY (M) SDN. BHD. (Malaysia) NIPPON PAINT (SINGAPORE) CO., PTE., LTD. (Singapore) NIPPON PAINT MARINE (CHINA) CO., LTD. (Shanghai, China) NIPPON PAINT MARINE (H.K.) CO., LTD. (Hong Kong, China) NIPPON PAINT MARINE (TAIWAN) LTD. (Taiwan) NIPPON PAINT MARINE (KOREA) LTD. (South Korea) NIPPON PAINT MARINE (MALAYSIA) SDN. BHD. (Malaysia) NIPPON PAINT MARINE (SINGAPORE) PTE., LTD. (Singapore) CHANGCHUN DUN YANG NBC CO., LTD. (Changchun, China) TIANJIN NBC CO., LTD. (Tianjin, China) NBC (NANJING) CO., LTD. (Nanjing, China) NBC (WUHAN) CO., LTD. (Wuhan, China) NBC (PANYU NANSHA) CHEMICAL CO., LTD. (Guangzhou, China) TUNG YANG CHEMICAL CO., LTD. (Taiwan) NBC (ASIA) CO., LTD. (Thailand) NB (SHANGHAI) TRADING CO., LTD. (Shanghai, China) NIPPE TRADING (SHANGHAI) CO., LTD. (Shanghai, China)

In North America, Nippon Paint is a supplier of automotive coatings. The Company produces and sells coatings for vehicle chassis, as well as for bumpers, dashboards and other plastic parts, also offering related technology services. Business is primarily tailored to Japanese automakers operating in the region.

4 1 2 3 7 8
17

27 28 29

5 6 9

30 31 32 33

41 42 40 43 39

GUANGZHOU NIPPON PAINT CO., LTD. (Guangzhou, China)

34 35 36 37 38

31

30 10 11 12 27

18 33

32 16 15 38 24 37

NP AUTOMOTIVE COATINGS (EUROPE) LTD. (U.K.)

20

NIPPON PAINT (THAILAND) CO., LTD. (Thailand)

20 36

34

17

13 26 14 25 35
15

19

NIPPON PAINT (CHINA) CO., LTD. (Shanghai, China)

40

NPA COATINGS INC. (U.S.A.)

21 28 22 23 29
1 2 3 4 5 6 7 8 9

NIPPON PAINT (EUROPE) LTD. (U.K.) NP AUTOMOTIVE COATINGS (EUROPE) LTD. (U.K.) AKZO NOBEL NIPPON PAINT LTD. (U.K.) AKZO NOBEL NIPPON PAINT AB (Sweden) AKZO NOBEL NIPPON PAINT HOLDINGS BV (The Netherlands) AKZO NOBEL NIPPON PAINT GMBH (Germany) AKZO NOBEL NIPPON PAINT SA (France) AKZO NOBEL NIPPON PAINT ESPANA SA (Spain) AKZO NOBEL NIPPON PAINT SRL (Italy) NIPPON PAINT

39 40 41 42 43

NIPPON PAINT (USA) INC. (U.S.A.) NPA COATINGS INC. (U.S.A.) NIPPON PAINT RESEARCH INSTITUTE (AMERICA), INC. (U.S.A.) NIPPON BEE RESEARCH AMERICA, INC. (U.S.A.) MORTON NIPPON COATINGS (U.S.A.)

23

NIPPON PAINT (SINGAPORE) CO., PTE., LTD. (Singapore)

19

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20

Research & Development

Supporting Our Ongoing Drive to Evolve as a Specialty Chemical Company.
Undertaking basic research that builds up proprietary technologies is indispensable to staying at the forefront of progress in coating materials and responding to changing customer needs, as well as to the continued development of high-value-added paints and coatings. The Nippon Paint Group channels management resources to R&D divisions to further refine its paints, coatings and associated technologies amassed in its core businesses, and find wider applications for them.

Design Center
Design Center Uses a Blend of Technology and Aesthetics to Offer Proposals for Products With Optimal Visual Impact.
The role of Design Center is to create paint and coating color schemes. As part of a company specializing in paints and coatings, Design Center is able to choose and combine colors to offer an almost limitless number of designs. We offer proposals for comfortable living spaces, ranging from designs for a wide variety of industrial products such as automobiles to environmentally friendly color schemes for buildings. Our unique creativity is rooted in research results built up over many years.

sR&D Organization
There are two centers for Nippon Paint's research and development activities, located in Osaka and Tokyo. The R&D Headquarters is responsible for searching for R&D seeds based on the Group's medium- and long-term strategies, and basic research, and also works closely with the development departments of each business division to ensure rapid market development. The development departments of each business division focus on the R&D themes required for rapidly commercializing products. Furthermore, Nippon Paint's Miyakojima Weathering Center is an atmospheric exposure test facility that strengthens our basic research functions. In automotive coatings, we speedily develop products and coating systems for the future. In the marine coatings business, we are developing next-generation marine and anti-corrosive technologies. At the same time, we respond to environmental laws and regulations, and environmental issues, both in Japan and overseas, by working to strengthen the safety of products from the design stage onwards.

sResults of R&D Activities

In automotive coatings, we are creating added value by developing next-generation electro-deposition coatings. Our three wet-on coating system has been adopted by leading Japanese automobile manufacturers, and we have now completed development of a water-based version of this system. In industrial coatings, our strategy was to develop environmentally friendly water- and powder-based products. To cite a specific example, we launched a new powder-based coating which enables a metallic finish and can be recycled. In fine chemical materials, we developed optical materials for displays employing a new uneven-deposition technology, and developed the market for a glass etching resist material with superior resistance to fluorinated acid. In electronic materials, we are preparing to launch GLASIA, a photosensitive polysilane resin with low optical signal loss and high heat resistance properties recognized by the Association of Super-Advanced Electronics Technologies. In particular, we have finished basic development of GLASIA for use as an optical interconnect waveguide material. We are also preparing to launch hologram products with anticipated applications in next-generation large-capacity memories.

Surveys for Marketing Solutions

Design Center formulates color plans and strategies for customers after carrying out indepth market surveys and analyses of all relevant factors. When a customer develops a product, or builds or renovates a building, we provide support at the marketing stage by conducting the necessary basic research and devising marketing concepts. Basic policies Human factors Environmental characteristics Data for plans

Designs for Designing Solutions

Design Center aids customers in designing activities to investigate possible color combinations and textures based on the ideas derived from our marketing solutions. We then propose a variety of highly inventive options, and reproduce many of the design ideas as actual samples to enable the customer to make quite sure that the design is suitable. Color combinations Color samples Texture proposals

TOTAL Solution

Final Proposals for Communication Solutions

When a customer prepares a final proposal for their client, Design Center plays a supporting role. We help our customer resolve any differences in goals, aesthetic sense and approach with their client, prepare reference materials for their client presentation and support the consensus-building needed to win the client's acceptance of the design. Color cards Color schemes Conceptual images of completed designs Reports

Designs for Reproduction Solutions

We will go all the way back to the paint development stage to create the perfect color scheme. In order to recreate the customer's design image of their product or building, we employ computer color matching, computer graphics and other computer aids to accurately and efficiently create colors and reproduce the design.
Coating designs CCM (computer color matching)
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Corporate Social Responsibility (CSR)

CSR Policy and Organization
The corporate social responsibility (CSR) activities of the Nippon Paint Group reflect our management vision and behavioral code, both of which are rooted in our manageManagement ment principles. Principles In line with our basic management principles, the objective of Nippon Paint's CSR activities is to ensure that we contribute to society at large to our mutual benefit through our business activities. We carry out business with the shared values of our management vision, acting according to our behavioral code with its five tenets of credibility, customer-oriented, creativity, challenge and collaboration, and based on a Corporate Code of foundation of relationships of trust with our customers, business partners, local comVision Behavior munities, employees, shareholders and all other Nippon Paint Group stakeholders, both inside and outside Japan. With the target of contributing to society, we consider it is the social responsibility of the Nippon Paint Group to implement continuous and developmental corporate activities to create new corporate value, and social value. We have made organizational changes to improve our CSR activities. We established the CSR Committee, chaired by Nippon Paint's president, by combining the Global Environment Committee and the Risk Management Committee. Looking ahead, the CSR Committee will plan, approve and follow through on our CSR activities.

Compliance Policy and Risk Management Organization

One of the tenets of the Nippon Paint Group's behavioral code is the imperative to respond to the trust of society by a credibility. A credibility means acting based on fair ethical values, with a strong sense of responsibility, on the basis of correct and rational evaluations and decisions. Nippon Paint recognizes the importance of fulfilling our social mission and responsibilities by ensuring every Group employee not only adheres to laws and regulations, but also acts in accordance with our business standards and corporate ethics. For both corporate activities and activities performed by individuals, we endeavor to vigorously promote a mentality of adhering to laws and regulations, including the standards of society, and establish systems to ensure legal compliance. Moreover, the Nippon Paint Group is united in carrying out risk and crisis management activities to earn the deep trust of all our customers, business partners and shareholders. These activities respond to changes in society and Nippon Paint's business environment by implementing appropriate countermeasures for potential risks and minimizing damage and loss when a crisis occurs. To this end, we have set up the Risk Management Committee under the management of the CSR Committee and formulated a Risk Management Policy, as well as Action Guidelines for Crises. Based on these, we advance management activities ranging from inspecting legal compliance to risk assessment, risk countermeasures and internal audits. We educate all employees through training and workplace activities, and also work to reduce potential risks by conducting full risk examinations and using the results to classify risks in detail. Since April 2005, the Company Law and Private Information Protection Law are being fully implemented. In response, the entire Nippon Paint Group is working to thoroughly understand the details of the laws and associated risks, and to ensure strict legal compliance.

CSR

Corporate Governance Policy and Organization

The Nippon Paint Group works to refine its corporate governance by building a management mechanism that can respond rapidly and accurately to changes in our business environment, and by implementing management practices which are fair and highly transparent. We separated the decision-making and supervisory functions of management from the execution of business affairs. In addition, we introduced a corporate officer system to clarify the roles and responsibilities of different areas of management, and quicken the implementation of management decisions.

Internal Control
General Meeting of Shareholders
Appoint/dismiss Report Appoint/dismiss Appoint/dismiss

Executives
Directors

(as of June 29, 2006)

Corporate Officers
Makoto Matsuura Kiyohiko Chijiiwa Kiyoshi Iwata Takeshi Kimura Kenji Sakai Koichi Kimoto Ryoichi Baba Yoshio Andou Hiroaki Ueno Yoshiki Yamane Takafumi Ohara

Shizuo Katsunaga Makoto Matsuura Kiyohiko Chijiiwa

sBoard of Directors and Corporate Officer System

The Board of Directors is the body that considers and decides about matters governed by the articles of incorporation and important managerial matters. The Board meets once a month, in principle, with the chairman of Nippon Paint acting as the chairman of the Board. The directors formulate the management policy and medium- and long-term strategies of the Nippon Paint Group, and supervise the business execution of Nippon Paint's corporate officers and related companies' directors. Corporate officers focus exclusively on the execution of business affairs by the divisions they are responsible for and the achievement of their business targets, on the basis of decisions taken by the Board of Directors.

