08 30-12 tokaicarbon presentation-q1_2

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Financial Results for the Year Ended December 31, 2011—(J-GAAP) Consolidated

February 10, 2012

Company name: Tokai Carbon Co., Ltd. Listings: Tokyo Stock Exchange, first section Security code: 5301 URL: http://www.tokaicarbon.co.jp/ Representative: Yoshinari Kudo, President and CEO Contact: Kazuhiko Matsubara, General Manager, Accounting Department,

Corporate Administration Division Tel: +81-3-3746-5100 Scheduled dates Annual shareholders’ meeting: March 29, 2012 Commencement of dividend payments: March 30, 2012 Submission of financial statements: March 29, 2012 Supplementary reference documents to support the financial statements:

Yes

Explanatory meeting to discuss the financial statements will be held:

Yes (for institutional investors and analysts only)

1. Consolidated Financial Results for the Year Ended December 31, 2011

(January 1, 2011 to December 31, 2011)

(Amounts rounded down to the nearest million yen) (1) Operating Results

(Percentage figures represent year-on-year changes)

Net sales Operating income Ordinary income Net income

million yen % million yen % million yen % million yen %

Year ended December 31, 2011

104,924 (2.6) 10,467 (1.0) 10,104 2.5 6,119 8.7


107,679 29.3 10,575 99.6 9,854 97.4 5,630 110.5

Note: Comprehensive Income:

Year ended December 31, 2011: ¥2,634 million (-21.3%)

Year ended December 31, 2010: ¥3,347 million ( —%)

Net income per share

Net income per share—fully

diluted

Return on equity

Ordinary income / Total assets

Operating income / Net sales

yen yen % % %


28.66 — 5.9 6.4 10.0


26.05 — 5.4 6.4 9.8

Note: Equity method investment gains or losses:

Year ended December 31, 2011: ¥189 million

Year ended December 31, 2010: ¥361 million

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(2) Financial Position

Total assets Net assets

Shareholders’ equity ratio

Net assets per share

million yen million yen % yen

As of December 31, 2011 161,563 107,223 64.5 488.30

As of December 31, 2010 155,304 105,605 66.6 484.53

Note: Shareholders’ equity:

As of December 31, 2011: ¥104,282 million


(3) Cash Flow Position

Cash flows from

operating activities Cash flows from

investing activities Cash flows from

financial activities

Cash and cash equivalents at end of period

million yen million yen million yen million yen


12,771 (10,666) 2,629 18,565


18,586 (6,088) (6,795) 14,005

2. Dividends

Dividend per share Total

dividends

paid

(full year)

Payout ratio

(consolidated)

Dividends /

Net assets

(consolidated) Record date End of 1st

quarter

End of 2nd

quarter

End of 3rd

quarter Year-end Full-year

yen yen yen yen yen million yen % %

Year ended December 31,

2010 — 4.00 — 4.00 8.00 1,725 30.7 1.7

Year ended December 31,

2011 — 4.00 — 4.00 8.00 1,708 27.9 1.6

Year ending December 31, 2012 (forecast)

— 4.00 — 4.00 8.00 29.5

3. Forecast of Consolidated Earnings for the Ending December 31, 2012

(January 1, 2012 to December 31, 2012)

(Percentages represent year-on-year changes for the full year and increase/decrease from the same period of the previous year for the first six months)

Net sales Operating income Ordinary income Net income Net

income per share

First six months

million yen % million yen % million yen % million yen % yen

53,000 0.2 4,200 (22.2) 4,200 (22.3) 2,500 35.3 11.71

Full year 114,000 8.6 10,000 (4.5) 10,100 0.0 5,800 (5.2) 27.16

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4. Other Information (1) Changes affecting the status of significant subsidiaries (changes in specified subsidiaries

that involved changes in the scope of consolidation): None (2) Changes in accounting principles, procedures, and method of disclosure used to prepare

the consolidated financial results (changes incorporated in the “significant changes in methods of disclosure used to prepare consolidated financial statements”)

1) Changes in accordance with amendments to accounting standards: Yes 2) Changes other than the above: None Note: Please refer to ―Changes in Basis of Preparation of Consolidated Financial Statements ‖

on page 31. (3) Number of shares issued (common stock)

1) Number of shares issued at end of the period (including treasury stock):

As of December 31, 2011: 224,943,104 shares As of December 31, 2010: 224,943,104 shares

2) Number of shares held in treasury at end of the period:

As of December 31, 2011: 11,380,765 shares As of December 31, 2010: 11,368,713 shares

3) Average Number of shares during the period

Year ended December 31, 2011: 213,566,879 shares Year ended December 31, 2010: 216,163,687 shares

Note: For the number of shares that is the basis for calculating net income per share

(consolidated), refer to ―Per Share Information‖ on page 47.

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Reference: Overview of Non-Consolidated Financial Results

1. Non-Consolidated Financial Results for the Year Ended December 31, 2011 (January 1, 2011 to December 31, 2011)

(1) Operating Results

(Percentage figures represent year-on-year changes)

Net sales Operating income Ordinary income Net income

million yen % million yen % million yen % million yen %


65,261 (5.0) 4,654 (4.8) 5,294 6.2 3,233 23.3


68,662 32.2 4,891 107.6 4,986 53.9 2,621 845.6

Net income per

share Net income per

share—fully diluted

yen yen


15.14 —


12.13 —

(2) Financial Position

Total assets

Net assets Shareholders’

equity ratio Net assets per

share

million yen million yen % yen

As of December 31, 2011 132,618 87,384 65.9 409.18

As of December 31, 2010 130,953 88,061 67.2 412.32

Note: Shareholders’ equity:



*Presentation of implementation status for audit procedure

The audit procedure based on the Financial Instruments and Exchange Act does not apply to these Financial

Results, and the audit procedure based on the Financial Instruments and Exchange Act had not been completed

as of the release of these Financial Results.

*Appropriate Use of Earnings Forecasts and Other Important Information

These materials contain various forward-looking statements and other forecasts regarding performance and other

matters. Such statements are based on information available at the time of preparation as well as certain

reasonable assumptions. Actual results may differ materially from those expressed or implied by forward-looking

statements due to a range of factors. For the assumptions underlying the earnings forecasts presented and other

information regarding the use of such forecasts, refer to ―1. Business Results (1) Analysis of Business Results‖ on

page 6-7.

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Contents of the “Attachments” Section

1. Business Results ··································································································· 6

(1) Analysis of Business Results ··············································································· 6 (2) Analysis of Financial Position··············································································· 7 (3) Dividend Policy and 2011-12 Dividends ································································· 8 (4) Business and Other Risks ··················································································· 9

2. The Corporate Group ····························································································· 11 3. Management Policy ······························································································· 13

(1) Basic Corporate Philosophy ··············································································· 13 (2) Management Goals and Objectives ····································································· 13 (3) Medium-Term Management Strategies ································································· 13 (4) Issues to be Addressed by the Company ······························································ 14 (5) Other Important Management Issues ··································································· 14

4. Consolidated Financial Statements ··········································································· 15

(1) Consolidated Balance Sheets ············································································· 15 (2) Consolidated Statements of Operations and Comprehensive Income ·························· 17

(Consolidated Statement of Operation) ································································· 17 (Consolidated Statement of Comprehensive Income) ··············································· 18

(3) Consolidated Statements of Changes in Shareholders’ Capital ··································· 19 (4) Consolidated Statements of Cash Flows ······························································· 21 (5) Notes on the going concern assumption ······························································· 23 (6) Basis for Preparation of Consolidated Financial Statements ······································ 23 (7) Changes in Basis of Preparation of Consolidated Financial Statements ······················· 31

Changes in Method of Presentation ······································································ 31 Additional Information ······················································································· 32

(8) Notes to Consolidated Financial Statements ·························································· 33 (Consolidated Balance Sheets) ··········································································· 33 (Consolidated Statements of Operations) ······························································ 34 (Consolidated Statements of Comprehensive Income) ·············································· 37 (Consolidated Statements of Changes in Net Assets) ··············································· 38 (Consolidated Statements of Cash Flows) ····························································· 40 (Segment Information) ······················································································· 41 (Per Share Information) ····················································································· 47 (Subsequent material events) ············································································· 47 (Disclosures Omitted) ························································································ 47

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1. Business Results

(1) Analysis of Business Results The global economy during 2011 was gradually recovering, led by emerging economies. From summer onward, however, the recovery inevitably slowed, owing primarily to the European debt crisis and the deceleration of growth in emerging economies. Although the Japanese economy recovered somewhat, reflecting the recovery in the global economy, but economic activities fell sharply on equipment damage and supply chain disruptions that were due to the Great East Japan Earthquake. Later, supported by a quick restoration of supply chains and by restoration and recovery from the earthquake, the economy returned to pre-earthquake levels in summer. However, due to the deceleration in the overseas economy from immediately thereafter, the rapid appreciation in the yen, as well as the flooding in Thailand, the recovery of the Japanese economy slowed. Under such circumstances, the industries in which the Tokai Carbon Group’s customers operate (e.g., rubber products, steel, IT hardware, and industrial machinery) also suffered a decrease in demand due to the earthquake. However, with the recovery of their production activities, demand also headed for recovery. Furthermore, as for operations at Tokai Carbon Ishinomaki Plant (Ishinomaki City, Miyagi Prefecture), which had been suspended because of the earthquake, recovery operations were carried out with a view to resuming operations, and some operations were resumed by the end of the fiscal year under review, as planned. As a result, consolidated net sales for the fiscal year under review decreased 2.6% year on year, to ¥104,924 million. As for profits and losses, operating income decreased 1.0% year on year, to ¥10,467 million, and ordinary income rose 2.5% year on year, to ¥10,104 million. In addition, although the Group recorded a loss on disaster of ¥2,682 million under extraordinary losses due to the Great East Japan Earthquake, partly because of its recording a ¥1,852 million gain on sales of investment securities under extraordinary income, net income in the fiscal year under review increased 8.7% year on year to ¥6,119 million. The performance of our principal business segments is as follows: Please note that the Group has changed its segmentations from the consolidated fiscal year under review. For matters related to business segments as part of the segment information disclosure, please refer to 4. Consolidated Financial Statements (8) Notes to Consolidated Financial Statements (Segment Information). In addition, comparisons with the previous fiscal year are calculated by adjusting data for the previous fiscal year into the new business segment classifications. Carbon Black Although there was a decline in automobile production because of the earthquake and the flooding in Thailand, supported by steady production in the tire industry both within and outside Japan, demand remained generally strong. Nonetheless, due to the prolonged suspension of operations at the Ishinomaki Plant that resulted from the earthquake, sales volumes inevitably declined from March onward. Furthermore, the Group revised its sales prices in response to the rise in raw oil prices. As a result of these factors, net sales in the Carbon Black segment increased 0.2% year on year, to ¥40,077 million, and operating income rose 3.4% year on year, to ¥5,942 million. Carbon and Ceramics Graphite Electrodes With the world crude steel production remaining at high levels above 100 million tons per month, and with electrode demand recovering, sales volume to North America increased but those to Asia decreased. In addition, although the Group strived to focus on profitability, sales prices both domestically and overseas remained low, partly due to the effect of appreciation in the yen. Consequently, net sales of graphite electrodes fell 17.4% year on year to ¥30,954 million.

