ANNUAL REPORT 2003
Year Ended March 31, 2003

PROFILE

Since its establishment in 1949, Kurita Water Industries Ltd. has provided integrated solutions tomeet its clients’ water treatment needs. Kurita’s cutting-edge technologies have gained the Company
recognition as a global leader in water treatment chemicals and facilities. In addition, through its
facilities maintenance, operation, and consulting businesses, Kurita provides a range of services that
anticipate its customers’ needs in the areas of quality control, safety, and the reduction of operating
costs.
Along with the evolution of our society, the environmental protection needs of our clients havecontinued to grow at an accelerating rate. We at Kurita see it as our job to use the wide range oftechnologies and know-how we have developed and mastered through our experience in the field ofwater treatment to satisfy these needs in an expanding range of environmental fields, such as in oursoil remediation business. Our corporate vision of becoming an advanced water and environmental
management company reflects our drive to establish an organization that provides high-value-added
management services and that demonstrates overwhelming superiority in its chosen business fields.
Through the integrated management of water and other environmental resources, our aims are toachieve a high level of customer satisfaction and to benefit society.

To make more people aware of our corporate vision of becoming
an advanced water and environmental management company, we
have adopted a service logo. This logo reflects our commitment toand confidence in contributing to society through continued
progress in our water and environmental technologies.

Contents
Financial Highlights....................................................................1

Selected Financial Data............................................................15

To Our Shareholders ..................................................................2

Management’s Discussion and Analysis...................................16

Operational Review and Outlook...............................................8

Consolidated Financial Statements and Notes..........................20

Water Treatment Chemicals.................................................8

Report of Independent Certified Public Accountants................35

Water Treatment Facilities .................................................10

Non-Consolidated Summary ....................................................36

The Year’s Topic: Supercritical Water Oxidation System .........14

Subsidiaries ..............................................................................37
Board of Directors and Corporate Auditors/Corporate Data .....38
Investor Information .................................................................39

Note on Projections for Future Results
Projections for future results contained in this annual report accord with Kurita’s plans, prospects and strategies as decided by the management on the basis of information available at the time.
Since projections for future results lack the substance of fact and may be based on data from other sources, the accuracy and reliability ofwhich we are unable to guarantee, you are requested not to rely on such projections alone.
Moreover, many factors affecting business results are subject to uncertainty and are therefore a source of risk. These factors include, but
are not limited to, the following: macroeconomic changes, such as changes in capital markets and large-scale shifts in demand, especiallyinsofar as these influence the markets and industries directly related to our main businesses.

FINANCIALHIGHLIGHTS
Kurita Water Industries Ltd. and Consolidated Subsidiaries
For the years ended March 31

Thousands of
U.S. Dollars

Millions of Yen

2003

2002

2003

For the year:
Net sales................................................................................ ¥141,628 ¥142,678$1,180,233

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

12,307

10,790102,558

Income before income taxes..................................................

10,2639,121

85,525

Net income ...........................................................................

5,476

5,670

45,633

Total assets ............................................................................ ¥173,689 ¥172,145$1,447,408

Total shareholders’ equity ..................................................... 120,969

122,590

1,008,075

At year-end:

Per share of common stock (Yen and U.S. dollars):
Net income............................................................................

¥40.7

¥42.9

$0.34

Cash dividends applicable to the year (parent company) ......

16.0

16.0

0.13

Note: The U.S. dollar amounts are given solely for convenience at the rate of ¥120 to US$1.00, the approximate exchange rate prevailing on
March 31, 2003.

NET SALES (Millions of Yen)
2003
2002
2001
2000
1999

141,628
142,678
153,435
130,998
146,754

NET INCOME (Millions of Yen)
2003
2002
2001
2000
1999

5,476
5,670
8,366
4,648
7,567

TOTAL ASSETS (Millions of Yen)
2003
2002
2001
2000
1999

173,689
172,145
183,175
165,297
165,775

Annual Report 2003

1

Kurita Water Industries Ltd.

TO OURSHAREHOLDERS

Hiroshi Fujino brings a wealth ofexperience to his new position ofpresident, in the operations andthe management of the Company.
Since joining the Company in
1964, he has worked in Kurita’s
core business areas, water treatment chemicals and water treatment facilities. He became a
director in 1993 and was promoted to managing director in 1997.
In June 1999, he was made an
executive senior managing
director.

Hiroshi Fujino, President

NEW PRESIDENTOn June 27, 2003, it was approved by the board

FISCAL PERFORMANCE AND FINANCIAL
POSITION

of directors after the annual general sharehold-We continued to face a harsh business climate iners’ meeting that President Takahide Santo

Japan throughout the fiscal year under review.

would become the Company’s chairman and

Diminished performances by corporate Japanthat I, Hiroshi Fujino, would succeed him as theresulted in low levels of private-sector capitalpresident.

investment. Similarly, the smaller budgets of

As Company president, I am committed to car-governments resulted in low public works expendi-

agement operations and the business principles

tures. Overseas markets, meanwhile, staggered

established by past presidents of the Company.

amid concern about a global economic slowdown

I pledge my energies to living up to the trust
placed in Kurita by our shareholders, by our customers, and by society as a whole.
So that we can continue to ensure the value
and the reliability with which we have impressed

Kurita Water Industries Ltd.

2

Japan’s financially troubled national and regionalrying on Kurita’s water and environmental man-due to political unrest. At home and abroad, it wasa year that made it extremely difficult to predict
when economic recovery might occur.
Consequently, customers redoubled their ratio-

our customers and society to date, our mostnalization efforts, and intensified competition

urgent order of business is to realize our vision

placed downward pressure on our prices. On aof the Company as an advanced water and envi-

consolidated basis, our orders declined 8.6% year

ronmental management company. In April 2003,

on year, to ¥128,431 million. Our net sales

we quickened our pace toward that goal when

nonetheless edged down only slightly, 0.7%, to

we implemented the three-year medium-term¥141,628 million. Cost reductions supported amanagement plan Powerful Advance 2005 (PA-14.1% increase in operating income, to ¥12,307

5). My job, as I see it, is to stand in the forefront

million, yet net income slipped 3.4%, to ¥5,476

of our charge toward the goals of that plan andmillion. Net income per share declined to ¥40.67,

to lead the Company to the plan’s realization.

compared with ¥42.85 in the prior fiscal year.

Annual Report 2003

To maintain a stable dividend payout record, we

aggravating the problem of shrinking public works

declared a year-end cash dividend of ¥8.00 per

budgets and cuts in regional government spending.

share. Total cash dividends for the fiscal year in

All of which posed problems for our Water

question therefore amounted to ¥16.00 per share.

Treatment Facilities Division.

The figures matched those of the previous fiscal year.

To cope with its difficult operating conditions,Fiscal year-end consolidated cash and cash

the division vigorously targeted customers in theequivalents fell ¥1,473 million, to ¥31,507 million.

People’s Republic of China, Taiwan, and other

Our purchase of fixed assets for our ultrapure water

Southeast Asian countries. It also sought to further

supply business and of treasury stock were theits ultrapure water supply business and to expand

main reasons behind the decline in cash flow.

its soil remediation business. The division spared

To systematically manage capital in response tonothing to strengthen the selling power of its prod-

the changes in our operating environment, we

ucts and to reduce its costs. Specifically, it madeacquired our own shares on the open market during

progress in developing its line of ready-made prod-

the fiscal year. This involved purchasing 3,709,100

ucts for its ultrapure water production system andshares at a cost of ¥4,019 million.

for generating water for pharmaceutical purposes.

Segment Performancement facilities dropped 12.4%, to ¥81,981 million.

The results for our Water Treatment Chemicals

The Water Treatment Facilities Division’s sales also

Division reflect the protracted economic recession

declined, edging down 2.0%, to ¥94,512 million.

in Japan. The division again faced an adverse envi-

However, by managing the profitability of each ofronment of stepped-up rationalization by customers

its projects and by reducing its expenses and pro-and intensified competition. It responded by press-

duction costs the division posted operating income

ing forward with efforts to form comprehensiveof ¥5,730 million, up 26.3% from the previous fis-contracts with customers to optimize the water

cal year.

Progress notwithstanding, orders for water treat-

treatment operations in their factories and to thereby contribute to helping them to conserve energy
and resources and to reduce costs.

NEW MEDIUM-TERM MANAGEMENT
PLAN

The division, moreover, worked aggressively toThrough Evolution 2002 (EV-2), the medium-term

win orders for and to expand sales of its new prod-

management plan that we launched in the fiscal

ucts. Despite these efforts, the division’s orders

year ended March 31, 2001, we strove to create adeclined 1.1%, to ¥46,450 million. Sales, however,solid profit structure that would not be significantlyrose 1.8%, to ¥47,116 million, thanks to the contri-

affected by fluctuations in our business environ-bution of contract-based services and treatment

ment. The aim was to shift to a service-oriented

chemicals for incinerators. Operating income also

business structure, improving the forward momen-

advanced, rising 4.0%, to ¥6,493 million.

tum of our business by strengthening our sales andDespite some signs of recovery in the second

product development capabilities. Our theme washalf of the fiscal year among liquid crystal display

the creation of a new Kurita, and our business slo-(LCD) related manufacturers, demand for water

gan was “Changing how to sell and what to sell.”treatment facilities remained weak in Japan’s elec-

As always, we devoted our energies to providing

tronics industry. Amid ongoing rationalization,

the high-value-added products and services Kurita

manufacturers reduced, postponed, and even can-is known for, inspired further by the plan to giveceled capital investments. The public sector, too,

top priority to measures that increase customer sat-

was a difficult market, with intensifying competition

isfaction. Market conditions, unfortunately, have

Annual Report 2003

3

Kurita Water Industries Ltd.

further deteriorated, leaving us short of the plan’s

PA-5’s theme, therefore, is Win Trust and Make aperformance goals. We were, however, successful

Strong Impression. This expresses our determina-in achieving many of the plan’s objectives for thetion to continue to be a company that ensuresreform of our business structure.

value, reliability, and excitement for its customers

Our successes under the old plan form the basis

and for society in general. To indicate our intent offor the powerful advances embodied in our new

meeting customers’ needs by demonstrating ourthree-year medium-term business plan: Powerfulbusiness strengths to the maximum, we convey our

Advance 2005. PA-5 covers the period ending

fundamental business policy by the following slo-

March 2006. It continues, of course, our goal ofgan: “Develop extremely aggressive and success-creating a solid profit structure. But PA-5 adopts aoriented businesses, winning the unshakable trust

much more offensive approach, introducing strate-of customers and deeply impressing them with ourgies to develop our customer base, enter new busi-

capabilities and solutions.”

ness fields, and expand our international business.

Guided by this policy, we hope to have realized
the following vision of Kurita by the time PA-5 con-Outline of Powerful Advance 2005

cludes in March 2006:

Kurita’s business perfectly matches the needs and◆ We will have fully established our advanced

desires of its customers and of society. We seek towater and environmental management business.

reduce environmental impact and risk, to improve

Trial efforts in total solutions services during

productivity, and to reduce costs—almost universal

the past medium-term business plan brought

issues for companies, which face pressure fromgood results, so we will make total solutions ser-society to resolve them. Our business on our cus-

vices the core of our advanced water and envi-

tomers’ behalf is to clarify these issues and to ana-ronmental business.

lyze conditions, propose solutions, and devise and◆ We will dominate the water treatment industry in

implement practical programs to attain those solu-

Japan and will have an expanded market posi-tions. Only by meeting the requirements of societytion overseas.

and the needs of our customers can we remain a

In Japan, we intend to take advantage of syner-trusted corporate entity whose activities leave angies between our water treatment chemicals andimpression on all.

water treatment facilities businesses and our

KURITA’S BUSINESS MANAGEMENT SCHEME
New
Business
Schemenationwide network to increase our market share.
Overseas, we plan to transplant our Japanesebusiness model for our solutions business, devel-

Network

oping it horizontally in other markets.
◆ We will have established new environmental

LoweredEnvironmental
Risk
Outsourcing

Social and Corporate Issues
ReducedCostbusinesses and will be involved in energy-related

Improved
Productivity

ReducedEnvironmental
Impactbusinesses.
Risk Hedge

As our next environmental business following
the launch of our soil remediation business, we
aim to establish a new business concept andscheme for energy-related businesses based on
new and existing technologies. We will concen-

Analysis
andAssessment

Kurita Water Industries Ltd.

4

Annual Report 2003

New Products
andTechnologies

trate our efforts on achieving the successful startup of those businesses.

◆ We will have developed technologies and productsthat impress our customers by their ability to con-are expanding the scope of our business and assisting in solving problems for new customers.
We are also strengthening our solutions businesstribute to solving customers’ business problems.
We are trying to maximize customer satisfaction

for the customers of our domestic water treatment

by developing and supplying customers with prod-chemicals business who face the need to cut costs

ucts and services that contribute to solving suchand to lower their impact on the environment. To

business issues as reducing costs, decreasing envi-

expand the scope of this business, we are offeringronmental impact, and improving productivity.

solutions ranging from the simple supply of water◆ We will have a reputation as a highly trustworthy

treatment chemicals to the comprehensive manage-

company, thanks largely to the activities of thement of a factory’s water.

Company and to the efforts of its employees.

Our Geo-Environment Group soil and ground-We emphasize not just compliance but also

water remediation business makes use of industry-

the sharing of common values with society

leading on-site soil remediation technology to limit

regarding our social responsibility.

the risk of soil contamination by manufacturers.
Our subsidiary Land Solution Inc. provides soil

Consolidated Performance Targets

contamination risk hedges to landowners through a

Our three-year consolidated performance targets

proprietary scheme that includes liability insurance.

are as follows:

In this way, it facilitates smooth conclusions to real

Net sales.........................................¥175.0 billion

estate transactions. Approaches like these are help-

Operating income ..........................¥ 20.0 billion

ing to expand our business in soil remediation.

