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O p e r a t i n g R e s u l t s a n d F i n a n c i a l
P o s i t i o n

( 1 ) O p e r a t i n g R e s u l t s

1 . O v e r v i e w
The Japanese economy continued to move steadily toward a full
recovery during the reporting term. This came against the
backdrop of expanding economic activity worldwide and an
improvement in corporate earnings at home, leading to increased
capital investment and higher production figures in export-
oriented industries. Japanese consumer spending also continued
its leisurely upward movement.

Overseas, however, prospects are not necessarily bright, as
the expansion of the U.S. economy is showing signs of coming to
an end, sparked by a downturn in the housing market.

Regarding demand for the TNSC Group’s industrial gases from
its principal customer segments: 1) demand from the steelmakers
was strong, reflecting brisk sales of high-tensile steel and
other high-end products to the automotive and shipbuilding
industries; 2) our gases were in strong demand from the chemical
industry, which was kept busy supplying the automotive and
electric appliance manufacturers with high-performance plastics,
while demand for standard-quality plastics was also firm,
centered on overseas users; and 3) demand remained generally
favorable in the electronics industry (despite some lingering
effects from the recently-completed inventory adjustment) thanks

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to growing demand for semiconductors (notably memory chips) and
flat panel displays.

The TNSC Group is currently pursuing the goals set under
its first medium-term business plan -- dubbed Global 5000: Stage 1
-- which started in April 2006 and covers the period to March
2009. The prime objective of this plan is to transform TNSC into
the first Japan-originated major manufacturer (by world
standards) of industrial gases, and to build a firm position for
the Group in the world market, where it can compete with the
leading overseas gas producers on equal terms. The TNSC Group
utilized its ample cash flows during the reporting term to lay
the groundwork for future business expansion through the pursuit
of an aggressive M&A policy, as well as making capital
investments predicated on a projected increase in demand in the
future.

Sales of the Group’s mainline industrial gases followed a
firm trend during the term under review, both at home and abroad,
while equipment and facilities also recorded sales growth. The
four companies newly included in the scope of consolidation in
the previous fiscal year, i.e. Ekika Carbon Dioxide Co., Ltd.;
Tokushima Sanso Co., Ltd.; Nippoku Sanso K.K.; and Taiyo Nippon
Sanso Higashikanto Corporation, all made a contribution to the
consolidated business results. Sales for the term on a
consolidated basis were ¥458,587 million, an increase of 15.4%
over the previous year.

At the earnings level, we enjoyed a reduction in costs
thanks to a higher capacity utilization rate for our gas
production facilities. In addition, we were able to pass on steep
price increases in raw materials to the selling prices of certain

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products (equipment). As a result, operating profit rose 36.2%
year-on-year to ¥36,488 million, and recurring profit increased
by 36.7% to ¥37,067 million. Extraordinary profits were
registered on the sale of rental real estate properties in the
category of gains on the sale of property, plant and equipment,
but extraordinary losses were recorded on the sale of idle land.
As a result, net income for the reporting period posted a gain of
39.1% over the previous term, at ¥20,094 million.

2 . B r e a k d o w n o f P e r f o r m a n c e b y D i v i s i o n
The Gas Business
Thanks to high levels of capacity utilization by our principal
customer industries, favorable shipment volume was recorded in
our mainstay products -- oxygen, nitrogen, and argon -- and this
was matched by a high value of sales. Both shipment volume and
sales surpassed the previous year’s level in oxygen supplied to
customers in the steel and shipbuilding industries, while demand
for nitrogen was also up over the previous year from the
electronics industry (supply by small-scale onsite air separation
plants), and from the chemical, steel, and food processing
industries (in the form of liquefied nitrogen). Both shipment
volume and sales of nitrogen were thus higher than in the
previous year. Shipments of argon remained at a favorable level
to makers of microcrystalline silicon, where production of 300mm
wafers kept up a brisk pace. Demand for argon for use in welding
and cutting also increased on a year-on-year comparison in a wide
selection of industries, and both shipment volume and sales
exceeded the previous year’s levels. Regarding other gas
products, Ekika Carbon Dioxide made a full-term contribution to

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the consolidated business performance, helping to expand the
overall scale of this business by a wide margin. Once again, both
shipment volume and sales recorded sharp growth over the previous
year’s level. The shipment volume of specialty gases posted
vigorous growth thanks to a high level of capacity utilization
among customers in the electronics industry, both in Japan and
overseas, and sales were up sharply over the previous year.

As a result of the above, sales of the Gas Business
(excluding intra-Group transactions) increased by 13.9% year-on-
year to ¥305,442 million, while operating profit was up sharply
by 25.6%, at ¥26,996 million.

Machinery and Equipment Business
Sales of electronic equipment and materials for the reporting
term posted a sharp increase over the previous year against the
backdrop of expanded capital investment by our principal customer
segment -- the Japanese electronics industry. Sales of
manufacturing equipment for compound semiconductors performed a
complete turnaround from the previous year’s sluggish sales
level, with a sharp increase in customer demand pushing sales up
by a large year-on-year margin. As a result of the high-level
capacity utilization rates in the steel, shipbuilding, and
construction machinery industries, sales of cutting and welding
equipment -- mainly handled by Group member Nissan Tanaka
Corporation -- recorded growth, particularly for laser cutting
equipment and NC cutters, and sales of this equipment category
were well above the previous year’s level.

Sales of air separation plants posted a large year-on-year
increase as a result of continued vigorous capital investment by

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the Japanese electronics and steel industries, as well as firm
demand from customers in Korea, Taiwan, and various Southeast
Asian countries.

As a result of the foregoing, sales of machinery and
equipment (excluding intra-Group transactions) came to ¥136,896
million, an increase of 20.5% over the previous year, while
operating profit soared 96.8% to ¥11,615 million.

Housewares Business and Others
Sales of the TNSC Group’s housewares products, which are
manufactured and sold primarily by Thermos K.K., exceeded the
previous year’s level, thanks mainly to continued good sales of
sports-use insulated flasks and a growth in demand for personal-
use small insulated flasks.

As a result, sales of the Housewares Business and Others
(excluding intra-Group transactions) came to ¥16,248 million (up
5.5% year-on-year), while operating profit stood at ¥1,822
million (down 2.0% from the previous year).

3 . F o r e c a s t s f o r F i s c a l 2 0 0 7
Looking at the near-term prospects for the Japanese economy,
companies are expected to maintain their current high level of
capital investment, in view of their strong earnings. Consumer
spending is also projected to recover slightly. Overall, the
movement of the economy toward recovery is likely to continue.
Overseas, however, there are a number of clouds on the horizon,
including the slowdown in the U.S. economy’s growth rate, and
various causes of apprehension regarding the financial markets,
most notably the direction of the yen’s exchange rate against the