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Fine Carbon Domestic sales slumped temporarily on the impact of the earthquake. Yet sales remained strong on the sharp rebound in demand due to the production restoration among customers and strong demand in industries including solar cells and semiconductors, mainly in China, South Korea, and other Asian countries. Nonetheless, in the fourth quarter, due to a sudden deterioration of market conditions related to solar cells and the like in China and South Korea, and due to the effect of yen appreciation, net sales to overseas customers fell sharply. As a result, net sales of fine carbon products rose 21.7% from the previous fiscal year to ¥18,904 million. Due to these factors, net sales in the Carbon and Ceramics segment decreased 6.0% year on year, to ¥49,858 million, and operating income fell 9.1% year on year, to ¥4,447 million.

Industrial Furnaces and Related Products In IT-related industries, which are the Group’s main demanders, sales did well in the first half of the year amid a slow recovery. In the second half of the year, however, due to the credit uncertainty in Europe and the continuing strong yen, restraint in capital investment gradually increased, and sales of industrial furnaces, the Group’s key products, remained at a low level, similar to that of the previous fiscal year. Furthermore, since the effect of yen appreciation was large on the glass and electronic component industries as well, sales of heating elements and related products decreased from the previous fiscal year. As a result of these factors, net sales in the Industrial Furnaces and Related Products segment decreased 4.0% year on year to ¥5,401 million, and operating income increased 14.4% year on year to ¥1,125 million. Other Operations Friction Materials Sales to construction machinery industries, the Group’s main demanders, slowed for some machinery uses in the second half of the year as a consequence of China’s financial tightening measures. Nonetheless, overall sales remained steady as sales of friction materials for mining construction machinery increased. In addition, demand for friction materials for two-wheeled vehicles, four-wheeled vehicles, and agricultural machinery showed a rising trend. As a result, net sales of friction materials rose 12.4% year on year to ¥8,644 million. Others Net sales from property leasing and other businesses decreased 28.7% year on year to ¥941 million. Due to these factors, net sales in the Other Operations segment increased 6.4% year on year to ¥9,586 million, with operating income increasing 52.2% year on year to ¥588 million.

Outlook for the Year Ending December 31, 2012 Assuming an exchange rate of ¥75 to the U.S. dollar, the Group forecasts 2012 consolidated net sales of ¥114,000 million, operating income of ¥10,000 million, ordinary income of ¥10,100 million, and net income of ¥5,800 million. Furthermore, the Group forecasts that the balance of cash and cash equivalents at the end of the fiscal year will be approximately ¥10,000 million.

(2) Analysis of Financial Position

Assets, Liabilities, and Net Assets 1) Assets At December 31, 2011, consolidated assets totaled ¥161,563 million, an increase of ¥6,259 million from December 31, 2010. Current assets in the fiscal year under review totaled ¥88,421 million, a ¥6,736 million increase from the previous fiscal year, reflecting an increase mainly in inventories. Fixed assets totaled ¥73,142 million, a decrease of ¥476 million from the previous fiscal year, as a rise was recorded mainly in tangible fixed assets but a decline was recorded mainly in investment securities.

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2) Liabilities Consolidated liabilities totaled ¥54,340 million at December 31, 2011, an increase of ¥4,642 million from the previous fiscal year. Current liabilities accounted for ¥45,439 million, up ¥16,813 million from the previous fiscal year, as a result of an increase mainly in the current portion of long-term debt. Fixed liabilities totaled ¥8,901 million, a decrease of ¥12,170 million from the previous fiscal year, because of a decrease mainly in long-term debt. 3) Net assets Consolidated net assets at the end of the fiscal year under review totaled ¥107,223 million, an increase of ¥1,617 million from the previous fiscal year, due to an increase mainly in retained earnings. As a result, at the end of the fiscal year under review, the Group’s shareholders' equity ratio was 64.5%, down 2.1 percentage points from December 31, 2010.

Cash Flows At the end of the fiscal year under review, the Group’s cash and cash equivalents totaled ¥18,565 million, up ¥4,560 million from the previous fiscal year. Cash flows and the major sources and uses of cash in fiscal year 2011 are summarized as follows. 1) Cash flow from operating activities Operating activities provided net cash of ¥12,771 million, a decrease of ¥5,814 million from fiscal year 2010, due to mainly an increase in inventories. 2) Cash flow from investing activities Investing activities used net cash of ¥10,666 million, an increase of ¥4,577 million from fiscal year 2010, due to mainly an increase in the purchase of tangible fixed assets. 3) Cash flow from financing activities Financing activities provided net cash of ¥2,629 million, an increase of ¥9,425 million from fiscal year 2010, due primarily to an increase in borrowings.

Cash Flow Metrics Year ended December 31, 2007 2008 2009 2010 2011

Shareholders' equity ratio (%) 62.8 59.7 67.2 66.6 64.5

Shareholder's equity ratio at market value (%) 126.5 46.8 64.7 69.4 55.3

Ratio of debt to cash flow 1.1 3.3 1.8 1.0 1.7

Interest coverage ratio (times) 18.6 9.0 21.7 28.8 24.0

Notes: 1. The above ratios were calculated as follows using consolidated financial statement data.

Shareholders' equity ratio: shareholders' equity / total assets Shareholders' equity ratio at market value: market capitalization / total assets Ratio of debt to cash flow: interest-bearing debt / operating cash flow Interest coverage ratio: operating cash flow / interest expense

2. Market capitalization was calculated by multiplying the Company’s year-end closing share price by the number of shares outstanding (net of treasury stock) at year-end.

3. Interest-bearing debt was calculated as the sum of all consolidated on-balance-sheet liabilities upon which interest is payable.

4. Operating cash flow and interest expense are respectively "net cash provided by (used in) operating activities" and "interest paid" as reported on Consolidated Statements of Cash Flows.

(3) Dividend Policy and 2011-12 Dividends In the aim of increasing shareholder returns, enhancing corporate value, and strengthening the Group’s operational foundation, the Company has adopted a policy of setting dividends based on its earnings status viewed from a medium-term perspective, while also maintaining sufficient retained earnings. The Company retains earnings to fund strategic investments in new businesses, including M&A, invest in improving existing operations' efficiency, solidify its financial condition, and maintain stable dividends. For the fiscal year ended December 31, 2011, the Company plans to pay year-end dividend of ¥4 per share, the same as that of the previous period. The year-end dividend will bring total 2011 dividends to ¥8 per share. For 2012, the Company plans to pay total annual dividends of ¥8 per share, consisting of an interim dividend of ¥4 per share and year-end dividend of ¥4 per share.

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(4) Business and Other Risks

This section describes the Group’s business and other risks that are thought to have material influence on investors’ decisions. The following does not necessarily cover all the risks associated with the Group. It should be noted that the following contains forward looking statements based on judgments made as of the dissemination date hereof (February 10, 2012).

1) Changes in supply-demand conditions in domestic and overseas markets

The Group operates business globally through active sales operations in both domestic and overseas markets with production bases in Asia, Europe, and the U.S. Therefore, sales of the Group’s products are always affected by changes in global and Japanese economic conditions. The Group promotes productivity improvements and cost reductions to maintain a business structure that is not easily affected by changes in business environment. Nevertheless, declines in demand from associated industries and economic slowdowns in regions where the Group’s products are sold may have significant negative impacts on the Group’s business results and financial standing.

2) Risks associated with overseas operations

The Group is moving forward with expansions into overseas markets, and overseas sales accounted for 49.5% of the Group’s consolidated net sales last year. Risks associated with overseas expansion include the worsening of political and economic situations in overseas markets, regulations on imports, unexpected revisions of statutes, deterioration of public order, riots, terrorist attacks, and wars. Such occurrences may affect the Group’s business results and financial position. In particular, in recent years the Group has been expanding its carbon black and fine carbon businesses in China—it has established a carbon black manufacturing and sales base in the country in response to growing demand for tires there and a fine carbon processing and sales base to meet increasing demand for solar cell and semiconductor-related carbon materials. Therefore, changes in the political and economic climate in China in particular could have a significant impact on the Group’s business results.

3) Foreign exchange fluctuations

The Group is engaged in foreign currency denominated transactions in selling its products to overseas customers and in purchasing raw materials from overseas suppliers. Its business is therefore affected by movements in foreign exchange rates. Although the Group hedges foreign exchange related risks through measures such as forward foreign exchange contracts, the effects of rapid fluctuations in exchange rates on business results and financial position cannot be fully eliminated. Given the Group’s current foreign exchange position, appreciation of the yen against major currencies such as the U.S. dollar and Euro tends to adversely affect its business results. Conversely, a weaker yen against these currencies tends to benefit its business results.

4) Price competition

As a leading company in carbon products—the Group’s main business—the Group aims to provide high quality products at lower prices, thereby further bolstering its competitive advantage, and maintaining a highly profitable business structure. However, moves by competitors such as those to enhance product capabilities and lower selling prices, may expose the Group’s products to fierce price competition, which may lead to a lower market share and declines in net sales at the Group. Such occurrences may have a significant impact on the Group’s business results.

5) Rise in raw material prices

The Group procures raw materials from a number of domestic and overseas suppliers in order to ensure a stable supply of raw materials and to maintain optimal prices. However, raw material prices may fluctuate significantly depending on the future course of the world economy. The Group is making efforts to minimize the impact of such events on its business results through measures that include strengthening cost competitiveness, passing price rises on to product prices, and cultivating new suppliers. However, in the event of extreme difficulty in procuring raw materials or further hikes in raw material prices, the Group’s business results may be adversely affected.

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6) Research and development Competing companies supplying products similar those of the Group exist in every sector in which the Group operates. To maintain its competitive edge, the Group first carefully selects target markets and then engages in research and development and the commercialization of new products. However, failure to properly respond to changes in technologies and customer requirements or prolonged development periods may hurt the Group’s growth potential and profitability and adversely affect the Group’s business results and financial standing.