Net income.....................................¥ 11.5 billion●

Pursue International Business Development

Expand Scope of Business in the Japanese Market

Overseas, particularly in Asia, we expect for theCompanies that develop global businesses musttime being to see high economic growth rates andcompete internationally and meet global standards

robust capital investment. As companies through-for reducing costs and for diminishing the environ-out Asia enhance their international competitive-

mental impact of their products. When these com-ness, their need to improve production efficiency

panies move into leading-edge technology fields,

and reduce costs will heighten. Economic develop-

they face new cost and environmental issues forment in Asia on the whole will steadily give rise towhich they need new solutions. Kurita is the only

such issues as the need to reduce the environmen-

Japanese company that can reliably provide thetal impact of businesses and to decrease environ-

required responses.

mental risk. Companies will be forced to pursue●

Our Eco-Solution Group, newly established in
April 2003, presents customers with a comprehensive approach to solving their problems based on

business development and environmental management simultaneously.
Kurita has traditionally responded to its cus-

the integration of our technology and know-how intomers’ needs for stable plant operations andthe chemical, plant, and maintenance fields. This

improved production efficiency with internationallycombination provides them with optimal services

competitive products. In future, we intend to accom-

regarding such issues as treating water, reducing

pany those products with outsourcing and solutions

environmental impact, lowering costs, and improv-

services that include water treatment chemicals anding productivity. By offering a range of outsourcing

maintenance services. We are progressing toward

services to customers, including facility operation

this goal by localizing our businesses and throughmanagement and the supply of ultrapure water, we

human resources and capital investments.

Annual Report 2003

5

Kurita Water Industries Ltd.

●

Increase Customer Support●

Ensure Internationally Competitive Products

Our support structure for customers is unrivaled in

To provide for the needs of customers pursuing

Japan. Because we have sales offices in each of

business globally, it is essential for Kurita to pos-

Japan’s prefectures, a Kurita representative can besess technologies and products that are interna-

on-site within an hour of receiving a customer calltionally competitive. Functional capabilities andabout a problem.

high reliability are important, but we also must

And beginning April 2003, we strengthened ourcustomer support capabilities by integrating ourmeet cost requirements.
By leveraging our comprehensive organizational

Chemicals and Maintenance Services Division. We

structure, which spans product development toalso organized our domestic group, including ourinstallation, we are working to increase our costchemical and maintenance services divisions, sales

and quality competitiveness. We are in particularand maintenance subsidiaries, and sales agency

expanding the applications for modularized equip-

outlets, into a network to develop regional- andment and devices and for the use of ready-madecustomer-specific services.

products. We also are pursuing further cost reduc-Establishing an organization that can respondtions in our logistics and procurement operations.

quickly to and provide for customer needs with

In addition, we are redoubling our quality, environ-services that integrate treatment chemicals supply,

ment protection, and safety efforts to further

maintenance, and operations management has won

increase our reputation among our customers.

us the confidence of our customers. At the same

International competitiveness is a priority in ourtime, this business organization will contribute con-research and development (R&D) efforts. We aresistent earnings to Kurita.

rapidly developing conceptually new technologies
and products that offer customers immediate solutions to diverse issues, such as the need to reduce
the environmental impact of their businesses or
products. Over and above our efforts to develop
new technologies and products, we continue tomake strategic use of our original and acquired

ORGANIZATIONAs of April 1, 2003

◆ Corporate Planning Division◆ Administration Division◆ Research & Development Division◆ New Business Division◆ Operations Control & Procurement Division◆
Facility Management
Services Division◆
Chemicals andMaintenance
Services Division◆ Eco-Solution Group◆ Plant Group◆ Geo-Environment Group◆ Global Business Group◆ No. 1 Chemicals Group◆ No. 2 Chemicals Group◆ Maintenance Grouptechnologies and intellectual assets.
CORPORATE GOVERNANCE
We are emphasizing corporate governance as ameans by which to fulfill our social obligations andthe proper conduct of our business. For some time,
the auditor system has been the core of our corporate governance. It has facilitated our reform of ourboard of directors and strengthens our system ofchecks and balances.
We reformed our board of directors with an eye
to speeding up its decision-making process andrevitalizing it. At the 2001 general shareholders’◆ Environmental
Water Treatment Division

meeting, we pared 6 directors from our board,
dropping from 21 directors to 15, one of whom isan outside director. And we have been beefing up

Kurita Water Industries Ltd.

6

Annual Report 2003

our auditor system since our 1994 general share-raise the efficiency of its water treatment chemicals

holders’ meeting, when we began electing four cor-

production; and divested itself of Kuritec (Taiwan)

porate auditors. Of the four, two are outside

Co., Ltd. In April 2003, following the fiscal year

auditors and one of those two, moreover, is aunder review, Kurita and its subsidiary Kuritaz Co.,lawyer.

Ltd., spun off their analytic operations to establish

Our subsequent strengthening of our corporate

Kurita Analysis Service Co. Ltd. In June 2003, Kurita

governance will maintain past priorities. It also,

and its subsidiary Kurita Engineering Co., Ltd., spun

however, will embrace various additional options

off their precision cleaning operations to found new

made available as a result of a series of revisions to

subsidiary Kuritec Service Co. Ltd. Also in June, weJapan’s Commercial Code. We are deliberating

started to liquidate Kurita Kako Co., Ltd., a dewater-which of those systems is most appropriate toing equipment manufacturing subsidiary outside

Kurita’s needs.

our business development strategies.
We also, of course, will continue to stress our

FISCAL PLAN AND OUTLOOK

auditor system to provide checks and balances andA mountain of accumulated problems will continue

a smaller board of directors to speed up our deci-

to weigh heavily on Japan’s economy in the fiscalsion making. All the while, we will be considering

year ahead. National consumption remains low,

how to add strength to our corporate governanceand the bad debt cleanup in the financial sector has

structure and its functions to meet our needs infallen behind schedule. The global economy, too,changing times.

will remain weak.
Amid these difficulties, Kurita anticipates the fol-In this my first year in office, I wish to reconfirm
my commitment to all the stakeholders of thelowing performance for the fiscal year ending

Company. I also ask for the continued support ofMarch 31, 2004. We expect consolidated orders of

stakeholders.

¥149.8 billion, net sales of ¥147.5 billion, operating income of ¥13.0 billion, and net income of

July 2003¥7.7 billion.
In the first year of our new medium-term business plan, we will quickly implement our major
business strategies. We will initially target the
expansion of our business scope and market share

Hiroshi Fujino

in our solutions and outsourcing businesses in andPresident

outside Japan. We also will strive to increase ourearnings by strengthening our customer support
services through the use of the Kurita Group’s wellestablished network. In addition, we will develop
products, technologies, and services whose strong
appeal domestically and internationally will underpin these efforts.
We will continue, moreover, to revise our Groupstructure, heightening our efficiency and momentum. In the fiscal year under review, Kurita
absorbed Kurita Chemicals Co., Ltd.; took over the
manufacturing facilities of Kurita Kasei Co., Ltd., to

Annual Report 2003

7

Kurita Water Industries Ltd.

OPERATIONAL
REVIEW ANDOUTLOOK
implementation of specific strategies for individualW

markets, however, contributed to its sales growth.

ATER TREATMENT CHEMICALSIn the food products, pharmaceuticals, automo-

PRINCIPAL PRODUCTS

bile, and electronics markets, we targeted the◆ Boiler water treatment chemicals

approximately 10,000 designated heat manage-◆ Cooling water treatment chemicals

ment plants throughout Japan. We tapped in par-◆ Flocculant and sludge dewatering agents

ticular the emphasis on energy conservation and◆ Process treatment chemicals

cost reduction proposals to expand our sales of◆ Chemical injection and dosing systems

contract-based services. In such markets as petro-◆ Maintenance services

leum production complexes and steel, where com-

◆ Contract-based services

petition for one-year contracts has intensified, we
endeavored to supply analysis and chemical injec-

Consolidated sales by the Water Treatment

tion systems and to earn revenues through water

Chemicals Division amounted to ¥47,116 million,

treatment consulting contracts.
The division’s efforts to take advantage of com-increasing 1.8% from the previous fiscal year
despite a 1.1% decline in orders, to ¥46,450 mil-panies’ heightened efforts to cut industrial waste

lion. Operating income rose 4.0%, to ¥6,493 mil-with proposals for wastewater treatment also con-lion, and the operating income to sales ratio

tributed to divisional sales growth. In the pulp andadvanced 0.3 percentage points, to 13.8%.

paper market, we were successful in winning multiyear contracts for the supply of process treatment

Sales rose in many of the division’s product andservice areas. Process treatment chemicals forchemicals. And our sales to the public sector of

petroleum refineries and for the pulp and paper

treatment chemicals for waste incineration process-industry, chemicals to solidify heavy metals that are

es grew in line with stricter regulations on dioxin

contained in the fly ash produced when incinerat-

emissions.

ing waste, maintenance and services, ion-exchange
resins, and activated charcoal all experienced sales

Focus on Contract-Based Services

growth.

The division is emphasizing the expansion oforders for contract-based services that contribute

BUSINESS SUMMARY

to companies’ cost reduction efforts. Increasingly,

Business Activities by Market

companies seek to conserve energy and to lower

Declining prices and the integration of factories bycosts and to limit the impact of their operations on

customers shrunk the size of the domestic market

the environment, particularly by cutting industrial

during the fiscal year under review. The division’s

waste. Utilizing our chemical supply system andour knowledge of equipment and devices and of

COMPREHENSIVE WASTEWATER TREATMENT CONTRACT SCHEME
Customer
Results

Wastewater Treatment Process
ProcessA

Kurita●Improved water quality●

Less industrial waste●

Reduced use ofhazardous substances● Improve operating methods●

Energy conservation● Revise volume and type of chemicals used●

Lower costs

Process

B

Process

C

ProcessD● Renovate aged facilities and maintenance

Kurita Water Industries Ltd.

8

Annual Report 2003

operations management, we design significantly

decreased the number of the chemi-

advantageous solutions programs for our customers’

cals that we produce, to 3,500 types

utilities and production processes. These programsfrom 4,500 types; we reviewed ourprovide Kurita with stable revenues and with

distribution contracts; and we brought

opportunities to expand its business and to acquire

outsourced production back in-house.

new customers.
Build, own, and operate (BOO) programs for

OUTLOOK

boilers are examples of contract-based services.

In the fiscal year ahead, we expect market condi-

Ownership of the boiler remains with Kurita. With

tions to remain difficult, chiefly because of redou-

it we provide quality and low-cost supplies of

bled rationalization efforts by our customers andsteam to customers based on multiyear contracts.

intensified competition. We will continue to target

Our comprehensive wastewater treatment con-

growth through our proposal-based marketing oftracts likewise are of benefit to customers. Theybusiness solution services for customers; through theenable us to lower customers’ wastewater treatment

expansion of our business scope based on contract-costs and industrial waste on the whole, thereby

based business; and through the enlargement of ourachieving customers’ aims of limiting the impact ofbusiness in the automobile, pharmaceuticals, foodtheir operations on the environment through our

products, electronics, and pulp and paper markets.

overall oversight of water usage at customers’

Specifically in the public sector, we expect further

plants. Our wastewater contract services include

growth in our sales of treatment chemicals for incin-

the operations management of equipment, theerators. And the new boiler and cooling water treat-organization of equipment, and the optimization ofment chemicals recently introduced should likewise

the amount of treatment chemicals used.

contribute to increased sales. We also continue toDuring the fiscal year under review, we intro-

collaborate with the R&D and Sales Divisions to

duced a lease contract that includes the operation

speedily develop high-margin products that are

and maintenance of cooling water recycling pro-extremely competitive in performance and cost.

cessing equipment for district heating and cooling

The Kurita Group is aiming
to achieve cost reductions
through the optimizationof its production, procurement, and distribution
structures.

Organizationally, a new structure is being intro-

centers. This new type of lease contract is a result

duced in the fiscal year ahead that integrates ourof the fusion of Kurita’s know-how in several areas.

Chemicals and Maintenance Divisions. We are in
addition working to increase our earnings by taking

Water Treatment Chemicals Manufacturing
Subsidiary Rationalization and Cost Reductions

full advantage of the power of our customer- andWe have implemented a variety of cost reduction

to cut costs in procurement, manufacturing, andmeasures to compensate for the downward pres-distribution.

sure on prices due to intensified competition. To
begin with, we absorbed our chemicals manufacturing subsidiary Kurita Chemicals Co., Ltd.,through a merger in April 2002. The merger is helping us to reduce our distribution costs by reallocating plant production volume and to lower our

regional-oriented network. Moreover, we continue

WATER TREATMENT CHEMICALSSALES (Millions of Yen)
2003
2002
2001
2000
1999

47,116
46,27745,70945,48644,621

production costs by resulting in a quick conversion
to other lower-cost materials.
We also took a number of other steps to increase
the efficiency and to reduce the costs of our water
treatment chemicals operations. Among them, we

OPERATING INCOME (Millions of Yen)
2003
2002
2001
2000
1999

6,493
6,244
6,623
6,292
5,971

Annual Report 2003

9

Kurita Water Industries Ltd.

W

ATER TREATMENT FACILITIESConsolidated sales by the Water Treatment Facilities
Division edged down 2.0%, to ¥94,512 million,
during the fiscal year under review. Orders were
down 12.4%, to ¥81,981 million. Nevertheless,thanks to an improvement in the cost of sales ratio
and to cuts in expenses the division’s operating
income rose 26.3%, to ¥5,730 million.
Water Treatment Facilities for theElectronics Industry
PRINCIPAL PRODUCTS◆ Ultrapure water production systems◆ Wastewater treatment facilities◆ Precision cleaning services◆ Maintenance and operations services◆ Ultrapure water supply services
Consolidated sales of water treatment facilities forthe electronics industry declined ¥1.3 billion, to¥36.7 billion. The decline can be attributed to theongoing fall in orders from that industry. Orders
dropped ¥5.0 billion, to ¥31.4 billion.
Domestic demand for water treatment facilities
did pick up in the second half, with some plants
increasing their operating rates and resuming active
capital investment. This included a recovery in revenues from maintenance services and precision
cleaning, which rallied to approximately the samelevel as in the previous fiscal year and saw
improved profitability. For the year, however, sales
and orders of water treatment facilities were down
substantially.