Agree to appoint/dismiss Judge suitability of accounting audit Report

Corporate auditors Auditors (External auditors)

Audit

Board of Directors Directors

Instruct/supervise/appoint/dismiss Report

Accounting auditor

Kiyoshi Iwata Takeshi Kimura Kenji Sakai Koichi Kimoto

CSR Committee Environment Internal control Social contribution

Ryoichi Baba Yoshio Andou

Accounting audit

Propose/report

sInternal Control Systems

The Nippon Paint Group has established an internal control system to ensure the efficiency of management and the reliability of financial reports, from the viewpoints of legal compliance and risk management. Auditors participate in meetings of the Board of Directors and other meetings that discuss important matters. In addition, they perform audits on Nippon Paint divisions and group companies. These activities enable auditors to carry out their auditing functions: confirming the legality of directors' job execution, the effectiveness of established internal control systems, and the soundness of the processes for preparing financial data and statements. Nippon Paint has five auditors, three of whom are external auditors, two of whom are lawyers and one of whom is a university professor, with no interests in Nippon Paint.
Business audit Report

Hiroyoshi Suenaga

Executive Management Committee

Executive Officer Meeting Nippon Paint Group General Manager Meeting

Report

Policy Report instruction

Policy instruction

Corporate Auditors
Yutaka Obata Kunihiko Kanaya Yoshio Iimura Teruji Ono Masatoshi Ohara

Shoji Oda Katsufumi Hasebe Shigeo Nishikawa Yoshiki Tachibana Ryoichi Murakami Toshiaki Morita Yoshitaka Okude Yoshio Eguchi Satoshi Yamamoto

Propose/report

Global Environment Committee (products/safety)

Report

Risk Management Committee

Policy instruction

sApproach to Group Companies

The directors and corporate officers of Nippon Paint act as outside directors for the major companies of the Nippon Paint Group. They work to thoroughly implement management policies and participate in such CSR activities as addressing global environmental problems and risk management, and also ensure proper corporate governance throughout the entire Group.

Policy Report instruction

Business & functional operations/related companies

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Social Contributions
Nippon Paint aims to be a good corporate citizen that is as much a part of people's lives as the paints that enrich their world.
In China, All Employees of One Department Help Plant Trees in Jiangshan City, Zhejiang Province
When Nippon Paint employees at Nippon Paint (Chengdu) Co., Ltd., one of our subsidiaries in China, heard that volunteer treeplanting activities were being carried out in Jiangshan City, Zhejiang Province, they viewed the news as a long-sought chance to take part in local activities to preserve the environment. So, on April 2, 2006, all employees of the Train (Automotive) Paints and Coatings Department set off for the city. In about two hours they planted over 150 seedlings, mainly cherry and cinnamon trees, and also donated 500 yuan toward administration expenses. One of the Nippon Paint Group's environmental policies is to win trust as an eco-company. Looking ahead, we will proactively engage in this type of activity and deepen the awareness of employees about the need for environmental preservation.

Environmental Preservation
Nippon Paint Group is united in focusing on activities that contribute to the preservation of the environment.
Environmental (Responsible Care) Policy Basic Approach
Nippon Paint's philosophy is to proactively contribute to the preservation and beautification of the environment through our business activities, which include creating colors and attractive surroundings, while conserving materials and resources. In line with this approach, all employees and internal organizations are making it their own individual mission and responsibility to cooperate in tackling environmental problems. We aim to help create a beautiful environment through mutual trust with people everywhere, including regional communities and our customers. To this end, we have formulated the following policies for all business activities: 1 In the course of all business activities (including the provision of both products and services), we will pay due attention to preserving the global environment and protecting ecosystems, while striving to conserve energy and other resources. 2 We will advance the development of products with low environmental impact and of technologies that reduce this impact. We will also pay due attention to the environment, safety and health at all stages of a product's lifecycle, from development to disposal. 3 We will work to reduce the impact of operations on the environment, and to preserve the safety and health of local residents and employees.

Employee Volunteers Paint Park Play Equipment and Toilets

Nippon Paint employees from plants and offices in various regions, together with their families and others, regularly volunteer to repaint such objects as old play equipment and toilet-building walls in parks a social contribution that is certainly appropriate for a paint company. The children in each region provide ideas for color schemes and other design elements, and do the painting together with the employee volunteers. Even employees with no painting experience, despite being professionals at manufacturing paint, willingly participate and enjoy the contact with local communities. As a result, faded park equipment becomes almost unrecognizably beautiful, the children are very happy, and the volunteers feel their contributions, while modest, are something really worthwhile.

Policy
1

Employees engaged in tree-planting activities

Painting volunteers

Providing a Hands-on Work Experience to Students of Neyagawa No. 3 Junior High School
Over the three-day period November 16-18, 2005, three students from Neyagawa No. 3 Junior High School visited the Nippon Paint Group's Neyagawa Office for a hands-on introduction to our work. On the first day, we introduced them to our safety and environmental initiatives, and then gave them an overview of paints and coatings, followed by a tour of the facility. On the second day, they studied about paints for automobile repairs by trying their hand at matching colors and painting. On the third day, they used a microscope and other equipment to learn exactly what coatings are. Although it was a fast-paced educational program, the students exuberantly applied themselves to learning, and wrote essays at the end about how much they had enjoyed it. At the same time, the experience deepened their awareness of the rigorous measures taken by the Nippon Paint Group to prevent industrial accidents and other aspects of Group operations.

Uchu Tei Kuidaore, a Sign Language Comic Storyteller

A rakugo comic storyteller with the strange stage name of Uchu Tei Kuidaore works in the Nippon Paint Group. After training for twenty years with the Japan Signing Rakugo Association organized by Katsura Danji, he is now a full-fledged master of storytelling. He has performed both free and paid sign language performances to people both with and without hearing disabilities. Released in spring 2004, the film Quill featured his first film appearance in a role as a hearing-impaired person who performs a signed rakugo story. The NHK television program Signing for Everybody broadcast in April 2005 also featured a performance by this storyteller who is becoming increasingly wellknown.

The following are the aims of our Responsible Care activities: (1) To establish a Responsible Care management system based on international trends. (2) To reduce risks through comprehensive safety management of chemicals. (3) To preserve the environment and ensure safety in the course of ordinary business activities. (4) To preserve the environment and ensure safety in the course of international business activities and transactions in chemicals. (5) To earn greater trust from society. As a member of the Japan Responsible Care Council, we will continue to cooperate in performing the yearly management cycle of plan, act, report, review. We will adhere to all relevant laws and regulations in Japan and overseas, as well as other commitments made by Nippon Paint. We will also continuously improve our comprehensive safety management of chemicals, using both scientific knowledge and scientific methodology. In doing so we will take into consideration trends in Japan and overseas, and adhere to the principles of independent decision-making and responsibility. We will familiarize all employees, Group companies and related companies with Nippon Paint's basic approach and policy for Responsible Care, and ensure they are disclosed to, and understood by, society at large.

Eco Action 21 Mark

As part of our commitment to social contribution, Nippon Paint's Eco Action 21 mark has been created in a further effort to expand and reinforce activities to beautify and preserve the environment. This mark assists in our efforts to encourage both strong environmental awareness among employees along with their active involvement in protection activities. At the same time, the mark clearly demonstrates to the outside world our aggressive approach to environmental issues. The design of the mark symbolizes our efforts to preserve the global environment, in line with our behavioral code. The mark is displayed on environmentally friendly Nippon Paint products, including containers and catalogs.

Responsible Care

Coatings Care

Junior high school students participating in a work-study program

Uchu Tei Kuidaore

Companies that handle chemicals conduct Responsible Care activities at all stages from product development to product disposal. Throughout a product's lifecycle, these companies implement selfmanagement activities to enact and improve environment-, safetyand health-related measures (environmental protection, anti-disaster safety measures, occupational health and safety, and chemical safety).

Nippon Paint has continuously practiced Responsible Care activities since becoming a member of the Japan Responsible Care Council in 1995, and has also participated in Coating Care activities, which are coatings-oriented Responsible Care activities.

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Topics
Nippon Paint's Eco-friendliness Showcased at The 4th Paint Show 2006
Roughly 124,000 industry visitors and members of the general public attended The 4th Paint Show 2006, a three-day event held at the Tokyo Big Sight convention center from April 6 to April 8, 2006. At the Nippon Paint booth, the Company showcased its eco-friendly product and technological capabilities, focusing on its Eco Action 21 environmental mark and four key phrases: Water-friendly, Air-friendly, Soil-friendly, and Human-friendly. On the main stage, an opening video message created by author and environmental activist C.W. Nichol was shown together with scale models and animation highlighting the importance of environmental preservation and Nippon Paint's environmental initiatives. The motif for the models and animation centered on the question, What if the Earth were a 100 cm ball? A baton-twirling show by Applause, Nippon Paint's own baton and ring team, also met with rave reviews from visitors.

New SURF Facility Completed at Okayama Plant, Nippon Paint's New Manufacturing Base for Metal Surface Treatment Agents
Nippon Paint completed construction of a new SURF facility on the grounds of its Okayama Plant in Shoo, Okayama Prefecture, Japan. Operations at the new facility got under way in April 2006. The Okayama Plant was installed with the latest equipment when built to serve as the Company's base for the production of metal surface treatment agents in western Japan. It augmented the Tochigi Plant (Tochigi Prefecture, Japan) which had long served as Nippon Paint's main manufacturing site for surface treatment agents giving the Company a fully developed supply framework for these products. Until the Okayama Plant was constructed, the Osaka Plant functioned as the manufacturing base in western Japan. However, the plant's outmoded facilities eventually began to cause supply shortages. The decision to adopt a production environment supported by new facilities was also deemed the best option from both a safety assurance and environmental preservation standpoint. Ultimately, this resulted in the establishment of a new 3,180 m2 plant double the size of the Osaka Plant. Aside from a full spectrum of safety and environmental features, the Okayama Plant has an innovative production system that includes automated conveyor systems for transporting raw materials and products, and automated pipe detachment systems that connect to multiple production equipment. As the new plant boosts product quality reliability, it is also enhancing worker productivity and leading to more efficient production.

Main stage of the Nippon Paint booth

The new SURF facility

ApplauseNippon Paint's baton and ring team

View of the Okayama Plant

Establishment of Joint Ventures for a Stronger Supply Framework in China

The Nippon Paint Group has established two firms in China Guang Li Chemicals (Shanghai) Co., Ltd. in Shanghai and Nippon Paint (Chengdu) Co., Ltd. in Chengdu. Demand in China, particularly for trade-use paints used in construction, is tracking the country's economic growth and ongoing industrialization. Demand is thus expected to expand further going forward. From the summer of 2006, Guang Li Chemicals (Shanghai) will begin producing emulsion resin, a raw material for water-based paints used in the construction sector. Once under way, these operations are poised to bolster Nippon Paint's local supply framework and enhance profitability. Nippon Paint (Chengdu), meanwhile, is set to begin producing emulsion paints, woodwork paints and other trade-use paints starting January 2007. Complementing existing bases in northern, eastern and southern China with production bases in the fast-growing western part of the country will give Nippon Paint a reliable nationwide supply network. This achievement will be a major step toward cementing Nippon Paint's position as the industry's top brand.

Participation in the NEDO Development of Fundamental Technologies for Risk Reduction of Hazardous Chemical Substances ~Helping to Solve Social Environmental Problems Through Development of Innovative Water-based Coatings~
Chemical substances are generating concern due to the risks they potentially pose to human health and the ecosystem. Yet many of these substances are widely used in products, where they eventually end up as large quantities of waste. Once these substances leak out into the environment, however, the cost of reclaiming and detoxifying them can be enormous, a situation that makes it extremely difficult for industry to address this problem alone. Today, governments are taking the lead in helping their citizens live in safety and with greater peace of mind by reducing the amount of hazardous chemical substances. This trend has seen the development of new technologies for the reduction, collection, detoxification and creation of alternatives to hazardous chemical substances. One such effort is the Development of Fundamental Technologies for Risk Reduction of Hazardous Chemical Substances project coordinated by the New Energy and Industrial Technology Development Organization (NEDO) from fiscal 2004 through fiscal 2008. Nippon Paint joined this project in fiscal 2005, promoting the development of innovative water-based coatings as a key research theme. For its part, the Company is tackling several daunting R&D challenges, including the development of coating materials made from composite resin emulsions, graft polymers for pigment dispersion, and non-volatile dispersal and hardening materials, as well as a commercially viable system that encompasses both coating and drying technologies. The overarching goal is to reduce volatile organic chemical (VOC) emissions to as close to zero as possible through the successful development of innovative waterbased coatings gentle to both people and the environment.
NEDO (New Energy and Industrial Technology Development Organization) Independent administrative agency promoting general research and development into new forms of energy and industrial technology
NEDO pamphlet

Guang Li Chemicals (Shanghai) Co., Ltd.

Conceptual rendering of Nippon Paint (Chengdu) Co., Ltd.