7) Intellectual property rights

The Group holds a wide variety of patents and trademarks and has acquired ownership of and rights to intellectual property. The Group strives to strictly control its intellectual property and constantly monitors possible infringements by third parties. However, the Group may encounter difficulty in fully protecting its intellectual property rights from infringement by third parties, and this may adversely affect the Group’s business activities. Further, should the Group’s proprietary products inadvertently infringe on the intellectual property rights of other parties, the Group may be liable for damage compensation, and this may affect the Group’s business results.

8) Environmental regulations

The Group’s core businesses are resource- and energy-intensive and have high environmental impacts. Although the Group strives to reduce the environmental load of its businesses by establishing certain facilities, enhancing control structures, and improving productivity, the future application of stricter environment-related legislation and more pronounced demands from society regarding environmental responsibilities may adversely affect the Group’s business results and financial standing.

9) Securities held by the Group

The Group holds shares in financial institutions and certain of its customers and therefore may be affected by stock price movements. The Group does not use hedging instruments to protect itself against movements in stock prices.

10) Regulatory environment

The Group operates its business in compliance with laws and regulations, and its operations, both domestic and overseas, are subject to various statutory and regulatory restrictions. Going forward, there may be increased regulatory restrictions related to the environment, recycling, and international trade. The implementation of such regulations could further restrict the Group’s business operations and increase costs, which may affect the Group’s business results.

11) Legal disputes

Although the possibility of new legal disputes with the potential to materially affect the Group’s financial position and business results arising is slight, the occurrence of such disputes in the future may have a material impact on the Group’s business results.

12) Natural disasters and large-scale accidents

The Group places strong emphasis on ensuring safety and preventing accidents at its plants, and regards such efforts as a critical element in its manufacturing operations. However, natural and man-made disasters, such as earthquakes, typhoons, tsunamis, floods, and terrorist attacks may hamper the Group’s manufacturing operations, severely damage social infrastructure, and lead to other unanticipated situations. If such events occur, the Group’s business results may be significantly affected.

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2. The Corporate Group Tokai Carbon group (the ―Group‖) comprises Tokai Carbon Co., Ltd. (the ―Company‖), 25 subsidiaries, and 6 affiliates. The principal business fields of the Group, and the respective positions of the Company and its related companies within each of the business fields, as well as information on the linkages of the Company and its related companies with segments, are as follows. Carbon Black The Company, Thai Tokai Carbon Product Co., Ltd., and Tokai Carbon (Tianjin) Company Ltd. engage in production and sales of carbon black for use in rubber products, black pigments, and conductive materials. Tokai Transportation Co., Ltd., operates a general cargo trucking business and a cargo handling business. The Company outsources transportation and packaging of its products to Tokai Transportation. Carbon and Ceramics The Company engages in production and sales of artificial graphite electrodes for use in electric arc furnaces for steel production, fine carbon (specialty carbon products), carbon brushes, and impervious graphite, as well as in production and sales of other products. The Company outsources processing of fine carbon and other materials to Tokai Fine Carbon Machining Co., Ltd., and to Oriental Sangyo Co., Ltd. Tokai Fine Carbon Machining Co., Ltd., also engages in sales of fine carbon and other materials, while Oriental Sangyo Co., Ltd., also engages in production and sales of pencil lead-cores and in other businesses. Tokai Carbon (Shanghai) Co., Ltd., engages in sales of fine carbon. Tokai Carbon Electrode Sales, Inc., and Tokai Carbon Electrode Sales LLC. engage mainly in sales of artificial graphite electrodes. Tokai Carbon U.S.A., Inc., and MWI, Inc., engage in production and sales of fine carbon. Tokai ErftCarbon GmbH engages in production and sales of artificial graphite electrodes, while Tokai Carbon Europe GmbH, Tokai Carbon Europe, Ltd., Tokai Carbon Italia S.R.L, Svensk Specialgrafit AB, Tokai Carbon Deutschland GmbH, and Carbon-Mechanik GmbH engage in businesses related to fine carbon. Furthermore, as a joint venture, Tokai Carbon Korea Co., Ltd., engages in production and sales of fine carbon, while SGL Tokai Carbon, Ltd., Shanghai engages in processing and sales of artificial graphite electrodes, and Dalian Tokai-Jinqi-Fuji Carbon Co., Ltd., engages in processing and sales of fine carbon. SGL Tokai Process Technology Pte. Ltd. engages in businesses related to impervious graphite. Industrial Furnaces and Related Products Tokai Konetsu Kogyo Co., Ltd., engages in production and sales of industrial furnaces, gas furnaces, silicon carbide, alumina refractory materials, insulating firebrick, silicon carbide heating elements, and ceramic resistors. Tokai Konetsu Engineering Co., Ltd., Shanghai Tokai Konetsu Co., Ltd., and Heisei Ceramics Co., Ltd., also engage in the business field of industrial furnaces and related products. Other Operations The Company engages in production and sales of friction materials as well as in property leasing business. Tokai Material Co., Ltd., Mitomo Brake Co., Ltd., Daiya Tsusho Co., Ltd., and Tokai Noshiro Seiko Co., Ltd., engage in businesses related to friction materials. Lancom Toyo Co., Ltd., engages mainly in development and sales of computer software. Nagoya Green Club Co., Ltd., engages in management of golf driving ranges. An overview diagram of the aforementioned matters is as follows.

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Group structure

Sell half-finished products Sell products

Buy raw materials

Sell products

Commission delivery

Sell products

Supply raw materials

Buy products

Sell products Sell and buy products

Sell products

※

Rent facilities

Sell products

Sell products

Purchase software

Rent facilities

Tokai Carbon Korea Co., Ltd.

※ Tokai Material Co., Ltd.

※ Mitomo Brake Co., Ltd.

Nagoya Green Club Co., Ltd.

○

○

※ Tokai Carbon (Shanghai) Co., Ltd.

※

※ Tokai Unyu Co., Ltd.

Industrial Furnaces and Related

Products

※ Tokai Noshiro Seiko Co., Ltd.

※ Daiya Tsusho Co., Ltd.

※ Shanghai Tokai Konetsu Co., Ltd.

Heisei Ceramics Co., Ltd.

※ Tokai Carbon U.S.A., Inc.

※

Buy products

Tokai Carbon Europe Ltd.

Carbon-Mechanik GmbH

SGL Tokai Process Technology Pte.

Ltd.

Tokai Carbon Italia S.R.L.

To

ka

i Ca

rbo

n C

o., L

td.

MWI, Inc.

Tokai Fine Carbon Machining Co., Ltd.

※

※

※

○

Supply raw materials

Carbon and Ceramics Carbon Black

※ Thai Tokai Carbon Product Co., Ltd.

※

※

※

※ Tokai Carbon Electrode Sales Inc.

○ SGL Tokai Carbon Ltd. Shanghai

Tokai Konetsu Engineering Co.,

Ltd.

※

Oriental Sangyo Co., Ltd.

Tokai ErftCarbon GmbH

※

Tokai Konetsu Kogyo Co., Ltd.

Tokai Carbon Europe GmbH

※ Tokai Carbon Electrode Sales LLC.

Tokai Carbon (Tianjin) Company Ltd.

○Dalian Tokai-Jinqi-Fuji Carbon Co.,

Ltd.

Other Operations

○

Lancom Toyo Co., Ltd.

◎

◎

Tokai Carbon Deutschland GmbH

Svensk Specialgrafit AB

※

Notes:

1. ※: Consolidated subsidiaries

◎: Non-consolidated subsidiaries not accounted for under the equity method

○: Affiliated companies accounted for under the equity method

2. Erema Sangyo Co., Ltd., has changed its corporate name to Tokai Konetsu Engineering Co., Ltd. 3. Tokai Carbon UK Ltd., which had been a consolidated subsidiary, has completed liquidation. Therefore, it is

excluded from the scope of consolidation.

13

3. Management Policy (1) Basic Corporate Philosophy

The Group operates under the corporate philosophy, ―Ties of Reliability,‖ and the basic policies governing its activities comprise the principles of ability to create value, fairness, ecology, and internationalism. The Group’s aim is to be the ―Global Leader of Carbon Materials” within and outside of Japan by supplying high-quality products with a focus on carbon materials. Through these corporate activities, the Group has been working to expand its operating base, optimize the utilization of management resources, bolster cost competitiveness, and strengthen technology development capabilities. By achieving sustained earnings growth, the Group seeks to fulfill the expectations of its shareholders, customers, and employees as well as those of local communities and all other stakeholders. The Group contributes to the development of society, acting as a responsible corporate citizen.

(2) Management Goals and Objectives The Group considers net sales, operating margin, ordinary income ratio, net income ratio, ROA (ordinary income/total assets), and ROE (net income/equity) to be important performance indicators.

(3) Medium-Term Management Strategies

The Group has formulated a new three-year management plan, ―T-2012,‖ which begins in 2010. In this management plan, the Group has defined specific numerical targets for 2012, its final year, which are to achieve net sales of ¥120 billion, operating income margin of 13% (operating income of ¥15.6 billion), ordinary income ratio of 13% (ordinary income of ¥15.6 billion) and net income ratio of 7.5% (net income of ¥9 billion), ROA (ordinary income/total assets) of 9% and ROE (net income/equity) of 8%. The following management policies will be deployed by the Group to achieve these targets.

1) Aiming to be the global leader of carbon materials The Tokai Group follows the basic policies it has been implementing since the deployment of ―T-2006,‖ and aims to achieve superiority in terms of magnitudes of sales, earnings power, technical capabilities, and product development capabilities as it continues to work towards its goal of becoming the global leader in the manufacture of carbon materials. In addition, the Group places priority on activating human resources through frequent personnel changes among group companies, including overseas affiliates, and on developing and enhancing the abilities of personnel to facilitate success in global expansion efforts.

2) Developing a cost structure that is resistant to demand fluctuations and improving capital efficiency The Tokai Group strives to develop a cost structure that allows it to generate profits stably even under a low capacity utilization rate in response to demand fluctuations. In addition, the Group focuses its efforts on increasing asset turnover ratio and improving cash flows.

3) Accelerating commercialization of development items The Group is working to accelerate the commercialization of highly functional and reliable development items by promoting joint development with other companies and educational and public institutions, as well as by strengthening inter-group and inter-divisional cooperation, and commercializing such items to make a business with the potential to drive its sustainable growth for the future.

4) Emphasizing CSR activities including environmental protection Building on its efforts to date, and being aware of the energy-intensive nature of the industries in which it operates, the Group will further increase its commitment to activities in this area, particularly those aimed at preventing global warming (reduction of CO2 emission units).