Overseas, capital investment in the Asian market, particularly in China, Taiwan, and Korea, wasrelatively robust compared with other markets.
Conditions, though, were not favorable for ourcore ultrapure water production systems for the LSI
manufacturing industry, where we were affected bypostponements and even cancellations of capital
investments. Nevertheless, overseas sales of thedivision’s systems and facilities grew markedly
because of profitable sales growth to the LCD
industry.
ULTRAPURE WATER SUPPLY BUSINESSOur ultrapure water supply business is steadily
growing. Established in the previous fiscal year,
Kuritec Singapore Pte. Ltd. owns the ultrapure
water production system and functional water production equipment, wastewater reclaim systems,
and wastewater treatment facilities that it offers customers. It also provides customers with contractbased outsourcing services for operations
management and maintenance.
Kuritec Singapore has begun an ultrapure watersupply business in which it bills customers for thevolume of ultrapure water used. Outsourcing ultrapure water supply provides customers with several
advantages. It lowers their required capital investment and their operating costs, allowing them toconcentrate their resources on their main business.
By expanding the services that we offer to contribute to improving our customers’ funding power,
we are increasing our competitive advantage byleveraging our strong financial position.
READY-MADE PRODUCTS
Kurita is pursuing two strategies in the market forwater treatment facilities for the electronics industry.

Ultrapure Water Supply Business (Kuritec Singapore Pte. Ltd.)Ultrapure
Water
Production
SystemFunctional
Water
Production
Equipment

Wastewater
Reclaim
SystemUltrapure Water, Functional Water

Wastewater
Treatment
Facilities

Kuritec Singapore Pte. Ltd.
● April 2002

AFPD site

AFPD’s*Manufacturing Plant
Base Rate Fee + Meter Rate Fee

Commenced ultrapure water supply
Commenced LCD production at AFPD

● August 2002

Kurita Water Industries Ltd. 10 Annual Report 2003

*AFPD Pte. Ltd. AFPD, which stands for advanced flat panel display, is an overseas
production subsidiary of Toshiba Matsushita Display Technology Co., Ltd., a joint venture of
Toshiba Corporation and Matsushita Electric Industrial Co., Ltd., based on the integration of
their LCD businesses. AFPD was established in March 2001 and is situated in Singapore.

Under the business slogan “Changing our focus
from equipment to the entire utility,” we are shifting
our emphasis to providing a comprehensive outsourcing service that combines hardware, maintenance, operations management, and consulting.
The other strategy is to change over to ready-madeand modularized products, as represented by our
ready-made KuriAqua ultrapure water production
equipment.
These modular systems can be assembled withstandardized modular units in accordance with thecustomer’s desired water quality and volume.
Standardization contributes to shorter delivery timeand lower costs, while modularization contributes
to space conservation. Moreover, manufacturing
these products and doing test runs in our own plants
contribute to improving the quality of the equipment and to rapid start-up after installation on-site.
Ready-made products for an ultrapure waterproduction system for the domestic electronics
industry accounted for approximately 60% of ourlineup in this market during the fiscal year underreview. We plan to raise this figure to 75% in thefiscal year ahead. Our ready-made products contribute significantly to lower costs. They cut outsourcing labor costs through shortened delivery
times, reduce design costs through standardization,and diminish production costs through the standardization of parts.
FUNCTIONAL WATER PRODUCTION
EQUIPMENT SALES
Orders are steadily growing for our KHOW System
functional water production equipment. These units
dissolve either hydrogen or ozone gas in ultrapure
water for use in cleaning in the manufacture ofsemiconductors and LCDs. Manufacturers prefer
this system for its minimal environmental impact. It
Ultrapure water with
dissolved hydrogenor ozone demonstrates strong cleaning power atsemiconductor and
LCD plants as aneffective substitutefor chemicals anddetergents.

lowers the volumes of chemicals andof ultrapure water used for rinsing andproduces less wastewater, while ensuring full functional power.
Another of Kurita’s strengths in thismarket is its ability to meet theadvanced cleaning needs of customers
by knowing how to make the best use of its KHOW
System. This has contributed significantly to thecompetitiveness of our ultrapure water production
systems.

Ready-made types ofultrapure water production
systems achieve highquality at low cost while
also reducing delivery timeand saving factory space.

OUTLOOKIn the fiscal year ahead, we expect to see largescale capital investments overseas, particularly in
Asia and concentrated on the LCD industry. In
Japan, we anticipate that capital investments in
manufacturing related to semiconductors, whichhave been restricted, will steadily rise. Companies
in Japan are expected to start making large-scale
capital investments in system LSI and DRAM production. This will result in substantial growth inorders for ultrapure water production systems.
Overseas, we plan to expand our maintenancebusiness in ultapure water production systems. We
foresee increased sales to large-scale LCD and system LSI plants in Japan, meanwhile, for our watersupply business. Overall, we will progress further
with our conversion to ready-made products, pursuing greater product power and cost reductions.
In June 2003, we spun off the precision cleaning
operations of our parent company and subsidiary
Kurita Engineering Co., Ltd., merging them into a
new subsidiary, Kuritec Service Co. Ltd. The newsubsidiary is targeting more efficient operations andwinning new orders.
Water Treatment Facilities for GeneralIndustry
PRINCIPAL PRODUCTS◆ Pure water production systems◆ Wastewater treatment facilities◆ Soil and groundwater remediation◆ Chemical cleaning◆ Maintenance services
Consolidated sales of water treatment facilities forgeneral industry advanced ¥2.7 billion, to ¥33.1

Kurita’s latest wastewater
treatment technology andsystems contribute to the
reduction of the environmental impact of food product processing plants.

Annual Report 2003 11 Kurita Water Industries Ltd.

billion. Orders, however, declined ¥4.0 billion, to¥28.9 billion.
Despite an increase in orders for equipment for
the automobile industry, overall orders decreased
because of a slump in orders from such markets asfood products and electric power utilities. Sales, on
the other hand, expanded because of the bookingof revenues from a large-scale electric power project and the inclusion of the sales of Land Solution
Inc., a newly consolidated subsidiary. Although
maintenance and other services sales grew for electric power facilities, including chemical cleaning
work, sales of water treatment systems for othergeneral industries edged down slightly.
Our soil and groundwater remediation business
was affected by intensified competition from generalcontractors. In addition, the market entrance ofsmall and medium-sized businesses also contributed
to lower prices and profitability. Nevertheless,Land Solution stuck to its business strategy andexpanded its business and became profitable after
only a year and a half of operations.

hand, the enforcement in February 2003 of a soil
contamination countermeasures law in Japan israising public awareness of the issue. We are developing technologies for the latent soil remediationneeds of plants centered on the anaerobic bioremediation and permeable reactive barriers methods.
We also are accelerating the improvement of ourtechnologies and the development of additional
new technologies.
Land Solution, meanwhile, which was formed byan investment group of Kurita and nine other companies, broadened its business scope during the fiscal year under review. It expanded its businesstie-ups, particularly with financial institutions andreal estate companies. Since its launch in August
2001, Land Solution has provided clients with
schemes for avoiding soil contamination risk in realestate transactions. By the end of March 2003,
Land Solution had received more than 350 orders
for contamination evaluations and remediation
measures on a cumulative basis.
Land Solution’s Guarantee Scheme

SOIL REMEDIATION MARKET
STRATEGIES
Kurita is focusing its development in the increasinglycompetitive soil remediation market in Japan on
becoming the top runner in two areas. The Company
will use its technological know-how to provide
detailed contamination evaluations and remediation
services to plants. And Land Solution will support thetransaction needs of land proprietors in the realestate market by providing risk hedges.
Kurita entered the soil remediation market earlyon, getting started 10 years ago. We have developed
special capabilities for the on-site cleaning of pollution from organic compounds and possess overwhelming capabilities in groundwater remediation.
Our business alliance with Dowa Mining affords usadvantages in the heavy metal contamination field.
We have completed approximately 1,200 contamination evaluations and about 400 remediation projects, for a significant share of the market.
The size of the soil remediation market is estimated to be about ¥100 billion and expanding.
Competition, however, is placing increasingly
strong downward pressure on prices. On the other

Kurita Water Industries Ltd. 12 Annual Report 2003

Assessment

Guarantee of Assessment
Results

Remediation

Guarantee of Remediation(cost, completion time, effectiveness)

Post-Remediation

Ongoing Guarantee of
Remediation Results

Future Remediation

Long-Term Guarantee
Scheme for Possible
Remediation Expenses

Land Solution draws on the cooperation of fourbanks, including three of its founding partners, toassist companies that hold premium properties butthat do not have the capital for a soil contamination
evaluation. Working with the banks, Land Solution
initiated a soil contamination evaluation fund in
October 2002 within its subsidiary Land
Management Ltd.
Commencing December 2003, Land Solution
teamed with another founding partner, Sompo
Japan Insurance, Inc., to further its insurance services. Its latest insurance offering guarantees theresults of its soil contamination evaluation report
and that no soil contamination will remain at thesite after soil remediation work has been completed. An earlier, cost cap insurance plan developedin cooperation with Sompo Japan places an upper
limit on the cost of soil remediation. Land Solution
has therefore become the sole provider in Japan ofcomprehensive soil contamination risk hedge services, from evaluation through cleanup.
OUTLOOK
The fiscal year ahead suggests little hope that capital investment will pick up in the water treatment
facilities for general industry market or that there
will be any major improvement in operating rates.
Consequently, we aim to strengthen the power ofour products by expanding the range of technologies that can use ready-made products.
We are focusing on sales of wastewater treatment facilities to meet Japan’s new restrictions on
nitrogen concentrations. We expect, meanwhile, tofurther increase our soil remediation business basedon a greater number of orders for our technologies
and on the business expansion of Land Solution.
Public-Sector Environmental Control
Facilities
PRINCIPAL PRODUCTS◆ Sewage treatment facilities◆ Sludge (human waste and other) recycling
facilities◆ Waterworks facilities◆ Rubbish seepage water treatment facilities◆ Leisure pools◆ Operation and maintenance services
Consolidated sales in public-sector environmental
control facilities totaled ¥24.7 billion, falling ¥3.3
billion from the prior fiscal year. Orders also
declined, dropping ¥2.5 billion, to ¥21.7 billion.
Environmental projects waned amid theJapanese government’s fiscal difficulties, which
resulted in smaller budgets for public works, andamid reduced expenditures by municipal and otherpublic bodies. Competition, moreover, intensified,resulting in a harsh business climate. In response,
we redoubled our efforts to serve our customers.
We also sought to turn customers’ needs to reduce
the sludge that they produce into additional business. Based on our analysis of customers’ facilities,

we focused on making business proposals to customers and on winningorders.
Thanks to our proposal-based marketing activities, orders for maintenance and other services increased.
However, the public sector’s budget
for sludge recycling centers, which has emphasized
dioxin countermeasures in recent years, declined
substantially. In addition, demand for sewage water
treatment facilities were affected by revisions in the
public works sector.
Accordingly, our sales of our core sludge recycling centers and sewage water treatment facilities
declined. We worked in response to expand orders
for sludge recycling centers, for rubbish seepage
water treatment facilities, for sludge reduction
equipment, and for tap water membrane filtration
units. These efforts, however, proved insufficient tooffset sales declines in our core markets.

Membrane filtration units
meet the requirements fora safe supply of water tothe public.

OUTLOOK
Capital investment constraints for public works are
expected to continue in the fiscal year ahead.
However, we anticipate an increase in the budgets
allocated for sludge recycling facilities. We plan,
therefore, to increase orders for the improvement
and renewal of sludge recycling facilities and forrubbish seepage water treatment facilities. We will
do so by leveraging such of our proprietary technologies as sludge treatment and high-speed processing technologies. In addition, we are striving to
win contracts for sewage water treatment facilities
that have been put on hold during the past few
years because of the government’s fiscal problems.
WATER TREATMENT FACILITIESSALES (Millions of Yen)
2003
2002
2001
2000
1999

94,512
96,401
107,725
85,511102,133

OPERATING INCOME (Millions of Yen)
2003
2002
2001
2000
1999

5,730
4,537
9,195
4,873
9,194

Annual Report 2003 13 Kurita Water Industries Ltd.

THE YEAR’S TOPIC:
SUPERCRITICALWATEROXIDATIONSYSTEM

KURITA JOINTLY DEVELOPS THE
WORLD’S FIRST SCWO TO DEAL WITH
HIGH SALT CONCENTRATIONSIn November 2002, Kurita announced the successful development of Aqua Flame, a supercriticalwater oxidation (SCWO) system, in collaboration
with Komatsu Ltd. This ultimate processing technology destroys toxic and hazardous organic wastes toyield harmless materials. The two companies arecollaborating in setting up SCWO manufacturing
and sales operations.
SCWO technology uses water under conditionsof extreme heat and pressure—374˚C and 22 MPa
and greater—to destroy hazardous organic matterby oxidation into water and carbon dioxide gas.
The technology has received considerable attention
as a means to detoxify such difficult to destroy hazardous wastes as dioxin and polychlorinatedbiphenyl (PCB). Developing practical applicationsof the technology, however, has been delayed
because of technical problems, including plugging
of the unit caused by the accumulation of the salt
generated in the reaction and because of corrosion.
Partners Kurita and Komatsu acquired the basic
technology for their SCWO system from General
Atomics, of the United States, and began joint
development in 1997. The resulting unit demonstrates outstanding performance in destroying hazardous organic matter. It is equipped with themeans to remove accumulated salt and incorporates an anticorrosion feature.
Structure of the Reactor
Waste Fluid

Demonstration Plant Flow
Air
Waste
Fluid

Injection fromthe Nozzle

Air

Salt Removal by
the Scraper

Air Compressor

Water

Dissolution ofSalt in Water toDischarge It

Reactor
Scraper

Auxiliary
Fuel

Water

Treated
Water

TreatedGases (CO2, N2)
Air/Liquid Separator

Heat Exchanger

Kurita Water Industries Ltd. 14 Annual Report 2003

Treated Water

The new SCWO unit codeveloped by Kurita andKomatsu represents a world first in that it can deal
with high salt concentrations. An operating test lasting more than 1,000 hours using a demonstration
plant with a processing capacity of 10 cubic meters
per day confirmed stable performance in destroying
organic matter and in removing accumulated salt.
The test also demonstrated strong anticorrosion
properties and safety. By combining Kurita’s
strengths in advanced water treatment technology
and Komatsu’s outstanding development and manufacturing technologies for machinery and devices,the partners have achieved an SCWO unit with oneof the highest levels of performance and quality inthe world.
One of the most notable features of Aqua Flame isits superior ability to destroy organic matter—its
reaction efficiency is 10 times greater than competitors’ SCWO units. In addition, it has a salt removal
mechanism that incorporates a proprietary scraperthat removes precipitated salts from the wall of thereactor and a salt crusher to discharge the salts.
SCWO units can completely destroy and render
harmless certain waste liquids or solids that trouble
other treatment technologies. Unlike with incinerators, dioxin, nitrogen oxide, sulfur oxide, and otherhazardous substances are not generated in theprocess. Moreover, the destruction process isextremely fast and the unit compact. As an added
bonus, CO2 left over after processing can be recycled as CO2-rich gas for greenhouses. The producthas also taken energy recycling into consideration
by enabling the heat of the reaction to be recovered.
The main advantage of the Kurita-Komatsu
SCWO unit is that it enables a company to completely destroy its own industrial wastes. In addition, the company does not need to dispose of any
highly hazardous wastes. Demand for such environmental protection capabilities is escalating
among companies. Moreover, compared with outsourcing, our SCWO technology is highly economical, even taking into account the necessary capital
investment.
Aqua Flame is able to destroy all types of fluid
and solid wastes. However, Kurita sees the greatest
potential markets for the unit as the chemicals,
pharmaceuticals, electronics, and sewage treatment
industries.