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Five-year Financial Highlights

Nippon Paint Co., Ltd. and Consolidated Subsidiaries
Millions of yen Thousands of U.S. dollars

Management Discussion and Analysis

For the years ended March 31: Net sales Operating income Net income

2002 192,467 7,626 813

2003 197,834 8,923 5,206

2004 198,672 8,415 6,802

2005 202,850 9,694 7,114

2006 207,999 10,052 6,578

2006 $ 1,770,506 85,564 55,993

Per share of common stock (Yen): Net income Net assets Cash dividends 3.07 350.28 6.00 19.44 350.01 6.00

Yen

U.S. dollars

25.49 384.66 6.00

26.79 404.72 7.00

24.77 456.58 7.00

0.211 3.886 0.060

As of March 31: Total assets Shareholders equity 224,260 92,958 218,880 92,879

Millions of yen

Thousands of U.S. dollars

220,331 102,047

229,996 107,308

243,685 121,036

$ 2,074,268 1,030,268

Indicators: Return on assets (%) Return on equity (%) Shareholders equity ratio 0.36 0.88 41.5 2.35 5.60 42.4 3.10 6.98 46.3 3.16 6.80 46.7 2.78 5.76 49.7

Note: U.S. dollar amounts represent translations from yen at the rate of 117.48=U.S.$1, the rate in effect on March 31, 2006.

The Japanese economy improved during fiscal 2006, the year ended March 31, 2006, centered on domestic demand stemming from a recovery in consumer spending in a climate of strong private-sector capital expenditures and improvements in hiring. In this business environment the paints and coatings industry experienced a slight rise in domestic demand from the previous fiscal year in terms of both shipped quantity and amount. At the same time, however, the prices of such raw materials as crude oil and naphtha continued to be high, and supply was tight due to rising demand for chemical products in China. Other raw materials besides oilrelated substances also increased in price. The Nippon Paint Group continued its activities aimed at lowering costs, while at the same time made efforts to cover costs by higher retail prices, and increase sales of environmentally friendly and other high-value-added products. As a result, consolidated net sales for the fiscal year ended March 31, 2006, rose 2.5% year on year to 207,999 million (US$1,770,506 thousand), with operating income up 3.7% to 10,052 million (US$85,564 thousand). Net income decreased 7.5% to 6,578 million (US$55,993 thousand). By business category, net sales in the paints and coatings business rose 2.7% to 196,864 million (US$1,675,724 thousand), while the fine chemicals business was up 0.2% to 11,135 million (US$94,782 thousand). Operating income rose 3.7% to 10,052 million (US$85,564 thousand) as a result of continued cost reduction activities that produced a 223 million contraction in selling, general and administrative expenses from the previous fiscal year. Income before income taxes and minority interests rose 8.4% to 11,988 million (US$102,043 thousand) due to interest and dividend income of 398 million, equity in earnings of affiliates of 2,322 million and gain on sales of investments in securities of 1,500 million, partially offset by a loss on impairment of fixed assets of 423 million and a loss on devaluation of investments in securities of 102 million. The ratio of corporate taxes to income before income taxes and minority interests (the effective tax rate) rose 8.1 percentage points, from 28.7% in the previous fiscal year to 36.8% in fiscal 2006. The main reasons for the rise in the tax rate were an increase in the valuation reserve in accordance with poor performance at subsidiaries, and the loss of a tax rate difference following the realization of unrealized earnings generated in the previous fiscal year. As a result, net income declined 7.5% year on year to 6,578 million (US$55,993 thousand). Net income per share was 24.77, compared to 26.79 in the previous fiscal year.

Net sales

Operating income/Operating income ratio

Operating income Operating income ratio

Net income/Net income margin

Net income Net income margin 120 Millions of yen/%

220,000

Millions of yen

120

Millions of yen/%

Financial Position
Total assets at the end of fiscal 2006 rose 13,689 million from the end of the previous fiscal year to 243,685 million (US$2,074,268 thousand). Current assets increased 2,464 million to 129,071 million (US$1,098,664 thousand). Current liabilities, however, declined 1,792 million to 82,973 million (US$706,273 thousand). Property, plant and equipment, net, rose 879 million to 55,775 million (US$474,762 thousand). Long-term liabilities increased 387 million to 32,965 million (US$280,602 thousand). Shareholders equity at the end of fiscal 2006 increased 13,728 million from the end of the previous fiscal year to 121,036 million (US$1,030,268 thousand), while the shareholders equity ratio was 49.7%, compared to 46.7% a year earlier.

207,999 202,850 200,000 192,467 80 180,000 60 160,000 40 4.0 4.5 4.8 4.9 4 40 7,626 197,834 198,672 100 8,923 8,415 (%) 6 80 6,802 60 5,206 2.6 3.4 7,114 6,578 3.5 3.2 3 2 140,000 20 2 20 813 0.4 0 2002/3 2003/3 2004/3 2005/3 2006/3 0 2002/3 2003/3 2004/3 2005/3 2006/3 0 0 2002/3 2003/3 2004/3 2005/3 2006/3 0 1 (%) 4 9,694 10,052 100

4.2

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Cash Flows
Cash flow from operating activities Net cash provided by operating activities totaled 12,435 million (US$105,847 thousand), roughly on par with the previous fiscal year. This was mainly due to an increase in cash of 1,821 million resulting from a decline in operating capital (notes and accounts receivable, inventories, and notes and accounts payable), and an increase in income taxes paid of 1,854 million. Cash flow from investing activities Net cash used in investing activities totaled 4,806 million (US$40,909 thousand), an increase of 3,432 million from the previous fiscal year. This was mainly due to purchases of property, plant and equipment amounting to 7,581 million, against 3,102 million in proceeds from sales of property, plant and equipment, and securities made with the aim of improving the financial position and disposing of unutilized assets. Cash flow from financing activities Net cash used in financing activities totaled 9,528 million (US$81,103 thousand). This was due mainly to 7,196 million for repayment of interest-bearing debt, and 2,308 million for payment of dividends. As a result of the above, cash and cash equivalents at the end of fiscal 2006 decreased by 1,327 million to 30,940 million (US$263,364 thousand).

Business and Other Risks

The risks that may affect the earnings performance, financial position or other aspects of the Nippon Paint Group are as follows: Domestic Business Demand for paints and coatings in Japan has been declining since 1996, and there is little prospect of a major recovery. Sales prices have also fallen in response to customer demands for discounts, and greater competition. Faced with such conditions, Nippon Paint has sought to increase its share of the domestic market and steadily increase earnings through the development and introduction of environmentally friendly products and reforms to the Groups cost structure. However, Nippon Paint is highly dependent on petrochemical substances for its raw materials, so fluctuations in prices of crude oil and naphtha have a significant impact on earnings. Also, should the Company be unable to purchase raw materials due to a natural disaster or accident that affects raw material suppliers, there is a possibility that the Company will be unable to fulfill its supply responsibility to customers. The Nippon Paint Group achieves stable raw material purchasing and reductions in raw material costs through material compatibility, multiple purchasing, and global procurement. Overseas Business The Nippon Paint Group expanded into other areas of Asia in the early 1960s, and has since pursued growth opportunities in foreign markets as it steadily developed its overseas business. There is a possibility that changes in exchange rates, along with country risks specific to overseas businesses, such as changes in laws and regulations, political or economic upheavals, terrorism or war, will have an impact on the financial position or earnings performance of these businesses. In comparison with the former period of overseas expansion that accompanied our customers transfer of production facilities overseas, we are now facing an age of global competition, and overseas investment risk is increasing. Addressing Environmental Concerns The paints and coatings industry is subject to public regulation in the form of laws and regulations related to the environment and chemical substances. This means that failure to comply with such regulations as the 2004 reforms to air pollution regulation to restrict emissions of volatile organic compounds, the new Japanese Industrial Standards, and the Globally Harmonized System for the classification and labeling of chemicals system, as well as management of chemical substances related to import and export, and foreign and domestic environmental laws, carries the risk that the Company will be unable to survive. Beyond complying with laws and regulations, the Nippon Paint Group strives to be a corporation trusted as an eco-company that contributes to environmental conservation and reducing resource energy. To this end, we set our own environmental policies, develop products with minimal environmental impact, and pursue technical development to reduce the environmental burden, as well as working to reduce the environmental burden in our operations and ensure the safety of local communities. Disaster Preparedness A major earthquake, factory accident or other disaster may threaten the safety of employees or the local community, and there is a possibility that the Company would become unable to provide a steady supply of products to its customers. Nippon Paint places importance on its risk management organization to prevent such disasters, and minimize any damage or loss should they occur. In its risk management the Company works to minimize damage or loss by conducting preparations and training emphasizing the principles of 1) containing the disaster, 2) activities for speedy recovery and restoration, and 3) the disclosure of necessary information. To fulfill its responsibility to provide a stable product supply to customers, the management takes the lead in implementing such fundamental initiatives as the inspection of production plants from a varied perspective, the consideration of alternative supply production if a major earthquake or other disaster occurs, the making of antiearthquake investments where they are needed, and constant verification that the risk management structure will function in the event of a disaster.

Capital Expenditures
Capital expenditures made during fiscal 2006 amounted to 7,379 million (US$62,811 thousand). This consisted mainly of 3,700 million for production upgrades and streamlining, 500 million for research equipment and facilities, 600 million for safety enhancements, and 1,400 million for software to develop order receipt, inventory and logistics systems.

Research and Development

Research and development expenses for the entire group during fiscal 2006 amounted to 6,825 million (US$58,095 thousand), representing 3.3% of consolidated net sales. Of this amount, 4,900 million (US$41,709 thousand) was for the paints and coatings business, with 855 million (US$7,278 thousand) for the fine chemicals business. The total number of industrial property rights totaled 1,246 at the end of fiscal 2006. Basic research and development shared by all business divisions totaled 1,069 million (US$9,099 thousand). Going forward, we will build on our base in polymer, photochemical, and mixing design technologies to further deepen our nanotechnology and environmentally clean material compound technology, and will continue with our efforts to develop technologies and products for the paints and coatings and fine chemicals markets.

Dividend Policy
Nippon Paints policy is to provide shareholders with a stable dividend that reflects earnings. Retained earnings are appropriated to strengthen the balance sheet, for research and development, and investment in production facilities for environmentally friendly products, in an effort to enhance shareholder value over the long term. In accordance with this policy, for fiscal 2006, the Company paid an interim dividend of 3.50, and a year-end dividend of 3.50 (full year dividend of 7). As a result, the payout ratio for the fiscal year under review was 66.1%. The ratio of dividends to shareholders equity was 1.8%.