14

(4) Issues to be Addressed by the Company The Japanese economy is expected to see a continuation of its recovery trend, due to policy effects centering on recovery demand and to moderate growth in the world economy. Yet there are still causes for concern such as the overseas economy’s slowdown resulting from the increasing severity of the European debt crisis and the slowdown in Japanese exports resulting from the continuing yen appreciation. Consequently, the outlook does not seem to allow optimism. Under such circumstances, the Group will continue to follow the path toward becoming the ―Global Leader of Carbon Materials.” Under the corporate philosophy of ―Ties of Reliability‖ and in accordance with its four guidelines (ability to create value, fairness, ecology, and internationalism), the Group will strive to enhance its corporate value. At the same time, it will make all-out efforts to achieve the ―T-2012" three-year management plan, whose first fiscal year was 2010, as it continues its challenge of achieving sustainable growth. Furthermore, as for the next fiscal year, which is the last year of the ―T-2012" three-year management plan, a severe business environment is forecast. Consequently, it will be extremely difficult to achieve the numerical targets for performance such as net sales and operating margin. Nevertheless, with all employees united in their efforts, the Group will strive for improvement in its business performance. In addition, the Group intends to pay greater attention to the fundamentals of a manufacturing company, namely, security assurance, quality control, and environmental protection, and it will continue to make efforts to strengthen corporate governance and corporate social responsibility (CSR). Furthermore, the Group also intends to strengthen its business infrastructure by implementing, assessing, and improving its internal control reporting system for financial reporting in compliance with the Financial Instruments and Exchange Act (J-SOX).

(5) Other Important Management Issues Not applicable

15

4. Consolidated Financial Statements (1) Consolidated Balance Sheets

(millions of yen)

As of December 31, 2010 As of December 31, 2011

Amount Amount

Assets

Current assets

Cash and cash equivalents 12,076 14,572

Notes and accounts receivable *6 31,494 *6 28,543

Securities ― 2,000

Merchandise and finished goods 9,171 10,138

Work in process 15,413 16,621

Raw materials and supplies 9,282 11,219

Deferred tax assets 688 884

Other 3,622 4,494

Allowance for doubtful accounts (65) (53)

Total current assets 81,684 88,421

Fixed assets

Tangible fixed assets

Buildings and structures, net 15,155 15,051

Machinery, equipment and vehicles,

net 20,189 19,052

Furnaces, net 2,542 2,232

Land 7,087 7,053

Construction in progress 5,053 10,951

Other, net 886 824

Total tangible fixed assets *1 50,916 *1 55,166

Intangible fixed assets

Software 465 359

Other 24 23

Total intangible fixed assets 490 382

Investments and other assets

Investment securities *2 20,451 *2 15,712

Deferred tax assets 244 344

Other *2 1,570 *2 1,593

Allowance for doubtful accounts (54) (57)

Total investment and other assets 22,212 17,593

Total fixed assets 73,619 73,142

Total assets 155,304 161,563

16

(millions of yen)

As of December 31, 2010 As of December 31, 2011

Amount Amount

Liabilities

Current liabilities

Notes and accounts payable *6 15,051 *6 16,059

Short-term borrowings *3 5,992 *3 9,216

Current portion of long-term debt 280 10,255

Income taxes payable 1,350 1,249

Consumption tax payable 377 49

Accrued expenses 1,222 2,116

Reserve for bonuses 175 180

Deferred tax liabilities — 0

Other *6 4,175 *6 6,311

Total current liabilities 28,625 45,439

Fixed liabilities

Long-term debt 12,162 1,747

Deferred tax liabilities 4,209 2,541

Provision for retirement benefits 2,411 2,341

Reserve for directors’ retirement

benefits 226 140

Reserve for executive officers’

retirement benefits 58 50

Provision for environment and safety

measures 924 871

Other 1,080 1,209

Total fixed liabilities 21,072 8,901

Total liabilities 49,698 54,340

Net assets

Shareholders' capital

Common stock 20,436 20,436

Additional paid-in capital 17,502 17,502

Retained earnings 71,387 75,798

Treasury stock (7,126) (7,130)

Total Shareholders’ capital 102,200 106,606

Other accumulated comprehensive

income

Net unrealized gains/losses on other

securities 5,823 3,539

Deferred hedge gain/loss 0 0

Foreign currency translation

adjustments (4,541) (5,863)

Total other accumulated

comprehensive income 1,282 (2,323)

Minority interests 2,123 2,940

Total net assets 105,605 107,223

Total liabilities and net assets 155,304 161,563

17

(2) Consolidated Statements of Operations and Comprehensive Income (Consolidated Statement of Operation)

(millions of yen)

Year ended

December 31, 2010

Year ended

December 31, 2011

Amount Amount

Net sales 107,679 104,924

Cost of sales *1,*4 83,330 *1,*4 80,965

Gross profit 24,348 23,958

Selling, general and administrative expenses

Selling expenses *2 4,844 *2 4,408

General and administrative expenses *3,*4 8,928 *3,*4 9,082

Total selling, general and administrative

expenses 13,773 13,491

Operating income 10,575 10,467

Non-operating income

Interest income 29 101

Dividend income 347 384

Rental income 293 279

Equity in income of non-consolidated

subsidiaries and affiliates 361 189

Subsidy income *5 203 —

Other non-operating income 440 485

Total non-operating income 1,675 1,439

Non-operating expense

Interest expense 649 531

Foreign exchange loss 934 535

Other non-operating expense 812 735

Total non-operating expense 2,396 1,802

Ordinary income 9,854 10,104

Extraordinary income

Gain on sales of investment securities — 1,852

Compensation for removal — 161

Reversal of provision for environment and

safety measures 50 —

Gain on sales of fixed assets *6 37 —

Total extraordinary income 87 2,013

Extraordinary losses

Loss on disaster — *7 2,682

Loss on adjustment for changes of accounting

standard for asset retirement obligations — 55

Impairment loss *8 440 *8 25

Loss on valuation of membership — 18

Provision for environment and safety

measures 289 —

Total extraordinary losses 729 2,782

Income before income taxes 9,211 9,336

Income taxes, inhabitants tax, and enterprise

taxes 2,789 3,041

Income taxes adjustments 443 (104)

Total income taxes 3,232 2,937

Income before minority interests — 6,399

Minority interests in income (loss) of

consolidated subsidiaries 347 279

Net income 5,630 6,119

18

(Consolidated Statement of Comprehensive Income)

(millions of yen)

Year ended

December 31, 2010

Year ended

December 31, 2011

Amount Amount

Income before minority interests — 6,399

Other comprehensive income

Valuation difference on available-for-sale

securities — (2,284)

Deferred gains or losses on hedges — (0)

Foreign currency translation adjustment — (1,377)

Share of other comprehensive income of

associates accounted for using equity method — (102)

Total other comprehensive income — *2 (3,764)

Comprehensive income — *1 2,634

(breakdown)

Comprehensive income attributable to owners

of the parent company — 2,513

Comprehensive income attributable to

minority interests — 121

19

(3) Consolidated Statements of Changes in Shareholders’ Capital

(millions of yen)

Year ended

December 31, 2010

Year ended

December 31, 2011

Amount Amount

Shareholders’ capital

Common stock

Balance at the end of the previous period 20,436 20,436

Changes of items during the period

Total changes of items during the period — —

Balance at the end of the period 20,436 20,436

Additional paid-in capital



Total changes of items during the period — —


Retained earnings



Dividends from surplus (1,742) (1,708)


Disposal of treasury stock (1) (0)

Total changes of items during the period 3,887 4,410


Treasury stock

Balance at the end of the previous period (5,111) (7,126)


Purchase of treasury stock (2,017) (5)

Disposal of treasury stock 3 1

Total changes of items during the period (2,014) (4)

Balance at the end of the period (7,126) (7,130)

Total shareholders’ capital



Dividends of surplus (1,742) (1,708)




Total changes of items during the period 1,873 4,406


20

(millions of yen)

Year ended

December 31, 2010

Year ended

December 31, 2011

Amount Amount

Other accumulated comprehensive income

Net unrealized gains/losses on other

securities



Net changes of items other than

shareholders’ capital (164) (2,284)

Total changes of items during the period (164) (2,284)


Deferred hedge gain/loss

Balance at the end of the previous period — 0



shareholders’ capital 0 (0)

Total changes of items during the period 0 (0)

Balance at the end of the period 0 0

Foreign currency translation adjustments

Balance at the end of the previous period (2,166) (4,541)



shareholders’ capital (2,375) (1,321)

Total changes of items during the period (2,375) (1,321)

Balance at the end of the period (4,541) (5,863)

Total other accumulated comprehensive

income





Total changes of items during the period (2,539) (3,606)

Balance at the end of the period 1,282 (2,323)

Minority interests




shareholders’ capital 229 817

Total changes of items during the period 229 817


Total net assets



Dividends of surplus (1,742) (1,708)






Total changes of items during the period (436) 1,617


21

(4) Consolidated Statements of Cash Flows

(millions of yen)

Year ended

December 31, 2010

Year ended

December 31, 2011

Amount Amount

Cash flows from operating activities:

Income before income taxes 9,211 9,336

Depreciation and amortization 8,853 8,286

Impairment loss 440 25

Increase (decrease) in allowance for doubtful

accounts (45) (8)

Increase (decrease) in reserve for bonuses 5 5

Increase (decrease) in provision for retirement

benefits 170 37

(Increase) decrease in prepaid pension cost (227) (237)

Increase (decrease) in reserve for directors’

retirement benefits (32) (85)

Increase (decrease) in reserve for executive

officers’ retirement benefits (15) (8)

Increase (decrease) in provision for environment

and safety measures 196 (52)

Interest and dividends income (376) (485)

Interest paid 649 531

Foreign exchange (gain) loss 213 68

Equity in (income) loss of non-consolidated

subsidiaries and affiliates (361) (189)

Subsidy income (203) —

Loss (gain) on sales of investment securities — (1,852)

(Gain) loss on sales of fixed assets (37) —

Compensation for transfer — (161)

Loss on disaster — 2,682

Loss on adjustment for changes of accounting

standard for asset retirement obligations — 55

(Increase) decrease in trade receivables (4,045) 2,524

(Increase) decrease in inventories 1,816 (5,209)

Increase (decrease) in trade payables 5,037 1,275

Increase (decrease) in accrued expenses (50) 256

Increase (decrease) in accounts payable-others — 543

(Increase) decrease in advance payment — (244)

Increase (decrease) in accrued consumption

taxes 223 (328)

Other 218 (689)

Subtotal 21,641 16,078

Interest and dividends received 434 523

Interest paid (645) (531)

Income taxes paid (3,046) (3,008)

Proceeds from subsidy 203 —

Proceeds from compensation for removal — 161

Payment amount of loss on disaster — (450)

Net cash provided by (used in) operating activities 18,586 12,771

22

(millions of yen)

Year ended

December 31, 2010

Year ended

December 31, 2011

Amount Amount

Cash flows from investing activities:

Proceeds from withdrawal of time deposits 238 68

Purchase of tangible fixed assets (6,374) (12,906)

Sales of tangible fixed assets 159 —

Purchase of intangible fixed assets (98) (143)

Purchase of investment securities — (117)

Proceeds from sales of investment securities — 2,939

Purchase of stocks of subsidiaries and affiliates — (506)

Other (14) (0)

Net cash provided by (used in) investing activities (6,088) (10,666)

Cash flows from financing activities:

Net increase (decrease) in short-term borrowings (4,386) 3,630

Proceeds from long-term debt 1,385 —

Repayment of long-term debt (10) (273)

Purchase of treasury stock (2,017) —

Dividend paid (1,742) (1,708)

Proceeds from minority shareholders — 1,023

Cash dividends paid to minority shareholders (26) (52)

Other 2 9

Net cash provided by (used in) financing activities (6,795) 2,629

Effect of exchange rate changes on cash and cash

equivalents (674) (174)

Increase (decrease) in cash and cash equivalents 5,027 4,560

Cash and cash equivalents at beginning of the

period 8,977 14,005

Cash and cash equivalents at end of the period *1 14,005 *1 18,565

23

(5) Notes on the Going Concern Assumption Not applicable

(6) Basis for Preparation of Consolidated Financial Statements FY2010

January 1, 2010 to December 31, 2010 FY2011

January 1, 2011 to December 31, 2011

1. Scope of consolidation

(1) Number of consolidated subsidiaries: 24 companies

Names of the consolidated subsidiaries: Tokai Konetsu Kogyo Co., Ltd., Tokai Material Co., Ltd., Tokai Fine Carbon Machining Co., Ltd., Oriental Sangyo Co., Ltd., Tokai Noshiro Seiko Co., Ltd., Tokai Transportation Co., Ltd., Thai Tokai Carbon Product Co., Ltd., Tokai Carbon (Tianjin) Company Ltd., Tokai Carbon (Shanghai) Co., Ltd., Tokai Carbon U.S.A., Inc., Tokai Carbon Electrode Sales Inc., Tokai Carbon Electrode Sales L.L.C., Tokai Erftcarbon GmbH, Tokai Carbon Europe GmbH, Tokai Carbon Europe Ltd., Tokai Carbon UK LTD., Tokai Carbon Italia S.R.L., Svenskspecial Grafit AB, Tokai Carbon Deutschland GmbH, Carbon-Mechanik GmbH, Erema Sangyo Co., Ltd., Shanghai Tokai Konetsu Co., Ltd., Mitomo Brake Co., Ltd., Daiya Tsusho Co., Ltd.

(1) Number of consolidated subsidiaries: 23 companies

Names of the consolidated subsidiaries: Tokai Konetsu Kogyo Co., Ltd., Tokai Material Co., Ltd., Tokai Fine Carbon Machining Co., Ltd., Oriental Sangyo Co., Ltd., Tokai Noshiro Seiko Co., Ltd., Tokai Transportation Co., Ltd., Thai Tokai Carbon Product Co., Ltd., Tokai Carbon (Tianjin) Company Ltd., Tokai Carbon (Shanghai) Co., Ltd., Tokai Carbon U.S.A., Inc., Tokai Carbon Electrode Sales Inc., Tokai Carbon Electrode Sales L.L.C., Tokai Erftcarbon GmbH, Tokai Carbon Europe GmbH, Tokai Carbon Europe Ltd., Tokai Carbon Italia S.R.L., Svensk Specialgrafit AB, Tokai Carbon Deutschland GmbH, Carbon-Mechanik GmbH, Tokai Konetsu Engineering Co., Ltd., Shanghai Tokai Konetsu Co., Ltd., Mitomo Brake Co., Ltd., Daiya Tsusho Co., Ltd. Tokai Carbon UK Ltd. has been excluded from the scope of consolidation, as it has completed liquidation.

(2) Names, etc., of principal non-consolidated subsidiaries 1) Principal non-consolidated subsidiaries Nagoya Green Club Co., Ltd. Lancom Toyo Co., Ltd.

(2) Names, etc., of principal non-consolidated subsidiaries 1) Principal non-consolidated subsidiaries Nagoya Green Club Co., Ltd. Lancom Toyo Co., Ltd.

2) Reason for exclusion from scope of consolidation Each of the non-consolidated subsidiaries are small in corporate size, and their total combined assets, net sales, net income/loss (corresponding to the equity amount) and retained earnings (corresponding to the equity amount), etc., do not have significant impact on the consolidated financial statements. For these reasons, the non-consolidated subsidiaries are excluded from the scope of consolidation.

2) Reason for exclusion from scope of consolidation

Same as on the left.

24

FY2010 January 1, 2010 to December 31, 2010


2. Application of equity method

(1) Number of non-consolidated affiliates accounted for by the equity method:

6 companies Names of the affiliates: Tokai Carbon Korea Co., Ltd., SGL Tokai Carbon Ltd., Shanghai, Heisei Ceramics Co., Ltd., MWI, Inc., Dalian Tokai-Jinqi-Fuji Carbon Co., Ltd., SGL Tokai Process Technology PTE. Ltd.

(1) Number of non-consolidated affiliates accounted for by the equity method:

6 companies Names of the affiliates: Tokai Carbon Korea Co., Ltd., SGL Tokai Carbon Ltd., Shanghai, Heisei Ceramics Co., Ltd., MWI, INC., Dalian Tokai-Jinqi-Fuji Carbon Co., Ltd., SGL Tokai Process Technology PTE. Ltd.

(2) Since the impact of each of the non-consolidated subsidiaries not accounted for by the equity method (Nagoya Green Club Co., Ltd., and Lancom Toyo Co., Ltd.) on consolidated net income/loss and consolidated retained earnings, etc., is minor, and since, on the whole, the impact of both companies is insignificant. Therefore, they are excluded from the scope of application of the equity method.

(2) Same as on the left.

(3) Of the companies accounted for by the equity method, for those that have a closing date that differs from the consolidated closing date, the financial statements for each such company’s financial year are used.

(3) Same as on the left.

3. Fiscal years, etc., of consolidated subsidiaries

The closing date of the consolidated subsidiaries coincides with the consolidated closing date.


4. Accounting standards

(1) Valuation standard and valuation method for important assets 1) Securities Other securities

Securities with fair market value: Stated at fair market value based on the quoted market price at fiscal year-end (any valuation differences are included in net assets in full, and cost of securities sold is computed by the moving average method).

(1) Valuation standard and valuation method for important assets 1) Securities Other securities

Securities with fair market value: Same as on the left.

Securities without fair market value: Stated at cost determined by the moving average method.

Securities without fair market value: Same as on the left.

25



2) Inventories The Company and its domestic consolidated subsidiaries adopt the cost method based on the monthly weighted average method (For figures shown on the balance sheet, values are written down to their book values based on their decreased profitability). In addition, overseas consolidated subsidiaries mainly adopt the lower-of-cost-or-market method based on the first-in first-out method.

2) Inventories Same as on the left.

3) Derivatives Derivative instruments are valued by the market value method.

3) Derivatives Same as on the left.

(2) Depreciation method of important depreciable assets 1) Tangible fixed assets (excluding lease assets) The Company and its domestic consolidated subsidiaries mainly adopt the declining-balance method. However, they adopt the straight-line method to buildings (excluding facilities attached to the buildings) acquired on or after April 1, 1998. Overseas subsidiaries mainly adopt the straight-line method. The main useful lives are as follows. Buildings and structures 2–60 yrs Machinery, equipment and vehicles

2–22 yrs

Furnaces 8–10 yrs

(2) Depreciation method of important depreciable assets 1) Tangible fixed assets (excluding lease assets)


2) Intangible fixed assets (excluding lease assets) The straight-line method is adopted. For software for internal use, the Company and its domestic consolidated subsidiaries adopt the straight-line method over the estimated useful life (five years).

2) Intangible fixed assets (excluding lease assets)


26



3) Lease assets Lease assets are amortized by the straight-line method, assuming the lease period as the useful life and no residual value. Of non-ownership-transfer finance lease transactions, accounting treatment based on ordinary lease transactions continues to be adopted to those for which the lease transaction start date is on or before December 31, 2008.

3) Lease assets Same as on the left.

(3) Recognition of important allowances 1) Allowance for doubtful accounts The allowance for doubtful accounts is provided at an amount determined based on a reasonable standard such as the historical experience of bad debt for ordinary accounts. For specific accounts such as doubtful accounts receivable, the collectability is determined individually, and the estimated uncollectible amount is recorded.

(3) Recognition of important allowances 1) Allowance for doubtful accounts


2) Provision for retirement benefits In providing for payments of employees’ retirement benefits, the Company and its domestic consolidated subsidiaries record an amount based on the estimated retirement benefit obligations and estimated pension assets at the end of the fiscal year. Actuarial differences are to be recognized in expenses from the following fiscal year as incurred using the straight-line method over the average of the estimated remaining service years (10 years) of the employees when incurred in each fiscal year.

2) Provision for retirement benefits Same as on the left.

(Change in accounting policy) Effective from the fiscal year under review, the Company has adopted Partial Amendments to Accounting Standard for Retirement Benefits (Part 3) (ASBJ Statement No. 19, issued on July 31, 2008). This change has no effect on profits and losses.

——————————

27



(Additional information) In January 2010, the Company changed its retirement benefit system, shifting from a qualified pension plan to a defined benefits pension plan. This shift has no effect on profits and losses.

——————————

3) Reserve for directors’ retirement benefits The Company and its domestic consolidated subsidiaries provide the reserve for directors’ retirement benefits at an amount deemed necessary to cover the total amount to be paid pursuant to the internal regulations thereof at the end of the fiscal year under review.

3) Reserve for directors’ retirement benefits


(Additional information) At the 144th General Meeting of Shareholders, which was held on March 30, 2006, the Company resolved to abolish its system of retirement benefits for directors and auditors, and to pay each director and auditor, upon each person’s resignation, retirement benefits commensurate with the period during which the incumbent directors and auditors served at their positions on and before March 30, 2006. Accordingly, the balance thereof regarding the Company at the end of the fiscal year under review is the amount expected to be paid to incumbent directors and auditors.

(Additional information) Same as on the left.

4) Reserve for executive officers’ retirement benefits The reserve for retirement benefits for executive officers, commissioners, senior counselors, and junior counselors is provided at an amount deemed necessary to cover the total amount to be paid pursuant to the internal regulations at the end of the fiscal year under review.