SELECTED FINANCIAL DATA
Kurita Water Industries Ltd. and Consolidated Subsidiaries
Years ended March 31

Millions of Yen

2003

2002

2001

2000

1999

1998

¥142,678¥153,435¥130,998¥146,754¥148,322

For the year:
Net sales ................................................................. ¥141,628
Cost of sales............................................................

97,84699,039105,587

88,174

101,366

104,226

Selling, general and administrative expenses ..........

31,47432,84832,03031,61930,17929,070Operating income...................................................

12,307

10,79015,817

11,203

15,20913,199

Income before income taxes...................................

10,2639,121

14,727

8,615

15,58012,997

Net income.............................................................

5,476

5,670

8,366

4,648

7,567

6,553

Capital expenditures* .............................................

5,593

3,268

2,714

1,968

6,642

3,864

R&D expenses ........................................................

4,484

5,071

4,743

5,164

5,178

4,996

Depreciation...........................................................

3,030

3,132

2,946

3,167

3,055

2,807

Current assets..........................................................

107,180

103,490

115,263

111,017

112,576

114,426

Current liabilities ....................................................

38,64336,58551,625

41,63349,34051,287

Total shareholders’ equity.......................................

120,969

122,590

119,209113,383

108,051

102,585

Total assets .............................................................

173,689

172,145

183,175

165,297

165,775

161,922

Net income per share .............................................

40.7

42.9

63.2

35.1

57.1

49.4

Shareholders’ equity per share ................................

939.8

926.5

900.8

856.8

816.5

772.5

Dividends per share (parent company) ...................

16.0

16.0

16.0

17.0

16.0

16.0

Return on assets (%)................................................

3.2

3.2

4.8

2.8

4.6

4.0

Return on sales (%) .................................................

3.9

4.0

5.5

3.5

5.2

4.4

Total assets turnover (times) ....................................

0.8

0.8

0.9

0.8

0.9

0.9

Shareholders’ equity ratio (%) .................................

69.6

71.2

65.1

68.6

65.2

63.4

Return on equity (%)...............................................

4.5

4.7

7.2

4.2

7.2

6.5

At year-end:

Amounts per share of common stock (Yen):

Ratios:*Excluding intangibles.

Annual Report 2003 15 Kurita Water Industries Ltd.

MANAGEMENT’S DISCUSSION AND ANALYSISNET SALES AND ORDERS RECEIVED

These conditions compelled us to work ever more aggressively toConsolidated net sales for the fiscal year ended March 31, 2003,

expand orders. We boosted our sales activities in key markets inamounted to ¥141,628 million, falling ¥1,050 million, or 0.7%, pri-

Japan; expanded our sales of ready-made products for ultrapure

marily because of the deterioration in the water treatment facilities

water for the electronics industry and for water for pharmaceuticals

business. Overseas sales, which in the previous fiscal year accounted

production; further developed our ultrapure water supply businessfor less than 10% of consolidated net sales, advanced to ¥18,427

for the electronics industry; and conducted marketing activities inmillion, or 13.0% of consolidated net sales, thanks mainly to

China, Taiwan, and Southeast Asia. Orders increased for precision¥15,837 million in sales to Asia.

cleaning services for semiconductor and LCD manufacturing in the

A description of performance by segment follows.

electronics industry, but orders for our core ultrapure water production systems fell significantly in domestic and overseas markets.

Water treatment chemicals
Sales of water treatment chemicals edged up ¥839 million, or 1.8%,
to ¥47,116 million, supported by orders that came in during the priorfiscal year for chemical injection systems and other products. Amid a
difficult market caused by the expanded rationalization measures ofcustomers and intensified competition, we redoubled our efforts to
win comprehensive contracts with customers by optimizing the water
treatment management of whole factories to meet their needs. We
also concentrated on winning orders by stepping up marketing bymarket sector and by increasing new product development.
Orders increased for process treatment chemicals for petroleum
refineries and for the pulp and paper industry, for fixing agents forheavy metals contained in fly ash produced during waste incineration, for maintenance services, for ion-exchange resin, and for activated charcoal. On the other hand, orders for the division’s coreproduct line of chemicals for treating boilers were approximately thesame as in the fiscal year before, while orders for cooling waterchemicals and wastewater chemicals fell. Total orders for water
treatment chemicals during the fiscal year amounted to ¥46,450 million, declining ¥503 million, or 1.1%.
Water treatment facilities

In the market for water treatment facilities for general industry,orders increased for facilities for the automobile industry. But orders
for facilities from the electric power generation plant, food product,and other industries declined.
Orders for maintenance and other services increased from theelectric power generation industry and the electronics industry.
Kurita faced a difficult market for environmental control facilities
because of contracted public works budgets, cost cutting among
regional government bodies, and increased competition. Nevertheless,we worked to win orders by strengthening our responses to customer
needs and by aggressively proposing sales.
Orders for maintenance and other services increased thanks toproposal-based sales efforts, but orders for our core sludge recycling
centers and our sewage treatment facilities slumped substantially. In
response, we stepped up our sales activities to garner orders for
sludge recycling centers, for rubbish seepage water treatment facilities, for equipment for sludge reduction, and for membrane filtration
units for tap water. These efforts, however, proved insufficient to offset sales declines in our core markets.
Total orders for water treatment facilities during the fiscal year
amounted to ¥81,981 million, dropping ¥11,557 million, or 12.4%.

Sales of water treatment facilities slipped ¥1,889 million, or 2.0%, to¥94,512 million. The drop in sales of water treatment facilities was theprimary factor in the overall decline in net sales.

COSTS, EXPENSES, AND OPERATING INCOME

Our cost of sales amounted to ¥97,846 billion, declining ¥1,193 mil-During the fiscal year, there were some signs of recovery in thelion, or 1.2%, from the previous fiscal year, and falling more thandomestic market, including additional capital investment in the LCD

the 0.7% contraction in net sales. Accordingly, the cost of sales ratio

manufacturing and automobile industries. Overseas, capital invest-

decreased 0.3 percentage points, to 69.1%. The Kurita Groupment was favorable, especially by the electronics industry in China

worked to absorb the rise in the cost of sales, which was due primar-

and Taiwan. On the whole, however, harsh conditions prevailed

ily to intensified price competition, through cost reductions in its

because of smaller capital investment and the postponement or can-manufacturing, distribution, and procurement systems. As a result,cellation of investments related to the rationalization efforts of cus-gross profit increased ¥142 million, or 0.3%, to ¥43,781 million,

tomers.

despite the slight decrease in sales.

Kurita Water Industries Ltd. 16 Annual Report 2003

SG&A expenses also fell, declining ¥1,374 million, or 4.2%, to

OTHER INCOME (EXPENSES) AND NET INCOME¥31,474 million. As a percentage of net sales, SG&A expenses edged

Other expenses, net, expanded ¥373 million, to ¥2,043 million. Of

down 0.8 percentage points, to 22.2%, from 23.0%. In addition tothis amount, financial income, net, edged down ¥19 million, tothe curtailment of various expenses, this decrease can be attributed¥399 million. Among other favorable factors, the loss on write-down

to lower R&D expenses, the result of our focus of R&D investment

of investment securities amounted to ¥822 million, declining ¥1,164

on strategic fields, and to the elimination of the accrued employees’

million.

bonuses for managers and above because of our change to an annu-

Among unfavorable factors, our gain on the sale of an affiliatedal compensation scheme. R&D expenses accounted for ¥4,484 mil-company’s stock decreased ¥932 million. In addition, the equity inlion of SG&A expenses and were down ¥587 million, or 11.6%.

the earnings of unconsolidated subsidiaries and affiliates dropped

R&D expenses as a percentage of net sales slid 0.4 percentage¥55 million, to ¥143 million. The ¥1,162 million amortization ofpoints, to 3.2%, from 3.6% a year earlier.

unrecognized effect of change in accounting for employees’ retire-

The slight decline in net sales notwithstanding, operating income

ment benefits was the final charge of an amount of ¥3,480 millionrose ¥1,517 million, or 14.1%, to ¥12,307 million. Operatingthat was amortized over a period of three years.

income as a percentage of net sales improved 1.1 percentage points,

As a result of the preceding factors, income before income taxes

to 8.7%, from 7.6%.

amounted to ¥10,263 million, up ¥1,142 million, or 12.5%, from theWater treatment chemicals operating income rose ¥249 million, or

previous fiscal year. Because the effective tax rate after application of

4.0%, to ¥6,493 million. The operating income ratio rose 0.3 percent-tax effect accounting increased 8.2 percentage points, to 45.5%,

age points, to 13.8%, from 13.5%. In our core water treatment facili-from 37.3%, net income was down ¥194 million, or 3.4%, to ¥5,476

ties business, declines in orders and sales could not restrain an

million. Net income per share was ¥40.67, dropping ¥2.18 fromoperating income gain of ¥1,193 million, to ¥5,730 million, a notable¥42.85 in the previous fiscal year.

26.3% increase. In addition to sales growth, this surge in profitability
resulted from our various cost reduction measures, such as bringing

FINANCIAL POSITION

subcontracted work back in-house and improving our purchasing

In consideration of the harsh business climate and as part of its con-system. The segment’s operating income ratio advanced 1.4 percent-tinued efforts to be selective and focused in its businesses, the Kurita

age points, to 6.1%, from 4.7%.

Group did its best to restrain its asset growth by strategically allocating

Net Sales by Segment

R&D Expenses andRatio of R&D Expenses to Net Sales(Billions of Yen)(%)

(Billions of Yen)

160

6
43.6

6

16

47.1
5.0

45.5

5.2

5.2

5.1
4.7

13.2
4.5

12.3 12

12

3.9

107.7
96.4

3.4

94.5

85.5

10.4

11.2

3.6

3.5
3.1

16

15.8

15.2
46.3

104.8 102.1(%)(Billions of Yen)

45.7

44.6

120

80

Operating Income andRatio of Operating Income to Net Sales

8.9

3.2

3

3

40

8

10.3

10.8
8.7

8.6
7.6

4

4

0

0

1998 1999 2000 2001 2002 2003

01998 1999 2000 2001 2002 2003

8

0

0

1998 1999 2000 2001 2002 2003

Water Treatment Chemicals
Water Treatment Facilities

Annual Report 2003 17 Kurita Water Industries Ltd.

Property, plant and equipment, net, rose ¥1,957 million, toresources and by using capital more efficiently. The Group’s shortand long-term interest-bearing debt remains at a low level, such that¥38,310 million. During the fiscal year under review, capital expen-

the Group is close to being debt free.

ditures totaling ¥5,593 million were made, including ¥4,653 million
in the water treatment facilities business for the acquisition of proper-

Assetsty, plant and equipment for the ultrapure water supply business andAs a result of the above policy, total assets at fiscal year-end rose

R&D facilities. Kurita also sold its shares of its previously consolidated

only ¥1,544 million, or 0.9%, to ¥173,689 million.

subsidiary Kuritec (Taiwan) Co., Ltd., resulting in the elimination of

Total current assets increased ¥3,690 million, to ¥107,180 mil-that company’s assets from property, plant and equipment.

lion, principally because the completion of construction and thedelivery of projects near the end of the fiscal year drove up accounts

Liabilities and Shareholders’ Equity

receivable. Among current assets, notes and accounts receivable,

Total liabilities expanded ¥2,766 million, or 5.6%, to ¥51,763 mil-trade, increased ¥4,224 million for the above-mentioned reason,lion. Current liabilities were mainly responsible for the increase, ris-while marketable securities increased ¥1,975 million because of pur-ing ¥2,058 million, to ¥38,643 million. This increase can mainly bechases to manage excess cash. Inventories, however, declined

attributed to the ¥1,350 million increase in our payment of notes and¥1,401 million because of the previously mentioned completion of

accounts payable, trade.

projects and the decrease in orders. Cash on hand and in banks fell

Income taxes payable amounted to ¥3,335 million, increasing¥1,570 million due mainly to our buyback of the Company’s stock.

¥2,893 million, to return to a normal level after a significant decline

Investments and long-term receivables amounted to ¥25,538 mil-in the previous fiscal year. Factors that reduced current liabilities

lion, dropping ¥4,409 million. This decline can be attributed to a

included a ¥655 million decrease in advances received, to ¥966

¥1,612 million fall in investments in securities because of valuation

million.
Accrued employees’ bonuses fell ¥773 million, to ¥2,154 million,

losses and sales. In addition, long-term loans declined ¥2,469 million because of the consolidation of Kurita (Singapore) Pte. Ltd. inbecause of the elimination of the provision for bonus payments forthe fiscal year under review owing to its increased significance in the

managers and above as a result of our change to an annual compen-Group’s operations.

sation scheme. Other current liabilities decreased ¥625 million, to¥7,915 million. Long-term liabilities increased ¥709 million, to¥13,120 million. This increase principally resulted from an increase

Net Income andRatio of Net Income to Net Sales(%)(Billions of Yen)
8.4

8

8

Capital Expenditures*

Current Ratio(Billions of Yen)

(%)
280

282.9 277.4

266.7

8

7.6
223.1

6.6
6

5.5

5.2
4.4
4

4.6
3.5

6
5.7

5.5

4.0

3.9

228.2

223.3

6.6
6

210

5.6

4

4

140

3.9
3.3
2.7

2

0

2

70

0

0

1998 1999 2000 2001 2002 2003

2

2.0

0

1998 1999 2000 2001 2002 2003

1998 1999 2000 2001 2002 2003
*Excluding intangibles

Kurita Water Industries Ltd. 18 Annual Report 2003

in accrued employees’ retirement benefits, to ¥11,469 million,

increase in net cash used in financing activities of ¥4,101 million,

because of a ¥596 million increase in the net retirement benefit

primarily a net of ¥4,058 million from the acquisition and sale of theobligations based on the accounting method used.