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Consolidated Balance Sheets

Nippon Paint Co., Ltd. and Consolidated Subsidiaries As of 31st March, 2006 and 2005
2006 (Millions of yen) Assets Current assets: Cash and cash equivalents Notes and accounts receivable Less allowance for doubtful accounts Inventories (Note 5) Deferred income taxes (Note 7) Other current assets Total current assets Property, plant and equipment (Note 11): Land (Note 6) Buildings and structures (Note 6) Machinery, equipment and vehicles Tools, furniture and fixtures Construction in progress Total property, plant and equipment: Less accumulated depreciation Property, plant and equipment, net Investments and other assets: Investments in unconsolidated subsidiaries and affiliates Investments in securities (Note 4) Deferred income taxes (Note 7) Other assets Total investments and other assets 20,724 32,239 5,876 58,839 16,760 22,692 3,477 5,564 48,493 176,404 274,421 50,017 500,842 16,146 64,126 53,570 19,003 3,222 156,067 (100,292) 55,775 15,747 63,830 51,562 19,182 1,534 151,855 (96,959) 54,896 137,436 545,846 455,993 161,755 27,426 1,328,456 (853,694) 474,762 Minority interests Contingent liabilities (Note 9) Shareholders' equity (Note 10): Common stock: Authorized 1,000,000,000 shares: Issued 265,402,443 shares in 2006 and 2005 Capital surplus Retained earnings (Note 17) Net unrealized holding gain on securities (Note 4) Translation adjustments Treasury stock, at cost: 338,433 shares in 2006 and 286,563 shares in 2005 Shareholders' equity, net Total assets 243,685 229,996 $2,074,268 Total liabilities, minority interests and shareholders' equity See accompanying notes to consolidated financial statements. 27,713 27,187 55,879 9,164 1,212 121,155 (119) 121,036 243,685 27,713 27,186 50,774 2,834 (1,104) 107,403 (95) 107,308 229,996 235,895 231,418 475,647 78,004 10,317 1,031,281 (1,013) 1,030,268 $2,074,268 6,711 5,345 57,125 30,940 73,585 (487) 18,831 2,670 3,532 129,071 32,267 72,503 (461) 17,254 2,692 2,352 126,607 $ 263,364 626,362 (4,145) 160,291 22,727 30,065 1,098,664 Long-term liabilities: Long-term debt Accrued retirement benefits for employees (Note 8) Accrued retirement benefits for directors and corporate auditors Guarantee deposits received (Note 6) Deferred income taxes (Note 7) Other long-term liabilities Total long-term liabilities 16,981 9,974 733 3,498 1,304 475 32,965 17,382 10,337 1,128 3,424 307 32,578 144,544 84,900 6,239 29,775 11,100 4,044 280,602 2005 (Millions of yen) 2006 (Thousands of U.S. dollars) (Note 1) Liabilities, minority interests and shareholders' equity Current liabilities: Notes and accounts payable Short-term bank loans (Note 6) Current portion of long-term debt (Note 6) Accrued income taxes (Note 7) Accrued expenses and other current liabilities Total current liabilities 54,716 12,077 1,557 2,030 12,593 82,973 51,578 17,903 1,610 2,075 11,599 84,765 $ 465,747 102,800 13,253 17,280 107,193 706,273 2006 (Millions of yen) 2005 (Millions of yen) 2006 (Thousands of U.S. dollars) (Note 1)

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Consolidated Statements of Income

Nippon Paint Co., Ltd. and Consolidated Subsidiaries Years ended March 31, 2006 and 2005
2006 (Millions of yen) Net sales Cost of sales (Note 14) Gross profit Selling, general and administrative expenses (Note 14) Operating income Other income (expenses): Interest and dividend income Interest expense Equity in earnings of affiliates Gain on sale of investment in a consolidated subsidiary Gain on sales of investments in securities Loss on impairment of fixed assets (Notes 3 and 11) Loss on devaluation of investments in securities Loss on application of standard method for calculation of retirement benefit obligation (Note 8) Other, net Income before income taxes and minority interests Income taxes (Note 7): Current Deferred Income before minority interests Minority interests in consolidated subsidiaries Net income 3,903 505 4,408 7,580 1,002 6,578 3,611 (439) 3,172 7,884 770 7,114 $ 33,223 4,298 37,521 64,522 8,529 55,993 (1,251) 11,988 (359) (1,523) 11,056 (10,649) 102,043 398 (508) 2,322 1,500 (423) (102) 329 (515) 2,263 380 810 (23) 3,388 (4,324) 19,765 12,768 (3,601) (868) 207,999 139,857 68,142 58,090 10,052 2005 (Millions of yen) 202,850 134,843 68,007 58,313 9,694 2006 (Thousands of U.S. dollars) (Note 1) $1,770,506 1,190,475 580,031

Consolidated Statements of Shareholders' Equity

Nippon Paint Co., Ltd. and Consolidated Subsidiaries Years ended March 31, 2006 and 2005
2006 (Millions of yen) Common stock: Balance at beginning and end of the year Capital surplus: 494,467 85,564 Balance at beginning of the year Gain on disposition of treasury stock Balance at end of the year Retained earnings: Balance at beginning of the year Net income Appropriations: Cash dividends Bonuses to directors Decrease resulting from merger of consolidated subsidiaries Increase resulting from initial consolidation of subsidiaries Increase resulting from initial application of equity method to affiliates Other Balance at end of the year Net unrealized holding gain on securities: Balance at beginning of the year Net change during the year Balance at end of the year Translation adjustments: Balance at beginning of the year Net change during the year Balance at end of the year See accompanying notes to consolidated financial statements. (1,104) 2,316 1,212 (1,127) 23 (1,104) (9,397) 19,714 $ 10,317 2,834 6,330 9,164 2,497 337 2,834 24,123 53,881 78,004 187 34 55,879 50,774 1,591 289 475,647 (1,988) (14) 308 (1,591) (41) (552) (16,922) (119) 2,622 50,774 6,578 45,844 7,114 432,193 55,993 27,186 1 27,187 27,185 1 27,186 231,410 8 231,418 27,713 27,713 $235,895 2005 (Millions of yen) 2006 (Thousands of U.S. dollars) (Note 1)

See accompanying notes to consolidated financial statements.

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Consolidated Statements of Cash Flows

Nippon Paint Co., Ltd. and Consolidated Subsidiaries Years ended March 31, 2006 and 2005
2006 (Millions of yen) Cash flows from operating activities: Income before income taxes and minority interests Adjustment to reconcile income before income taxes and minority interests to net cash provided by operating activities: Depreciation and amortization Interest and dividend income Interest expense Equity in earnings of affiliates Loss on sales or disposal of property, plant and equipment Gain on sales of an investment in a consolidated subsidiary and investments in securities, net of loss on devaluation of investments in securities Decrease in product warranty reserve Loss on impairment of fixed assets Increase in notes and accounts receivable Increase in inventories Increase in notes and accounts payable Other Subtotal Interest and dividend income received Interest paid Income taxes paid Net cash provided by operating activities Cash flows from investing activities: Purchases of property, plant and equipment Proceeds from sales of property, plant and equipment Purchases of investments in securities Proceeds from sales of investment in a subsidiary and investments in securities Other Net cash used in investing activities Cash flows from financing activities: (Decrease) increase in short-term bank loans, net Proceeds from long-term loans Repayment of long-term loans, including current portion Cash dividends paid Cash dividends paid to minority shareholders of consolidated subsidiaries Other Net cash used in financing activities Effect of exchange rate changes on cash and cash equivalents Net (decrease) increase in cash and cash equivalents Cash and cash equivalents at beginning of the year Increase in cash and cash equivalents resulting from initial consolidation of subsidiaries Cash and cash equivalents at end of the year See accompanying notes to consolidated financial statements. (6,694) 1,221 (1,723) (1,988) (320) (24) (9,528) 140 (1,759) 32,267 432 30,940 202 4,750 (7,363) (1,591) (364) (29) (4,395) 6 6,806 25,461 32,267 (56,980) 10,393 (14,666) (16,922) (2,724) (204) (81,103) 1,192 (14,973) 274,660 3,677 $263,364 (7,581) 769 (715) 2,333 388 (4,806) (6,411) 1,610 (394) 3,541 280 (1,374) (64,530) 6,546 (6,086) 19,859 3,302 (40,909) (1,398) 423 (189) (1,321) 2,663 (72) 15,679 1,275 (520) (3,999) 12,435 (1,163) (260) (2,861) (2,189) 4,382 376 13,225 2,023 (534) (2,145) 12,569 (11,900) 3,601 (1,609) (11,244) 22,668 (614) 133,461 10,853 (4,426) (34,041) 105,847 5,715 (398) 508 (2,322) 82 5,467 (329) 515 (2,263) 494 48,647 (3,388) 4,324 (19,765) 698 11,988 11,056 $102,043 2005 (Millions of yen) 2006

Notes to Consolidated Financial Statements

Nippon Paint Co., Ltd. and Consolidated Subsidiaries March 31, 2006 1. Basis of Preparation Nippon Paint Co., Ltd. (the "Company") and its domestic subsidiaries maintain their books of account in conformity with financial accounting principles generally accepted in Japan, and its overseas subsidiaries maintain their books of account in conformity with those of their countries of domicile. The accompanying consolidated financial statements of the Company and consolidated subsidiaries are prepared on the basis of accounting principles generally accepted in Japan, which are different in certain respects as to the application and disclosure requirements of International Financial Re2. Summary of Significant Accounting Policies porting Standards, and have been compiled from the consolidated financial statements prepared by the Company as required by the Securities and Exchange Law of Japan. The translation of Japanese yen amounts into U.S. dollar amounts is included solely for the convenience of readers outside Japan and has been made at 117.48 = U.S.$1.00, the exchange rate prevailing on March 31, 2006. This translation should not be construed as a representation that yen can be converted into U.S. dollars at the above or any other rate.

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

(a) Principles of Consolidation and Accounting for Investments in Unconsolidated Subsidiaries and Affiliates The accompanying consolidated financial statements include the accounts of the Company and any significant companies which it controls directly or indirectly. Companies over which the Company exercises significant influence in terms of their operating and financial policies have been included in the consolidated financial statements on an equity basis. All significant intercompany balances and transactions have been eliminated in consolidation. Investments in subsidiaries and affiliates which are not consolidated or accounted for by the equity method are carried at cost. The assets and liabilities of the consolidated subsidiaries are revalued at fair value as of the respective dates of acquisition of control by the full value method. Differences between the cost and the underlying net equity at fair value of investments in consolidated subsidiaries and in companies which are accounted for by the equity method are amortized principally by the straight-line method over 5 years. Minor differences are charged or credited to income in the year of acquisition. The balance sheet date of certain consolidated subsidiaries is December 31. Any significant differences in intercompany accounts and transactions arising from intervening intercompany transactions during the period from January 1 through March 31 have been adjusted, if necessary. (b) Foreign Currency Translation Foreign currency denominated monetary assets and liabilities are translated into yen at the rates of exchange in effect at the balance sheet date. All revenues and expenses associated with foreign currencies are translated at the rates of exchange prevailing when such transactions were made. Gain or loss resulting from the translation of foreign currency transactions is credited or charged to income as incurred. The balance sheet accounts of the overseas consolidated subsidiaries are translated into yen at the rates of exchange in effect at the balance sheet date, except for the compo-

nents of shareholders' equity which are translated at their historical exchange rates. Revenue and expense accounts are translated at the average rate of exchange in effect during the year. Translation adjustments are presented as a component of shareholders' equity and minority interests in the consolidated financial statements.

(c) Cash and Cash Equivalents Cash and cash equivalents consist of cash on hand, deposits with banks withdrawable on demand, and short-term investments, which are readily convertible to cash subject to an insignificant risk of any changes in their value and which were purchased with an original maturity of three months or less. (d) Allowance for Doubtful Accounts The allowance for doubtful accounts is calculated based on the historical experience with bad debts and an estimate of certain uncollectible amounts determined after an analysis of specific individual doubtful receivables. (e) Securities Securities other than those of subsidiaries and affiliates are classified into three categories: trading securities, held-to-maturity debt securities or other securities. Trading securities are carried at fair value, and gain or loss, both realized and unrealized, is credited or charged to income. Held-to-maturity debt securities are carried at amortized cost. Marketable securities classified as other securities are carried at fair value with any changes in unrealized holding gain or loss, net of the applicable income taxes, reported as a separate component of shareholders' equity. The cost of securities sold is determined by the moving-average method. Non-marketable securities classified as other securities are carried at cost determined by the moving-average method. (f) Inventories Inventories are stated principally at cost determined by the moving-average method.
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(g) Property, Plant and Equipment Property, plant and equipment are stated at cost. Depreciation is determined at rates based on the estimated useful lives of the respective assets by the declining-balance method, except for buildings (excluding attachments to the buildings) acquired on or after April 1, 1998 and assets of the overseas consolidated subsidiaries to which the straight-line method is applied.
The estimated useful lives adopted are principally as follows: Buildings and structures.............................. Machinery, equipment and vehicles............ Tools, furniture and fixtures.......................... 3 - 50 years 3 - 9 years 2 - 20 years

(h) Computer Software Expenditures related to computer software developed for internal use are charged to income when incurred, except if they are deemed to contribute to the generation of income or to future cost savings. Any such expenditure capitalized as an asset is amortized by the straight-line method over an estimated useful life of 5 years. (i) Income Taxes Deferred income taxes are recognized by the liability method. Under this method, deferred tax assets and liabilities are determined based on the differences between financial reporting and the tax bases of the assets and liabilities and are measured using the enacted tax rates and laws which will be in effect when the differences are expected to reverse. In accordance with the law on amendment of local tax laws and so forth, business scale taxation went into effect on April 1, 2004. A domestic corporation with capital in excess of 100 million is subject to business scale taxation on the basis of the total amount of value added, the size of its capital and its taxable income. Based on a new accounting standard for business scale taxation, the Company and certain of its domestic consolidated subsidiaries have accounted for business scale taxation with respect to value added and capital, as a component of selling, general and administrative expenses. Consequently, selling, general and administrative expenses for the year ended March 31, 2005 increased by 280 million and operating income and income before income taxes and minority interests for the year ended March 31, 2005 decreased by 280 million. (j) Accrued Retirement Benefits Accrued retirement benefits for employees have been provided mainly at an amount calculated based on the retirement benefit obligation and the fair value of the pension plan as-

sets as of balance sheet date, as adjusted for the unrecognized net retirement benefit obligation at transition, unrecognized actuarial gain or loss, and unrecognized prior service cost. The retirement benefit obligation is attributed to each period by the straight-line method over the estimated remaining years of service of the eligible employees. The net retirement benefit obligation at transition is being amortized over a period of 15 years by the straight-line method. Prior service cost is amortized in the year in which the gain or loss is recognized by the straight-line method over a period of 10 years, which is within the estimated average remaining years of service of the eligible employees. Net unrecognized actuarial gain or loss is amortized commencing the year following the year in which the gain or loss is recognized by the straight-line method over a period of 10 years, which is within the estimated average remaining years of service of the eligible employees. The Company and certain domestic consolidated subsidiaries have unfunded retirement benefit plans for directors and corporate auditors. The amounts required under these plans have been accrued in accordance with their internal regulations.