4) Reserve for executive officers’ retirement benefits


28



5) Provision for environment and safety measures The provision for environment and safety measures is provided at an amount that can be reasonably estimated at the end of the fiscal year under review to prepare for expenditures for PCB disposal costs under the Special Measures Law for the Promotion of Proper Disposal of Polychlorinated Biphenyl (―PCB‖) Waste.

5) Provision for environment and safety measures


(4) Standard for translation of important foreign-currency-denominated assets or liabilities into Japanese yen Monetary assets and liabilities denominated in foreign currencies are translated into Japanese yen at the spot exchange rate on the consolidated closing date, and translation adjustments are treated as profits or losses. Furthermore, the assets and liabilities of overseas subsidiaries, etc., are translated into Japanese yen at the spot exchange rate on the consolidated closing date; revenue and expenses are translated into Japanese yen at the average exchange rate for the fiscal year. The translation adjustments are included in the foreign currency translation adjustments account and in minority interests in the net assets section of the consolidated balance sheets.

(4) Standard for translation of important foreign-currency-denominated assets or liabilities into Japanese yen


(5) Material hedge accounting method 1) Hedge accounting method As a general rule, deferral hedge accounting is adopted. Furthermore, allocation treatment is adopted in forward exchange contracts that meet the requirements for allocation treatment, and special accounting treatment is adopted for interest swaps that meet the requirements for special accounting treatment.

(5) Material hedge accounting method 1) Hedge accounting method


29

FY2010



2) Hedging instruments and hedged items The hedging instruments and hedged items to which hedge accounting was adopted in the fiscal year under review are as follows. a) Hedging instruments:

Forward exchange contracts Hedged items:

Foreign currency trade receivables and forecasted foreign currency transactions arising from product exports

b) Hedging instruments: Interest swaps

Hedged items: Debt

2) Hedging instruments and hedged items


3) Hedging policy In accordance with the internal regulation that prescribe the authority regulation and transaction limits for derivative transactions, risk of fluctuations in foreign exchange and interest rates pertaining to hedged items is hedged within a certain range.

3) Hedging policy Same as on the left.

4) Method of assessing the effectiveness of hedges The method for assessing the effectiveness of hedges is to check whether there is a high correlation between the hedged item’s market fluctuation or cash flow fluctuation and the hedging instrument’s market fluctuation or cash flow fluctuation. However, effectiveness assessments are not carried out for interest swaps to which special accounting treatment is adopted.

4) Method of assessing the effectiveness of hedges


(6) —————————— (6) Amortization method of goodwill and the amortization period The straight-line method is adopted, with the number of years of amortization being 20 years or less. The number of years of amortization is based on the period over which it is reasonably estimated that the effect of the goodwill will extend. If the amount is insignificant, however, the whole amount is amortized in the fiscal year in which it arises.

30



(7) —————————— (7) Scope of cash and cash equivalents in consolidated statements of cash flows Cash and cash equivalents comprise cash on hand, cash withdrawable at any time and easily converted into cash, and short-term variable value investments that have only an insignificant risk, with a date of maturity reached within three months from their acquisition date.

(8) Other important matters for the preparation of consolidated financial statements Accounting treatment of consumption taxes, etc.

The Company and its domestic consolidated subsidiaries adopt the tax excluded method in their accounting treatment of consumption taxes, etc.

(8) Other important matters for the preparation of consolidated financial statements


5. Valuation of assets and liabilities of consolidated subsidiaries

The assets and liabilities of consolidated subsidiaries are valued using the full fair value method.

——————————

6.Amortization of goodwill and negative goodwill

The straight-line method is adopted in the amortization of goodwill and negative goodwill, with the number of years of amortization being 20 years or less. The number of years of amortization is based on the period over which it is reasonably estimated that the effect of the goodwill will extend. If the amount is insignificant, however, the whole amount is amortized in the fiscal year in which it arises.

——————————

7. Scope of cash and cash equivalents in consolidated statements of cash flows

Cash and cash equivalents in consolidated statements of cash flows comprise cash on hand, cash withdrawable at any time and easily converted into cash, and short-term variable value investments that have only an insignificant risk, while reaching maturity within three months from their acquisition date.

——————————

31

(7) Changes in Basis for Preparation of Consolidated Financial Statements



—————————— Application of a new accounting standard for asset retirement obligations From the fiscal year under review, Accounting Standard for Asset Retirement Obligations (ASBJ Statement No. 18, issued on March 31, 2008) and Guidance on Accounting Standard for Asset Retirement Obligations (ASBJ Guidance No. 21, issued on March 31, 2008) has been applied. The effect of this change on operating income and ordinary income in the consolidated fiscal year under review is insignificant, but the Company has recorded ¥55 million in loss on adjustment for changes of accounting standard for asset retirement obligations under extraordinary losses.

Changes in Method of Presentation FY2010



(Consolidated Statements of Operations) Since ―Employment-adjustment subsidiaries,‖ which in the previous fiscal year were presented separately under ―Non-operating income,‖ have lost materiality, they are included and presented in ―Other.‖ ―Employment-adjustment subsidiaries‖ in the fiscal year under review are ¥9 million.

(Consolidated Statements of Operations) Effective from the fiscal year under review, pursuant to application of Cabinet Office Ordinance for Partial Revision of the Regulations for Terminology, Formats, and Preparation of Financial Statements (Cabinet Office Ordinance No. 5, issued on March 24, 2009), based on Accounting Standard for Consolidated Financial Statements (ASBJ Statement No. 22, issued on December 26, 2008), the account item ―Net income before minority interests‖ is separately presented for the fiscal year under review.

(Consolidated Statements of Cash Flows) 1. Since ―Increase (decrease) in accounts payable–others‖ and ―(Increase) decrease in advance payment,‖ which in the previous fiscal year were presented separately under ―Cash flows from operating activities,‖ have lost materiality, they are included and presented in ―Other.‖ Furthermore, in the fiscal year under review, ―Increase (decrease) in accounts payable–others‖ is ¥12 million and ―(Increase) decrease in advance payment‖ is ¥(41) million.

(Consolidated Statements of Cash Flows) 1. Since ―Increase (decrease) in accounts payable–others,‖ which was ¥12 million in the previous fiscal year, and ―(Increase) decrease in advance payment,‖ which was ¥(41) million in the previous fiscal year, have increased in materiality, they are no longer included in ―Other‖ under ―Cash flows from operating activities‖ as they were in the previous fiscal year. From the fiscal year under review, they are presented separately.

2. Since ―Proceeds from withdrawal of time deposits,‖ which were ¥47 million in the previous fiscal year, and included in ―Other‖ under ―Cash flows from investing activities,‖ have increased in materiality, they are presented separately from the fiscal year under review.

2. Since ―Purchase of investment securities,‖ which was ¥(14) million in the previous fiscal year, and included in ―Other‖ under ―Cash flows from investing activities,‖ has increased in materiality, it is presented separately from the fiscal year under review.

32



3. Since ―Purchase of investment securities,‖ which in the previous consolidated fiscal year was presented separately under Cash flows from investing activities, has lost materiality, it is included and presented in ―Other.‖ Furthermore, ―Purchase of investment securities‖ in the fiscal year under review is ¥(14) million.

3. Since ―Proceeds from long-term debt‖ and ―Purchase of treasury stock,‖ which were both presented separately under ―Cash flows from financing activities‖ in the previous fiscal year, have lost materiality, they are included and presented in ―Other.‖ Furthermore, in the fiscal year under review, ―Proceeds from long-term debt‖ were ¥15 million and ―Purchase of treasury stock‖ was ¥(5) million.

Additional Information FY2010



—————————— Application of Accounting Standard for Presentation of Comprehensive Income Effective from the fiscal year under review, the Company applies Accounting Standard for Presentation of Comprehensive Income (ASBJ Statement No. 25, issued on June 30, 2010). However, for the respective amounts of ―Accumulated other comprehensive income‖ and ―Total accumulated other comprehensive income‖ in the previous fiscal year, the respective amounts for ―Valuation and translation adjustments‖ and ―Total valuation and translation adjustments‖ are stated.

33

(8) Notes to Consolidated Financial Statements (Consolidated Balance Sheets)

FY2010 December 31, 2010

FY2011 December 31, 2011

*1. Accumulated depreciation of tangible fixed assets ¥129,655 million *2. Those for non-consolidated subsidiaries and affiliates are as follows: Investment securities (stock) ¥2,165 million Investments and other assets (investment) ¥398 million *3. Commitment line contracts To raise working capital efficiently, the Company has concluded loan commitment contracts with 10 correspondent financial institutions. The available credit balance, etc., of loan commitments as of the end of the fiscal year under review are as follows: Total loan commitment ¥20,000 million Credit used ¥1,000 million Available credit ¥19,000 million 4. Guarantee obligations The breakdown of guarantees for bank loans is as follows:

Guaranteed Amount Content of guaranteed

liabilities

SGL Tokai Carbon Ltd. Shanghai

¥328 million (US$4,035 thousand)

Bank loans

5. Repurchase of notes receivable endorsed: ¥5 million *6. Notes matured on the last day of the fiscal year The accounting treatment of notes matured on the last day of the fiscal year is to settle the notes as of the note exchange date.

*1. Accumulated depreciation of tangible fixed assets ¥133,082 million *2. Those for non-consolidated subsidiaries and affiliates are as follows: Investment securities (stock) ¥2,547 million Investments and other assets (investment) ¥247 million *3. Commitment line contracts To raise working capital efficiently, the Company has concluded loan commitment contracts with 10 correspondent financial institutions. The available credit balance, etc., of loan commitments as of the end of the fiscal year under review are as follows: Total loan commitment ¥20,000 million Credit used ¥1,000 million Available credit ¥19,000 million 4. Guarantee obligations The breakdown of guarantees for bank loans is as follows:

Guaranteed Amount Content of guaranteed

liabilities

SGL Tokai Carbon Ltd. Shanghai

¥443 million (US$5,700 thousand)

Bank loans

5. Repurchase of notes receivable endorsed: ¥5 million *6. Notes matured on the last day the fiscal year


34

(Consolidated Statements of Operations) FY2010



*1. The balance of inventories at the end of the fiscal year is the amount after a reduction of book value in line with a decline in profitability, and the following inventory valuation loss is included in cost of sales. ¥166 million

*1. The balance of inventories at the end of the fiscal year is the amount after a reduction of book value in line with a decline in profitability, and the following inventory valuation loss is included in cost of sales. ¥362 million

*2. Of selling expenses, the main expense items are as follows: Storage and shipping expense ¥3,677 million Miscellaneous selling expense ¥1,167 million

*2. Of selling expenses, the main expense items are as follows: Storage and shipping expense ¥3,502 million Miscellaneous selling expense ¥905 million

*3. Of general and administrative expenses, the main expense items are as follows: Salary and allowances ¥2,980 million Provision for bonuses ¥112 million Provision of allowance for doubtful accounts

¥10 million

Retirement benefit expense ¥155 million Provision of reserve for directors’ retirement benefits

¥18 million

Provision of reserve for executive officers’ retirement benefits

¥20 million

Depreciation and amortization ¥290 million Research and development expenses

¥1,967 million

Rent expense ¥643 million

*3. Of general and administrative expenses, the main expense items are as follows: Salary and allowances ¥3,100 million Provision for bonuses ¥41 million Retirement benefit expense ¥169 million Provision of reserve for directors’ retirement benefits

¥19 million

Provision of reserve for executive officers’ retirement benefits

¥17 million

Depreciation and amortization ¥250 million Research and development expenses

¥1,911 million

Rent expense ¥608 million

*4. Research and development expenses included in general and administrative expenses and total production cost utilized are ¥2,012 million.