Company’s stock. The amount of cash and cash equivalents represented approximately 2.7 months of average monthly sales ofKurita’s long-term borrowings declined ¥38 million, to ¥40 million, because of the repayment of loans. Our return on assets (ROA)¥11,802 million, representing adequate liquidity for normal business

was 3.2%, the same as in the previous fiscal year. Although return

operations.
Net cash provided by operating activities increased ¥1,689 million

on sales (ROS) declined to 3.9%, from 4.0% in the prior fiscal year,

from the previous fiscal year, to ¥10,402 million. Although partiallyasset turnover improved slightly, to 0.82 times, from 0.80 times.

offset by increases in trade receivables, this growth was the result of a

Total shareholders’ equity decreased ¥1,621 million, or 1.3%, to¥120,969 million, and the shareholders’ equity ratio edged down 1.6¥1,142 million increase in net income before income taxes and apercentage points, to 69.6%, from 71.2%. This high ratio is the result¥10,625 million difference in change of trade payables from the pre-of our strong financial structure, which contains only an extremely

vious fiscal year. In addition, income taxes paid fell ¥7,432 million.

small amount of short- and long-term interest-bearing debt. It is an

Net cash used in investing activities amounted to ¥6,999 million,

extremely high equity ratio for our industry and any other industry inup ¥1,665 million from the previous fiscal year. This decline can be

Japan. This decline in the ratio despite growth in retained earnings

attributed to an increase in payments for the purchase of marketable

was primarily due to a buyback of ¥4,019 million of Kurita stock.

securities and investment securities and to an increase in payments

Return on equity (ROE) declined 0.2 percentage points, to 4.5%,

for the purchase of property, plant and equipment for our ultrapurefrom 4.7% in the previous fiscal year.

water supply business.
Based on the results of cash flows for operating and investing
activities, free cash flow expanded ¥24 million, to ¥3,403 million.

CASH FLOWSNet cash used in financing activities amounted to ¥6,270 million,

Cash and cash equivalents (hereafter referred to as cash) at the endof the fiscal period amounted to ¥31,507 million, decreasing ¥1,473

increasing ¥4,101 million from the previous fiscal year. This result

million from the previous fiscal year-end.

can mainly be attributed to the ¥4,019 million buyback of Company

This decline resulted when the ¥1,689 million increase in net cash

stock.

provided by operating activities and the ¥1,665 million increase in
net cash used in investment activities offset one another. This left an

Depreciation

Return on Assets(Billions of Yen)

Return on Equity

(%)

4

(%)
6

8
7.2

7.2

3.1

3
2.8

3.2

3.1
2.9

6.5

4.8

4.6

6

3.0
4.0

4.2
2

3

2.8

3.2

3.2

1

4.7

4.5

4

2

0

0

1998 1999 2000 2001 2002 2003

01998 1999 2000 2001 2002 2003

1998 1999 2000 2001 2002 2003

Annual Report 2003 19 Kurita Water Industries Ltd.

CONSOLIDATED BALANCE SHEETS
Thousands of
U.S. Dollars(Note 1)

Kurita Water Industries Ltd. and Consolidated Subsidiaries
At March 31, 2003 and 2002

Millions of Yen

Assets2003

Current assets:
Cash on hand and in banks (Note 11).......................................................... ¥ 31,838
Notes and accounts receivable, trade .........................................................
59,697
Allowance for doubtful accounts.................................................................
(169)
Marketable securities (Note 5-(1))................................................................
6,615
Inventories (Note 13) ...................................................................................
6,301
Deferred tax assets (Note 15).......................................................................
1,806
Other current assets.....................................................................................
1,090
Total current assets .................................................................................. 107,180

2002

2003

¥ 33,408
55,473
(185)
4,640
7,702
1,503
945
103,490$ 265,316
497,475(1,408)55,12552,50815,050
9,083
893,167

Investments and long-term receivables:
Investments in securities (Note 5-(1)) ..........................................................
Investments in unconsolidated subsidiaries and affiliates.............................
Deferred tax assets (Note 15).......................................................................
Long-term loans...........................................................................................
Other investments .......................................................................................
Allowance for doubtful accounts.................................................................
Total investments and long-term receivables ...........................................

17,322
1,902
4,051
116
2,186
(40)
25,53818,319
2,547
3,857
2,585
2,719
(80)
29,947

144,350
15,85033,758967
18,217(333)
212,817

Property, plant and equipment, at cost (Note 5-(2)):
Land ............................................................................................................
Buildings and structures...............................................................................
Machinery and equipment ..........................................................................
Construction in progress..............................................................................
Other facilities.............................................................................................
Total ............................................................................................................
Accumulated depreciation ..........................................................................
Property, plant and equipment, net .........................................................

15,024
28,772
10,4701,604
11,124
66,994(28,684)
38,31015,044
28,16811,806
198
10,986
66,203(29,850)
36,353

125,200
239,767
87,25013,367
92,700558,283(239,033)
319,250

Other assets .....................................................................................................
2,659
Total assets .................................................................................... ¥173,689

2,354¥172,145

22,158$1,447,408

The accompanying notes are an integral part of these statements.

Kurita Water Industries Ltd. 20 Annual Report 2003

Thousands of
U.S. Dollars(Note 1)Millions of Yen

Liabilities and shareholders’ equity

2003

2002

Current liabilities:
Short-term borrowings (Note 14) ................................................................. ¥—Current portion of long-term borrowings (Note 14) .....................................
7
Notes and accounts payable, trade .............................................................
24,261
Income taxes payable ..................................................................................
3,335
Advances received ......................................................................................
966
Accrued employees’ bonuses (Note 5-(3)) ...................................................
2,154
Allowance for product warranty ..................................................................
848
Other current liabilities................................................................................
7,067
Total current liabilities.............................................................................
38,643Long-term liabilities:
Long-term borrowings (Note 14)..................................................................
Accrued employees’ retirement benefits (Notes 5-(3), 16)............................
Accrued retirement benefits for directors and corporate auditors.................
Other long-term liabilities............................................................................
Total long-term liabilities.........................................................................
Total liabilities ...............................................................................

¥

132
7
22,911
442
1,621
2,927
923
7,617
36,585

2003
$

—
58
202,175
27,792
8,050
17,9507,067
58,892
322,02540
11,469813
796
13,12051,76378
10,873667
792
12,411
48,997

333
95,575
6,775
6,633
109,333
431,358

Minority interests in consolidated subsidiaries ................................................
956
Contingent liabilities (Note 19)
Shareholders’ equity:
Common stock, 2003 and 2002
Authorized: 235,840,000 shares
Issued: 2003—132,800,256 shares
2002—132,800,256 shares .........................................................
13,450Additional paid-in capital............................................................................
11,398
Unrealized gain on revaluation of land (Note 9)..........................................
20
Retained earnings ........................................................................................ 101,637
Unrealized holding (losses) gains on other securities...................................
(108)
Foreign currency translation adjustment ......................................................
(543)...................................................................................................... 125,854
Treasury stock, at cost:
2003—4,213,867 shares, 2002—477,101 shares........................................
(4,885)
Total shareholders’ equity ....................................................................... 120,969
Total liabilities and shareholders’ equity........................................ ¥173,689

558

7,967

13,450
11,39819
98,804
162(418)
123,417

112,083
94,983
167
846,975(900)(4,525)
1,048,783(827)
122,590¥172,145(40,708)
1,008,075$1,447,408

Annual Report 2003 21 Kurita Water Industries Ltd.

CONSOLIDATED STATEMENTS OF INCOME
Thousands of
U.S. Dollars(Note 1)

Kurita Water Industries Ltd. and Consolidated Subsidiaries
For the years ended March 31, 2003, 2002 and 2001

Millions of Yen

2003

2002

2001

2003

Net sales...........................................................................................
Cost of sales......................................................................................
Gross profit ..............................................................................
Selling, general and administrative expenses ...................................
Operating income....................................................................
Other income (expenses):
Interest and dividend income.......................................................
Interest expenses..........................................................................
Gain on sale of an affiliated company’s stock ..............................
Equity in earnings of unconsolidated subsidiaries and affiliates....
Loss on write-down of investment in securities ............................
Amortization of unrecognized effect of change inaccounting for employees’ retirement benefits ...........................
Foreign exchange (losses) gains ...................................................
Other, net ....................................................................................
....................................................................................................

¥141,628
97,84643,781
31,474
12,307¥142,678
99,03943,63932,848
10,790¥153,435
105,587
47,84732,03015,817$1,180,233
815,383
364,842
262,283
102,558

416
(17)
—
143
(822)

453
(35)
932
198
(1,986)

501
(38)
—
547
(504)

3,467
(142)
—
1,192
(6,850)(1,162)(214)(385)(2,043)(1,162)
107(177)(1,670)(1,162)
115(549)(1,090)(9,683)(1,783)(3,208)(17,025)

Income before income taxes ............................................................
Income taxes (Note 15):
Current ........................................................................................
Deferred ......................................................................................
....................................................................................................
Minority interests in earnings of consolidated subsidiaries ..............
Net income.......................................................................................

10,2639,121

14,72785,525

4,957
(283)
4,674
112
¥ 5,476

4,630(1,229)3,401
49¥ 5,670

8,058(1,716)6,342
19¥ 8,366

41,308(2,358)38,950933
45,633

U.S. Dollars(Note 1)Yen

Per share of common stock:
Net income ..................................................................................
Cash dividends applicable to the year..........................................
The accompanying notes are an integral part of these statements.

Kurita Water Industries Ltd. 22 Annual Report 2003

$

2003

2002

2001

¥40.6716.00¥42.8516.00¥63.22
16.00

2003
$0.34
0.13

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
Thousands of
U.S. Dollars(Note 1)

Kurita Water Industries Ltd. and Consolidated Subsidiaries
For the years ended March 31, 2003, 2002 and 2001

In Thousands

Common stock:
Beginning of the year ........................................................
End of the year..................................................................

Millions of Yen

Number ofshares issued

2003

2002

2001

2003

132,800
132,800¥ 13,450
13,450¥13,450
13,450¥13,450
13,450$112,083
112,083

11,398
11,398

11,398
11,398

11,398
11,39894,983
94,983

95,444
5,670(2,117)(164)

89,3408,366(2,117)(145)

823,367
45,633(17,642)(1,000)—(27)¥98,804——¥95,444(2,800)(575)$846,975

Additional paid-in capital:
Beginning of the year ................................................................................
End of the year ..........................................................................................

Retained earnings:
Beginning of the year ................................................................................
98,804
Net income for the year ............................................................................
5,476
Cash dividends paid..................................................................................
(2,117)
Bonuses to directors and corporate auditors..............................................
(120)
Decrease in retained earnings due to change in scope of consolidation(net of inclusion and exclusion of consolidated subsidiaries) ..................
(336)
Other ........................................................................................................
(69)
End of the year .......................................................................................... ¥101,637
The accompanying notes are an integral part of these statements.

Annual Report 2003 23 Kurita Water Industries Ltd.

CONSOLIDATED STATEMENTS OF CASH FLOWS
Thousands of
U.S. Dollars(Note 1)

Kurita Water Industries Ltd. and Consolidated Subsidiaries
For the years ended March 31, 2003, 2002 and 2001

Millions of Yen

2003
I. Cash flows from operating activities:
Income before income taxes ................................................................. ¥10,263
Depreciation and amortization .............................................................
3,208
Increase in allowance for employees’ retirement benefits .....................
592
Loss on sales and write-down of investment in securities......................
824
Equity in earnings of unconsolidated subsidiaries and affiliates.............
(143)
Interest and dividends income ..............................................................
(417)
Interest expenses...................................................................................
17
Payments of bonuses to directors and corporate auditors......................
(120)
Decrease in other allowances, accrual and noncash items, net.............
(222)
Change in assets and liabilities:(Increase) decrease in trade receivables ............................................ (4,784)
Decrease (increase) in inventories.....................................................
1,369
Increase (decrease) in trade payables ................................................
1,771
Decrease in others, net .....................................................................
(327)............................................................................................................. 12,028
Interest and dividends received.............................................................
609
Interest paid ..........................................................................................
(17)
Income taxes paid................................................................................. (2,058)
Others, net ............................................................................................
(160)
Net cash provided by operating activities ......................................... 10,402

2002

2001

2003

¥ 9,121
3,409
828
1,053
(198)
(454)
35
(165)
(252)

¥14,727
3,196
3,596
463
(547)
(502)
38
(146)
1,310

$ 85,525
26,733
4,933
6,867(1,192)(3,475)142(1,000)(1,850)10,8802,537(8,854)(270)
17,669506(35)(9,490)64
8,713(16,742)(3)
5,619(1,206)
9,805
453
(38)
(5,085)206
5,340(39,867)
11,40814,758(2,725)100,233
5,075(142)(17,150)(1,333)86,683

II. Cash flows from investing activities:
Decrease (increase) in time deposits, net ..............................................
Payments for purchase of property, plant and equipment .....................
Proceeds from sales of property, plant and equipment..........................
Payments for purchase of marketable securities and investment in securities....
Proceeds from sales of marketable securities and investment in securities...
Long-term loans to unconsolidated subsidiaries....................................
Others, net ............................................................................................
Net cash used in investing activities..................................................