3. Change in Method of Accounting Effective the year ended March 31, 2006, the Company and its consolidated subsidiaries have adopted a new accounting standard for the impairment of fixed assets which requires that tangible and intangible fixed assets be carried at cost less depreciation, and be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company and its consolidated subsidiaries are required to recognize an impairment loss in their statement of income if certain indicators of asset impairment exist and if the book value of an asset exceeds the undiscounted sum of its future cash flows. The standard states that impairment losses are to be measured as the excess of the book value over the higher of (1) the fair market value of the asset, net of disposition costs, and (2) the present value of future cash flows arising from ongoing utilization of the asset and from its disposal after use. The 4. Securities a) Marketable securities classified as other securities at March 31, 2006 and 2005 are summarized as follows:
Acquisition cost Carrying value Unrealized holding gain (loss) Acquisition cost Carrying value Unrealized holding gain (loss) Acquisition cost Carrying value Unrealized holding gain (loss)

standard covers land, factories, buildings and other forms of property, plant and equipment as well as intangible assets. Fixed assets are to be grouped at the lowest level for which there are identifiable cash flows which are independent of the cash flows from other groups of assets. As a result of the adoption of this new accounting standard, a loss on impairment of land in the amount of 423 million ($3,601 thousand) was recognized and income before income taxes and minority interests decreased by the same amount for the year ended March 31, 2006 from the corresponding amount which would have been recorded under the previous method. The accumulated impairment loss on such assets has been deducted directly from the carrying amounts of the respective assets in the consolidated balance sheet at March 31, 2006.

Millions of yen

Thousands of U.S.dollars

(k) Leases The Company and its domestic consolidated subsidiaries lease certain equipment under noncancelable lease agreements referred to as finance leases. Finance leases other than those which transfer the ownership of the leased property to the Company and its domestic consolidated subsidiaries are accounted for as operating leases. (l) Hedge Accounting Gain or loss on derivatives designed as hedging instruments is deferred until the gain or loss on the underlying hedged item is recognized. Interest-rate swaps which meet certain conditions are accounted for as if the interest rates applied to the swaps had originally applied to the underlying debt. Receivables and payables hedged by forward foreign exchange contracts which meet certain conditions are translated at the corresponding foreign exchange contract rates. (m) Appropriation of Retained Earnings Under the Commercial Code of Japan, the appropriation of retained earnings with respect to a given financial period is made by resolution of the shareholders at a general meeting held subsequent to the close of the financial period and the accounts for the period, therefore, do not reflect such appropriations. Refer to Note 17.

2006
Securities whose carrying value exceeds their acquisition cost: Equity securities.................................. Securities whose carrying value does not exceed their acquisition cost: Equity securities.................................. Total....................................................

2005

2006

16,286

31,448

15,162

7,826

13,549

5,723

$138,628 $267,688

$129,060

186 16,472

170 31,618

(16) 15,146

9,557 17,383

8,628 22,177

(929) 4,794

1,583

1,447

(136) $128,924

$140,211 $269,135

b) Sales of securities classified as other securities for the years ended March 31, 2006 and 2005 are summarized as follows:
Millions of yen Thousands of U.S. dollars

c) The carrying value of investments in non-marketable securities at March 31, 2006 and 2005 was as follows:
Millions of yen Thousands of U.S. dollars

2006
Unlisted equity securities (except for those traded on the over-the-counter market) ..... Investments in limited liability partnerships engaged in investing activities ..................

2005 483

2006 $4,248

2006
Proceeds from sales .................................... Gain on sales ............................................... Loss on sales................................................

2005 2,663 817 7

2006 $19,859 12,768 0

499

2,333 1,500 0

100

851

5. Inventories Inventories at March 31, 2006 and 2005 consisted of the following:
Millions of yen Thousands of U.S. dollars

2006
Finished goods ..................................................................................................................................... Work in process .................................................................................................................................... Raw materials and supplies.................................................................................................................. Total ...............................................................................................................................................

2005 10,744 3,100 3,410 17,254

2006 $103,166 25,528 31,597 $160,291

12,120 2,999 3,712 18,831

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6. Short-term Bank Loans, Long-term Debt and Guarantee Deposits Received Short-term bank loans principally represent short-term loans with deeds. The average interest rates on these borrowings were 1.62% and 0.97% at March 31, 2006 and 2005, respectively. Long-term debt at March 31, 2006 and 2005 consisted of the following:
Millions of yen Thousands of U.S. dollars

The significant components of deferred tax assets and liabilities of the Company and its consolidated subsidiaries at March 31, 2006 and 2005 are summarized as follows:
Millions of yen Thousands of U.S. dollars

2006
Deferred tax assets: Accrued enterprise tax .................................................................................................................... Accrued bonuses ............................................................................................................................ Accrued retirement benefits for employees .................................................................................... Elimination of unrealized profit ........................................................................................................ Loss on devaluation of investments in securities ............................................................................ Foreign tax credits ........................................................................................................................... Tax loss carryforwards ..................................................................................................................... Other ................................................................................................................................................ Gross deferred tax assets ................................................................................................................ Less valuation allowance ....................................................................................................................... Total deferred tax assets .................................................................................................................. Deferred tax liabilities: Reserve for deferred taxation on gain on property included in retained earnings .......................... Net unrealized holding gain on securities ....................................................................................... Other ................................................................................................................................................ Total deferred tax liabilities .............................................................................................................. Net deferred tax assets ...................................................................................................................

2005 182 1,540 3,469 801 996 170 4,561 1,425 13,144 (4,776) 8,368 $

2006 1,915 13,109 31,835 6,631 7,210 1,583 46,799 10,938 120,020 (51,830) 68,190

2006
Secured: Loans from banks and life insurance companies ........................................................................... Unsecured: Loans from banks and life insurance companies ........................................................................... Less current portion

2005 84 18,908 18,992 (1,610) 17,382 $

2006 289 157,508 157,797 (13,253) $144,544

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18,504 18,538 (1,557) 16,981

The aggregate annual maturities of long-term debt subsequent to March 31, 2006 are summarized below:
Millions of yen Thousands of U.S. dollars

Year ending March 31, 2007 ...................................................... 2008 ...................................................... 2009 ...................................................... 2010 ...................................................... Total ......................................................

The assets pledged at March 31, 2006 as collateral for shortterm bank loans of 50 million ($426 thousand) and the current portion of long-term loans from banks and life insurance companies of 34 million ($289 thousand) were as follows:
Millions of yen Thousands of U.S. dollars

225 1,540 3,740 779 847 186 5,498 1,285 14,100 (6,089) 8,011

1,557 10,738 3,243 3,000 18,538

$ 13,253 91,403 27,605 25,536 $157,797

(16) (6,148) (481) (6,645) 1,366

(17) (1,942) (240) (2,199) 6,169

(136) (52,332) (4,095) (56,563) $ 11,627

Land Buildings and structures, at net book value Total ......................................................

128 140 268

$1,090 1,191 $2,281

8. Accrued Retirement Benefits for Employees The Company and its domestic consolidated subsidiaries have defined benefit plans, i.e., the welfare pension fund plan (WPFP), tax-qualified pension plans and lump-sum payment plans, covering substantially all employees who are entitled to lump-sum or annuity payments, the amounts of which are determined by reference to their basic rates of pay, length of service, and the conditions under which termination occurs. The following table sets forth the funded and accrued status of the plans, and the amounts recognized in the consolidated balance sheets at March 31, 2006 and 2005 for the defined benefit plans of the Company and its domestic consolidated subsidiaries:
Millions of yen Thousands of U.S. dollars

Guarantee deposits received, principally from customers, bore interest at an average annual interest rate of 0.03% at March 31, 2006 and 2005. 7. Income Taxes Income taxes applicable to the Company and its domestic subsidiaries comprise corporate tax, inhabitants' taxes and enterprise tax which, in the aggregate, resulted in statutory tax rate of 40.6% for the years ended March 31, 2006 and 2005. Overseas subsidiaries are subject to the income taxes of the countries in which they operate. The effective tax rates for the years ended March 31, 2006 and 2005 differed from the statutory tax rate for the following reasons:
2006 40.6% 2.4 (2.3) (7.3) 4.3 (6.7) 5.7 0.1 36.8% 2005 40.6% 2.7 (2.7) (6.6) 5.7 (6.3) (6.4) 1.7 28.7%

Statutory tax rate........................................................................................................................................................................... Permanently non-deductible expenses........................................................................................................................................ Permanently non-taxable income................................................................................................................................................. Equity in earnings of affiliates....................................................................................................................................................... Elimination of dividend income..................................................................................................................................................... Foreign tax credits........................................................................................................................................................................ Valuation allowances..................................................................................................................................................................... Unrealized gain............................................................................................................................................................................. Other.............................................................................................................................................................................................. Effective tax rates .........................................................................................................................................................................

2006
Retirement benefit obligation ......................... (67,357) 45,617 Plan assets at fair value ................................. Unfunded retirement benefit obligation ......... (21,740) (936) Prepaid pension cost ..................................... (1,153) Unrecognized prior service cost ................... 4,996 Unrecognized actuarial loss .......................... Unrecognized retirement 8,859 benefit obligation at transition .................... Accrued retirement benefits for employees .. (9,974)

2005

2006

(64,625) $(573,349) 35,680 388,296 (28,945) (185,053) (752) (7,968) (1,452) (9,814) 10,929 42,526 9,883 75,409 (10,337) $ (84,900)

The Company and certain consolidated subsidiaries made amendments to their WPFP with respect to the age of eligibility for annuity payments for the substitutional portion of the benefits and the additional portion of the benefits in accordance with certain amendments made to the Welfare Pension Insurance Law of Japan in March 2000. The Company also made amendments to the expected rates of return on its plan assets and to the discount rate on the annuity payments from their tax-qualified pension plans. As a result, prior service cost (a reduction of the retirement benefit obligation) was incurred for the year ended March 31, 2000. Prior service cost was also incurred with respect to a revision of the Company's defined benefit plans in July 2004. As permitted under the accounting standard for retirement benefits, the domestic consolidated subsidiaries calculate their retirement benefit obligation for their employees by simplified methods.

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The components of retirement benefit expenses for the years ended March 31, 2006 and 2005 are outlined as follows:
Millions of yen Thousands of U.S. dollars

2006
Service cost ................................................... Interest cost ................................................... Expected return on plan assets ..................... Amortization: Prior service cost ........................................... Actuarial loss ................................................. Retirement benefit obligation at transition ..... Additional retirement benefits paid to participants in a voluntary early retirement incentive program ...................................... Retirement benefit expenses ......................... Effect of application of standard method for calculation of retirement benefit obligation ... Total ................................................................