*4. Research and development expenses included in general and administrative expenses and total production cost utilized are ¥1,956 million.

*5. Subsidy income The subsidy income is a business location promotion subsidy for reinforcement of production facilities in Kumamoto Prefecture.

5. ——————————

*6. The breakdown of gain on sales of fixed assets is as follows: Land ¥36 million Other ¥0 million

6. ——————————

35



7. —————————— *7. Loss on disaster Due to the Great East Japan Earthquake, which occurred on March 11, 2011, loss on disaster was recorded, whose breakdown is as follows: Expenses for restitution or removal of disaster assets

¥1,416 million

Fixed expenses during the period of operation suspension

¥605 million

Loss on retirement of fixed assets

¥371 million

Loss on of destruction of inventories

¥221 million

Other ¥68 million

*8. Impairment loss In the fiscal year under review, the Group recorded impairment losses for the following asset groups. 1) Assets with recognized impairment losses

Use Type Company Location

Impairment loss

(millions of yen)

Idle assets

Buildings and structures, machinery, equipment, and vehicles, and other

Tokai Carbon Co., Ltd.

Chigasaki City, Kanagawa

425

Idle assets Land Tokai Carbon Co., Ltd.

Gotemba City, Shizuoka

15

*8. Impairment loss In the fiscal year under review, the Group recorded impairment losses for the following asset groups. 1) Assets with recognized impairment losses

Use Type Company Location

Impairment loss

(millions of yen)

Idle assets Land Tokai Carbon Co., Ltd.

Gotemba City, Shizuoka

25

2) Reason for recognition of impairment loss An impairment loss has been recognized for the asset group of Chigasaki City, Kanagawa, because the group was in idle condition as a result of a business reorganization and the recoverable value fell below the book value. An impairment loss has been recognized for land in Gotemba City, Shizuoka, because it was in idle condition, its future use was undetermined, and its recoverable value fell below its book value.

2) Reason for recognition of impairment loss An impairment loss has been recognized for land in Gotemba City, Shizuoka, because it was in idle condition, its future use was undetermined, and its recoverable value fell below its book value.

3) Impairment loss amounts and breakdown by type Buildings and structures ¥57 million Machinery, equipment, and vehicles

¥364 million

Other ¥3 million Land ¥15 million

3) ——————————

36



4) Overview of and grouping method for asset groups with recognized impairment losses

・Asset group

Idle assets of Tokai Carbon Co., Ltd.

・Grouping method

The management accounting classifications are used as the grouping units. However, for lease assets and idles assets respectively, the grouping is by each individual property.

4) Overview of and grouping method for asset groups with recognized impairment losses

・Asset group

Idle assets of Tokai Carbon Co., Ltd.

・Grouping method

The management accounting classifications are used as the grouping units. However, for lease assets and idles assets respectively, the grouping is by each individual property.

5) Method of calculation of recoverable amount The recoverable amount of the asset group of Chigasaki City, Kanagawa, is calculated by determining the value in use, discounting the future cash flows by 10.0%. The recoverable amount of the land in Gotemba City, Shizuoka, is estimated from the net sales value and assessed by using the value computed based on the assessed value of fixed assets.

5) Method of calculation of recoverable amount The recoverable amount is estimated from the net sales value and assessed by using the value computed based on the assessed value of fixed assets.

37

(Consolidated Statements of Comprehensive Income) Fiscal Year ended December 31, 2011 (January 1, 2011 to December 31, 2011) *1. Comprehensive income for the fiscal year immediately preceding the fiscal year 2011 Comprehensive income attributable to owners of the parent ¥3,091 million Comprehensive income attributable to minority interests ¥256 million Total ¥3,347 million *2. Other comprehensive income for the fiscal year immediately preceding the fiscal year 2011 Valuation difference on available-for-sale securities ¥(163) million Deferred gains or losses on hedges ¥0 million Foreign currency translation adjustments ¥(2,306) million Share of other comprehensive income of affiliates accounted for by the equity method ¥(161) million Total ¥(2,631) million

38

(Consolidated Statements of Changes in Net Assets) Fiscal year ended December 31, 2010 (January 1, 2010 to December 31, 2010) 1. Matters concerning classes and total number of issued shares and types and number of shares of treasury stock (thousands of shares)

Number of shares at previous fiscal

year-end

Increase in number of shares in current

fiscal year

Decrease in number of shares in current

fiscal year

Number of shares at current fiscal

year-end

Issued shares

Common stock 224,943 — — 224,943

Total 224,943 — — 224,943

Treasury stock

Common stock (*1 and *2)

7,176 4,196 4 11,368

Total 7,176 4,196 4 11,368

Notes: 1. The increase of 4,196 thousand shares of treasury stock of common stock comprises an increase

of 4,161 thousand shares by acquisition of treasury stock based on a resolution of the Board of Directors and an increase of 35 thousand shares by purchase of shares of less than one unit.

2. The decrease of 4 thousand shares of treasury stock of common stock is a decrease by sale of shares of less than one unit.

2. Matters concerning dividends (1) Cash dividends paid

Resolution Class of shares

Total dividend amount

(millions of yen)

Dividend per share (yen)

Record date Effective date

March 26, 2010 Annual shareholders’ meeting

Common stock

871 4.0 December 31, 2009 March 29, 2010

August 6, 2010 Board of Directors’ meeting

Common stock

871 4.0 June 30, 2010 September 1, 2010

(2) Dividends whose date of record belongs to the fiscal year 2010 but whose effective date belongs to the following consolidated fiscal year


Total dividend amount (millions of yen)

Funding sources for dividends




Common stock

854 Retained earnings

4.0 December 31,

2010 March 28,

2011

39

Fiscal year ended December 31, 2011 (January 1, 2011 to December 31, 2011) 1. Matters concerning classes and total number of issued shares and types and number of shares of treasury stock

(thousands of shares) Number of shares at

previous fiscal year-end

Increase in number of shares in current

fiscal year

Decrease in number of shares in current

fiscal year

Number of shares at current fiscal

year-end

Issued shares

Common stock 224,943 — — 224,943

Total 224,943 — — 224,943

Treasury stock

Common stock (*1 and *2)

11,368 13 1 11,380

Total 11,368 13 1 11,380

Notes: 1. The increase of 13 thousand shares of treasury stock of common stock is an increase by

acquisition of shares of less than one unit. 2. The decrease of 1 thousand shares of treasury stock of common stock is a decrease by sale of

shares of less than one unit. 2. Matters concerning dividends (1) Cash dividends paid


Total dividend amount

(millions of yen)




Common stock

854 4.0 December 31,

2010 March 28, 2011

August 5, 2011 Board of Directors’ meeting

Common stock

854 4.0 June 30, 2011 September 1, 2011

(2) Dividends whose date of record belongs to the current consolidated fiscal year but whose effective date belongs to the following consolidated fiscal year


Total dividend amount (millions of yen)

Funding sources for dividends




Common stock

854 Retained earnings

4.0 December 31,

2011 March 30,

2012

40

(Consolidated Statements of Cash Flows) FY2010



*1. Relationship between the balance of cash and cash equivalents at the term end and the amounts stated in the consolidated balance sheets Cash and deposits ¥12,076 million Time deposits with a maturity of 3 months or more at date of purchase

¥(68) million

Repurchase agreements with a term of 3 months or less (short-term loans)

¥1,997 million

Cash and cash equivalents ¥14,005 million

*1. Relationship between the balance of cash and cash equivalents at the term end and the amounts stated in the consolidated balance sheets Cash and deposits ¥14,572 million Time deposits with a maturity of 3 months or more at date of purchase

¥(0) million

Repurchase agreements with a term of 3 months or less (short-term loans)

¥1,993 million

Negotiable certificates of deposit with maturities of 3 months or less (securities)

¥2,000 million

Cash and cash equivalents ¥18,565 million

41

(Segment Information) (Business Segment Information) Fiscal year ended December 31, 2010 (January 1, 2010 to December 31, 2010)

(millions of yen)

Carbon and graphite products

Industrial furnaces

and related products

Other Total Elimination or corporate

Consolidated

I. Net sales and operating income/loss Net sales (1) External sales 101,630 5,628 420 107,679 — 107,679 (2) Inter-segment sales 284 96 578 959 (959) —

Total 101,915 5,724 999 108,638 (959) 107,679

Operating expense 92,546 4,739 726 98,012 (908) 97,104

Operating income 9,368 985 272 10,626 (51) 10,575

II. Assets, depreciation/amortization, impairment losses, and capital expenditure

Assets 129,760 12,453 1,541 143,754 11,549 155,304

Depreciation and amortization 8,466 336 66 8,868 (14) 8,853

Impairment losses 440 — — 440 — 440

Capital expenditure 6,619 84 14 6,718 (7) 6,710

Notes: 1. Method of segmentation

Business segmentation is primarily based on such factors as nature of product, method of production and use of the product concerned.

2. Major products by business segment

Business segments Major products

Carbon and graphite products

Carbon black for rubber products, artificial graphite electrodes for electric arc furnaces, fine-carbon products (specialty graphite products), friction materials, carbon brush, impervious graphite, pencil lead-cores

Industrial furnaces and related products

Industrial electric furnaces, gas furnaces, silicon carbide heating element/alumina refractory, heat-insulating refractory, silicon carbide heating elements, ceramic resistors

Other Cargo transportation, Property leasing

3. Corporate assets included in ―Elimination or corporate‖ consist primarily of assets associated with surplus funds managed, such as cash and deposits and repurchase agreements, and funds for long-term investment, such as investment securities, etc., at the parent company, and amounted to ¥24,346 million.