78(4,895)251(9,360)
7,073
(66)
(81)
(6,999)(507)(2,747)93(6,218)7,648(2,461)(1,142)(5,334)208(2,596)116(7,276)
5,040
(51)
(192)
(4,750)650(40,792)
2,092(78,000)
58,942(550)(675)(58,325)

III. Cash flows from financing activities:(Decrease) increase in short-term debt, net ...........................................
Repayments of long-term debt, net .......................................................
Cash dividends paid..............................................................................
Cash dividends paid to minority interests in consolidated subsidiaries...
Payments for purchase of treasury stock, net.........................................
Net cash used in financing activities .................................................

(57)
(11)
(2,116)(28)(4,058)(6,270)58(44)(2,117)(40)(25)(2,169)(140)(88)(2,117)(30)
4(2,371)(475)(92)(17,633)(233)(33,817)(52,250)

IV. Effect of exchange rate changes on cash and cash equivalents ............
(59)
V. Net (decrease) increase in cash and cash equivalents .......................... (2,927)
VI. Cash and cash equivalents at beginning of year ................................... 32,980
VII. Cash and cash equivalents of newly consolidated subsidiaries,
net of excluded subsidiaries from consolidation.................................
1,454
VIII. Cash and cash equivalents at end of year............................................. ¥31,507

145
1,354
31,56958(1,723)33,240(492)(24,392)
274,833

56¥32,98052¥31,569

12,117$262,558

The accompanying notes are an integral part of these statements.

Kurita Water Industries Ltd. 24 Annual Report 2003

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Kurita Water Industries Ltd. and Consolidated Subsidiaries

1. Basis of presenting consolidated financial statements

Kurita Water Industries Ltd. (the “Company”) and its subsidiaries in(2) Name of principal non-consolidated subsidiary: Kurita Sogo
Service Co., Ltd.

Japan maintain their books of account and prepare their financial

All the non-consolidated subsidiaries are those subsidiaries whosestatements in accordance with accounting principles and practices

combined assets, net sales, net income, and retained earnings in thegenerally accepted in Japan, while its foreign subsidiaries maintainaggregate are not significant in terms of the consolidated financial

their books of account and prepare their financial statements in con-statements.

formity with those of the countries of their domicile. Certain accounting principles and practices generally accepted in Japan are different

3. Application of equity methodfrom Internationl Accounting Standards and standards in other coun-(1) Number of companies to which the equity method is applied: 5tries in certain respects as to application and disclosure require-(2) Affiliates to which equity method has not been applied had noments. Accordingly, the accompanying consolidated financial

material effect on consolidated net income and consolidated retained

statements are intended for use by those who are informed about

earnings in the aggregate. Hence, they have not been included in theJapanese accounting principles and practices.

application scope of the equity method.

The accompanying consolidated financial statements, prepared inaccordance with accounting principles and practices generally
accepted in Japan, were filed with the Japanese Ministry of Treasury
and the Tokyo Stock Exchange as required by the Securities andExchange Law of Japan.
Certain reclassifications of accounts and modifications havebeen made in the accompanying financial statements to facilitate
understanding by readers outside Japan. These reclassifications andmodifications have no effect on net income or shareholders’ equity.
All figures in the financial statements and notes are stated inmillions of yen by discarding fractional amounts of less than ¥1
million. As a result, the totals shown in the financial statements andnotes in yen do not necessarily agree with the sum of the individual
amounts.
The translation of yen amounts into U.S. dollar amounts is included solely for the convenience of readers and has been made for
2003, as a matter of arithmetical computation only, at the rate of ¥120
to US$1, the prevailing rate on the Tokyo foreign exchange market
on March 31, 2003. The translation should not be construed as arepresentation that yen have been, could have been, or could in the
future be converted into U.S. dollars at the above or any other rate.
2. Scope of consolidation

The consolidated financial statements include the accountsof the Company and its significant subsidiaries. All significant
intercompany transactions and balances have been eliminatedin consolidation.
(1) Number of consolidated subsidiaries: 28
Name of principal consolidated subsidiaries: Kurita Engineering Co.,

4. Fiscal year of consolidated subsidiaries

The fiscal year of Kurita (Singapore) Pte. Ltd. and 11 other overseas
consolidated subsidiaries ended December 31, 2002. The accompanying consolidated financial statements include the accounts of thesesubsidiaries as of December 31, 2002 and for the year then ended.
5. Significant accounting policies(1) Valuation basis and method
Marketable securities
Held-to-maturity debt securities: Amortized cost (straight-line
amortization)
Other securities
Items that have market price: Evaluated at market price at the balance sheet date, with resulting unrealized holding gains and losses
reported as a separate component of shareholders’ equity (cost ofsold securities is computed by the moving average method)
Items that have no market price: Cost basis by the moving averagemethodInventories
Principally cost basis by the moving average method (except forwork in process whose costs are determined by the specificidentification method)(2) Depreciation method of property, plant and equipment
Declining-balance method for the Company and domestic consolidated subsidiaries (except for buildings, not including auxiliary
facilities, acquired on and after April 1, 1999, for which the straightline method is applied) and straight-line method for overseas consolidated subsidiaries

Ltd., and Kuritaz Co., Ltd.

Annual Report 2003 25 Kurita Water Industries Ltd.

(3) Allowances and accruals
Accrued employees’ bonus:
The Company and its domestic consolidated subsidiaries provide
for an amount equivalent to the anticipated bonus payments toemployees.
As of the fiscal year ended March 2003, the Company switched toan annual compensation scheme for managers and above in placeof remuneration based on salaries and bonuses. Accordingly, theCompany eliminated the provision for bonus payments. As a result,bonus provisions declined by ¥562 million compared with the previous accounting method, which led to a ¥555 million increase inoperating income and income before income taxes.
Accrued employees’ retirement benefits:
Accrued employees’ retirement benefits are recorded based on the

6. Revaluation of assets and liabilities of theconsolidated subsidiaries in consolidation process

The full fair value method is used.
7. Appropriation of retained earnings

The accompanying consolidated statements of shareholders’ equity
reflect the appropriations of retained earnings of the Company and its
consolidated subsidiaries in the year in which the annual shareholders
meet and approve the appropriations.
8. Scope of cash and cash equivalents

Cash and cash equivalents in the consolidated statement of cash
flows are composed of cash on hand, bank deposits withdrawable on
demand and short-term investments with an original maturity of threemonths or less and subject to a minor risk of fluctuations in value.

estimated projected benefit obligation and fair value of the pension assets at the balance sheet date. Unrecognized net obligation

9. Unrealized gain on revaluation of landat transition in the amount of ¥3,480 million is recognized over

The Company carried out a revaluation of land for business use inthree years. Actuarial gains and losses are amortized over one toaccordance with the Land Revaluation Law (enacted on March 31,

two years.

1998). The revaluation difference is stated as “unrealized gain on(4) Leases

revaluation of land” in the shareholders’ equity account, after deduc-Finance leases other than those that are deemed to transfer the own-tion of tax equivalent from the net amount of revaluation gain andership of the leased assets to lessees are accounted for by the sameloss. The tax equivalent is stated as deferred tax liabilities in long-

method as that of operating leases.

term liabilities.

(5) Income per share

Revaluation method:

Basic and diluted earnings per share are computed using the weight-

The revaluation of land was computed in accordance with Article

ed-average number of common shares and dilutive potential com-

Two, Item One of the Land Revaluation Law Enforcement Ordermon shares outstanding. Dilutive potential common shares are(Cabinet Order No. 119, issued on March 31, 1998). The computa-

additional common shares from outstanding stock options that aretion is included in appropriate adjustment for land price of public

assumed to be exercised. No dilution has resulted from those shares,

notice.

as the effect is antidilutive.

Revaluation date: March 31, 2002

(6) Consumption tax

Difference between fair market price of the land at the fiscal year-

Consumption taxes are accounted for separately from transaction

end and the carrying value after land revaluation: ¥(1,002) million

prices.
(7) Derivatives transactions

10. Research and development expenses

When necessary, the Company enters forward currency contracts to

Research and development expenses included in selling, general andhedge the risk of future foreign exchange rate fluctuations related toadministrative expenses:

monetary obligations denominated in foreign currencies. These arebasically conducted within the range of ordinary business transactions denominated in foreign currencies. The Company believes thatthe risk of counterparty default is negligible because its forward currency contracts are conducted with highly creditworthy Japanesebanks. In addition, transactions in forward currency contracts are
executed and managed by the finance and accounting department
on a contract-by-contract basis after they have been approved byprescribed internal procedures.

Kurita Water Industries Ltd. 26 Annual Report 2003

Millions of Yen

Thousands of
U.S. Dollars

2003

2002

2003

....................................... ¥4,484¥5,071$37,36711. Reconciliation between cash and cash equivalents

Reconciliation between the cash and cash equivalents in the consolidated statement of cash flows and the consolidated balance sheet items is asfollows:
Thousands of
U.S. Dollars

Millions of Yen

2003
Cash and bank deposits.................................................................................................... ¥31,838

2002

2003

¥33,408$265,317

Time deposits having original maturity of more than three months ..................................

(330)

(428)

(2,750)Cash equivalents included in marketable securities..........................................................

—

—

—

Cash and cash equivalents ................................................................................................. ¥31,507¥32,980$262,558

12. Marketable securities and investment securities(1) Bonds held to maturity with fair value at March 31, 2003 and 2002 are summarized as follows:
Millions of Yen
At March 31, 2003

Book value

Fair value

Difference

Fair value not exceeding book value:
Corporate bonds ................................................................................................................................... ¥

—

¥

—

¥

—

Total.................................................................................................................................................. ¥

—

¥

—

¥

—

Millions of Yen
At March 31, 2002

Book value

Fair value

Difference

Fair value not exceeding book value:
Corporate bonds ...................................................................................................................................

¥1,000¥839¥(160)

Total..................................................................................................................................................

¥1,000¥839¥(160)

Thousands of U.S. Dollars
At March 31, 2003

Book value

Fair value

Difference

Fair value not exceeding book value:
Corporate bonds ................................................................................................................................... $

—

$

—

$

—

Total.................................................................................................................................................. $

—

$

—

$

—

(2) Other securities (available-for-sale securities) with fair value at March 31, 2003 and 2002 are summarized as follows:
Millions of Yen
At March 31, 2003

Acquisition cost

Book value

Difference¥ 1,968

¥ 659

8,677

39

Book value exceeding acquisition cost:
Stock.................................................................................................................................................. ¥ 1,308
Bonds:
Corporate bonds ............................................................................................................................

8,637

Other .................................................................................................................................................

—

—

—

Sub-total ....................................................................................................................................

9,946

10,646699

Stock..................................................................................................................................................

3,688

2,863

(824)

Bonds:
Corporate bonds ............................................................................................................................

6,895

6,839

(56)

Book value not exceeding acquisition cost:

Other .................................................................................................................................................

499

499

0

Sub-total ....................................................................................................................................

11,083

10,202(881)

Total........................................................................................................................................... ¥21,030¥20,848¥(182)

Annual Report 2003 27 Kurita Water Industries Ltd.

Millions of Yen
At March 31, 2002

Acquisition cost

Book value

Difference¥ 2,745¥1,104

6,764

53

Book value exceeding acquisition cost:
Stock.................................................................................................................................................. ¥ 1,641
Bonds:
Corporate bonds ............................................................................................................................

6,711

Other .................................................................................................................................................

—

—

—

Sub-total ....................................................................................................................................

8,352

9,510

1,158

Stock..................................................................................................................................................

4,070

3,354

(715)

Bonds:
Corporate bonds ............................................................................................................................

7,840

7,695

(144)

Book value not exceeding acquisition cost:

Other .................................................................................................................................................

300

296

(3)

Sub-total ....................................................................................................................................

12,21011,346(863)

Total........................................................................................................................................... ¥20,562¥20,857¥ 294

Thousands of U.S. Dollars
At March 31, 2003

Acquisition cost

Book value

Difference$ 16,400$(5,492

72,308325

Book value exceeding acquisition cost:
Stock ................................................................................................................................................ $ 10,900
Bonds:
Corporate bonds ..........................................................................................................................

71,975

Other ...............................................................................................................................................

—

—

—

Sub-total ..................................................................................................................................

82,88388,717

5,825

Stock ................................................................................................................................................

30,73323,858(6,867)

Bonds:
Corporate bonds ..........................................................................................................................

57,45856,992(467)

Book value not exceeding acquisition cost:

Other ...............................................................................................................................................

4,158

4,158

(0)

Sub-total ..................................................................................................................................

92,35885,017(7,342)

Total ......................................................................................................................................... $175,250$173,733$(1,517)

During the fiscal year ended March 2003, the Company wrote down ¥822 million in other (available-for-sale) securities at a market price. The
Company wrote down ¥1,955 million in other (available-for-sale) securities at a market price in the fiscal year ended March 2002.
The Company writes down all securities whose market prices as of the end of the fiscal year have fallen more than 50% below their acquisition
prices. Securities whose market prices have fallen between 30% and 50% below their acquisition prices are written down by an appropriate
amount, if necessary, after considering their recoverable value.
(3) Other securities (available-for-sale securities) sold during the years ended March 31, 2003 and 2002 are summarized as follows:
For the year ended March 31, 2003

Sales amount

Total gains on sales

Total losses on sales(1) Stock ...................................................................................

¥2 million—¥1 million....................................................................................

US$17 thousand—

US$8 thousand

For the year ended March 31, 2002

Sales amount

Total gains on sales

Total losses on sales(1) Stock ...................................................................................

¥4 million¥— million¥— million

Kurita Water Industries Ltd. 28 Annual Report 2003

(4) The book value of major securities without available fair value at March 31, 2003 and 2002 is summarized as follows:
Thousands of
U.S. Dollars

Millions of Yen

2003

2002

2003

Unlisted stocks (excluding those traded on the over-the-counter market)....................

¥3,089¥1,102$25,742

Unlisted foreign bonds................................................................................................

—

1

—

Other securities:(5) The schedule of redemption for other securities with maturity (available-for-sale securities) and held-to-maturity debt securities at March 31,
2003 and 2002 is summarized as follows:
Thousands of
U.S. Dollars

Millions of Yen
Within 1
year

1 to 5years

5 to 10years

Over 10years

Within 1
year

1 to 5years

Corporate bonds ........................... ¥6,015¥9,500¥¥$50,125$79,167

At March 31, 2003

5 to 10years

Over 10years

Debt securities:
Other .................................................