2005 2,473 1,378 (791) (207) 1,751 990 5,594 359 5,953

2006 $19,339 11,602 (7,448) (1,702) 13,373 8,716

2,272 1,363 (875) (200) 1,571 1,024

The retirement benefit expenses of the domestic consolidated subsidiaries whose retirement benefit obligation was calculated by simplified methods have been included in service cost in the above table. The assumptions used in the accounting for the above plans were as follows:
2006
Discount rate ............................................... Expected rate of return on plan assets .........................................

Location Osaka factory (Kita-ku, Osaka City) Okayama factory (Shoo Town, Okayama Prefecture) Office for rent (Oshu City, Iwate Prefecture) Overseas subsidiary (Europe) Domestic subsidiary (Minayoshi Town, Kagoshima City and other) Idle facility Idle facility

Use

Classification Buildings, machinery and equipment and other Buildings, machinery and equipment Land, buildings and other Buildings Land and other

Idle property and other Factories for paint production Idle property

2005 2.2% 2.5%

2.2% 2.5%

75 5,230 5,230

638 44,518 $44,518

9. Contingent Liabilities At March 31, 2006, the Company and its consolidated subsidiaries were contingently liable for guarantees of loans to companies other than the consolidated subsidiaries in the aggregate amount of 946 million ($8,052 thousand).

The Company and its consolidated subsidiaries have written down the net book value of the fixed assets presented in the above table to their recoverable value because the sum of their anticipated future cash flows had declined to less than their net book value as a result of continuous operating losses or suspension of use. Accordingly, an impairment loss totaling 423 million ($3,601 thousand) was recognized for the year

ended March 31, 2006, which consisted of loss on buildings, land and other fixed assets of 313 million ($2,664 thousand), 66 million ($562 thousand) and 44 million ($375 thousand), respectively. The recoverable amounts of the assets were measured at their estimated net selling value based principally on professional real estate appraisals.

12. Leases 10. Shareholders' Equity The Commercial Code of Japan (the "Code") provides that an amount equivalent to at least 10% of cash dividends paid and bonuses to directors and corporate auditors, and exactly 10% of interim cash dividends paid be appropriated to the legal reserve until the sum of additional paid-in capital and the legal reserve equals 25% of stated capital. The Code also provides that additional paid-in capital and the legal reserve are not available for dividends, but may be used to reduce a capital deficit by resolution of the shareholders or may be capitalized by resolution of the Board of Directors. The Code also stipulates that, to the extent that the sum of the additional paid-in capital account and the legal reserve exceeds 25% of the stated capital, the amount of any such excess is available for appropriation by resolution of the shareholders. Additional 11. Loss on Impairment of Fixed Assets The Company and its consolidated subsidiaries group their fixed assets by internal management segment into the paint business, the fine chemical business, rental assets and idle assets. The Company and its consolidated subsidiaries recorded a loss on impairment of fixed assets which is summarized as follows: paid-in capital and the legal reserve are included in capital surplus and retained earnings, respectively, in the accompanying consolidated balance sheets and consolidated statements of shareholders' equity. The legal reserve of the Company amounted to 3,995 million ($34,006 thousand) at March 31, 2006 and 2005. The new Corporation Law of Japan (the "Law"), which superseded most of the provisions of the Code, went into effect on May 1, 2006. The Law stipulates requirements on distributions of earnings which are similar to those of the Code. Under the Law, however, such distributions can be made at any time by resolution of the shareholders, or by the Board of Directors if certain conditions are met. The following pro forma amounts represent the acquisition costs, accumulated depreciation and net book value of the leased assets at March 31, 2006 and 2005, which would have
Acquisition Accumulated Net book costs depreciation value

been reflected in the consolidated balance sheets if finance lease accounting had been applied to the finance leases currently accounted for as operating leases:
Acquisition Accumulated Net book costs depreciation value Acquisition Accumulated Net book costs depreciation value
Thousands of U.S. dollars

Millions of yen

2006
Machinery, equipment and vehicles ........... Tools, furniture and fixtures ......................... Total .........................................................

2005 445 1,370 1,815 1,890 4,196 6,086 1,171 3,091 4,262 719 1,105 1,824 $11,193 42,118 $53,311

2006 $ 7,406 30,456 $37,862 $ 3,787 11,662 $15,449

1,315 4,948 6,263

870 3,578 4,448

Lease payments relating to finance leases accounted for as operating leaases amounted to 729 million ($6,205 thousand) and 968 million for the years ended March 31, 2006 and 2005, respectively, which were equal to the depreciation of the leased assets computed by the straight-line method over the respective lease terms assuming a nil residual value. Future minimum lease payments (including the interest portion thereon) subsequent to March 31, 2006 for finance leases are summarized as follows:
Millions of yen Thousands of U.S. dollars

Future minimum lease payments subsequent to March 31, 2006 for operating leases are summarized as follows:
Millions of yen Thousands of U.S. dollars

Year ending March 31, 2007 ...................................................... 2008 and thereafter .............................. Total ......................................................

371 1,910 2,281

$ 3,158 16,258 $19,416

Year ending March 31, 2007 ...................................................... 2008 and thereafter .............................. Total ......................................................

604 1,211 1,815

$ 5,141 10,308 $15,449

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13. Derivatives The Company's consolidated subsidiaries utilize forward foreign exchange contracts up to the limit of their underlying foreign currency receivable and payable balances to hedge the risk arising from adverse fluctuation in foreign currency exchange rates. The consolidated subsidiaries evaluate the credit risk associated with these forward foreign exchange contracts as minimal, as all counterparties are domestic banks with high credit ratings. The consolidated subsidiaries enter into derivatives transactions based on established internal guidelines. The results of these transactions are reported to the Boards of Directors 14. Research and Development Costs Research and development costs included in product manufacturing costs and in selling, general and administrative expenses for the years ended March 31, 2006 and 2005 15. Amounts Per Share Amounts per share at March 31, 2006 and 2005 and for the years then ended were as follows:
Yen U.S. dollars

16. Segment Information of the consolidated subsidiaries on a quarterly basis. One consolidated subsidiary also utilizes interest-rate swaps to mitigate the risk of adverse fluctuation in interest rates. The consolidated subsidiary evaluates the credit risk associated with these interest-rate swaps as minimal as all counterparties are domestic banks with high credit ratings. Disclosure of fair value information on forward foreign exchange contracts and interest-rate swaps at March 31, 2006 and 2005 has been omitted because all forward foreign exchange contracts and interest-rate swaps meet the criteria to qualify for hedge accounting. The Company and its consolidated subsidiaries are engaged in two business segments, the paint segment and the finechemical segment. The paint segment consists of automotive coatings, trade-use paints, industrial-use coatings, other paints and coatings, painting equipment and construction work related to painting facilities. The fine chemical segment consists of surface pretreatment chemicals, photo ED and blood serum separation polymers, color filter materials, printing plates and other items. The business segment information of the Company and its consolidated subsidiaries for the years ended March 31, 2006 and 2005 is outlined as follows:
Millions of yen

2006
Paint Segment Fine chemical Segment Total Eliminations or Corporate Consolidated

I. Sales and Operating Income

Sales to third parties ................................................................................... Intersegment sales ...................................................................................... Total sales .............................................................................................. Operating expenses ....................................................................................

amounted to 6,825 million ($58,095 thousand) and 7,028 million, respectively.

Operating income ..................................................................................

196,864 196,864 188,678 8,186 182,026 5,474 423 7,276

11,135 11,135 9,269 1,866 9,468 241 103

207,999 207,999 197,947 10,052 191,494 5,715 423 7,379

Millions of yen

207,999 207,999 197,947 10,052 243,685 5,715 423 7,379

II. Assets, Depreciation and Capital Expenditures

Assets .......................................................................................................... Depreciation ................................................................................................ Loss on impairment of fixed assets ............................................................. Capital expenditures ....................................................................................

52,191

2006
Net assets ...................................................... 456.58 24.77 Net income .................................................... 7.00 Cash dividends ..............................................

2005 404.72 26.79 7.00

2006 $3.886 0.211 0.060

Net assets per share are based on the number of shares of common stock outstanding at the year-end.

Net income per share is based on the weighted-average number of shares of common stock outstanding during each year. Diluted net income per share for the years ended March 31, 2006 and 2005 has not been presented because there were no potentially dilutive shares outstanding at March 31, 2006 and 2005. Cash dividends per share represent the cash dividends proposed by the Board of Directors as applicable to the respective years together with the interim cash dividends paid.

2005
Paint Segment Fine chemical Segment Total Eliminations or Corporate Consolidated

I. Sales and Operating Income

Sales to third parties ................................................................................... Intersegment sales ...................................................................................... Total sales .............................................................................................. Operating expenses .................................................................................... Operating income ..................................................................................

191,736 191,736 183,874 7,862 167,934 5,214 6,908

11,114 11,114 9,282 1,832 9,285 253 100

202,850 202,850 193,156 9,694 177,219 5,467 7,008

202,850 202,850 193,156 9,694 229,996 5,467 7,008

II. Assets, Depreciation and Capital Expenditures

Assets .......................................................................................................... Depreciation ................................................................................................ Capital expenditures ....................................................................................

52,777

Thousands of U.S dollars

2006
Paint Segment Fine chemical Segment Total Eliminations or Corporate Consolidated

I. Sales and Operating Income

Sales to third parties ................................................................................... Intersegment sales ...................................................................................... Total sales .............................................................................................. Operating expenses .................................................................................... Operating income ..................................................................................

$1,675,724 1,675,724 1,606,044 $ 69,680 $1,549,421 46,595 3,601 61,934

$94,782 94,782 78,898 $15,884 $80,593 2,052 877

$1,770,506 1,770,506 1,684,942 $ 85,564 $1,630,014 48,647 3,601 62,811

$1,770,506 1,770,506 1,684,942 $ 85,564 $2,074,268 48,647 3,601 62,811

II. Assets, Depreciation and Capital Expenditures

Assets .......................................................................................................... Depreciation ................................................................................................ Loss on impairment of fixed assets ............................................................. Capital expenditures ....................................................................................

$444,254

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Report of Independent Auditors

Sales to Overseas Customers Overseas sales, which include export sales of the Company and its domestic subsidiaries and sales (other than exports to Japan) of the overseas subsidiaries, for the years ended March 31, 2006 and 2005, are summarized as follows:
Millions of yen

2006
Asia Overseas sales ............................................................................................ Consolidated net sales ................................................................................ Overseas sales as a percentage of consolidated net sales ........................ North America Europe Total

The Board of Directors Nippon Paint Co., Ltd.

3,057 1.5% 25,963 207,999 12.5%

14,220 6.8%

8,686 4.2%

We have audited the accompanying consolidated balance sheets of Nippon Paint Co., Ltd.
Millions of yen

and consolidated subsidiaries as of March 31, 2006 and 2005, and the related consolidated statements of income, shareholders' equity, and cash flows for the years then ended, all
Europe Total

2005
Asia Overseas sales ............................................................................................ Consolidated net sales ................................................................................ Overseas sales as a percentage of consolidated net sales ........................ North America

expressed in yen. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in Japan. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit

12,097 6.0%

7,990 3.9%

2,742 1.4%

22,829 202,850 11.3%

Thousands of U.S. dollars

2006
Asia Overseas sales ............................................................................................ Consolidated net sales ................................................................................ North America Europe Total

includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

$121,042

$73,936

$26,021

$ 220,999 1,770,506

17. Subsequent Event The following appropriation of retained earnings, which has not been reflected in the accompanying consolidated financial statements for the year ended March 31, 2006, was approved at a shareholders' meeting of the Company held on June 29, 2006:
Thousands of U.S. dollars

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Nippon Paint Co., Ltd. and consolidated subsidiaries at March 31, 2006 and 2005, and the consolidated results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in Japan.
Millions of yen

Cash dividends (3.50 = U.S.$0.03 per share) ......................................................................................................................................