42

(Geographic Segment Information) Fiscal year ended December 31, 2010 (January 1, 2010 – December 31, 2010)

(millions of yen)

Japan Europe Asia Other Total

Elimination or corporate

Consolidated

I. Net sales and operating income/loss

Net sales (1) External sales 69,421 14,203 17,793 6,260 107,679 — 107,679 (2) Inter-segment sales 8,417 492 1,657 74 10,642 (10,642) —

Total 77,838 14,696 19,451 6,334 118,321 (10,642) 107,679

Operating expense 71,699 12,977 17,146 6,004 107,827 (10,723) 97,104

Operating income 6,139 1,719 2,305 329 10,493 81 10,575

II. Assets 112,562 12,024 18,040 4,127 146,754 8,549 155,304

Notes: 1. Classification method of geographic segment: by geographic proximity 2. Major countries or regions in each segment other than Japan:

(1) Europe: Germany, United Kingdom, Italy and Sweden (2) Asia: Thailand and China (3) Other: North America

3. Corporate assets included in ―Elimination or corporate‖ consist primarily of assets associated with surplus funds managed, such as cash and deposits and repurchase agreements, and funds for long-term investment (e.g., investment securities) at the parent company. These corporate assets amounted to ¥24,346 million.

(Overseas Net Sales) Fiscal year ended December 31, 2010 (January 1, 2010 to December 31, 2010)

(millions of yen)

Asia Europe Other areas Total

I. Overseas net sales 31,498 13,560 9,234 54,293

II. Consolidated net sales 107,679

III. Ratio of overseas net sales to consolidated net sales

29.2% 12.6% 8.6% 50.4%

Notes: 1. Classification method of geographic segment: by geographic proximity 2. Major countries or regions in each segment:

(1) Asia: Korea, China, Taiwan, Thailand and Indonesia (2) Europe: Germany, United Kingdom, Italy and Sweden (3) Other areas: North America, Middle East, Africa, South America and Oceania

3. ―Overseas net sales‖ includes sales by the Company and its consolidated subsidiaries to the countries and regions other than Japan.

43

(Segment Information) 1. Overview of reportable segments The Company’s reportable segments are those components of the Company for which discrete financial information is available and that are subject to regular reviews by the Board of Directors to determine the allocation of management resources and to evaluate business performance. The Company establishes produce-specific divisions at the head office, and each division carries out business activities by formulating comprehensive domestic and overseas strategies for the products that it handles. Accordingly, the Company is composed of product-specific segments based on divisions, and its three reportable segments are Carbon Black business, Carbon and Ceramics business, and Industrial Furnaces and Related Products business. The major products of each reportable segment are as follow:

Reportable Segments Major Products

Carbon Black Carbon black (for rubber products, black pigments, and conductive materials)

Carbon and Ceramics Artificial graphite electrodes for electric arc furnaces, fine carbon (specialty graphite products), carbon brush, impervious graphite, pencil lead-cores

Industrial Furnaces and Related Products

Industrial electric furnaces, gas furnaces, silicon carbide heating elements/alumina refractory, heat-insulating refractory, silicon carbide heating elements

2. Information on the amounts of net sales, operating income, assets, and other account items for each reportable segment Fiscal Year ended December 31, 2010 (January 1, 2010 to December 31, 2010) (millions of yen)

Reportable Segments

Other business

*1 Total

Adjustment *2

Amount recorded in the consolidated

financial statements *3

Carbon black

business

Carbon and

ceramics business

Industrial furnaces

and related

products business

Total

Net sales External sales 40,017 53,020 5,628 98,665 9,013 107,679 — 107,679 Inter-segment

sales/ transfer

60 383 96 539 — 539 (539) —

Total 40,077 53,403 5,724 99,205 9,013 108,218 (539) 107,679

Segment income 5,745 4,890 984 11,619 386 12,006 (1,430) 10,575

Segment assets 42,575 66,361 5,270 114,207 9,580 123,787 31,516 155,304

Other items Depreciation and amortization

2,247 4,898 336 7,482 787 8,269 584 8,853

Investment in equity-method affiliates

— 2,427 116 2,543 — 2,543 — 2,543

Impairment loss — — — — — — 440 440 Increase in tangible and intangible fixed assets

1,949 3,345 84 5,379 903 6,282 427 6,710

Notes: 1. The Other Business segment is a business segment that is not included in the reportable

segments. It includes Friction Materials business and Property Leasing. 2. The adjustment amounts are as follows.

(1) The adjustment of segment income, which is ¥(1,430) million, includes ¥(1,436) million of corporate-wide expenses not allocated to each reportable segment. Corporate-wide expenses include research and development expenses that do not belong to the reportable

44

segments. (2) The adjustment of segment assets, which is ¥31,516 million, includes ¥31,767 million of

corporate-wide assets that are not allocated to each reportable segment. The main components of the corporate-wide assets are surplus working funds (e.g., cash and deposits) and investment securities.

(3) The adjustment of impairment loss, ¥440 million, is the impairment loss of the corporate-wide assets not allocated to each reportable segment.

(4) The adjustment of the increase in tangible fixed assets and intangible fixed assets, which is ¥427 million, is the amount of capital investment of the corporate-wide assets that is not allocated to each reportable segment.

3. Segment income is adjusted with the operating income reported in the consolidated financial statements.

45

Fiscal year ended December 31, 2011 (January 1, 2011 to December 31, 2011) (millions of yen) Reportable Segments

Other business

*1 Total

Adjustment *2

Amount recorded in the consolidated

financial statements *3

Carbon black

business

Carbon and

ceramics business

Industrial furnaces

and related

products business

Total

Net sales External sales 40,077 49,858 5,401 95,337 9,586 104,924 — 104,924 Inter-segment

sales/ transfer

69 194 422 687 — 687 (687) —

Total 40,147 50,053 5,823 96,025 9,586 105,611 (687) 104,924

Segment income 5,942 4,447 1,125 11,515 588 12,103 (1,636) 10,467

Segment assets 43,304 67,806 5,282 116,393 10,095 126,489 35,074 161,563

Other items Depreciation and amortization

2,183 4,546 280 7,010 657 7,668 618 8,286

Investment in equity-method affiliates

— 2,655 120 2,775 — 2,775 — 2,775

Impairment loss — — — — — — 25 25 Increase in tangible and intangible fixed assets

7,524 5,077 238 12,841 755 13,596 379 13,975

Notes: 1. The Other Business segment is a business segment that is not included in the reportable

segments. It includes Friction Materials business and Property Leasing. 2. The adjustment amounts are as follows.

(1) The adjustment of segment income, which is ¥(1,636) million, includes ¥(1,589) million of corporate-wide expenses not allocated to each reportable segment. Corporate-wide expenses include research and development expenses that do not belong to the reportable segments.

(2) The adjustment of segment assets, which is ¥35,074 million, includes ¥35,581 million of corporate-wide assets that are not allocated to each reportable segment. The main components of the corporate-wide assets are surplus working funds (e.g., cash and deposits) and investment securities.

(3) The adjustment of impairment loss, ¥25 million, is the impairment loss of the corporate-wide assets not allocated to each reportable segment.

(4) The adjustment of the increase in tangible fixed assets and intangible fixed assets, which is ¥379 million, is the amount of capital investment of the corporate-wide assets that is not allocated to each reportable segment.

3. Segment income is adjusted with the operating income reported in the consolidated financial statements.

46

(Related Information) Fiscal year ended December 31, 2011 (January 1, 2011 to December 31, 2011)

1. Information on each product and service Because the same information is disclosed in the segment information, the entry is omitted here.

2. Information on each region

(1) Net sales (millions of yen)

Japan Thailand Asia Europe Other

regions Total

52,949 12,189 18,077 12,610 9,098 104,924

Note: The revenue is based on the locations of the customers and is classified into countries or regions.

(2) Tangible fixed assets

(millions of yen)

Japan Thailand Asia Europe Other

regions Total

39,099 6,742 5,471 2,898 954 55,166

3. Information on each major customer

Of the net sales accounted for by external customers, there is no counterparty that accounts for 10% or more of net sales in the Consolidated Statements of Operations. Therefore, the entry is omitted here.

(Information on the Impairment Loss of Fixed Assets by Reportable Segment) Fiscal year ended December 31, 2011 (January 1, 2011 to December 31, 2011)

Because the same information is disclosed in the segment information, the entry is omitted here. (Information on the Amount of Amortized Goodwill and the Unamortized Balance by Reportable Segment) Fiscal year ended December 31, 2011 (January 1, 2011 to December 31, 2011)

Because this information has little materiality, the entry is omitted here. (Information on the Gain on Negative Goodwill by Reportable Segment) Fiscal year ended December 31, 2011 (January 1, 2011 to December 31, 2011)

Because this information has little materiality, the entry is omitted here. (Additional Information) From the fiscal year ended December 31, 2011, Accounting Standard for Disclosure of Segment Information (ASBJ Statement No. 17, issued on March 27, 2009) and Guidance on the Accounting Standard for Disclosure of Segment Information (ASBJ guidance No. 20, issued on March 21, 2008) is applied.

47

(Per Share Information) FY2010 FY2011

(1) Net assets per share (2) Net income per share

484.53 yen 26.05 yen

(1) Net assets per share (2) Net income per share

488.30 yen 28.66 yen

Net income per share – fully diluted is not listed as there were no potential common shares at the end of the fiscal year under review.

Net income per share – fully diluted is not listed as there were no potential common shares at the end of the fiscal year under review.

Note: The basis of calculation of net income per share is as follows. (millions of yen)

FY2010 FY2011

Net income per share (basic)


Amount not attributable to common shareholders

— —

Net income attributable to common shares

5,630 6,119

Average number of common shares during the period (thousands of shares)

216,163 213,566

(Subsequent Material Events)



Due to the Great East Japan Earthquake, which occurred on March 11, 2011, the Ishinomaki Plant of Tokai Carbon Co, Ltd., which is located in Ishinomaki City, Miyagi Prefecture, and the Sendai Plant of Tokai Konetsu Kogyo Co., Ltd., a subsidiary of the Company that is located in Shibata-machi, Miyagi Prefecture, were damaged. The main assets of the damaged Tokai Carbon Ishinomaki Plant and other facilities are buildings and structures (book value of ¥1,007 million), machinery, equipment and vehicles (book value of ¥858 million), and inventories such as raw materials (book value of ¥1,276 million). Furthermore, the aforementioned ―book value‖ is the book value as of the end of February 2011, which means that it does not indicate the damage amount. As of March 12, 2011, both companies had established a task force and were proceeding to collect information and examine and implement response measures. In the current stage, however, it is difficult to estimate the material impact the damage from the earthquake will have on operating activities.

——————————

(Disclosures Omitted) Notes concerning lease transactions, financial products, securities, derivatives transactions, retirement benefits, deferred tax accounting, asset retirement obligations, real estate rental, and information on related parties are omitted because there is deemed to be no material need to disclose such information in the earnings briefing.