—

—

499

—

¥

—

¥

—

4,158

Total ..................................... ¥6,515¥9,500¥—¥—$54,292

Within 1
year

1 to 5
years

$¥

—

$

—

—

¥¥

—

¥

—

$79,167

$¥

—

$

—

¥

Millions of Yen
At March 31, 2002

5 to 10years

Over 10years

Debt securities:
Corporate bonds ...........................

¥4,344¥11,116

¥

—

¥

—

Other .................................................

296

—

¥

—

¥

—

Total .....................................

¥4,640¥11,116

¥

—

¥

—

13. Inventories

Inventories at March 31, 2003 and 2002 consisted of the following:Thousands of
U.S. Dollars

Millions of Yen

Finished products .............................................................................................................

2003

2002

2003

¥1,119¥1,276$ 9,325

Raw materials...................................................................................................................

1,296

1,606

10,800Work in process ...............................................................................................................

3,884

4,820

32,367

Total ...................................................................................................................

¥6,301¥7,702$52,508

14. Short-term borrowings and long-term debt

Short-term borrowings are unsecured and represented by short-term notes. The weighted average interest rates for the years ended March 31,
2003 and 2002 were approximately 3.59% and 5.15%, respectively.
Long-term debt at March 2003 and 2002 is summarized as follows:
Millions of Yen

Loan from banks at interest rates from 3.13% to 5.20%...............................................................................

Thousands of
U.S. Dollars

2003

2002

2003

¥47

¥85

$392

Less current portion .....................................................................................................................................

(7)

(7)

(58)

Total...............................................................................................................................................

¥40

¥78

$333

Annual Report 2003 29 Kurita Water Industries Ltd.

15. Income taxes

After application of tax effect accounting for financial statement purposes for the year ended March 31, 2003, the breakdown of the principal
items causing a difference between the Japanese statutory tax rate and the Company’s effective tax rate was as follows:

Statutory tax rate .......................................................................................................................................................

2003

2002

42.0%

42.0%

(adjustments)
Entertainment expenses and other expenses not deductible ......................................................................................

1.6

2.1

Dividends received not taxable.................................................................................................................................

(0.7)

(0.9)

Per capita equalization and inhabitants’ taxes...........................................................................................................

0.9

1.0

Amortization of consolidated differences ..................................................................................................................

—

0.4

Deduction of deferred tax assets at the fiscal year-end due to change in tax rate ......................................................

0.8—

Other ........................................................................................................................................................................

0.9

0.8

Effective tax rate after application of tax effect accounting.............................................................................................

45.5%

37.3%

Note: Change in statutory effective tax rate for application of tax effect accounting.
Due to change in local tax law (enacted on March 31, 2003), the Company changed the effective tax rate used in the calculation of deferred tax assets and liabilities forthe fiscal 2003 (only for fixed assets and long-term liabilities). As a result, deferred tax assets, net of deferred tax liabilities, decreased by ¥82 million at March 31, 2003,
deferred income taxes decreased by ¥80 million for the year ended March 31, 2003, and unrealized holding losses on other securities decreased by ¥2 million for the year
ended March 31, 2003.

Significant components of the deferred tax assets and liabilities were as follows:
Thousands of
U.S. Dollars

Millions of Yen

2003

2002

2003

Excess provision for accrued employees’ retirement benefits .............................................. ¥3,428¥2,924$28,567

Deferred tax assets:
Excess provision for accrued bonuses to employees ...........................................................

735

798

6,125

Accrued enterprise taxes not deductible .............................................................................

282

—

2,350

Accrued retirement benefits for directors and corporate auditors ........................................

343

274

2,858

Loss from write-down of other securities.............................................................................

—

362

—

Excess provision of allowance for product warranty ...........................................................

288

258

2,400

Loss from write-down of marketable securities ...................................................................

297

855

2,475

Loss from planned designing expenses ...............................................................................

185

219

1,542

Unrealized gain on sales of property, plant and equipment ................................................

237

185

1,975

Excess provision for allowance for doubtful accounts.........................................................

—

179

—

Excess provision of amortization for intangible assets .........................................................

171

—

1,425

Unrealized gain on sales of an affiliated company’s stock ..................................................

150

—

1,250

Loss on write-down of golf club membership .....................................................................

146

—

1,217

Other ..................................................................................................................................

680

932

5,667

Total deferred tax assets..................................................................................................

6,947

6,993

57,892

Reserve for reduction entry of cost of fixed assets ...............................................................

(887)

(928)

(7,392)Gain on valuation of other securities ..................................................................................

—

(486)

—

(203)

(216)

(1,692)

Deferred tax liabilities:

Projected income taxes pertaining to retained earningsof overseas consolidated subsidiaries................................................................................

Total deferred tax liabilities............................................................................................. (1,090)(1,631)(9,083)

Deferred tax assets, net ................................................................................................... ¥5,857¥5,361$48,808

Kurita Water Industries Ltd. 30 Annual Report 2003

16. Retirement benefits and pension plans

1. The Company and 15 domestic consolidated subsidiaries provide lump-sum retirement benefits and qualified pension plans as defined benefit
pension plans; moreover, the Company and 4 domestic consolidated subsidiaries have both plans, and another 5 domestic consolidated subsidiaries have fully introduced qualified pension plans.
2. Benefit obligation:
Thousands of
U.S. Dollars

Millions of Yen

2003
Retirement benefit obligation ...................................................................................... ¥(22,987)

2002

2003

¥(22,160)$191,558

Fair value of pension plan assets .................................................................................

11,337

10,081

94,475

Unfunded retirement benefit obligation ......................................................................

(11,650)(12,079)(97,083)

Unrecognized net obligation at transition arising from new accounting standards ......

—

1,153

—

Unrecognized actuarial gain .......................................................................................

180

53

1,500

Unrecognized prior service cost..................................................................................

—

—

—

Net retirement benefit obligation ................................................................................

(11,469)(10,873)(95,575)

Advance payment for pension cost .............................................................................

—

—

—

Accrued employees’ retirement benefits...................................................................... ¥(11,469)¥(10,873)$ (95,575)

3. Benefit cost:Thousands of
U.S. Dollars

Millions of Yen

2003

2002

2003

Service cost......................................................................................................................... ¥1,246¥1,175$10,383

577

4,425

Interest cost.........................................................................................................................

531

Expected return on plan assets ............................................................................................

—

(65)

—

Amortization of obligation at transition arising from new accounting standards .................

1,162

1,162

9,683

Actuarial loss ......................................................................................................................

984

1,331

8,200

Prior service cost.................................................................................................................

—

137

—

Extra additional retirement payments..................................................................................

164

31

1,367

Net periodic benefit cost................................................................................................. ¥4,090¥4,349$34,083

4. Assumptions to determine above obligation and cost:

2003

2002

Periodic allocation of projected benefit obligation ........ Equal amount over each period

Equal amount over each period

Discount rate ................................................................

2.5%

2.5–3.0%

Expected return rate on plan assets ...............................

0.0%

0.0–1.0%

Amortization period of net obligation at transition ........

three years

three years

Recognition period of actuarial loss ..............................

one–two years

one–two years

Annual Report 2003 31 Kurita Water Industries Ltd.

17. Leases

1. The following pro forma amounts concern the finance leases which would have been reflected in the financial statements if finance leaseaccounting had been applied to the finance lease transactions currently accounted for as operating lease:1) Leased assets (lessee)
Thousands of
U.S. Dollars

Millions of Yen

2003

2002

2003

Acquisition costs................................................................................................................. ¥1,995¥2,615$16,625

Accumulated depreciation..................................................................................................

1,169

1,525

9,742

Net book value ............................................................................................................... ¥ 826¥1,089$ 6,883

2) Lease obligations (net book value)
Thousands of
U.S. Dollars

Millions of Yen

2003

2002

2003

Due within one year or less ................................................................................................

¥306

¥ 402

$2,550Due within more than one year ..........................................................................................

519

686

4,325

Total ...............................................................................................................................

¥826¥1,089$6,8833) Lease payments relating to finance lease transactions accounted for as operating lease
Thousands of
U.S. Dollars

Millions of Yen

2003

2002

2003

Lease payments .................................................................................................................. ¥403

¥592

$3,358(Depreciation expenses)......................................................................................................

(592)(3,358)(403)

Depreciation of the leased assets is computed by the straight-line method over the lease terms (with zero residual value).
2. Accrued lease payments relating to operating lease transactions
Thousands of
U.S. Dollars

Millions of Yen

2003

2002

2003

Due within one year or less ................................................................................................ ¥ 61

¥ 61

$ 508

Due within more than one year ..........................................................................................

82

75

683

Total ...............................................................................................................................

¥144

¥136

$1,200

Kurita Water Industries Ltd. 32 Annual Report 2003

18. Segment information

The business segment information of the Company and its consolidated subsidiaries for the years ended March 31, 2003 and 2002 is outlined asfollows:
Millions of Yen
Year ended March 31, 2003

Chemicals
division

I. Sales and operating income
Sales1) Sales to outside customers .......................................................... ¥47,116
2) Intersegment sales.......................................................................
378
Total ....................................................................................... 47,494
Operating costs and expenses......................................................... 41,000
Operating income........................................................................... ¥ 6,493
II. Assets, depreciation and capital expenditures
Assets.............................................................................................. ¥37,351
Depreciation and amortization .......................................................
1,110
Capital expenditures .......................................................................
1,167

Facilities
division

Total

Eliminationor corporate¥94,512204
94,71688,985¥ 5,730¥141,628
583
142,211
129,986¥ 12,224

¥

—
(583)
(583)
(665)
¥
82

¥141,628—
141,628
129,321¥ 12,307¥82,607
2,196
5,031

¥119,958
3,307
6,198

¥53,730——¥173,689
3,307
6,198

Eliminationor corporate

Consolidated

Consolidated

Millions of Yen
Year ended March 31, 2002

Chemicals
division

I. Sales and operating income
Sales1) Sales to outside customers .......................................................... ¥46,277
2) Intersegment sales.......................................................................
351
Total ....................................................................................... 46,628
Operating costs and expenses......................................................... 40,384
Operating income........................................................................... ¥ 6,244
II. Assets, depreciation and capital expenditures
Assets.............................................................................................. ¥38,793
Depreciation and amortization .......................................................
1,169
Capital expenditures .......................................................................
1,882

Facilities
division

Total¥96,401
337
96,73992,201¥ 4,537¥142,678
689
143,368
132,585¥ 10,782

¥

—
(689)
(689)
(697)
8

¥142,678—
142,678
131,887¥ 10,790¥79,158
2,318
2,877

¥117,951
3,487
4,760

¥54,193——¥172,145
3,487
4,760

¥

Thousands of U.S. Dollars
Year ended March 31, 2003

Chemicals
division

I. Sales and operating income
Sales1) Sales to outside customers .......................................................... $392,633
2) Intersegment sales.......................................................................
3,150
Total ....................................................................................... 395,783
Operating costs and expenses......................................................... 341,667
Operating income........................................................................... $ 54,108
II. Assets, depreciation and capital expenditures
Assets.............................................................................................. $311,258
Depreciation and amortization .......................................................
9,250
Capital expenditures .......................................................................
9,725

Facilities
division

Total

Eliminationor corporate$787,600
1,700
789,300
741,542$ 47,750$1,180,233
4,858
1,185,092
1,083,217$ 101,867$$688,392
18,30041,925$ 999,650
27,55851,650$447,750——

Consolidated— $1,180,233(4,858)—(4,858)
1,180,233(5,542)
1,077,675$
683 $ 102,558$1,447,408
27,55851,650

Annual Report 2003 33 Kurita Water Industries Ltd.

Overseas net sales:
Thousands of
U.S. Dollars

Millions of Yen
For the year ended March 31, 2003

Overseas net sales ........................................................
Consolidated net sales ..................................................
Percentage of overseas net sales toconsolidated net sales ................................................

Asia

North
America

Europe

Other

Total

Total

¥15,837
—

¥731
—

¥620
—

¥1,237—¥ 18,427
141,628$ 153,558
1,180,233

11.2%

0.5%

0.4%

0.9%

13.0%

13.0%

Notes: 1. Countries and regions are classified into segments according to geography and proximity.
2. The major countries or regions classified in each geographic segment are as follows.
Asia:
South Korea, China, Taiwan, Singapore, Indonesia, Thailand
North America: United States
Europe:Germany
Other:
Brazil3. Overseas sales refer to sales generated by the Company and its consolidated subsidiaries outside Japan.
4. Overseas sales accounted for less than 10% of consolidated sales in the fiscal year ended March 2002 and therefore have been omitted from presentation in thefinancial statements.

19. Contingent liabilities

20. Subsequent events

Guarantees for employees’ indebtedness from bank housing loans at

Appropriation of unappropriated retained earnings

March 31, 2003 and 2002 were as follows:

The following appropriations of unappropriated retained earnings forMillions of Yen

2003............................................. ¥78

2002
¥126

Thousands of
U.S. Dollars

2003
$650

the year ended March 31, 2003, were approved at the general meeting of shareholders of the Company held on June 27, 2003:
Millions of Yen

Cash dividends .................................................
Bonuses to directors and corporate auditors .....

¥1,02871

Authorized number of shares increased
Following the end of the fiscal year, after receiving approval at thegeneral meeting of shareholders held on June 27, 2003, theCompany increased the authorized number of shares to531,000,000 shares in preparation for future issues to raise capital.

Kurita Water Industries Ltd. 34 Annual Report 2003

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Board of Directors ofKurita Water Industries Ltd.

We have audited the accompanying consolidated balance sheets of Kurita Water Industries Ltd. and subsidiaries as ofMarch 31, 2003 and 2002, and the related consolidated statements of income, shareholders’ equity and cash flows for eachof the three years in the period ended March 31, 2003, expressed in Japanese yen. These consolidated financial statements
are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in Japan. Those standards require thatwe plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis forour opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Kurita Water Industries Ltd. and subsidiaries as of March 31, 2003 and 2002, and the consolidated results of their operations and their cash flows for each of the three years in the period ended March 31, 2003, inconformity with accounting principles generally accepted in Japan as described in Note 1 to the consolidated statements.
The consolidated financial statements as of and for the year ended March 31, 2003 have been translated into UnitedStates dollars solely for the convenience of the reader. We have recomputed the translation and, in our opinion, the consolidated financial statements expressed in Japanese yen have been translated into United States dollars on the basis set forth inNote 1 to the consolidated financial statements.