928

$7,899

Supplemental Information
As described in Note 3, the Company and its consolidated subsidiaries adopted a new accounting standard for the impairment of fixed assets effective the year ended March 31, 2006. The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the year ended March 31, 2006 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

June 29, 2006

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Nippon Paint Group

(as of March 31, 2006) (34 subsidiaries and 18 affiliates accounted for by the equity method)

Domestic Subsidiaries and Affiliates

Sales of automotive and industrial coatings:
Daiwa Paint Trading Co., Ltd.
2-25-1, Honjin-tori, Nakamura-ku, Nagoya-shi, Aichi-ken 453-0041, Japan Tel: 81-52-461-1311 Sells paints for automobiles

Overseas Subsidiaries and Affiliates

Nippe Fine Coatings, Inc.
4-1-15, Minami-shinagawa, Shinagawa-ku, Tokyo 140-0004, Japan Tel: 81-3-3740-1144 Manufactures and sells pre-coatings for metal sheets

Europe
NIPPON PAINT (EUROPE) LTD. (U.K.) NP AUTOMOTIVE COATINGS (EUROPE) LTD. (U.K.) AKZO NOBEL NIPPON PAINT HOLDINGS BV (The Netherlands)
Integrates businesses in Europe; export and import Manufactures and sells coatings and paints for automobiles Integrates coil paint businesses in Europe

Nippon Paint Marine Coatings Co., Ltd.

1-26, Komagabayashi-minami-cho, Nagata-ku, Kobe-shi, Hyogo-ken 6530045, Japan Tel: 81-78-735-5301 Manufactures and sells marine paints and coatings

Asia
DAIHAN AUTOMOTIVE COATINGS CO., LTD. (South Korea) DAIHAN BEE CHEMICAL CO., LTD. (South Korea) NIPSEA CHEMICAL CO., LTD. (South Korea) ASIA INDUSTRIES, LTD. (Taiwan) NIPPON PAINT (H.K.) CO., LTD. (Hong Kong, China) NIPPON PAINT (CHINA) CO., LTD. (Shanghai, China) GUANG LI CHEMICALS (SHANGHAI) CO., LTD. (Shanghai, China) GUANGZHOU NIPPON PAINT CO., LTD. (Guangzhou, China) NIPPON PAINT (CHENGDU) CO., LTD. (Chengdu, China) NIPPON PAINT PHILIPPINES, INC. (The Philippines) NIPPON PAINT (THAILAND) CO., LTD. (Thailand) NIPPON PAINT (MALAYSIA) SDN. BHD. (Malaysia) PAINT MARKETING COMPANY (M) SDN. BHD. (Malaysia) NIPPON PAINT (SINGAPORE) CO., PTE., LTD. (Singapore) NIPPON PAINT MARINE (CHINA) CO., LTD. (Shanghai, China) NIPPON PAINT MARINE (H.K.) CO., LTD. (Hong Kong, China) NIPPON PAINT MARINE (TAIWAN) LTD. (Taiwan) NIPPON PAINT MARINE (KOREA) LTD. (South Korea) NIPPON PAINT MARINE (MALAYSIA) SDN. BHD. (Malaysia) NIPPON PAINT MARINE (SINGAPORE) PTE., LTD. (Singapore) CHANGCHUN DUN YANG NBC CO., LTD. (Changchun, China) TIANJIN NBC CO., LTD. (Tianjin, China) NBC (NANJING) CO., LTD. (Nanjing, China) NBC (WUHAN) CO., LTD. (Wuhan, China) NBC (PANYU NANSHA) CHEMICAL CO., LTD. (Guangzhou, China) TUNG YANG CHEMICAL CO., LTD. (Taiwan) NBC (ASIA) CO., LTD. (Thailand) NB (SHANGHAI) TRADING CO., LTD. (Shanghai, China) NIPPE TRADING (SHANGHAI) CO., LTD. (Shanghai, China)
Manufactures and sells coatings and paints for automobiles Manufactures and sells paints and coatings for plastics Manufactures and sells metal-surface treatment chemicals Manufactures and sells many types of paints and coatings Integrates businesses in China; sells many types of paints and coatings Manufactures and sells many types of paints and coatings Manufactures and sells paints and coatings Manufactures and sells many types of paints and coatings Manufactures and sells many types of paints and coatings Manufactures and sells many types of paints and coatings Manufactures and sells many types of paints and coatings Manufactures and sells many types of paints and coatings Sells many types of paints and coatings Manufactures and sells many types of paints and coatings Manufactures and sells marine paints Manufactures and sells marine paints Manufactures and sells marine paints Manufactures and sells marine paints Manufactures and sells marine paints Manufactures and sells marine paints Manufactures and sells paints and coatings for plastics Manufactures and sells paints and coatings for plastics Manufactures and sells paints and coatings for plastics Manufactures and sells paints and coatings for plastics Manufactures and sells paints and coatings for plastics Manufactures and sells paints and coatings for plastics Research and technology services for coatings for plastics Sells paints and coatings for plastics Sells raw materials for paints and coatings

Sales of trade-use paints:

Nippon Paint Hanbai Co., Ltd.
4-7-16, Minami-shinagawa, Shinagawa-ku, Tokyo 140-8677, Japan Tel: 81-3-5479-3600 Manufactures and sells trade-use paints and related products

Nippon Bee Chemical Co., Ltd.

2-14-1, Shodai-otani, Hirakata-shi, Osaka-fu 573-1153, Japan Tel: 81-72-857-5530

Sales of industrial coatings:

Nippon Paint Industrial Coating Co., Ltd.
2F Access Oimachi Building, 1-49-15, Shinagawa-ku, Tokyo 140-0014, Japan Tel: 81-3-5743-5610 Sells many types of industrial paints and coatings

Manufactures and sells paints and coatings for plastics

Facility, construction and other engineering applications:

Nippon Liner Co., Ltd.
3F NV Tomioka Building 2-1-9, Tomioka, Koto-ku, Tokyo 135-0047, Japan Tel: 81-3-5646-2316 Designs and constructs road traffic safety facilities

Manufacture and sales of specialized paints and coatings:

AS Paint Co., Ltd.
30, Ikeshita, Ano-cho, Toyoake-shi, Aichi-ken 470-1141, Japan Tel: 81-562-92-1101 Manufactures and sells many types of paints

Nippon Paint Plant Engineering Co., Ltd.

2F-4F, Nippon Paint Esaka Building, 26-20, Enoki-cho, Suita-shi, Osaka-fu 564-0053, Japan Tel: 81-6-6190-6541 Carries out painting and coating work under contract

Nippe Home Products Co., Ltd.

4-1-15, Minami-shinagawa, Shinagawa-ku, Tokyo 140-0004, Japan Tel: 81-3-3740-1132 Manufactures and sells household paints and coatings

Other applications:
Nippe Trading Co., Ltd.
22-26, Esaka-cho 1-chome, Suita-shi, Osaka-fu 564-0063, Japan Tel: 81-6-6338-5651 Sells raw materials for paints and coatings

NP Color Plaza Co., Ltd.

Toyono-dai Techno Town Industrial Park, 1-563-8, Toyono-dai, Otonemachi, Kita Saitama-gun, Saitama-ken 349-1148, Japan Tel: 81-480-72-7716 Coordinates colors of paints and coatings

Nippe Graphics Co., Ltd.

4-1-15, Minami-shinagawa, Shinagawa-ku, Tokyo 140-0004, Japan Tel: 81-3-3740-1159 Sells printing-related materials

Nippon Paint Anti-Corrosive Coatings Co., Ltd.

3-7-1, Nishiura, Funabashi-shi, Chiba-ken 273-0017, Japan Tel: 81-47-434-1221 Manufactures and sells coatings and zinc powder

North America
NIPPON PAINT (USA) INC. (U.S.A.) NPA COATINGS INC. (U.S.A.) NIPPON PAINT RESEARCH INSTITUTE (AMERICA), INC. (U.S.A.) NIPPON BEE RESEARCH AMERICA, INC. (U.S.A.) MORTON NIPPON COATINGS (U.S.A.)
Integrates businesses in North America; export and import Manufactures and sells coatings and paints for automobiles Develops paints and colors for automobiles Researches and develops paints and coatings for plastics Manufactures and sells coatings (plastics) for automobiles

Eco Systems Co., Ltd.

33-1, Kanzaki-cho, Amagasaki-shi, Hyogo-ken 661-8555, Japan Treats waste coatings, paints and solvents

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History of Nippon Paint

Jujiro Shigeki, founder of Nippon Paint Gennosuke Kobata, founding father of Nippon Paint

DAC company, established in Korea

Shanghai Technology Center

Miyakojima Weathering Center

Tokyo Center Building

1881 1896

Komyosha (Japan's first paint manufacturing company) founded. Factory built in Minami Shinagawa (now the Tokyo Office) and production activities transferred there.
Komyosha companys nameplate

1963 1964 1965

Pan Malaysia Paint Industries (now Nippon Paint (Singapore) Co., Pte. Ltd.) established. Technical tie-up concluded with Copon Associates of the U.S. Nippon Liner Co., Ltd. established. Technical tie-up concluded with PPG Industries of the U.S. Technical tie-up concluded with Prismo Safety Corp. of the U.S.

1984

Basic elements of the corporate identity renewed, including corporate slogan, color and logo, around the theme of "Nippon Paint, a company that can be trusted." First stage of construction of the Okayama Plant completed.

1996

Daihan Automotive Coatings Co., Ltd. established. Langfang Nippon Paint Co., Ltd. established. Courtaulds Nippon Paint SA (France) established. Morton Nippon Coatings (U.S.A.) established. Courtaulds Nippon Paint SA (Spain) established. Joint R&D agreement concluded with Chemetall GmbH (Germany) in the field of surface treatment chemicals.

1985 1986 1987 1988 1989

Second stage of construction of the Okayama Plant completed. Second stage of construction of the Tochigi Plant completed. "Photo ED System," precision circuit fabrication technology for printed circuit boards, introduced. Third stage of construction of the Okayama Plant completed. First issue of "Kashiko" (Nippon Paint PR magazine) published. Production technology of construction paint licensed to China. Third R&D building at Neyagawa Office completed. Third stage construction of the Tochigi Plant completed. Fourth stage of construction of the Okayama Plant completed. Nippon Paint Finance Co., Ltd. established. Nippon Paint (Europe) Ltd. established. "Nippe Fine Toner" for electronic photocopiers introduced. "Surf" brand launched for pretreatment chemicals. 1999 1998 1997

1897 1898

Patent obtained for zinc oxide production method (Nippon Paint's first patent). Company incorporated and renamed Nippon Paint Manufacturing Co., Ltd. Hammer trademark created. 1967 1966

Technical tie-up and business collaboration agreement concluded with Daihan Ink and Paint Manufacturing Co., Ltd. of Korea. Hiroshima Plant completed. Nippon Paint presented with the Minister's Award by the Ministry of International Trade and Industry. Nippon Paint (Thailand) Co., Ltd. and Nippon Paint (Malaysia) Co., Ltd. established.

Eight marketing/sales companies for trade-use paints reorganized into five. New concept-based paint store "Colormony" opened. "NOA," the world's first commercialized paint system for ships, launched by Nippon Paint Marine Coatings Co., Ltd. The world's first super environmentally friendly "Cationic Electrolyzed Activate Deposition Paint" developed. Nippon Paint Industrial Coating Co., Ltd. established. Company-wide ISO 14001 certification awarded. Akzo Nobel Nippon Paint Holdings BV established in the Netherlands to expand coil coatings business. Tokyo Center Building completed.

1903 1905 1908 1911 1912 1913 1914 1920 1922 1924 1925 1927 1928 1929

Nippon Paint awarded first prize at the 5th Japan National Industrial Exhibition. First issue of The Paint Journal published. Paint Engineering Department established. Patent obtained for anti-fouling paint for ship hulls. First meeting of the Paint Society (a group of Tokyo and Yokohama area paint-related businesses) held. Daikoku-kai (society for sales outlets in Osaka) established. Having dominated the domestic market, the company expanded into China, India, and the South Pacific. Main operations moved to Osaka. Ebisu-kai (society for sales outlets in Tokyo) established. New office building constructed in Osaka. Tokyo Office rebuilt. "Hinomaru" trademark launched. Company name changed to Nippon Paint Co., Ltd. "Paint Knowledge Diffusion Group" founded. Company visited by the Chamberlain of Emperor Hirohito.

Komyotan

Osaka Branch Plant (now the Osaka Plant) opened in Sagisu Village.

1968

Research Center completed in Neyagawa City, Osaka. Technical license and sales agreement concluded with Marque Chemical Corporation in the Philippines. New York Office opened.

1969 1970

Technical assistance contract concluded with Sherwin-Williams Co. of the U.S. "NAPP" photo-sensitive resin printing plate material developed. Aichi Plant completed. Nippon Paint Enterprise (H.K.) Co., Ltd. established. 1990

A new method of production for LCD display color filters developed. Biotechnology-based "Hana-kirin zome" dyeing technology developed. Fourth stage of construction of the Tochigi Plant completed. 2000

Color STN LCD jointly developed with Sharp Corporation. The industry's first "Company Presentation" for investors launched. Nippon Paint's Environmental Report issued.

Advertisement from the end of the Meiji era

1971 1972 1973

Nippon Bee Chemical Co., Ltd. established. Nippon Paint International Co., Ltd. established. (now Nippe Trading Co., Ltd.) NAPP Systems (U.S.A.) Inc. established. Marine Laboratory established in Tamano City, Okayama. Nippon Paint sales companies established in the Kanto, Chubu, Kinki, and Kyushu areas.

1991

Nippe Graphics Co., Ltd. established. New Head Office building completed. Nippon Paint celebrated its 110th anniversary. New History Museum opened. Seabert Powder Coatings Inc. established in the U.S. "Ferri Sphere" magnetic microparticles for medical diagnostics developed. Nippon Paint Group General Welfare Center opened. Color Design Center completed. Sales agreement concluded with Ciba-Geigy Limited of Switzerland. 2003 2004 2002 2001

The ECO Action 21 environmental activities mark established. Eco Systems Co., Ltd. established as joint venture with Kansai Paint Co., Ltd. Started construction of Miyakojima Weathering Test Laboratory. Completed environmentally friendly steel coatings system employing lead-free and recyclable materials. Nippe Fine Coatings Co., Ltd. established. Guangzhou Nippon Paint Inc. established. Jpit, a support system for automotive maintenance and repair, launched. 100th "Colormony" paint store opened. Nippon Paint Anti-Corrosive Coatings Co., Ltd. established by consolidating the former Mitsui Kinzoku Paints and Chemicals Co., Ltd. Nippon Paint Hanbai Co., Ltd. established by merging the former five Nippon Paint sales companies. The new Nippon Paint Marine Coatings Co., Ltd. founded to develop marine coatings business worldwide through a new organization.

Hand-operated paint roller

1974 1975 1976 1977

Shikoku Nippe Sales Co. established. Asahi Solvent Kogyo Co., Ltd. established by consolidating AS Paint Co., Ltd. Chugoku and Hokkaido Nippe Sales companies established. Nippon Paint America Corp. established. Nippon Paint (Philippines) Inc. established. Nippla Co. established (now Nippon Paint Plant Engineering Co., Ltd.) Business agreement concluded with International Paint plc. of the U.K. (Now Courtaulds Coatings (Holdings) Ltd.) Tohoku Nippe Sales Co. established (for a total of 8 sales companies in Japan). 1992

"Koken" phenol resin paint marketed, marking the start of synthetic resin paint's popularity. 1931 1933 1939 1940 Headquarters moved to Osaka. Nichiman Paint Co., Ltd. established. Manchuria Nippon Paint Co., Ltd. established. Taiwan Nippon Paint Co., Ltd. established. Central Research Laboratory and Company Museum established at headquarters in Osaka. 1942 1945 1946 1948 1952 1959 1960 1962 North China Nippon Paint Co., Ltd. and Nichiman Forestry and Chemical Co., Ltd. established. Osaka Plant virtually destroyed by fire bombing. Nippon Paint Employees' Union formed. "Kozuchi-kai" (society for sales outlets throughout Japan) established. Technical tie-up concluded with the U.S. Company, American Chemical Products Inc. Japan Metal Finish Co., Ltd. established. New Tokyo Branch Office completed. First issue of "Kozuchi" (Nippon Paint in-house journal) published. First stage of construction of Chiba Plant completed.
Stirring paint in a Meiji era plant

"Flexceed," printing plates that can be developed in water, introduced. A waterborne recycle coating system that helps preserve the environment developed. Nippon Paint Otone Service Center completed. Supratech Systems Inc. established as a U.S. marketing subsidiary for "Flexceed" printing plates. Nippon Paint Color Design Studio (America) Inc. established. Nippon Paint (China) Co., Ltd. established.

1979 1980 1981

Osaka Plant held Labor Safety Week and was presented with the Minister of Labour's Award of Excellence. Resin plant moved to China. Nippon Paint celebrated its centennial. Meiji Memorial Building opened. First stage of construction of the Tochigi Plant completed. NAPP Systems (Japan) established.
Meiji Kinenkan

1993

A workshop for the use of "Flexceed" printing plates completed at the Okayama Plant. First stage of construction of the Fukuoka Plant completed. Courtaulds Coating (Holdings) Ltd. established. Iwate Service Center completed. Fifth stage of construction of the Tochigi Plant completed.

2005

e3 Series, coating systems for automobile repair paints, including the industry's first completely water-based coating system, are developed. The 2010 environmental target for the percentage sales volume of environmentally friendly products out of all products set at 100%.

1994

Marine Paint Division separated to form Nippon Paint Marine Coatings Co., Ltd. Nippon Paint Research Institute (America), Inc. established. Nippon Paint (Vietnam) Co., Ltd. established. Nippon Paint (Guangdong) Co., Ltd. established. Powder coating for automotive top clearcoats developed.

1982 1983

Hofu Branch Plant of Hiroshima Plant completed. Nippon Paint Training Center completed. Neyagawa Office reached 2,000 consecutive work days without an accident, totaling 3.9 million accident-free man-hours (class 2). Osaka and Chiba Plants both reached 2.6 million accident-free man-hours (class 1). 1995

Nippe Home Products Co., Ltd. established. Courtaulds Nippon Paint AB (Sweden) established. Nippon Paint acquires Mehnert und Veeck GmbH, Germany. NPA Coatings (U.S.A.) Inc. established. NP Automotive Coatings (Europe) Ltd. established. Suzhou Nippon Paint Co., Ltd. established. Nippon Paint (Chongqing) Chemicals Co., Ltd. established. NP Color Plaza Co., Ltd. established. "Filtec Nova," an adhesive EMC material, developed.
The Company Museum on the first floor of Nippon Paint Head Office displays the development of paints and coatings throughout history.

Early Meiji era filling process

Entan Plant, Tokyo, in the Meiji era

A Tokyo plant in the Meiji era

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Corporate Data

(as of June 29, 2006)

Offices and Plants Tokyo Office: 4-1-15, Minami-Shinagawa, Shinagawa-ku, Tokyo 140-8675, Japan Tel: 81-3-3474-1111 Neyagawa Office: 19-17, Ikeda Naka-machi, Neyagawa-shi, Osaka 572-8501, Japan Tel: 81-72-827-1111 Tochigi Plant: 12-2, Kiyohara Kogyo Danchi, Utsunomiya-shi, Tochigi-ken 321-3231, Japan Tel: 81-286-67-1221 Chiba Plant: 630 Sekishita, Togane-shi, Chiba-ken 283-0038, Japan Tel: 81-475-58-5111 Osaka Plant: 2-1-2, Oyodo-kita, Kita-ku, Osaka 531-8511, Japan Tel: 81-6-6458-1111 Aichi Plant: 3-1-5, Shinden-cho, Takahama-shi, Aichi-ken 444-1301, Japan Tel: 81-566-53-2525 Okayama Plant: 33-1, Taiheidai, Sho-o-cho, Katsuta-gun, Okayama-ken 709-4321, Japan Tel: 81-868-38-2525 Hiroshima Plant: 1-30, Nihooki-machi, Minami-ku, Hiroshima-shi 734-0057, Japan Tel: 81-82-256-3111 Hofu Plant: 851, Nishinoura, Azaichinomasu, Hofu-shi 747-0835, Japan Tel: 81-835-29-2277 Fukuoka Plant: 523-1, Oaza-hiyoshi, Hirokawa-machi, Yame-Gun, Fukuoka-ken 834-0111, Japan Tel: 81-943-32-5656 Research Laboratories Tokyo: 4-1-15, Minami-Shinagawa, Shinagawa-ku, Tokyo 140-8675, Japan Tel: 81-3-3474-1111 Neyagawa: 19-17, Ikeda Naka-machi, Neyagawa-shi, Osaka 572-8501, Japan Tel: 81-72-827-1111 Miyakojima Weathering Center: 3742 Hirara Aza-karimata, Miyakojima-shi, Okinawa-ken 906-0002, Japan Tel: 81-980-74-6633 Sales Offices and Representative Offices Sapporo, Sendai, Saitama, Tokyo, Yokohama, Nagoya, Kanazawa, Osaka, Hiroshima, Shikoku, Fukuoka, Okinawa Principal Overseas Bases New Jersey (U.S.A.), Swindon (U.K.), Seoul, Shanghai, Taipei, Manila, Bangkok, Kuala Lumpur, Singapore, Jakarta, Hanoi

Share Information
Overview of Shares: Number of Authorized Shares: 1,000,000,000 Number of Shares Outstanding: 265,402,443 Number of Shareholders: 18,511 Distribution of Shares:

(as of March 31, 2006)

Breakdown of Issued Shares by Shareholder Type (%)

Financial institutions0.38% Securities companies0.22% Other corporations1.78% Overseas institutions0.68%

Breakdown of Issued Shares by Size of Shareholding (%)

Individuals and others21.3% Overseas institutions15.5% Other corporations10.6%

Individuals and others96.94%

Securities companies0.5%

Financial institutions52.1%

"Breakdown of issured shared by size of shareholding" excludes any number of shares less than a full trading unit.

Principal Shareholders: Japan Trustee Services Bank, Ltd. (trust accounts) Nippon Life Insurance Company Sumitomo Life Insurance Company Sumitomo Mitsui Banking Corporation The Bank of Tokyo-Mitsubishi UFJ, Ltd. The Sumitomo Trust & Banking Co., Ltd. The Master Trust Bank of Japan, Ltd. (trust accounts) Nippon Paint Employees Stockholding Meiji Yasuda Life Insurance Company Nippon Paint Special Agents Stockholding Share Price Range
(Yen)

(Thousand shares)

13,813 12,651 10,750 9,999 9,933 9,053 8,583 7,366 5,901 5,631

Head Office

Company Name: Nippon Paint Co., Ltd. Head Office: 2-1-2, Oyodo-kita, Kita-ku, Osaka 531-8511, Japan Tel: 81-6-6458-1111 Established: March 14, 1881 Capital: 27,713 million yen Employees: 1,627 (as of March 31, 2006) Directors: Shizuo Katsunaga, Representative Director and Chairman Makoto Matsuura, Representative Director and President Kiyohiko Chijiiwa, Representative Director and Executive Vice President Lines of Business: Paint Divisions: Manufacture and sales of all types of paints (for automobiles, construction, architecture, steel structures, ships, metals, electrical equipment, machinery, roadways, households, etc.) Non-paint Divisions: Manufacture and sales of surface treatment chemicals, electronic component materials, chemical products, printing materials, and design and construction of industrial plants. Shares Listed: Tokyo Stock Exchange, First Section Osaka Securities Exchange, First Section Nagoya Stock Exchange, First Section

600

500 400

Trading Volume
300 200 100
(Thousand shares)

25,000 20,000 15,000 10,000 5,000 0 0

(2003)

Apr.

May

Jun.

Jul.

Aug.

Sep.

Oct.

Nov.

Dec.

(2004)

Jan.

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Mar.

Apr.

May

Jun.

Jul.

Aug.

Sep.

Oct.

Nov.

Dec.

(2005)

Jan.

Feb.

Mar.

Apr.

May

Jun.

Jul.

Aug.

Sep.

Oct.

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Dec.

(2006)

Jan.

Feb.

Mar.

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