Tokyo, Japan
June 27, 2003

Annual Report 2003 35 Kurita Water Industries Ltd.

NON-CONSOLIDATED SUMMARY
Non-Consolidated Balance Sheets, at March 31, 2003 and 2002
Thousands of
U.S. Dollars

Millions of Yen

2003
AssetsCurrent assets .............................................................................................. ¥ 94,641
Property, plant and equipment ....................................................................
31,110Intangible assets ..........................................................................................
2,413
Investments and other assets........................................................................
29,722.................................................................................................................... ¥157,888....................................................................................................................
Liabilities
Current liabilities ......................................................................................... ¥ 36,121
Long-term liabilities.....................................................................................
11,13147,252
Shareholders’ equity
Common stock ............................................................................................
13,450Additional paid-in capital............................................................................
11,398Retained earnings ........................................................................................
90,753
Unrealized gains on revaluation of land ......................................................
20
Unrealized holding (losses) gains on other securities...................................
(100)
Treasury stock, at cost .................................................................................
(4,885).................................................................................................................... 110,636
Total liabilities and shareholders’ equity .......................................................... ¥157,888

2002

2003

¥ 93,891
29,1982,025
32,029¥157,145$ 788,675
259,250
20,108247,683$1,315,733¥ 35,692
10,412
46,105$ 301,008
92,758393,767

13,450
11,39886,82919
169(827)
111,039¥157,145

112,083
94,983756,275
167(833)(40,708)
921,967$1,315,733

Non-Consolidated Statements of Income, for the Years Ended March 31, 2003, 2002 and 2001
Thousands of
U.S. Dollars

Millions of Yen

2003
Net sales ............................................................................... ¥114,115
Cost of sales ..........................................................................
81,839Gross profit.......................................................................
32,276

2002

2001

2003

¥117,518
84,73132,787¥129,698
92,98636,712$950,958
681,992
268,967

Selling, general and administrative expenses.........................
Operating income ............................................................

23,741
8,535

25,532
7,255

24,69912,013

197,842
71,125Non-operating income ..........................................................
Non-operating expenses........................................................
Income before income taxes ............................................

2,630
2,327
8,838

3,181
4,005
6,431

2,259
2,644
11,62821,917
19,39273,650

Corporate, inhabitants’ and enterprise taxes ..........................
3,388
Net income ...................................................................... ¥ 5,450

2,089¥ 4,341

4,858¥ 6,770

28,233$ 45,417

Kurita Water Industries Ltd. 36 Annual Report 2003

SUBSIDIARIES
Major Consolidated Subsidiaries and Affiliates
Company NameOVERSEAS
North America • South America
Kurita do Brasil Ltda.

Paid-in
EquityCapital (Millions) Ownership (%)

Main Business

R$8.9

100.0

Manufacture and Sales of Water Treatment Chemicals

US$3.0100.0

Facility Operation

M.N. PESO8.1

45.0

Manufacture and Sales of Water Treatment Chemicals

DM4.5

80.0

Manufacture and Sales of Water Treatment Chemicals

DM1.9

100.0

Facility Operation

S$4.0

100.0

Av. Eng. Eusebio Stevaux 1469, CEP 04696, Santo Amaro,
São Paulo, Brazil
Telephone: 55 (11) 5686-8388 Facsimile: 55 (11) 5686-6365

Kurita America Inc.
1313 Valwood Parkway, Suite 370 Carrollton, TX 75006, U.S.A
Telephone: 1 (972) 484-4438 Facsimile: 1 (972) 484-4445

Kurita de Mexico S.A. de C.V.
Calle #1 No. 191, Parque Industrial Jurica, Querétaro,
C.P. 76100, Mexico
Telephone: 52 (42) 185911 Facsimile: 52 (42) 181177

EuropeKurita Europe GmbH
Industriepark Mackenstein, Industriering 43,
D-41751 Viersen, Germany
Telephone: 49 (2162) 95800 Facsimile: 49 (2162) 40159

Kuritec Europe GmbH
Neiderlassurg Landshut Rebenring 11, D-84032 Altdorf, Germany
Telephone: 49 (871) 684277 Facsimile: 49 (871) 35827

Asia
Kurita (Singapore) Pte. Ltd.
30 Joo Koon Road, Singapore 628984
Telephone: 65 (6861) 2622 Facsimile: 65 (6861) 3036

Kurita Water (Malaysia) Sdn. Bhd.

M$0.6

83.3

21 Jalan Brp 1/3, Bukit Rahman Putra, 47000 Sungei Buloh,
Selangor, Darul Ehsan, Malaysia
Telephone: 60 (3) 6157-3166 Facsimile: 60 (3) 6157-2892

Peremba-Kurita Sdn. Bhd.

Manufacture and Sales of Water Treatment Chemicals and Water
Treatment Facilities

Sales of Water Treatment Chemicals and Water Treatment
Facilities

M$1.3

30.0

Sales of Water Treatment Chemicals

¥550

80.0

Manufacture and Sales of Water Treatment Chemicals

NT$20

95.0

Manufacture and Sales of Water Treatment Chemicals

US$2.0

90.0

Manufacture and Sales of Water Treatment Chemicals

BAHT56

60.0

Manufacture and Sales of Water Treatment Chemicals

W2,50033.2

Manufacture and Sales of Water Treatment Chemicals

W400

59.4

Sales of Water Treatment Facilities

¥30

100.0

15A Jalan Brp 1/3, Bukit Rahman Putra, 47000 Sungei Buloh,
Selangor, Darul Ehsan, Malaysia
Telephone: 60 (3) 6157-0551 Facsimile: 60 (3) 6157-0562

Kurita Water Industries (Dalian) Co., Ltd.
33-27, Dalian Industrial Park, Dalian Economic & TechnicalDevelopment Zone, Liaoning, People’s Republic of China
Telephone: 86 (411) 761-3520 Facsimile: 86 (411) 761-3435

Kurita (Taiwan) Co., Ltd.
10F-6, No. 150, Fu Hsing North Road, Taipei, Taiwan
Telephone: 886 (2) 2717-4464 Facsimile: 886 (2) 2719-0292

P.T. Kurita Indonesia
Jl. Jababeka XIIA Kav. V-6, Kawasan Industri Jababeka,
Cikarang-Bekasi 17530, Jawa Barat, Indonesia
Telephone: 62 (21) 893-6245 Facsimile: 62 (21) 893-5158

Kurita-GK Chemical Co., Ltd.
460 Moo 17, Bangphli Industrial Estate, Bangsaothong,Bangsaothong Subdistrict, Samutprakarn 10540, Thailand
Telephone: 66 (2) 315-2300 Facsimile: 66 (2) 315-2301

HANSU Ltd.
741-5 Wonsi-dong, Ausan, Kyonggi Province,
Republic of Korea
Telephone: 82 (31) 492-7800 Facsimile: 82 (31) 491-7643

HANSU Technical Service Ltd.
C-802 Bundang Techno-park 145, Yatap-dong Bundang-gu,
Sungnam-city, Kyunggi-do, Republic of Korea
Telephone: 82 (2) 421-3301 Facsimile: 82 (2) 421-3304

Kuritec (Shanghai) Co., Ltd.
Room 2202, No. 1289 Pudong South Road,
Pudong New District, Shanghai, People’s Republic of China
Telephone: 80 (21) 5887-4337 Facsimile: 86 (21) 5887-4339

Kuritec Singapore Pte. Ltd.

Maintenance Services and Sales of Small Water Treatment
Facilities

S$1.49100.0

Sales of Ultrapure Water for Specified Customers

¥ 70
¥160
¥220
¥160
¥ 50
¥450

100.0
100.0
100.0
100.0
100.0
51.0

Manufacture of Water Treatment Chemicals
Chemical Cleaning and Precision Cleaning
Facility Operation
Manufacture and Sales of Purifiers
Precision Cleaning
Real Estate Transactions and Soil Remediation Consulting

10-Tampines Industrial Avenue 3,
Singapore 528798 c/o AFPD Pte., Ltd.
Telephone: 65 (6587) 6186 Facsimile: 65 (6424) 9100

DOMESTIC CONSOLIDATED SUBSIDIARIES
Kurita Kasei Co., Ltd.
Kurita Engineering Co., Ltd.
Kuritaz Co., Ltd.
Kurita Creation Co., Ltd.
Kuritec Service Co. Ltd.
Land Solution Inc.

(As of June 30, 2003)

Annual Report 2003 37 Kurita Water Industries Ltd.

BOARD OF DIRECTORS AND CORPORATE AUDITORS/CORPORATE DATA

Board of Directors
and Corporate Auditors

Corporate Data
(As of March 31, 2003)(As of June 30, 2003)

Chairman

COMPANY NAME

Takahide Santo

Kurita Water Industries Ltd.

DOMESTIC OFFICES
Head Office:President

ADDRESS

4-7, Nishi-Shinjuku 3-chome,

Hiroshi Fujino

4-7, Nishi-Shinjuku 3-chome,

Shinjuku-ku, Tokyo 160-8383

Shinjuku-ku, Tokyo 160-8383,

Telephone: 81 (3) 3347-3111

Executive Senior Managing Director

Japan
Osaka Office:Toyoaki Inoue
Managing Directors

DATE OF ESTABLISHMENT

2-22, Kitahama 2-chome, Chuo-ku,

July 13, 1949

Osaka 541-0041

Sumio Miyake

Telephone: 81 (6) 6228-4800

Takuo Ishida

PAID-IN CAPITAL

Hiroshi Nakamura¥13,450,751,434

Corporate Research & Development
Center:NUMBER OF EMPLOYEES

7-1, Morinosato Wakamiya, Atsugi,

3,346 (Consolidated)

Kanagawa 243-0124

Hiroshi Saitou
Directors
Toshiyuki Hisamatsu

Telephone: 81 (46) 270-2111

Kazuyoshi Yoshitomi
Toshiaki Deguchi

Business & Technology Development
Center:Kazufumi Moriuchi

1-1, Gochoyama, Kawada, Nogi-cho,

Yoshinobu Watanabe

Shimotsuga-gun, Tochigi 329-0105

Mitsuru Ogawa

Telephone: 81 (280) 54-1511

Tohru Kawachi

Toru Matsushima
Branches:
Corporate Auditors

Sapporo, Sendai, Nagoya, Hiroshima,

Mitsunobu Hattori

Takamatsu, Fukuoka

Masahiko Kurita
Hisashi Nemoto
Kazuma YuraOVERSEAS OFFICES
Singapore Branch:
30 Joo Koon Rd., Singapore 628984
Telephone: 65 (6861) 2622
Taiwan Representative Office:4th Fl., 350, Section 2, Kuang-Fu Rd.,
Hsinchu, Taiwan
Telephone: 886 (3) 573-6251

Kurita Water Industries Ltd. 38 Annual Report 2003

(As of March 31, 2003)

INVESTORINFORMATIONSTOCK EXCHANGE LISTINGSTokyo, Osaka

INDEPENDENT AUDITOR
Taiyo Audit Corporation
8F, Akasaka Oji Bldg., 1-22, Akasaka 8-chome, Minato-ku,
Tokyo 107-0052, JapanCOMMON STOCK
Authorized: 235,840,000 shares
Issued:132,800,256 shares(Stock trading unit changed from 1,000 shares to 100 shares,
effective July 1, 2002)

NUMBER OF SHAREHOLDERS
11,639TRANSFER AGENTThe Chuo Mitsui Trust and Banking Co., Ltd.
33-1, Shiba 3-chome, Minato-ku,
Tokyo 105-8574, Japan

MAIN SHAREHOLDERS
Shareholdings
Itochu Corporation
10,268,000
Nippon Life Insurance Company
7,365,083
Northern Trust Company (AVFC) Sub Account American Client 6,136,800
UFJ Bank Limited
5,872,131
Resona Bank, Limited
5,668,623
The Chase Manhattan Bank N.A. London
4,980,621
Sumitomo Mitsui Banking Corporation
4,672,701
The Tokyo Marine and Fire Insurance Co., Ltd.
4,461,526
Kurita Water Industries Ltd.
4,213,867
The Master Trust Bank of Japan, Ltd. (Trust account)
3,692,300

Percentage of
total shares issued

7.7%
5.5%
4.6%
4.4%
4.3%
3.75%
3.5%
3.4%
3.2%
2.8%

DISTRIBUTION OF SHAREHOLDERS AND SHARES
Foreign Investors
235 (2.0%)

Financial Institutions
107 (0.9%)

Domestic Corporations
324 (2.8%)

Securities Companies
1,593,281 Shares (1.2%)

Individuals and Others
19,541,803 Shares (14.7%)

Securities Companies
41 (0.35%)
Domestic Corporations
16,903,592 Shares (12.7%)

Individuals and Others
10,932 (93.9%)

Financial Institutions
57,790,771 Shares(43.5%)

Foreign Investors
36,970,809 Shares(27.9%)

Number of Shares Issued
132,800,256 shares (100%)

Number of Shareholders
11,639 (100%)

STOCK PRICE RANGE
(¥)
2,000
1,730 1,748

1,500

1,610

1,587
1,434

1,450
1,487

1,349

1,340

1,430 1,414

1,204 1,214
1,143 1,179

1,295

1,000
1,021

999

1,030

1,070

1,090 1,073 1,081

1,169
1,117

1,032 1,016 1,011 1,001 1,018500

0Apr. ’02 May ’02 June ’02 July ’02 Aug. ’02 Sept. ’02 Oct. ’02 Nov. ’02 Dec. ’02 Jan. ’03 Feb. ’03 Mar. ’03 Apr. ’03 May ’03 June ’03

Annual Report 2003 39 Kurita Water Industries Ltd.

ADDRESS:

4-7, Nishi-Shinjuku 3-chome,
Shinjuku-ku, Tokyo 160-8383, JapanTELEPHONE: 81(3)3347-3111
HOME PAGE: http://www.kurita.co.jp

Printed on recycled paper and nonwood paper
Printed in Japan